<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 14, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
ESCHELON TELECOM, INC.
(FORMERLY ADVANCED TELECOMMUNICATIONS, INC.)
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 41-1843131
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
730 SECOND AVENUE, SUITE 1200
MINNEAPOLIS, MINNESOTA 55402
(612) 376-4400
(Address, including zip code, and telephone number, including area code
of registrant's principal executive offices)
--------------------------
CLIFFORD D. WILLIAMS
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
ESCHELON TELECOM, INC.
730 SECOND AVENUE, SUITE 1200
MINNEAPOLIS, MINNESOTA 55402
(612) 376-4400
(Name, address, including zip code and telephone number,
including area code of agent for service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
EDWIN M. MARTIN, JR., ESQUIRE JOHN D. WATSON, JR., ESQUIRE
THOMAS L. HANLEY, ESQUIRE LATHAM & WATKINS
PIPER MARBURY RUDNICK & WOLFE LLP 1001 PENNSYLVANIA AVENUE
1200 19(TH) STREET, NW SUITE 1300
WASHINGTON, DC 20036 WASHINGTON, DC 20004
(202) 861-3900 (202) 637-2200
</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, as
amended (the "Securities Act") 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, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / _________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSEDMAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.01 per share...................... $172,500,000 $45,540
</TABLE>
(1) Includes shares of common stock which may be purchased by the underwriters
to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o) under the Securities Act.
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, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 14, 2000.
Shares
[LOGO]
Common Stock
-----------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our
common stock on The Nasdaq Stock Market's National Market under the symbol
"ESCH".
The underwriters have an option to purchase a maximum of additional
shares of common stock to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page
.
<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Eschelon
Public Commissions Telecom, 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
Bear, Stearns & Co. Inc.
J.P. Morgan & Co.
Banc of America Securities LLC
The date of this prospectus is , 2000.
<PAGE>
[INSIDE FRONT COVER PAGE]
DESCRIPTION OF GRAPHICS ON THE INSIDE FRONT GATEFOLD TO BE
SUPPLIED BY AMENDMENT.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
SUMMARY............................... 1
RISK FACTORS.......................... 6
USE OF PROCEEDS....................... 19
DIVIDEND POLICY....................... 19
CAPITALIZATION........................ 20
DILUTION.............................. 21
SELECTED CONSOLIDATED FINANCIAL AND
OTHER DATA.......................... 22
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS....................... 26
BUSINESS.............................. 34
GOVERNMENT REGULATION................. 51
MANAGEMENT............................ 60
</TABLE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
RELATED PARTY TRANSACTIONS............ 69
DESCRIPTION OF INDEBTEDNESS........... 72
PRINCIPAL STOCKHOLDERS................ 73
DESCRIPTION OF CAPITAL STOCK.......... 75
SHARES ELIGIBLE FOR FUTURE SALE....... 79
CERTAIN UNITED STATES FEDERAL TAX
CONSIDERATIONS TO NON-U.S.
HOLDERS............................. 80
UNDERWRITING.......................... 83
NOTICE TO CANADIAN RESIDENTS.......... 85
VALIDITY OF THE SHARES................ 87
EXPERTS............................... 87
ADDITIONAL INFORMATION................ 87
INDEX TO FINANCIAL STATEMENTS......... F1
</TABLE>
------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS
DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL TO SELL THESE SECURITIES. THE
INFORMATION CONTAINED IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF THIS
DOCUMENT.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE 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 A DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS AN
UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION REGARDING US AND OUR COMMON STOCK BEING SOLD IN THIS OFFERING AND
OUR CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE STATEMENTS
APPEARING ELSEWHERE IN THIS PROSPECTUS.
We are a rapidly growing integrated communications provider offering
facilities-based broadband voice and data services to small and medium-sized
business customers in select markets within the western United States. Our
single source approach integrates local telephone, long distance and data
services, including digital subscriber lines or DSL, high speed Internet access,
private lines web hosting and virtual private network services. We complement
our voice and data services with business telephone systems sales that allow us
to market, sell, install, service, bill and account for a complete product and
service set. For the quarter ended March 31, 2000, we generated $25.2 million in
annualized voice and data services revenue and $24.2 million in annualized
business telephone systems revenue. As of March 31, 2000, we were serving over
6,500 voice and data services customers representing over 38,000 access lines in
service.
We are deploying a technologically advanced telecommunications network with
the flexibility to meet the current and future needs of our customers. Our
network incorporates leading technology including high capacity Nortel voice and
asynchronous transfer mode, or ATM, switches and colocation equipment capable of
integrating voice and data traffic over the same access line. Our network will
allow us to serve customers using voice-over DSL and, with incremental network
expansion, voice-over Internet protocol, or IP. Recently we acquired
Fishnet.com, an Internet service provider, which will accelerate our deployment
of advanced data services, including the hosting of applications services over
our network.
We have a phased deployment strategy beginning with four of the largest
markets in the western United States. We currently have deployed two voice
switches, two advanced data switches and 17 colocations in Minneapolis, St. Paul
and Portland. By the end of 2000, we expect to have deployed four additional
voice switches, five additional advanced data switches and 106 additional
colocations in eight new markets, including Seattle, Denver, Phoenix and Salt
Lake City. By the end of 2001, we plan to have deployed a total of 12 voice
switches, 13 advanced data switches and 191 colocations in 26 markets throughout
the western United States. In addition, in our largest markets we plan to deploy
our own intra-city fiber optic network that will connect many of the central
offices where we are colocated. We also plan to interconnect our markets using
an ATM backbone consisting of our own switches and leased or purchased long-haul
transport capacity.
We also sell business telephone systems to address our customers' needs for
telecommunications hardware. By offering these systems, we create a strong
relationship with our customers and a detailed understanding of their current
and future telecommunications requirements, enhancing our ability to cross-sell
our products and services. Since our inception in 1996, we have acquired four
business telephone systems companies serving six of our initial markets. These
acquisitions have allowed us to establish our market presence more rapidly and
build on an existing customer base and sales and service infrastructure. We
intend to continue acquiring business telephone systems companies as we enter
additional markets to accelerate our customer penetration and growth. As of
March 31, 2000, we were serving over 7,000 business telephone systems customers
representing an estimated 80,000 access lines, which we intend to target for
sales of voice and data services over our network.
We have assembled a team of experienced telecommunications senior
executives. Our top 15 officers have a combined total of 224 years of industry
experience. Our founder, Chairman and Chief Executive Officer, Cliff Williams,
has 29 years of industry experience including as President and Chief Executive
Officer of Enhanced Telemanagement, an integrated communications provider to
small and medium-sized businesses that was acquired by Frontier in 1995. Our
President and Chief Operating Officer, Richard Smith, has 28 years of experience
managing telecommunications businesses, including
1
<PAGE>
overseeing the local telephone service operations of Frontier and Rochester
Telephone. These executives are supported by almost 600 employees and 25 key
management and operational personnel who have held positions at major
telecommunications companies, including AT&T, Frontier, Global Crossing,
WorldCom, MFS, Logix and US WEST.
To fund our phased growth strategy, we have raised a total of $76.0 million
in cash equity capital from investors, including affiliates of Bain Capital,
Stolberg Equity Partners, JP Morgan, GE Capital and FleetBoston. Of this amount,
senior management has invested approximately $3.6 million. We also have a
$65.0 million credit facility led by GE Capital, and we expect to receive
commitments to increase this facility by an additional $70.0 million. Other
lenders in this facility include affiliates of Firstar, FleetBoston, JP Morgan
and Coast Development Credit.
BUSINESS STRATEGY
The key elements of our business strategy are to:
- focus on underserved small and medium-sized business customers in select
western United States markets;
- deploy a flexible, technologically advanced network in a capital-efficient
manner;
- provide a complete telecommunications solution at a competitive price with
superior customer service;
- capitalize on business telephone systems sales to drive revenue growth and
maintain customer loyalty;
- employ team sales approach to cross-sell multiple products and services;
and
- leverage our network to expand advanced data and IP service offerings.
2
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered................................. shares
Common stock to be outstanding after this offering... shares
Use of proceeds...................................... To fund capital expenditures for the
deployment of our network, to fund operating
losses in connection with the expansion of our
business and for working capital and other
general corporate purposes.
Proposed Nasdaq National Market symbol............... ESCH
</TABLE>
The number of shares of common stock that will be outstanding after this
offering is based on 2,826,897 shares of common stock outstanding as of
April 14, 2000, plus:
- shares of common stock to be sold by us in this offering; and
- 21,245,692 shares of common stock to be issued at the completion of this
offering upon the automatic conversion of all of the currently outstanding
shares of our convertible preferred stock.
The number of shares of common stock that will be outstanding after this
offering excludes:
- shares of common stock issuable pursuant to the underwriters'
over-allotment option;
- 4,400,000 shares of common stock issuable upon the exercise of outstanding
options at a weighted average exercise price of $ as of
;
- shares of common stock reserved for issuance in connection with
future grants under our stock option plan; and
- 440,500 shares of common stock issuable upon exercise of outstanding
warrants with a weighted average exercise price of $0.01 per share.
Warrants Covering 214,250 of these Shares of Common Stock will be canceled
upon completion of this offering.
------------------------
We are a Delaware corporation with principal offices at 730 2nd Avenue,
Minneapolis, Minnesota 55402. In April 2000, we changed our name from Advanced
Telecommunications, Inc. to Eschelon Telecom, Inc. Our telephone number is
(612) 376-4400, and our website address is www.eschelon.com (formerly
www.aticomm.com). Information on our website does not constitute part of this
prospectus.
3
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following table presents our summary consolidated financial and other
data for the periods indicated. This data should be read together with our
consolidated financial statements and related notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" presented
elsewhere in this prospectus.
EBITDA consists of net income (loss) excluding net interest, taxes and
depreciation and amortization (including amortization of deferred compensation).
EBITDA is provided because it is a measure of financial performance commonly
used as an indicator of a company's historical ability to service debt.
Management believes that an increase in EBITDA is an indicator of improved
ability to service existing debt, to sustain potential future increase in debt
and to satisfy capital requirements. We have presented EBITDA to enhance your
understanding of our operating results. You should not construe it as an
alternative to operating income as an indicator of operating performance nor as
an alternative to cash flows from operating activities as a measure of liquidity
determined in accordance with GAAP. We may calculate EBITDA differently than
other companies. For further information, see our financial statements and
related notes elsewhere in this prospectus.
The pro forma net loss per share data presented below gives effect to the
automatic conversion of all of our convertible preferred stock into common stock
as if the conversion occurred at the beginning of the respective period. The pro
forma balance sheet data gives effect to the sales of our capital stock since
December 31, 1999. The pro forma as adjusted balance sheet data gives effect to
these sales as well as to the automatic conversion of our convertible preferred
stock into common stock, the automatic termination of the put right on warrants
held by one of our lenders and the issuance and sale of shares of
common stock in this offering as if these transactions occurred on December 31,
1999.
<TABLE>
<CAPTION>
ESCHELON TELECOM, INC.
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA AND OPERATING DATA)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Voice and data services................................... $ 2,420 $ 9,885 $ 18,725
Business telephone systems................................ 16,367 18,624 22,991
------- ------- --------
Total revenue............................................... 18,787 28,509 41,716
Gross profit................................................ 8,823 10,532 14,750
Operating loss.............................................. (2,959) (5,899) (9,372)
Net loss.................................................... (3,321) (7,015) (10,982)
Net loss applicable to common stockholders.................. (3,321) (7,015) (12,256)
Net loss per share applicable
to common stockholders--
basic and diluted......................................... (3.68) (5.50) (6.18)
Pro forma net loss per
share-basic and diluted................................... (0.99)
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ESCHELON TELECOM, INC.
---------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA AND OPERATING DATA)
<S> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures........................................ $ 1,530 $ 604 $ 18,256
Cash flows provided by (used in) operating activities....... (2,395) (6,133) (7,610)
Cash flows provided by (used in) investing activities....... (2,795) (1,575) (17,090)
Cash flows provided by (used in) financing activities....... 7,907 5,636 58,159
EBITDA...................................................... (2,021) (4,613) (7,529)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------ MARCH 31,
1997 1998 1999 2000
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
OPERATING DATA:
Voice access lines in service(1).......................... 6,983 20,099 30,288 36,227
Data access line equivalents in service(1)(2)............. -- -- -- 1,826
------- ------- -------- --------
Total access lines in service........................... 6,983 20,099 30,288 38,053
Colocations installed..................................... -- -- -- 17
Markets in operation...................................... 6 7 7 7
Voice switches in service................................. -- -- 1 2
Data switches in service.................................. -- -- -- 2
Total employees........................................... 225 289 441 590
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------
PRO
FORMA
PRO AS
ACTUAL FORMA ADJUSTED
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $34,473 $47,662 $
Property and equipment, net................................. 19,801 19,801 19,801
Working capital............................................. 35,750 48,939
Total assets................................................ 77,277 90,466
Capital lease obligations and notes payable, including
current portion........................................... 25,355 25,355 25,355
Total stockholders' equity.................................. 41,539 54,728
</TABLE>
- ------------------------
(1) Each access line and access line equivalent is equal to one 64 kilobit
customer line.
(2) Does not include approximately 1,400 lines for dial-up Internet access
customers. We also do not include these customers in the total number of our
voice and data services customers presented elsewhere in this prospectus.
5
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISKS AND UNCERTAINTIES AS WELL
AS THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS BEFORE INVESTING IN SHARES
OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, OUR BUSINESS
COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF THE COMMON STOCK
COULD DECLINE AND YOU MIGHT LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO
REFER TO THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING THE
FINANCIAL STATEMENTS AND THE RELATED NOTES.
RISKS RELATED TO OUR BUSINESS
OUR LIMITED OPERATING HISTORY IN PROVIDING FACILITIES-BASED
TELECOMMUNICATIONS SERVICES MAKES PREDICTING OUR FUTURE PERFORMANCE
DIFFICULT.
In March 2000, we began operating as a facilities-based integrated
communications provider and for the first time began offering telecommunications
services over our own network. Prior to that, we provided voice and data
services only through the use of networks of other integrated communications
providers. As a result of our limited operating history as a facilities-based
integrated communications provider, you have limited operating and financial
data on which you can predict our future performance and base your investment
decision. We cannot assure you that we can successfully operate as a
facilities-based integrated communications provider.
WE HAVE A HISTORY OF OPERATING LOSSES, AND WE MAY NOT BE PROFITABLE IN THE
FUTURE.
We have incurred significant operating and net losses in the past and expect
to continue to incur losses in the future as we deploy our network, expand our
service offerings and enter new markets. For the year ended December 31, 1999,
we had an operating loss of $9.4 million and a net loss of $11.0 million. As of
December 31, 1999, we also had an accumulated deficit of $21.7 million. As we
expand our network, we expect our negative cash flow, operating losses and net
losses to continue for the foreseeable future. We cannot assure you that our
revenues will grow or that we will achieve profitability in the future. If we
continue to generate losses without obtaining additional funding, our ability to
pursue our business strategy may be restricted.
THE LEVEL OF OUR OUTSTANDING DEBT MAY EXCEED THE LEVEL OF OUR REVENUE AND
STOCKHOLDERS' EQUITY, WHICH COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH AND
PREVENT US FROM FULFILLING OUR FINANCIAL OBLIGATIONS.
As of December 31, 1999, we had $23.2 million of outstanding debt and the
capacity to borrow an additional $42.6 million under our existing credit
facilities. We are obtaining commitments to increase our borrowing capacity by
an additional $70.0 million. We anticipate incurring substantial additional
indebtedness to finance the deployment of our network and our entry into new
markets. Our substantial indebtedness could significantly affect our business
and our ability to fulfill our financial obligations. For example, a high level
of indebtedness could:
- make it more difficult for us to satisfy our current and future debt
obligations;
- limit our ability to borrow additional funds or obtain other forms of
financing;
- increase our vulnerability to general adverse economic and industry
conditions;
- limit our ability to fund working capital, capital expenditures and other
general corporate requirements out of future operating cash flows or
additional debt or equity financing;
- limit our flexibility in planning for, or reacting to, changes in our
business or our industry;
- place us at a disadvantage to competitors with less debt; and
- make us vulnerable to interest rate fluctuations because a material
portion of our indebtedness bears interest at variable rates.
6
<PAGE>
OUR EXISTING CREDIT FACILITY INCLUDES RESTRICTIVE AND FINANCIAL COVENANTS
THAT LIMIT OUR OPERATING FLEXIBILITY.
Our existing credit facility contains covenants that, among other things,
restrict our ability to take specific actions, even if we believe them to be in
our best interest. These include restrictions on our ability to:
- incur additional debt;
- pay dividends or distributions on, or redeem or repurchase, capital stock;
- create liens with respect to our assets;
- make investments, loans or advances;
- amend, restate or modify our certificate of incorporation or by-laws;
- prepay specified indebtedness;
- enter into transactions with affiliates;
- merge, consolidate, reorganize or sell our assets; and
- engage in any business other than activities related or complementary to
telecommunications.
In addition, our credit facility imposes financial covenants that require us
to comply with specified financial ratios and tests, including minimum quarterly
revenues, minimum quarterly EBITDA, maximum quarterly EBITDA losses, senior debt
to total capitalization, maximum capital expenditures, maximum leverage ratios
and minimum interest coverage ratios. We cannot assure you that we will be able
to meet these requirements or satisfy these covenants in the future. If we fail
to do so, our debts could become immediately payable at a time when we are
unable to pay them. This could adversely affect our ability to carry out our
business plan and would have a negative effect on our financial condition.
WE MAY NOT BE ABLE TO OBTAIN SIGNIFICANT ADDITIONAL FUNDS, WHICH COULD DELAY
OUR NETWORK DEPLOYMENT OR PREVENT US FROM EXPANDING OUR BUSINESS.
In order to develop and expand our business, we will need to make
significant capital expenditures and fund our anticipated operating losses and
debt service requirements. Although we believe the proceeds from this offering,
together with our cash resources on hand and funds available under our credit
facilities, will fund the initial phases of our network deployment and our other
activities, we anticipate that we will need additional funding for future
capital expenditures and other purposes, including:
- continuing to deploy our network;
- entering new markets;
- offering new telecommunications services;
- paying scheduled principal and interest payments on our outstanding
indebtedness;
- refinancing existing debt;
- financing acquisitions and strategic alliances; and
- financing operating losses.
The actual amount and timing of our future capital requirements may differ
from our current estimates. Competitive developments, changes in technology,
changes in the regulatory environment and other events may cause us to alter the
currently estimated timing and amount of our expenditures.
7
<PAGE>
These and other factors may also cause our actual revenues and costs to differ
from what we currently anticipate, which could affect the timing and amount of
our additional financing needs.
Sources of additional financing may include the private or public sale of
equity or debt securities, commercial bank debt financing, vendor financing or
lease financing. If we raise additional funds through the issuance of equity,
existing stockholders will experience dilution of their ownership interests
represented by their shares of common stock. If we meet our funding needs
through debt financing, our interest and debt service obligations will increase,
and we may become subject to restrictive covenants that could impair our ability
to implement our business plan. We cannot assure you that any additional
financing we may need will be available to us on favorable terms or at all. If
we do not obtain needed financing, our ability to implement our business plan
will be impaired.
DEPLOYMENT OF OUR NETWORK COULD INCREASE OUR ESTIMATED COSTS AND DELAY
SCHEDULED COMPLETION.
The deployment of our network is a significant undertaking. This will
require that we install and operate additional facilities, switches and related
equipment and develop, introduce and market new products and services, including
data services. In addition, the deployment of additional data services may
require modifications to our network architecture. The development and expansion
of some of our data services offerings will also require us to obtain and
install our equipment in the incumbent telephone companies' central office
colocation space. Administrative, technical, operational, regulatory and other
problems that could arise may be more difficult to address and solve due to the
scope and complexity of our planned expansion. We are also dependent on timely
performance by third party suppliers and contractors, particularly Nortel. Many
of these factors and problems are beyond our control. As a result, our network
deployment may not be completed as planned or for the costs and in the time
frame that we currently estimate. We may be materially adversely affected as a
result of any significant increase in the estimated cost of the network
deployment or any significant delay in its anticipated completion.
OUR RECENT NAME CHANGE COULD CAUSE US TO LOSE CUSTOMERS.
In April 2000, we changed our name to Eschelon Telecom. Prior to that we
operated under a holding company named Advanced Telecommunications and operating
subsidiaries named Cady Communications, American Telephone Technology,
Electrotel and Intellecom. While we believe that we have created an excellent
reputation and achieved name recognition for each of our operating subsidiaries
over the last four years of operations as an integrated communications provider,
we cannot assure you that we will be able to transfer that reputation and name
recognition to our new name. If we are unable to do so, we may lose customer
confidence and ultimately lose customers.
THE TELECOMMUNICATIONS MARKET IN WHICH WE OPERATE IS HIGHLY COMPETITIVE, AND
WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY AGAINST COMPANIES THAT HAVE
SIGNIFICANTLY GREATER RESOURCES THAN WE DO, WHICH COULD CAUSE US TO LOSE
CUSTOMERS AND IMPEDE OUR ABILITY TO ATTRACT NEW CUSTOMERS.
The telecommunications industry is highly competitive and is affected by the
introduction of new services by, and the market activities of, major industry
participants. US WEST, GTE, Nevada Bell and our other current competitors are
substantially larger and have greater financial, technical and marketing
resources than we do. We have not achieved, and do not expect to achieve, a
significant market share for any of the broadband telecommunications services we
offer. In particular, US WEST, GTE, Nevada Bell, AT&T, Worldcom and other large
competitors have the following advantages over us:
- long-standing relationships and brand recognition with customers;
- financial, technical, marketing, personnel and other resources
substantially greater than ours;
8
<PAGE>
- more funds to deploy telecommunications services;
- potential to lower prices of competitive telecommunications services that
compete with ours;
- fully deployed and operational networks; and
- benefits from existing regulations that favor the incumbent telephone
companies.
We face, and expect to continue to face, competition from current and
potential market entrants, including:
- long distance providers seeking to enter, re-enter or expand entry into
the local telecommunications marketplace; and
- other domestic and international broadband integrated communications
providers, resellers, Internet companies, cable television companies and
electric utilities and municipalities, which are using their rights-of-way
and other assets to enter the telecommunications services market.
In addition, a continuing trend toward combinations and strategic alliances
in the telecommunications industry could give rise to significant new
competitors, which could cause us to lose customers and impede our ability to
attract new customers.
RESISTANCE BY POTENTIAL CUSTOMERS TO ENTER INTO SERVICE ARRANGEMENTS WITH US
MAY REDUCE OUR ABILITY TO INCREASE OUR REVENUE.
The success of our telecommunications service offerings will be dependent
upon, among other things, the willingness of customers to accept us as a new
provider of broadband voice and data services. Many of our potential customers
have entered into term contracts with incumbent telephone providers that have
penalties for early termination, which our potential customers may not want to
incur. In addition, potential customers may not want to change their existing
service providers for a variety of reasons such as:
- longstanding service relationships with existing providers;
- potential service interruptions in switching to a new provider; and
- existing providers having financial, technical, marketing and other
resources that are substantially greater than ours.
We cannot assure you that we will be successful in overcoming the resistance
of customers to change their current integrated communications providers,
particularly those that purchase services from incumbent telephone companies.
The lack of such success would reduce our ability to increase our revenue.
OUR CURRENT CUSTOMERS MAY BE RELUCTANT TO CHANGE TO OUR NEW FACILITIES-BASED
OPERATIONS, WHICH MAY IMPEDE OUR ABILITY TO IMPLEMENT OUR BUSINESS PLAN.
We are deploying a technologically advanced network comprised of our own
data and telephone switches as part of our business plan to transition our
current customers from resale services to our new integrated communications
service offerings. Our current customers may decide not to purchase our new
service offerings because of, among other things, a lack of familiarity with our
new name and potential technological challenges in using a newly-deployed
network, which would impede our ability to implement a key component of our
business plan. Even if our customers agree to transition to our network, we may
experience difficulty in migrating those customers and they may experience
difficulty in using our services, which could cause them to change providers. In
addition, we may not be able to migrate our customers onto our network as
quickly or efficiently as we expect, which could impair our operating results.
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IF OUR BACK OFFICE AND CUSTOMER SERVICE SYSTEMS ARE UNABLE TO MEET OUR
NEEDS, WE MAY NOT BE ABLE TO BILL OUR CUSTOMERS EFFICIENTLY OR PROVIDE AN
ADEQUATE LEVEL OF CUSTOMER SERVICE.
Sophisticated back office processes and information management systems are
vital to our growth and our ability to bill customers accurately, install access
lines, achieve operating efficiencies and improve our operating margins. Our
plans to develop and implement these back office and customer service systems
rely, for the most part, on choosing products and services offered by
third-party vendors and integrating these products and services into our
operations. We cannot assure you that these systems will perform as expected as
we grow our customer base. In addition, our right to use these systems depends
upon license agreements with third-party vendors. If these vendors elect to
cancel or not renew some or all of these license agreements, our business may be
adversely affected. Some of the risks associated with our back office and
customer service systems include:
- the failure by third-party vendors to deliver their products and services
in a timely and effective manner and at acceptable costs;
- our failure to identify key information and processing needs;
- our failure to integrate our various information management systems
effectively;
- our failure to maintain and upgrade systems as necessary; and
- our failure to attract and retain qualified systems support personnel.
IF WE ARE UNABLE TO ATTRACT AND RETAIN MANAGEMENT AND KEY PERSONNEL, WE MAY
NOT BE ABLE TO IMPLEMENT OUR BUSINESS PLAN.
We believe that our success is due, in part, to our experienced management
team, including Messrs. Williams and Smith. Losing the services of one or more
members of our management team could adversely affect our business and our
expansion efforts, and possibly prevent us from further improving our
operational, financial and information management systems and controls. As we
continue to grow, we will need to hire and retain qualified sales, marketing,
administrative, operating and technical personnel, and to train and manage new
personnel.
In addition, competition for qualified telecommunications services employees
has intensified in recent years, and it may become even more intense in the
future. We believe that there are a limited number of persons with experience
comparable to the experience of the members of our management team. Our ability
to implement our business plan is dependent on our ability to hire and retain a
large number of qualified new employees each year. If we are unable to hire
sufficient qualified personnel, our customers could experience inadequate
customer service and delays in the installation and maintenance of access lines.
OUR FAILURE TO PROPERLY MANAGE OUR EXPECTED GROWTH COULD ADVERSELY AFFECT
THE EXPANSION OF OUR CUSTOMER BASE AND SERVICE OFFERINGS.
If we successfully execute our business plan, we expect to rapidly expand
our operations. This rapid growth will place a significant strain on our
management, operational financial and information management systems and
controls, personnel and other resources. We cannot assure you that we will
successfully implement the operational and financial and information management
systems and controls that we anticipate will be necessary to support our rapid
growth and to manage a competitive business in an evolving industry. Any failure
to implement and improve these systems and controls and to maintain our other
resources at a pace consistent with industry changes and the growth of our
business could cause customers to switch to other integrated communications
providers, which would have a material adverse effect on us.
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We expect to expand our business by installing additional network
facilities, entering into new markets and providing additional
telecommunications services. We cannot assure you that we can:
- install these network facilities in a technologically or economically
feasible manner;
- develop or market additional telecommunications products and services; or
- operate and maintain our new networks and telecommunications services
profitably.
WE WILL NEED TO RELY ON INCUMBENT TELEPHONE COMPANIES TO SUCCESSFULLY
IMPLEMENT OUR SERVICES. THEIR FAILURE TO COOPERATE WITH US COULD ADVERSELY
AFFECT THE SERVICES WE OFFER AND CAUSE US TO LOSE CUSTOMERS.
We are, and will continue to be, dependent on US WEST, GTE and Nevada Bell
and, as we expand our network, on other incumbent telephone companies that
operate in our target market areas to assure that we can provide our customers
uninterrupted service and competitive services. The Telecommunications Act of
1996 requires the largest incumbent telephone companies to lease or "unbundle"
their network elements and make them available to us and others for purchase, as
well as provide their telecommunications services to us and others at wholesale
prices. We cannot, however, assure you that these elements and services will be
provided in a commercially viable manner or at reasonable prices. Many new
integrated communications providers have experienced difficulties in working
with incumbent telephone companies. Problems have arisen in installing access
lines, implementing interconnection and colocation and integrating the
preordering, ordering, repairing and billing systems used by new integrated
communications providers with the systems of incumbent telephone companies.
These problems may impair our reputation with customers who can easily switch
back to incumbent telephone companies or to other telecommunications service
providers. Coordination and cooperation with incumbent telephone companies are
necessary for new integrated communications providers such as us to provide
local service to customers on a timely, cost-effective and competitive basis.
In addition, our ability to implement successfully our switched and enhanced
telecommunications services will require the negotiation of interconnection and
colocation agreements with incumbent telephone companies. Interconnection
agreements set forth the terms and conditions governing how local integrated
communications providers interconnect their networks and/or purchase or lease
network facilities and services. These negotiations may require considerable
time, effort and expense and the agreements will be subject to federal and state
regulation.
The terms of interconnection agreements, such as our agreements with US
WEST, GTE and Nevada Bell, typically cover a two- to three-year period,
requiring us to renegotiate them frequently. We cannot assure you that we will
be able to renegotiate these interconnection agreements or negotiate new
agreements in our existing and new markets on favorable terms. Delays in
obtaining interconnection agreements may delay our entry into new markets. In
addition, the prices set forth in the interconnection agreements may be subject
to significant rate increases at the discretion of the regulatory authority in
each of the states in which we do business. A significant part of our cost
structure depends on these state-regulated rate structures. We cannot assure you
that the rates charged to us under our interconnection agreements will allow us
to offer usage rates low enough to attract a sufficient number of customers to
operate our business profitably.
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IF THIRD PARTIES DO NOT PROVIDE THE TELECOMMUNICATIONS PRODUCTS AND THE
INSTALLATION AND FIELD SERVICES THAT ARE CRITICAL TO OUR BUSINESS, WE COULD
LOSE CUSTOMERS.
In deploying our network, we purchase telecommunications products from a
number of third-party vendors, including Nortel, Cisco and Lucent. We also
intend to outsource a significant portion of the installation and field service
requirements of our network to third parties such as Nortel. Because we depend
on third-party vendors, we do not have guaranteed capacity or control over
delivery schedules, quality assurance, production yields and costs. If any of
our vendors reduces or interrupts its supply of products, or if any significant
installer or field service provider interrupts its service to us or fails to
perform to required specifications, our business could be disrupted, which could
cause us to lose customers. In addition, our suppliers may be unable to
manufacture and deliver the telecommunications products we require. If this were
to occur, we might be unable to deploy our network in a timely manner, thus
reducing our ability to compete.
SOME OF OUR EMPLOYEES ARE UNIONIZED, AND WE COULD FACE WORK DISRUPTIONS DUE
TO STRIKES, SLOWDOWNS OR OTHER LABOR DISPUTES.
A small percentage of our employees are members of the International
Brotherhood of Electrical Workers. Although our management believes that its
relationship with our union employees is good, we cannot promise that we will
never experience a labor disruption. Such disruptions could occur in response to
our actions but could also be due to the actions of other union employers.
Significant labor disruptions could adversely affect our ability to provide
acceptable levels of service to our customers, which could result in customer
dissatisfaction and a loss of business.
DECLINING PRICES FOR TELECOMMUNICATIONS SERVICES COULD REDUCE OUR REVENUE
AND PROFITABILITY.
The telecommunications business is extremely competitive. Long distance
prices have decreased substantially in recent years and are expected to continue
to decline in the future. In addition, the long distance industry has
historically experienced high customer attrition, as customers frequently change
their chosen long distance providers in response to lower rates or promotional
incentives by competitors. We will initially rely on providers such as US WEST,
Sprint and Global Crossing to provide service for all of our long distance
traffic. As we enter additional markets, we will need to negotiate resale
agreements with other telephone companies to provide us with long distance
services. Such agreements typically provide for the resale of long distance
services on a per-minute basis and may contain minimum volume commitments.
Negotiation of these agreements involves estimates of future supply and demand
for long distance services and estimates of the calling patterns and traffic
levels of our customers. If we fail to meet our minimum volume commitments, we
may be obligated to pay under-utilization charges, and if we underestimate our
need for long distance services, we may be required to obtain capacity through
more expensive means, which would raise our costs and reduce our revenues. Our
failure to achieve acceptable profits from our long distance business could have
a material adverse effect on us. Trends in the pricing for long distance
services may be indicative of trends in the telecommunications industry. If this
is the case, revenue from our other service offerings may be subject to
significant price pressure.
OUR FAILURE TO INTEGRATE SUCCESSFULLY OTHER BUSINESSES WE ACQUIRE MAY RAISE
OUR COSTS AND REDUCE OUR REVENUE.
As part of our business strategy, we seek to expand through investments in
or the acquisition of other businesses that we believe are complementary to our
business. Although we regularly engage in discussions relating to potential
acquisitions, we are unable to predict whether any acquisitions will actually
occur. If we acquire companies, networks or other complementary assets as part
of our
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expansion plan, we will be subject to the risks generally associated with
acquisitions. These risks include, among others:
- the acquired companies may not provide us with all the benefits that we
expect;
- the transactions with, and subsequent integration of, the acquired
companies may disrupt our ongoing business operations and strain our
resources and management;
- it may be difficult to successfully integrate the acquired businesses with
our operations;
- our relationships with employees or customers may be impaired; and
- it may not be possible to maintain uniform standards, controls, procedures
and policies across the acquired companies.
Our ability to complete acquisitions will depend, in part, on our ability to
finance the acquisitions (including the costs of acquisition and integration).
Our ability may be constrained by our cash flow, the level of our indebtedness
at the time, restrictive covenants in the agreements governing our indebtedness,
conditions in the securities markets and other factors, some of which are not
within our control. If we proceed with one or more acquisitions in which the
consideration consists of cash, we may use a substantial portion of our
available cash to complete the acquisitions. If we finance one or more
acquisitions with the proceeds of indebtedness, our interest expense and debt
service requirements could increase materially. Furthermore, if we use our
common stock as consideration for acquisitions, our stockholders would
experience dilution of their ownership interests represented by their shares of
common stock. The financial impact of acquisitions could materially affect our
business and could cause substantial fluctuations in our quarterly and yearly
operating results.
THE TELECOMMUNICATIONS INDUSTRY IS UNDERGOING RAPID TECHNOLOGICAL CHANGES,
AND NEW TECHNOLOGIES MAY BE SUPERIOR TO THE TECHNOLOGIES WE USE. OUR FAILURE
TO KEEP UP WITH SUCH CHANGES COULD ADVERSELY AFFECT OUR BUSINESS.
The telecommunications industry is subject to rapid and significant changes
in technology and in customer requirements and preferences. We have developed
our business based, in part, on traditional telephone technology. Subsequent
technological developments may reduce the competitiveness of our network and
require expensive unbudgeted upgrades or additional telecommunications products
that could be time consuming to integrate into our business, and could cause us
to lose customers and impede our ability to attract new customers. We may be
required to select one technology over another at a time when it might be
impossible to predict with any certainty which technology will prove to be more
economic, efficient or capable of attracting customers. In addition, even if we
acquire new technologies, we may not be able to implement them as effectively as
other companies with more experience with those new technologies.
A NETWORK FAILURE COULD CAUSE DELAYS OR INTERRUPTIONS OF SERVICE, WHICH
COULD CAUSE US TO LOSE CUSTOMERS.
Our success requires that our network provide competitive reliability,
capacity and security. Some of the risks to our network and infrastructure
include:
- physical damage to access lines;
- power surges or outages;
- capacity limitations;
- software defects;
- lack of redundancy;
- breaches of security; and
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- other disruptions beyond our control.
Such disruptions may cause interruptions in service or reduced capacity for
customers, any of which could cause us to lose customers.
DSL MAY NOT OPERATE AS EXPECTED ON INCUMBENT TELEPHONE COMPANY NETWORKS AND
MAY INTERFERE WITH OR BE AFFECTED BY OTHER TRANSPORT TECHNOLOGIES.
Our ability to provide DSL to potential customers depends on the quality,
physical condition, availability and maintenance of telephone lines within the
control of incumbent telephone companies. If these telephone lines are not
adequate, we may not be able to provide DSL services to many of our target
customers, which will diminish our expected revenue base. We believe that
incumbent telephone companies may not maintain or improve the telephone lines in
a condition that will allow us to implement our DSL services effectively.
Further, the incumbent telephone companies may claim that their lines are not of
sufficient quality to allow us to fully implement or operate our DSL services.
In addition, some customers use technologies other than copper lines to provide
telephone services, and as a result, DSL services might not be available to
these customers.
All technologies using copper telephone lines have the potential to
interfere with, and to be interfered with by, other traffic on adjacent copper
telephone lines. This interference could degrade the performance of our services
or make us unable to provide service on selected lines. In addition, incumbent
telephone companies may claim that the potential for interference by DSL
technology permits them to restrict or delay our deployment of this technology.
The telecommunications industry and regulatory agencies are developing
procedures to resolve interference issues between telecommunications providers,
and these procedures may not be effective. We may be unable to resolve
interference disputes with incumbent telephone companies. Interference, or
claims of interference, if widespread, could adversely affect our speed of
deployment, reputation, brand image, service quality and customer retention and
satisfaction.
WE CANNOT PREDICT THE GROWTH OR ULTIMATE SIZE OF THE MARKET FOR BROADBAND
COMMUNICATIONS AND INTERNET SERVICES BECAUSE IT IS NEW AND RAPIDLY GROWING.
The broadband communications industry is in the early stages of development
and is subject to rapid and significant technological change. Because the
industry is new and the technologies available for broadband communications
services are rapidly evolving, we cannot accurately predict the rate at which
the market for our services will grow, if at all, or whether emerging
technologies will render our services less competitive or obsolete. If the
market for our services fails to develop or grows more slowly that we currently
anticipate, our business, financial condition and results of operations could
face material adverse effects. Many providers of high-speed data communications
services are testing products from numerous suppliers for various applications,
and these suppliers have not broadly adopted an industry standard. In addition,
certain industry groups are in the process of trying to establish standards that
could limit the types of technologies we could use. A number of critical issues
concerning commercial use of DSL technology for Internet access, including
security, reliability, reach and cost of access and quality of service, remain
unresolved and may limit the acceptance of these services in the market.
RISKS RELATED TO OUR INDUSTRY
THE TELECOMMUNICATIONS INDUSTRY IS SUBJECT TO GOVERNMENT REGULATION, AND
CHANGES IN CURRENT OR FUTURE REGULATIONS COULD RESTRICT THE MANNER IN WHICH
WE OPERATE OUR BUSINESS.
We are subject to varying degrees of federal, state and local regulation. On
the federal level, we are not currently subject to rate regulation, nor are we
currently required to obtain FCC authorization for the installation,
acquisition, or operation of our network facilities. We must comply with various
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federal and state regulations, such as the duty to contribute to universal
service subsidies, the impact of which cannot yet be fully assessed. Our
subsidiaries that provide intrastate services are generally subject to
certification and tariff-filing requirements by state regulators. Challenges to
our rate structure by third parties could cause us to incur substantial legal
and administrative expenses. Failure to comply with federal and state reporting
and regulatory requirements may result in fines or other penalties, including
loss of certification to provide services.
State authorities may provide incumbent telephone companies with increased
pricing flexibility for their services and other regulatory relief, which could
have a material adverse effect on integrated communications providers, including
us. Future regulatory provisions may be less favorable to integrated
communications providers and more favorable to their competitors. Increased
local telephone competition resulting from various legislative initiatives,
including the Telecommunications Act, may allow incumbent telephone companies
such as US WEST and Nevada Bell to provide long distance services more quickly
than had earlier been expected. When US WEST and Nevada Bell are permitted to
provide such services, they will be in a position to offer integrated local and
long distance service, subject to certain regulatory constraints, and we will no
longer enjoy our competitive advantage over US WEST and Nevada Bell.
No assurance can be given that changes in current or future regulations
adopted by the FCC or state regulators, or other legislative, administrative, or
judicial initiatives relating to the telecommunications industry, would not have
a material adverse effect on our business, operating results and financial
condition.
For example, we derive revenue from the provision of interstate and
international telecommunications services to end users. The FCC requires us to
contribute a percentage of this revenue to the FCC's Universal Service Fund. The
assessment for the first quarter of 2000 is 5.8995%, and the assessment for the
second quarter of 2000 is 5.7101%. This contribution factor varies quarterly at
a rate set by the FCC. To the extent the contribution factor increases, our
costs of providing service will increase.
Our Internet operations are not currently regulated directly by the FCC or
any other governmental agency, other than regulations applicable to businesses
generally. However, the FCC has recently indicated that the regulatory status of
some services offered over the Internet may be reexamined. New laws or
regulations related to Internet services, or existing laws found to apply to
them, may adversely affect our Internet operations.
LITIGATION CONTINUES OVER THE FCC'S RULES FOR IMPLEMENTATION OF THE
TELECOMMUNICATIONS ACT.
Following the passage of the Telecommunications Act in 1996, the FCC
promulgated various rules to implement it. In July 1997, the U.S. Court of
Appeals for the Eighth Circuit vacated a number of the FCC's rules concerning
local competition. In January 1999, the U.S. Supreme Court largely reversed the
Eighth Circuits decision. Importantly, the Supreme Court directed the FCC to
reconsider the list of elements it had required the large, incumbent telephone
companies to unbundle. On November 5, 1999, the FCC released an order requiring
the unbundling of all of the elements it had previously ordered bundled, with
the exception of circuit switching in certain circumstances. As of March 2000,
at least one appeal of this order has been filed and more may follow. We are
unable to determine at present the extent to which this order affects us. We
would be adversely affected if, on appeal, a court were to exempt traditional
telephone providers from the duty to provide any of the facilities we require to
provide telecommunications services.
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ALL YEAR 2000 PROBLEMS MAY NOT HAVE BEEN ADDRESSED BY OUR SUPPLIERS, AND ANY
SERVICE INTERRUPTION WE EXPERIENCE AS A RESULT OF THESE UNADDRESSED PROBLEMS
MAY CAUSE US TO LOSE CUSTOMERS.
The Year 2000 issue generally describes the various problems that may result
from the improper processing of dates and date-sensitive transactions by
computers and other equipment as a result of computer hardware and software
using two digits, rather than four digits, to identify the year in a date. Any
computer programs or systems of our suppliers that have date-sensitive software
may recognize a date using "00" as the year 1900 rather than the year 2000.
While we have experienced no Year 2000 issues to date, and we are not aware of
any material issues for our suppliers, we are continuing to evaluate and
determine whether our significant suppliers are in compliance or have
appropriate plans to remedy Year 2000 issues when their systems interact with
our systems. We do not expect that this will have a material impact on our
operations. However, we cannot assure you that the systems of other companies
upon which we rely are Year 2000 compliant, that another company's failure to
successfully convert its system to Year 2000 compliance, or that another
company's conversion to a system incompatible with our systems, would not have
an impact on our operations. The failure of our principal suppliers to be Year
2000 compliant could result in delays in service deliveries from those other
suppliers and could adversely impact our ability to do business.
RISKS RELATED TO THIS OFFERING
OUR EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT STOCKHOLDERS WILL BE ABLE
TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR COMPANY.
Following the completion of this offering, private equity funds managed by
Stolberg Partners, L.P. and Bain Capital, L.P. will control a significant
percentage of our issued and outstanding common stock. Upon completion of the
offering, our two principal stockholders will beneficially own shares of
common stock, representing % of our issued and common stock ( % if the
underwriters' over-allotment option is fully exercised). In addition, after the
completion of this offering, our executive officers and directors will control
an additional % of our issued and outstanding common stock ( % if the
underwriters' over-allotment option is fully exercised). If these officers,
directors and principal stockholders act together, they will be able to
determine the composition of the board of directors and exercise significant
influence on fundamental corporate transactions.
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
MIGHT DETER ACQUISITION BIDS.
We intend to amend and restate our certificate of incorporation and by-laws
prior to the closing of the offering. Our certificate of incorporation and
by-laws will provide for, among other things:
- a classified board of directors;
- restrictions on the ability of our stockholders to call special meetings
of stockholders;
- restrictions on the ability of our stockholders to act by written consent;
- restrictions on the ability of our stockholders to remove any director or
the entire board of directors without cause;
- restrictions on the ability of our stockholders to fill a vacancy on the
board of directors; and
- advance notice requirements for stockholder proposals.
In addition, our board of directors will be permitted to authorize the
issuance of preferred stock without any vote or further action by the
stockholders. These provisions and other provisions of the Delaware General
Corporation Law applicable to us could make it more difficult for a third party
to acquire or control us without the approval of the board of directors, even if
doing so would benefit our stockholders.
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OUR STOCK DOES NOT HAVE A TRADING HISTORY AND MAY BE EXTREMELY VOLATILE
BECAUSE WE OPERATE IN A RAPIDLY CHANGING INDUSTRY.
Prior to this offering, you could not buy or sell our common stock. We filed
an application for the quotation of our common stock on the Nasdaq Stock
Market's National Market. However, we cannot assure you that an active public
market for our common stock will develop or be sustained after the offering. If
a market does not develop or is not sustained, it may be difficult for you to
sell your shares of common stock at an attractive price to you or at all.
The trading price of our common stock is likely to be volatile. The stock
market has recently experienced extreme volatility, and this volatility has
often been unrelated to the operating performance of particular companies. The
initial public offering price of the common stock will be determined through
negotiations between the representatives of the underwriters and us and may not
be representative of the price that will prevail in the open market. Investors
may not be able to sell their common stock at or above our initial public
offering price or at all. Prices for the common stock will be determined in the
marketplace and may be influenced by many factors, including variations in our
financial results, changes in earnings estimates by industry research analysts,
investors' perceptions of us and general economic, industry and market
conditions.
FUTURE SALES OF OUR COMMON STOCK MAY LOWER OUR STOCK PRICE.
If our existing stockholders sell a large number of shares of our common
stock in the public market following the offering, the market price of the
common stock could decline significantly. The perception in the public market
that our existing stockholders might sell shares of common stock could also
depress our market price. Immediately after this offering, shares of our
common stock will be outstanding, assuming no exercise of the underwriters'
over-allotment option. Of these shares, only the shares of common stock sold in
this offering will be freely tradable, without restriction, in the public
market. The remaining shares, or % of our total outstanding shares, will
become available for resale in the public market as shown on the chart below. Of
these remaining shares, shares are subject to lock-up agreements
restricting the sale of such shares for 180 days from the date of this
prospectus. However, the underwriters may waive this restriction and allow these
stockholders to sell their shares at any time. The market price of our common
stock may drop significantly when the restrictions on resale by our existing
stockholders lapse.
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF FIRST AVAILABILITY FOR RESALE
- ---------------- ------------------------------------------------------------
<S> <C>
Immediately after the date of this prospectus
90 days after the date of this prospectus
180 days from the date of this prospectus subject, in some
cases, to volume limitations
</TABLE>
In addition to the adverse effect a price decline could have on holders of
common stock, such a decline might also impede our ability to raise capital
through the issuance of additional shares of our common stock or other equity
securities.
INVESTORS WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION OF $ IN
THE BOOK VALUE OF THEIR INVESTMENT.
If you purchase shares of our common stock in this offering, you will
experience immediate dilution of $ per share because the price that you pay
will be substantially greater than the net tangible book value per share of the
shares you acquire. This dilution is due in large part to the fact that our
earlier investors paid substantially less than the initial public offering price
when they
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purchased their shares. You will experience additional dilution upon the
exercise of stock options and warrants to purchase common stock.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION IN APPLYING THE NET PROCEEDS OF
THIS OFFERING.
At an initial public offering price of $ , and after deducting
the underwriting discount and other expenses of the offering, we will receive
net proceeds of approximately $ . We have not yet determined the
specific dollar amount of net proceeds to be allocated to any of the uses
indicated in "Use of Proceeds." Accordingly, our management will have broad
discretion in applying the net proceeds of the offering. Management's allocation
of the net proceeds will affect how our business grows. We cannot assure you
that management will choose to spend these proceeds in areas that will benefit
our business. In addition, we cannot assure you that management will choose to
allocate proceeds in a manner that effectively implements our business strategy.
FORWARD-LOOKING STATEMENTS ARE INHERENTLY UNCERTAIN.
We make forward-looking statements in the "Prospectus Summary," "Risk
Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" sections and elsewhere in
this prospectus. These forward-looking statements include, but are not limited
to, statements about our plans, objectives, expectations, intentions and
assumptions and other statements that are not historical facts. We generally use
the words "expect," "anticipate," "intend," "plan," "believe," "seek,
"estimate," and similar expressions to identify forward-looking statements.
Because these forward-looking statements involve risks and uncertainties,
our actual results may differ materially from those expressed or implied by
these forward-looking statements as a result of various factors, including,
without limitation, the risk factors set forth above and the matters set forth
in this prospectus generally. All subsequent written and oral forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements included in this
document. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
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USE OF PROCEEDS
We estimate the net proceeds from this offering to be approximately $
million, or $ million if the underwriters' over-allotment option is
exercised in full, after deducting the underwriting discount and estimated
offering expenses of approximately $ million payable by us. We intend to
use the net proceeds of the offering to fund capital expenditures for the
deployment of our network, to fund operating losses in connection with the
expansion of our business and for working capital and other general corporate
purposes.
The amounts we actually expend in such areas may vary significantly and will
depend on a variety of factors. Management will retain broad discretion in the
use of the net proceeds of this offering. You will not have the opportunity to
evaluate the economic, financial or similar information on which we base our
decisions on how to apply the proceeds. Pending these uses, we plan to invest
the net proceeds in investment grade, interest-bearing securities.
As part of our strategy, we may make acquisitions and a portion of the net
proceeds from the offering may be used for such purposes. We have no definitive
agreements, arrangements or understandings with respect to any particular
acquisition or acquisitions, although we regularly engage in discussions with
other companies and assess acquisition opportunities. We may be required to
obtain additional financing to complete our network buildout if, among other
reasons, we use a portion of the proceeds from the offering to fund
acquisitions, or if our plans change or our projections prove to be inaccurate.
We cannot assure you that such additional financing will be available either on
terms acceptable to us or at all.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock, and we do not
anticipate declaring or paying dividends on our common stock for the foreseeable
future. The declaration and payment of any dividends in the future will be
determined by our board of directors in its discretion, and will depend on a
number of factors, including our earnings, capital requirements and overall
financial condition. In addition, our ability to declare and pay dividends is
substantially restricted under our credit facilities and may also be restricted
in the future under other debt agreements.
19
<PAGE>
CAPITALIZATION
The following table sets forth our actual capitalization as of December 31,
1999, our pro forma capitalization giving effect to sales of our capital stock
since December 31, 1999, and our pro forma as adjusted capitalization reflecting
the automatic conversion of our convertible preferred stock into common stock,
the automatic termination of the put right on warrants held by one of our
lenders and the issuance and sale of shares of common stock in this
offering. You should read this table together with "Selected Consolidated
Financial and Other Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents................................... $ 34,473 $ 47,662 $
======== ======== =======
Capital lease obligations and notes payable, including
current portion........................................... $ 25,355 $ 25,355 $25,355
Liability associated with put warrant....................... 2,567 2,567 --
Stockholders' equity:
Series A convertible preferred stock, $.01 par value;
6,041,940 shares authorized, 5,912,440 shares issued and
outstanding, actual and pro forma; no shares issued and
outstanding, pro forma as adjusted...................... 59 59 --
Series B convertible preferred stock, $.01 par value;
4,492,618 shares authorized, 4,492,618 shares issued and
outstanding, actual and pro forma; no shares issued and
outstanding, pro forma as adjusted...................... 45 45 --
Series C convertible preferred stock, $.01 par value;
15,156,000 shares authorized, 9,162,601 shares issued
and outstanding, actual; 10,847,234 shares issued and
outstanding pro forma; and no shares issued and
outstanding pro forma as adjusted....................... 92 108 --
Preferred stock, $.01 par value; 4,309,442 authorized and
undesignated; no shares issued and outstanding, actual,
pro forma and pro forma as adjusted..................... -- -- --
Common stock, $.01 par value; 45,000,000 shares
authorized, 1,699,921 shares issued and outstanding,
actual; 2,226,411 shares issued and outstanding, pro
forma; and shares issued and outstanding pro forma
as adjusted............................................. 17 22
Additional paid-in capital.................................. 63,444 76,612
Deferred compensation....................................... (374) (374) (374)
Accumulated deficit......................................... (21,744) (21,744) (21,744)
-------- -------- -------
Total stockholders' equity.............................. 41,539 54,728
-------- -------- -------
Total capitalization.................................... $ 69,461 $ 82,650 $
======== ======== =======
</TABLE>
20
<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999 was $42.1
million, or $1.79 per share of outstanding common stock, after book giving
effect to the adjustments shown in the pro forma column under "Capitalization"
and the automatic conversion upon completion of this offering of all outstanding
shares of our convertible preferred stock into common stock. The pro forma net
tangible book value per share represents our total tangible assets less total
liabilities, divided by 23,478,703 shares of common stock outstanding on a pro
forma basis before this offering. After giving effect to the sale of
shares of common stock in this offering at the initial public
offering price of $ per share, our pro forma as adjusted net tangible book
value would have been approximately $ , or $ per share. Thus,
under these assumptions, purchasers of our common stock in this offering will
pay $ per share and will receive shares with a net tangible
book value per share of common stock of $ , which represents an immediate
dilution of $ per share.
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $ $
-----
Pro forma net tangible book value per share as of December
31, 1999.................................................. 1.79
Pro forma increase per share attributable to new
investors...............................................
-----
Pro forma net tangible book value per share after this
offering................................................
-----
Pro forma dilution per share to new investors...............
-----
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the difference between the existing stockholders and new investors with
respect to the number of shares of common stock purchased from us, the total
consideration paid and the assumed price per share paid at the assumed initial
public offering price of $ per share (before deducting estimated
underwriting discounts and commissions and offering expenses payable to us).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ---------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- -------- ----------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.................... 23,478,703 % $76,408,000 % $3.25
New Investors............................
---------- ------ ----------- ------ -----
Total.................................. 100.0% $ 100.0% $
========== ====== =========== ====== =====
</TABLE>
The foregoing table assumes no exercise of stock options or warrants. As of
December 31, 1999, there were options and warrants outstanding to purchase
2,951,200 shares of common stock at a weighted average exercise price of $2.74
per share. To the extent outstanding options and warrants are exercised, there
will be further dilution to new investors.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain selected consolidated financial and
other data of Eschelon Telecom and its predecessor for the periods indicated. We
derived our selected consolidated financial data as of December 31, 1998 and
1999 and for each of the three years in the period ended December 31, 1999 from
our audited consolidated financial statements included elsewhere in this
prospectus. We derived our selected consolidated financial data as of
December 31, 1997 from our audited consolidated balance sheet not included
elsewhere in this prospectus and for the six months ended December 31, 1996 from
our unaudited consolidated financial statements that are not included in this
prospectus. We derived our selected financial data as of and for the six months
ended June 30, 1996 and as of and for the year ended December 31, 1995 from
unaudited financial statements of Cady Communications, which is our predecessor
company for accounting purposes. These statements are not included in this
prospectus.
We formed our company in May 1996. On July 1, 1996, we merged with Cady
Communications, which had been engaged in business telephone systems sales for
approximately ten years prior to the merger. We conducted no material operations
prior to the merger with Cady Communications. We acquired American Telephone
Technology and Electro-tel in 1997, Tele-contracting Specialists and One Call
Telecom in 1998 and Infinite Voice Mail in 1999. The statements of operations
data, other financial data and operating data in the table include the
operations of these companies beginning on the dates they were acquired. These
acquisitions affect the comparability of the financial data for the periods
presented.
22
<PAGE>
<TABLE>
<CAPTION>
THE PREDECESSOR ESCHELON TELECOM, INC.
------------------------ ---------------------------------------------
SIX SIX
YEAR MONTHS MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, JUNE 30, DECEMBER 31, ------------------------------
1995 1996 1996 1997 1998 1999
------------ --------- ------------ -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Voice and data services............ $ -- $ -- $ 23 $ 2,420 $ 9,885 $18,725
Business telephone systems......... 8,820 5,196 5,226 16,367 18,624 22,991
------ ------- ------- -------- ------- -------
Total revenue.................. 8,820 5,196 5,249 18,787 28,509 41,716
Cost of sales:
Voice and data services............ -- -- 58 2,396 7,921 13,564
Business telephone systems......... 4,108 2,550 2,388 7,568 10,056 13,402
------ ------- ------- -------- ------- -------
Total cost of sales.................. 4,108 2,550 2,446 9,964 17,977 26,966
Gross profit:
Voice and data services............ -- -- (35) 24 1,964 5,161
Business telephone systems......... 4,712 2,646 2,838 8,799 8,568 9,589
------ ------- ------- -------- ------- -------
Total gross profit............. 4,712 2,646 2,803 8,823 10,532 14,750
Operating expenses:
General and administrative......... 2,388 1,292 2,009 7,543 10,632 14,193
Sales and marketing................ 1,660 897 861 3,296 4,527 8,129
Depreciation and amortization...... 114 88 327 943 1,272 1,800
------ ------- ------- -------- ------- -------
Total operating expenses....... 4,162 2,277 3,197 11,782 16,431 24,122
Operating income (loss).............. 550 369 (394) (2,959) (5,899) (9,372)
Other income (expenses).............. (192) (134) 17 (362) (1,116) (1,610)
Net income (loss).................... 358 235 (377) (3,321) (7,015) (10,982)
Net loss applicable to common
stockholders....................... (377) (3,321) (7,015) (12,256)
Net loss per share applicable to
common stockholders--basic and
diluted............................ (0.93) (3.68) (5.50) (6.18)
Shares used in per share
calculation........................ 407 903 1,277 1,982
Pro forma net loss per share
applicable to common
stockholders--basic and diluted
(1)................................ (0.99)
Shares used in pro forma per share
calculation........................ 11,129
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
THE PREDECESSOR ESCHELON TELECOM, INC.
------------------------ ---------------------------------------------
SIX SIX
YEAR MONTHS MONTHS
ENDED ENDED ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, JUNE 30, DECEMBER 31, ------------------------------
1995 1996 1996 1997 1998 1999
------------ --------- ------------ -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Capital expenditures................. $ 314 $ 299 $ 500 $ 1,530 $ 604 $ 18,256
Cash flows provided by (used in)
operating activities............... 539 79 (627) (2,395) (6,133) (7,610)
Cash flows provided by (used in)
investing activities............... (314) (299) (6,267) (2,795) (1,575) (17,090)
Cash flows provided by (used in)
financing activities............... (40) (51) 7,227 7,907 5,636 58,159
EBITDA (2)........................... 663 457 (67) (2,021) (4,613) (7,529)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------- MARCH 31,
1996 1997 1998 1999 2000
-------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Voice access lines in service(3)........................ 318 6,983 20,099 30,288 36,227
Data access line equivalents in service(3)(4)........... 1,826
---- ------ ------- ------- -------
Total access lines in service....................... 318 6,983 20,099 30,288 38,053
Colocations installed................................... -- -- -- -- 17
Markets in operation.................................... 2 6 7 7 7
Voice switches in service............................... -- -- -- 1 2
Data switches in service................................ -- -- -- -- 2
Total employees......................................... 148 225 289 441 590
</TABLE>
<TABLE>
<CAPTION>
THE PREDECESSOR ESCHELON TELECOM, INC.
--------------- ------------------------------------------------------------------------
DECEMBER 31, 1999
------------------------
DECEMBER 31, PRO
--------------------------------------------------------------- PRO FORMA AS
1995 1996 1997 1998 1999 FORMA (1) ADJUSTED (1)
--------------- -------- ------------ -------- -------- --------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............ $ 771 $ 370 $ 3,086 $ 1,014 $34,473 $47,662 $
Property and equipment, net.......... 730 929 2,052 2,454 19,801 19,801 19,801
Working capital...................... 1,778 1,977 5,215 2,698 35,750 48,939
Total assets......................... 3,597 9,227 18,155 21,214 77,277 90,466
Capital lease obligations and notes
payable, including current
portion............................ 270 172 8,658 15,144 25,355 25,355 25,355
Total stockholders' equity........... 2,338 7,921 5,700 765 41,539 54,728
</TABLE>
- ------------------------------
(1) The pro forma net loss per share data presented above gives effect to the
automatic conversion of our convertible preferred stock into common stock as
if the conversion occurred at the beginning of the respective period. The
pro forma balance sheet data gives effect to sales of our capital stock
since December 31, 1999. The pro forma as adjusted balance sheet data gives
effect to the automatic conversion of our convertible preferred stock into
common stock, the automatic termination of the put right on warrants held by
one of our lenders and the issuance and sale of shares of common
stock in this offering as if these transactions occurred on December 31,
1999.
(2) EBITDA consists of net income (loss) excluding net interest, taxes and
depreciation and amortization (including amortization of deferred
compensation). EBITDA is provided because it is a measure of financial
performance commonly used as an indicator of a company's historical ability
to service debt. Management believes that an increase in EBITDA is an
indicator of improved ability to service existing debt, to sustain potential
future increase in debt and to satisfy capital
24
<PAGE>
requirements. We have presented EBITDA to enhance your understanding of our
operating results. You should not construe it as an alternative to operating
income as an indicator of operating performance nor as an alternative to
cash flows from operating activities as a measure of liquidity determined in
accordance with GAAP. We may calculate EBITDA differently than other
companies. For further information, see our financial statements and related
notes elsewhere in this prospectus.
(3) Each access line and access line equivalent is equal to one 64 kilobit
customer line for which we bill on a monthly basis.
(4) Does not include approximately 1,400 lines for dial-up Internet access
customers. We also do not include these customers in the total number of our
voice and data services customers presented elsewhere in this prospectus.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE "SELECTED CONSOLIDATED
FINANCIAL AND OTHER DATA" AND THE FINANCIAL STATEMENTS AND NOTES THERETO
CONTAINED ELSEWHERE IN THIS PROSPECTUS. BECAUSE OF OUR FOCUS ON RAPIDLY
EXPANDING OUR VOICE AND DATA SERVICES REVENUE AND OUR RECENT TRANSITION TO A
FACILITIES-BASED INTEGRATED COMMUNICATIONS PROVIDER, MUCH OF THE FINANCIAL
INFORMATION FOR THE YEAR ENDED DECEMBER 31, 1999 AND PRIOR PERIODS WILL NOT BE
COMPARABLE TO THE RESULTS WE EXPECT FOR SUBSEQUENT PERIODS. CERTAIN INFORMATION
CONTAINED IN THE DISCUSSION AND ANALYSIS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS, INCLUDING INFORMATION WITH RESPECT TO OUR PLANS AND STRATEGY FOR OUR
BUSINESS AND RELATED FINANCING, INCLUDES FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISK AND UNCERTAINTIES. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS
SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS PROSPECTUS
THAT COULD CAUSE RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH
FORWARD-LOOKING STATEMENTS, INCLUDING MATTERS SET FORTH IN "RISK FACTORS."
OVERVIEW
We are a rapidly growing integrated communications provider offering
facilities-based broadband service to small and medium-sized business customers
in select markets within the western United States. Our single source approach
integrates local telephone, long distance and data services, including DSL, high
speed Internet access, private lines web hosting and virtual private network
services. We complement our services offerings with business telephone system
sales that allow us to market, sell, install, service, bill and account for a
complete product and service set.
In 1996, we merged with Cady Communications, a business telephone systems
company based in Minnesota, and began offering local and long distance voice
services. In 1997 and 1998, we acquired three additional business telephone
systems companies and launched voice services in five additional markets. In
1999 we began offering data services including Internet access and DSL. In
December 1999 we activated our first switch, which began our transition to a
facilities-based integrated communications provider. In January 2000, we
acquired Fishnet.com, an Internet service provider, and began providing advanced
data services. In March 2000 we began providing voice and data services over our
own network.
We are deploying a technologically advanced communications network including
high capacity Nortel voice and ATM switches and colocation equipment capable of
integrating voice and data traffic. We have adopted a phased deployment strategy
which will extend our network to 26 markets in the western United States by the
end of 2001. As part of this strategy we plan to deploy a total of 12 voice
switches, 13 advanced data switches and 191 colocations. Also by the end of
2001, we plan to deploy our own intra-city fiber optic network in our largest
markets that will connect many of the central offices where we are colocated. We
also plan to interconnect our markets using an ATM backbone consisting of our
own switches and leased or purchased long-haul transport capacity. With our
network in place, we plan to introduce new advanced data services in our markets
including hosting applications services on our network, voice-over DSL and
eventually voice-over IP.
To date we have provided voice and data services using the networks of other
providers, including local service through US WEST and Nevada Bell, long
distance service through various wholesale providers, Internet access through
Fishnet.com and DSL through Covad. We provide the majority of our local access
lines using Centrex. Centrex is a value-added business telephone service that we
purchase through US WEST and Nevada Bell at attractive wholesale rates and
invoice on our own bill. Gradually, we intend to migrate most of our Centrex
customers to our facilities-based network.
We have experienced operating losses since inception in 1996 as a result of
efforts to build our customer base, build internal staffing, develop systems,
expand into new markets and deploy network
26
<PAGE>
infrastructure. We expect to continue to focus on increasing our customer base
and geographic coverage. Accordingly, we expect that cost of services, selling,
general and administrative expenses, and capital expenditures will continue to
increase significantly, all of which may have a negative impact on operating
results. The projected increases in capital expenditures will continue to
generate negative cash flows for at least the next several years as we develop
and construct our voice and data network.
REVENUE
Historically the majority of our revenue was generated by the sales and
service of business telephone systems. During 1999, we aggressively hired
additional sales people to sell our voice and data services. We expect voice and
data services revenue to grow rapidly and become a much larger percentage of our
total revenue over the next several years. With the deployment of our switches
and colocation equipment, we also expect a greater portion of our voice and data
services revenue to come from services delivered over our own network. In the
future, we will continue to sell Centrex services, although we will use Centrex
mainly for small businesses located in areas where we do not have colocations.
VOICE AND DATA SERVICES. Voice and data services consist primarily of local
service, long distance service, Internet access and DSL. Revenue from local
telephone service consists of charges for basic local service (including
dedicated T-1 access) and custom-calling features such as call waiting and call
forwarding. Revenue from long distance service consists of a per-minute-of-use
charges for a full range of traditional switched and dedicated long distance,
800/888 calling, international, calling card and operator services. Revenue from
data services consists of monthly usage fees for dedicated and dial-up Internet
access and DSL services, e-mail and webhosting, local and extended area network
consulting and implementation, dedicated bandwidth and colocation for other
service providers and Internet security capability.
We also expect to begin generating revenue from access fees charged to long
distance companies for the local origination and termination of calls from or to
our customers. We expect revenue growth from access charges to grow as we
increase our local access lines.
We currently do not receive revenues from reciprocal compensation. We expect
that as we increase the number of local access lines on our network, we will be
entitled to receive reciprocal compensation from incumbent telephone companies
for terminating calls on our network. However, we will not recognize any such
revenue until cash payments are received.
We will also market wholesale services such as colocation services and a
variety of high speed Internet access services to other Internet service
providers, or ISPs. We also plan to offer new advanced data services including
the hosting of applications services over our network.
BUSINESS TELEPHONE SYSTEMS. We also generate revenue by the sale of
business telephone systems and related services. These systems generally consist
of private branch exchange, or PBX, key and hybrid telephone systems and
voicemail systems. Revenue from business telephone systems sales is recognized
upon project completion. We also offer monthly telephone system rental,
maintenance and service programs to our customers. Over 50% of our business
telephone systems revenue is repeat business.
COST OF SALES
VOICE AND DATA SERVICES. Historically, our voice and data services expense
consisted of the cost of purchasing local, long distance and data services on a
wholesale basis from other providers. As we expand our network, we expect our
voice and data services to consist primarily of the cost of operating and
maintaining our network facilities.
27
<PAGE>
The network cost components for our facilities-based business include:
- the cost of leasing high capacity digital lines that interconnect our
network with incumbent telephone company networks;
- the cost of leasing high capacity digital lines that connect our switching
equipment to our colocations;
- the cost of leasing space in incumbent telephone company central offices
for colocating our equipment;
- the cost of leasing local loop lines which connect our customers to our
network;
- the cost of completing local and long distance calls originated by our
customers; and
- the cost of leasing our ATM backbone network.
We generally purchase local access to our customers on a wholesale basis
pursuant to interconnection agreements with the incumbent telephone companies in
our target markets. These agreements set prices for intercarrier access charges
and unbundled network elements to be provided by the incumbent local telephone
companies. In addition, incumbent telephone companies typically charge a monthly
recurring fee for use of their central offices for colocation.
We have entered into wholesale purchasing agreements with long distance
providers to provide our customers with long distance services. These agreements
allow us to purchase long distance services on a per-minute basis. Some of these
agreements also contain minimum usage volume commitments. In the event we fail
to meet minimum volume commitments, we may be obligated to pay underutilization
charges. To date, we have met our usage volume commitments and have not incurred
any underutilization charges.
To minimize our costs, we intend to acquire, through long-term lease
agreements, the rights to use fiber optic lines within our markets. For traffic
between markets, we expect to interconnect our voice and data switches by
leasing dedicated capacity on a wholesale basis.
BUSINESS TELEPHONE SYSTEMS. Our most significant business telephone systems
costs are the equipment purchased from manufacturers and labor for service and
equipment installation. We purchase equipment from the manufacturers at a
discount from list price, which is generally dependent on volumes purchased. To
maximize discounts, we buy from three primary equipment manufacturers. Field
service technician expenses are also part of business telephone systems cost of
sales. These expenses include salary and benefits, as well as vehicle and
incidental expenses associated with equipment installation, maintenance and
service work.
GENERAL AND ADMINISTRATIVE
Our general and administrative expenses include customer service, billing,
corporate administration, personnel and network maintenance expenses.
We are developing a customized information system and procedures for
operations support and other back office systems that will allow us to enter,
schedule, provision and track a client order from the point of sale to the
installation and testing of service. These systems will include interfaces with
trouble management, inventory, billing, collection, customer service, electronic
data interfacing and sales force automation systems.
In addition to these systems' development cost, we will also incur ongoing
expenses for customer care and billing. As our strategy stresses the importance
of personalized customer service, we expect that the expenses related to our
customer service department will continue to grow and will remain a significant
part of our ongoing general and administrative expenses.
28
<PAGE>
We also incur other general and administrative costs and expenses including
network maintenance costs, administrative overhead, office leases and bad debt.
We expect that these costs will grow significantly as we expand our operations
and that administrative overhead will be a large portion of these expenses as we
enter new markets. However, we expect these expenses to decrease as a percentage
of our revenue as we build our customer base.
SALES AND MARKETING
We employ a large direct sales force in each of our targeted markets. To
attract and retain a highly qualified sales force, we offer our sales and
customer care personnel attractive compensation packages that emphasize
commissions and bonuses. We expect to incur significant selling and marketing
costs as we continue to hire additional personnel and expand our operations. We
also plan to offer sales promotions to win new customers, especially in the
first few years as we establish our market presence.
We recently changed the name of our company in all of our markets to
Eschelon Telecom. We intend to launch a multi-media advertising campaign to
establish brand recognition with our new name in all of our markets. This
expected level of advertising expense will be a significant increase over
previous years.
DEPRECIATION AND AMORTIZATION
Our depreciation and amortization currently includes depreciation for
network-related voice and data equipment, furniture, fixtures, office equipment
and computers. It also includes amortization of goodwill associated with our
acquisitions accounted for using the purchase method of accounting. Other
components of depreciation and amortization include amortization of customer
set-up costs relating to non-recurring installation charges from the incumbent
telephone companies and various non-compete agreements. As we continue to make
capital expenditures associated with our network expansion, including
investments in information systems, we expect that the depreciation of these
expenditures and investments will become the most significant component of
depreciation and amortization in future periods.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999 COMPARED TO THE YEAR ENDED DECEMBER 31, 1998
REVENUE. Total revenue increased 46% to $41.7 million for 1999 from
$28.5 million for 1998. The increase in revenue was principally a result of
sales to new customers in our existing markets.
VOICE AND DATA SERVICES. Voice and data services revenue increased 89%
to $18.7 million for 1999 from $9.9 million for 1998. The increase resulted
from a substantial expansion of the voice and data sales force in the fourth
quarter of 1999 and increased market penetration in all of our markets.
BUSINESS TELEPHONE SYSTEMS. Business telephone systems revenue increased
23% to $23.0 million for 1999 from $18.6 million for 1998. The increase
resulted primarily from new customer sales in existing markets and full year
results relating to an acquisition of operations in Seattle and Portland.
COST OF SALES. Cost of sales increased 50% to $27.0 million for 1999 from
$18.0 million for 1998. This increase was primarily the result of the associated
revenue increases discussed above.
VOICE AND DATA SERVICES. Voice and data services cost of sales increased
71% to $13.6 million from $7.9 million in 1998. This increase in cost is
directly proportional to the increase in line and minute volumes that
increased revenue by 89%. Gross profit, as a percentage of revenue,
increased
29
<PAGE>
to 28% in 1999 from 20% in 1998. The increase in gross profit is due
primarily to better pricing on Centrex services as a result of more
efficient grouping of our Centrex customers.
BUSINESS TELEPHONE SYSTEMS. Business telephone systems cost of sales
increased 33% to $13.4 million from $10.1 million in 1998. This increase in
cost relates directly to the equipment and technician labor associated with
the increase in revenue. Gross profit, as a percentage of revenue, decreased
to 42% in 1999 from 46% in 1998. This slight decrease is due to a higher
level of new system sales, which have slightly lower margins but are
expected to generate greater revenue from ongoing services and additional
follow-on sales in future years.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
33% to $14.2 million for 1999 from $10.6 million for 1998, which is primarily
attributable to the customer service expense associated with the increase in
voice and data services revenue as well as the corporate expense associated with
becoming a facilities-based integrated communications provider, such as
engineering, operations, planning, regulatory, recruiting and financing.
Included in general and administrative expense for 1999 is $0.5 million of
non-cash compensation expense relating to stock options granted at below-market
prices, company repurchases of recently exercised stock options and stock issued
in lieu of compensation.
SALES AND MARKETING. Sales and marketing expenses increased 80% to $8.1
million for 1999 from $4.5 million in 1998. This increase is primarily
attributable to the substantial expansion of our sales force in the fourth
quarter of 1999, and sales, salary and commission expense related to the
associated revenue increase.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased 42% to $1.8 million in 1999 from $1.3 million in 1998. This increase
was primarily due to the expansion of operations and the acquisition of capital
assets.
INTEREST. Interest expense increased 82% to $2.2 million for 1999 from
$1.2 million in 1998. This increase is primarily due to interest charges on the
GE Capital credit facility. Non-cash interest of $1.2 million in 1999 relates to
the amortization of the debt issuance costs, the GE Capital warrant and stock
issued for debt guarantees.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997
REVENUE. Total revenue increased 52% to $28.5 million for 1998 from
$18.8 million for 1997. The increase resulted primarily from the expansion of
our voice and data services business and the acquisition of an operating unit in
Denver.
VOICE AND DATA SERVICES. Voice and data services revenue increased 308%
to $9.9 million for 1998 from $2.4 million for 1997. The increase resulted
from a substantial expansion in voice and data services operations in
existing markets and the entry into Denver and Reno in 1998.
BUSINESS TELEPHONE SYSTEMS. Business telephone systems revenue increased
14% to $18.6 million for 1998 from $16.4 million for 1997. The increase
resulted primarily from acquisition of operations in Denver.
COST OF SALES. Cost of sales increased 80% to $18.0 million for 1998 from
$10.0 million for 1997. This increase was primarily the result of the associated
revenue increases discussed above.
VOICE AND DATA SERVICES. Voice and data services cost of sales increased
231% to $7.9 million in 1998 from $2.4 million in 1997. This increase in
cost is directly proportional to the increase in line and minute volumes
that increased revenue by 308%. Gross profits increased to 20% in 1998 from
1% in 1997. This increase was primarily due to the maturation of our
Minneapolis, Seattle and
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Portland markets and an increase in Centrex margins as a result of more
efficient grouping of our Centrex customers.
BUSINESS TELEPHONE SYSTEMS. Business telephone systems cost of sales
increased 33% to $10.1 million in 1998 from $7.6 million in 1997. This
increase in cost relates directly to the equipment and technician labor
associated with the increase in revenue. Gross profits decreased to 46% in
1998 from 54% in 1997. This decrease relates to full year results in 1998
for our Seattle, Portland and Denver operations, which are in more
competitive markets with lower gross profit margins due to more competitive
product pricing.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
41% to $10.6 million in 1998 from $7.5 million for 1997. This increase is the
result of full year customer service, billing and related expenses in 1998 that
are not included in 1997. Corporate support expenses associated with these new
markets also increased expenses in 1998.
SALES AND MARKETING. Sales and marketing expenses increased 37% to $4.5
million for 1998 from $3.3 million in 1997. This increase is primarily the
result of sales expenses associated with new operations in Denver and Reno.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expenses
increased 35% to $1.3 million in 1998 from $0.9 million in 1997. This increase
was primarily due to the expansion of operations and the acquisition of capital
assets.
INTEREST. Interest expense for 1998 increased 178% to $1.2 million compared
to $0.4 million in 1997. This increase is primarily related to the borrowing
facility entered into in April 1998.
LIQUIDITY AND CAPITAL RESOURCES
EQUITY FINANCING. From July 1996 to August 1999, we were funded primarily
with the contribution of $17.0 million of equity financing by institutional
investors and management. In September 1999 and January 2000, we raised a total
of approximately $55.6 million through private placements of our convertible
preferred stock primarily to institutional investors. In March and April 2000,
we raised $3.4 million through private placements of our common stock to
management, directors and institutional investors.
CREDIT FACILITY. We have entered into a $65.0 million delayed-draw term
loan credit facility led by GE Capital. This credit facility is secured by
substantially all of our assets and the common stock of our subsidiaries.
Borrowings under this facility are available for the purchase of
telecommunications equipment and services and for working capital purposes. This
credit facility also contains customary covenants such as minimum quarterly
revenues, minimum quarterly EBITDA, maximum quarterly EBITDA losses, senior debt
to total capitalization, maximum capital expenditures, maximum leverage ratios
and minimum interest coverage ratios. Borrowings must be repaid over a five-year
period commencing in the year 2002. Interest payments are due quarterly. As of
December 31, 1999, we had $22.4 million outstanding under this credit facility.
We expect to receive commitments from a syndicate of lenders for an additional
$70.0 million under this credit facility.
CAPITAL REQUIREMENTS. We expect that we will require substantial additional
capital to fully fund our business plan as currently contemplated, including our
26-market rollout, associated network buildout, operating losses in new markets,
working capital needs, required payment of interest and principal and financing
fees and expenses. Upon completion of this offering, we will have pre-funded a
majority of these capital requirements with cash, cash equivalents and
short-term investments currently on hand, commitments under our credit facility
led by GE Capital and the net proceeds from this offering. We anticipate raising
additional debt to fully fund the completion of our business plan. Capital
resources
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currently available to us (including the proceeds of this offering) are expected
to fund our business plan until approximately December 2001.
CASH FLOWS FROM OPERATING ACTIVITIES. Net cash used in operating activities
was $7.6 million for the year ended December 31, 1999 and $6.1 million for the
year ended December 31, 1998. Net cash used in operating activities was
primarily used to fund our net losses of $11.0 million in 1999 and $7.0 million
in 1998.
CASH FLOWS FROM INVESTING ACTIVITIES. Net cash used in investing activities
was $17.1 million for the year ended December 31, 1999 and $1.6 million for the
year ended December 31, 1998. In 1999, 95% of net cash used in investing
activities was for the purchase of property and equipment related to the
expansion of our network, support systems and back office systems.
CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing
activities was $58.2 million for the year ended December 31, 1999 and
$5.6 million for the year ended December 31, 1998. In 1999, net cash provided by
financing activities was primarily the result of $42.5 million of proceeds from
the sale of preferred stock and borrowings of $27.1 million under our credit
facility.
We expect to make significant capital outlays for the foreseeable future to
continue the development activities called for in our current business plan and
to fund expected operating losses. Until such time as we begin to generate
positive cash flow from operations, these capital expenditures will be financed
with additional capital. We believe that our current resources, together with
the net proceeds of this offering, will be sufficient to satisfy our immediate
liquidity needs; however, we cannot assure you to that effect. If our plans or
assumptions change, if our assumptions prove to be inaccurate or if we
experience unexpected costs or competitive pressures, we will be required to
seek additional capital sooner than currently expected. In particular, if we
elect to pursue significant additional acquisition or expansion opportunities,
our cash needs may be increased substantially, both to finance any such
acquisitions and to finance development efforts in new markets. We cannot assure
you that our current projection of cash flow and losses from operations, which
depends upon numerous future factors and conditions, many of which are outside
of our control, will be accurate. Actual results may vary materially from our
current projections. Because our cost of expanding our voice and data sales and
services efforts, funding other strategic initiatives and operating our business
will depend on a variety of factors, including, among other things, the number
of customers and the services for which they subscribe, the nature and
penetration of services that may be offered by us, regulatory and legislative
developments, the response of our competitors to a loss of customers to us and
changes in technology, it is likely that actual costs and revenues will vary
from expected amounts, very likely to a material degree, and such variations are
likely to affect our future capital requirements.
We intend to seek additional financing to fund our liquidity needs after we
use the proceeds from this offering. We cannot assure you that we will be able
to raise additional capital on satisfactory terms or at all. If we decide to
raise additional funds through the incurrence of debt, our interest obligations
will increase and we may become subject to additional or more restrictive
financial covenants. If we decide to raise additional funds through the issuance
of equity, the ownership interests represented by our common stock will be
diluted. In the event that we are unable to obtain such additional capital or to
obtain it on acceptable terms or in sufficient amounts, we may be required to
delay the development of our network and business or take other actions that
could materially adversely affect our business, operating results and financial
condition.
IMPACT OF THE YEAR 2000 ISSUE
The year 2000 issue results from computer programs being written using two
digits rather than four to define the year. Any of our computer programs or
systems, or those of our suppliers, that have date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000.
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This could result in a system failure or miscalculation causing the disruption
of operations, including among other things:
- a temporary inability to process transactions;
- a temporary inability to send invoices;
- a temporary inability to engage in normal business activities; and
- interruptions of customer care.
To date we have not experienced any material Year 2000 issues of which we
are aware with any of our internal systems or our telecommunications products,
and we do not anticipate experiencing such issues in the future. Our total cost
to address our Year 2000 issues was immaterial. We have not deferred any
material information technology projects due to our Year 2000 efforts.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
We do not have operations subject to risks of foreign currency fluctuations,
nor do we use derivative financial instruments in our operations or investment
portfolio. Our earnings are affected by changes in interest rates as our long
term debt has variable interest rates based on either the prime rate or LIBOR.
If interest rates for our credit facility had averaged 10% more and the full
amount available under our credit facility had been outstanding for the entire
year our interest expense would have increased by $0.7 million for the year
ended December 31, 1999. These amounts are determined by considering the impact
of the hypothetical interest rates on our borrowing cost and outstanding debt
balances. These analyses do not consider the effects of the reduced level of
overall economic activity that could exist in such an environment. In the event
of a change of such magnitude, management would likely take actions to mitigate
its exposure to the change. However, due to the uncertainty of the specific
actions that would be taken and their possible effects, the sensitivity analysis
assumes no changes in our financial structure.
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BUSINESS
OVERVIEW
We are a rapidly growing integrated communications provider offering
facilities-based broadband voice and data services to small and medium-sized
business customers in select markets within the western United States. Our
single source approach integrates local telephone, long distance and data
services, including DSL, high speed Internet access, private lines web hosting
and virtual private network services. We complement our voice and data services
with business telephone systems sales that allow us to market, sell, install,
service, bill and account for a complete product and service set.
BUSINESS STRATEGY
We seek to be the leading provider of broadband telecommunications services
to small and medium-sized business customers in select markets in the western
United States. To achieve this goal, we are pursuing the following strategies:
FOCUS ON UNDERSERVED SMALL AND MEDIUM-SIZED BUSINESS CUSTOMERS IN SELECT WESTERN
UNITED STATES MARKETS
- SMALL AND MEDIUM-SIZED BUSINESSES. We will continue to focus on meeting
the needs of small and medium-sized business customers in the western
United States. Our typical customer does not employ a dedicated
telecommunications manager and has fewer than 50 access lines. We provide
these customers with the opportunity to purchase a comprehensive package
of telecommunications products and services from a single source. We
believe that these business customers have traditionally been underserved
by the incumbent telephone companies. In our markets, these companies
include US WEST and, to a lesser extent, GTE and Nevada Bell. We believe
that our potential customers frequently do not receive competing proposals
and that we face a level of competition far below that experienced by
integrated communications providers competing for larger customers.
- REGIONAL FOCUS ON TIER I, II AND III MARKETS. We have focused our initial
market roll-out in Tier I markets in the US WEST territory including
Minneapolis, Portland, Seattle, Denver, Phoenix and Salt Lake City. We
define Tier I markets as cities with populations greater than
1.5 million. We are continuing our market roll-out to Tier II and Tier III
markets that are generally in close proximity to our core Tier I markets.
We define Tier II and Tier III markets as cities with populations between
100,000 and 1.5 million. We focus on building market share in a relatively
concentrated geographic area, allowing us to leverage our operations,
advertising and network infrastructure.
- RELATIONSHIP WITH INCUMBENT TELEPHONE COMPANY. Our business is
concentrated in US WEST territory, which allows us to:
- develop key business practices based on our familiarity with US WEST
that speed our ability to install access lines;
- address the competitive strengths and weaknesses of our major
competitor;
- build business relationships with key US WEST contacts; and
- participate in and influence regulatory proceedings that may impact us.
For example, in connection with our intervention in the proceeding
relating to the US WEST/Qwest merger, we recently signed an agreement
with US WEST covering the state of Minnesota which requires US WEST to
meet certain levels of performance for installation, repair and billing
quality and imposes penalties for non-compliance.
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DEPLOY A FLEXIBLE, TECHNOLOGICALLY ADVANCED NETWORK IN A CAPITAL-EFFICIENT
MANNER
We are building our network by deploying advanced communications equipment
with the flexibility to meet the current and future needs of our customers. We
believe that our network deployment strategy will reduce our initial capital
expenditures, provide us with better control of customer service and reduce our
time to market. This strategy is built on several principles including:
- ADVANCED SWITCHING AND ACCESS TECHNOLOGY. We are deploying leading
technology including high capacity Nortel voice and data switches and
colocation equipment capable of integrating voice and data traffic over
the same line. We also provide our customers broadband connections to
facilitate access to our network and the Internet by using traditional T-1
access and our own DSL equipment. Our advanced network platform will allow
us to serve customer needs using voice-over DSL capabilities, which allows
transmission of voice and data traffic over the same access line and with
incremental network expansion, voice-over IP capabilities which allows
transmission of voice and Internet access over the same access line. We
are also deploying an ATM network to connect our switches and carry voice
and data traffic.
- CAPITAL EFFICIENCY. We will continue to deploy our network in a staged and
cost-effective manner by:
- building sales and market share before each switch is operational and
providing broad market coverage through sale of Centrex service, which
is a value-added business telephone service offered by US WEST and
Nevada Bell that we purchase at attractive wholesale rates and invoice
on our own bill;
- providing broad facilities-based coverage by colocating in
densely-populated areas so that we can access unbundled network elements
to reach approximately 70% of the business access lines within our
markets from approximately 15% of the available colocation sites; and
- deploying our own intra-city and long-haul fiber optic network as demand
justifies.
PROVIDE A COMPLETE TELECOMMUNICATIONS SOLUTION AT A COMPETITIVE PRICE WITH
SUPERIOR CUSTOMER SERVICE
We believe that small and medium-sized business customers want bundled
services from a single source with competitive pricing and exceptional customer
service.
- BUNDLED SERVICES. Small and medium-sized businesses require a complete
range of advanced data, Internet, local and long distance services. They
typically prefer to purchase these services from a single provider rather
than from multiple providers. In addition, we complement our service
offerings by selling business telephone systems. Our telephone systems
experts advise customers on their equipment selection and sell, install
and maintain the equipment, thereby establishing close customer
relationships.
- COMPETITIVE PRICING. Small and medium-sized businesses require customized
services at competitive prices, which we believe are not being provided by
the incumbent telephone companies. Government regulations require
incumbent telephone companies to provide service to an entire community
and therefore they are not able to focus on a particular market to provide
the most cost-effective services. We believe that our ability to focus on
the small and medium-sized business market segment allows us to provide
more competitive prices. We can also provide cost-effective service
because our equipment and systems are more technologically advanced, and
we have less overhead.
- SUPERIOR CUSTOMER SERVICE. We seek to provide a higher level of customer
service than our small and medium-sized customers have traditionally
experienced. We develop long-term relationships
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with our customers by acting as their telecommunications manager and by
staying in close and regular contact with them. We provide superior
customer service at the local level including:
- a dedicated account manager responsible for proactive customer
management and responding to customer needs;
- local sales representatives who understand the needs of small businesses
in a particular locality;
- rapid, on-site response to service problems from our local technicians;
and
- leading operational and billing support systems that facilitate
exceptional customer service.
CAPITALIZE ON BUSINESS TELEPHONE SYSTEMS SALES TO DRIVE REVENUE GROWTH AND
MAINTAIN CUSTOMER LOYALTY
We sell and service business telephone systems. Since our inception in 1996,
we have acquired four such companies serving six of our initial markets. As we
expand into new markets, we plan to continue acquiring companies engaged in
business telephone system sales. The acquisition of these companies helps us to:
- CROSS-SELL TO OUR OWN CUSTOMERS. Our sales and service relationship
enables us to cross-sell voice and data services to our business telephone
systems customers, who are typically two to three times larger than our
average voice and data services customer. This provides us an attractive
base of target customers for our voice and data services. Conversely, we
are also able to sell business telephone systems to our voice and data
services customers.
- IMPROVE CUSTOMER SERVICE AND MAINTAIN CUSTOMER LOYALTY. Our business
telephone system sales are an important strategic asset, as our frequent
contact with our customers allows us to build a close customer
relationship and provide a high level of customer service. Frequent
customer contact also helps us to anticipate changing customer needs,
respond quickly to customer concerns and learn about proposals from
competitors. In addition, these companies provides us with rapid access to
quality field service technicians.
EMPLOY TEAM SALES APPROACH TO CROSS-SELL MULTIPLE PRODUCTS AND SERVICES
- TEAM SALES APPROACH. We use a team sales approach to sell
telecommunications products and services. This approach utilizes sales
specialists with expertise in traditional voice services, advanced data
services and business telephone systems. Our team approach allows us to
train experts in each area and increase our ability to cross-sell our
products and services. Each customer is also assigned an account manager
to provide ongoing service, anticipate future needs and promote additional
sales.
- INCENTIVES TO UTILIZE TEAM APPROACH. We structure our compensation to
promote teamwork. When a sale is completed on a team basis, all of the
members of the team, including the initiating sales person, receive a part
of the commission.
LEVERAGE OUR NETWORK TO EXPAND ADVANCED DATA AND IP SERVICE OFFERINGS
In January 2000, we acquired Fishnet.com, a facilities-based Internet
service provider, focused on providing complete Internet and advanced data
services to businesses. This acquisition gives us the capability to integrate
advanced data services with our telecommunications offerings. In addition, the
acquisition provides us with a team of experienced managers in sales, data
switching, network management, security services and information services.
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We are committed to providing our customers a complete suite of advanced
data services. Currently we provide the following data services:
- DSL;
- dedicated and dial-up Internet access;
- e-mail and website hosting;
- local and extended area network consulting and implementation;
- dedicated bandwidth and colocation for other service providers; and
- Internet security capability.
As we deploy our network and acquire additional customers, we will expand
our offering of advanced data services to include:
- applications services hosted on our network;
- voice-over DSL; and
- new service packages based on voice-over IP.
INDUSTRY OVERVIEW
The local telecommunications market in 2000 is similar in many respects to
the long distance market shortly after the opening of that market to
competition. Before the break-up of AT&T in 1984, AT&T had a near monopoly on
all long distance service in the United States. Deregulation provided an
opportunity for firms offering superior service and pricing to enter the long
distance market and enabled the creation of significant companies such as MCI,
Sprint, WorldCom and Frontier. AT&T's share of the long distance market has
declined from nearly 100% to approximately 50% today. In the local
telecommunications market, the incumbent telephone companies had a monopoly
prior to the Telecommunications Act. This law required the incumbent telephone
companies to unbundle network elements and permit companies such as ours to
purchase only the origination and termination services they need at wholesale
prices. The result has been the opening of the local telecommunications market
to competition.
Only 3% to 5% of the local telecommunications market has been penetrated by
providers other than the incumbent providers. We believe that over the next five
years, competitive local telephone providers will gain a significantly greater
percentage of this market because the incumbent telephone companies provide
marginal customer service and limited product offerings. According to industry
analysts, integrated communications providers' revenues will grow from
$5.5 billion in 1998 to $14.0 billion in 2002, representing a 26% compounded
annual growth rate.
GROWTH IN DEMAND FOR DATA SERVICES
According to Cahners In-Stat Group, a leading industry analyst, the market
for domestic business data services is estimated to grow from $22.7 billion in
1998 to $50.6 billion in 2003, representing a 17% compounded annual growth rate.
The small and medium-sized business segment of this market is estimated to grow
from $5.2 billion in 1998 to $13.3 billion in 2003, representing a 21%
compounded annual growth rate.
Three principal drivers of increased demand for data services are Internet
usage, e-commerce and applications services. International Data Corp., or IDC
estimates that the number of Internet users in the United States exceeded
69 million in 1998 and will grow to over 197 million by 2003, representing a 23%
compounded annual growth rate. IDC also estimates that the volume of e-commerce
in the United States exceeded $44.0 billion in 1998 and will grow to over
$726.0 billion by 2003, representing
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a 75% compounded annual growth rate. In 1999, customers spent $300.0 million on
enterprise, collaborative and personal applications services. IDC expects
customer spending on these services to grow at a 92% compounded annual growth
rate to reach $7.7 billion in 2004.
GROWTH IN DEMAND FOR VOICE SERVICES
According to the Yankee Group, the market for domestic business voice
services is estimated to grow from $113.0 billion in 1998 to $137.0 billion in
2002 representing a 5% compounded annual growth rate. The small and medium-sized
business segment of this market is estimated to grow from $49.0 billion in 1998
to $75.4 billion in 2003 representing a 9% compounded annual growth rate.
OUR MARKETS
Our network deployment consists of three phases. Our Phase I and II
deployments, which we expect to complete by the end of 2000, will consist of six
voice switches, seven advanced data switches and 123 colocations in 11 markets.
Our Phase III deployment, currently scheduled to be completed by
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the end of 2001, will further expand our western coverage of the United States
giving us a total of 12 voice switches, 13 data switches and 191 colocations in
26 markets.
<TABLE>
<CAPTION>
PERCENTAGE OF
BUSINESS ACCESS
LINES
2000 ADDRESSABLE
2000 TOTAL BUSINESS NUMBER OF FROM OUR
MARKET 2000 POPULATION(1) ACCESS LINES(2) ACCESS LINES COLOCATIONS COLOCATIONS
- ------ ------------------ --------------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
PHASE I
Minneapolis, MN 2,924,590 1,800,797 544,999 15 47%
St. Paul, MN 417,671 264,475 74,751 4 79
Seattle, WA 3,127,820 1,998,915 618,144 17 56
Portland, OR 2,148,409 1,383,986 450,687 20 79
Denver, CO 2,477,730 1,782,224 580,407 20 74
Boulder, CO 146,325 83,498 35,930 1 93
PHASE II
Phoenix, AZ 3,223,871 1,964,981 532,227 18 83
Salt Lake City, UT 1,610,886 867,548 290,426 19 91
Salem, OR 533,781 202,233 76,371 3 72
Eugene, OR 337,053 226,911 73,799 3 93
Tacoma, WA 310,519 216,944 75,283 3 66
PHASE III
Reno, NV 572,613 307,125 135,542 4 61
Albuquerque, NM 875,458 424,967 166,543 6 71
Billings, MT 333,522 236,327 89,901 4 60
Boise, ID 562,516 256,746 129,660 4 72
Colorado Springs, CO 537,520 177,640 99,434 3 80
Fargo, ND 328,153 150,007 78,207 3 60
Fort Collins, CO 243,345 171,277 61,307 3 98
Idaho Falls, IL 239,608 159,509 63,918 3 74
Medford, OR 259,922 184,651 64,776 3 81
Olympia, WA 325,401 207,913 63,017 3 77
Omaha, NE 1,029,768 676,143 227,976 11 66
Provo, UT 356,857 163,363 52,329 2 70
Santa Fe, NM 199,854 145,797 58,899 3 89
Spokane, WA 902,144 495,410 170,107 9 70
Tucson, AZ 830,635 499,905 126,598 7 89
---------- ---------- --------- --- ---
24,855,971 15,049,292 4,941,239 191 71%
</TABLE>
- ------------------------
(1) Source: U.S. Census Bureau Report as of December 31, 1997 based on basic
trading areas. We have assumed a 2.5% compounded annual growth rate.
(2) Source: Federal Communications Commission, Statistics of Common Carriers as
of December 31, 1999. We have assumed a 4.5% compounded annual growth rate.
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NETWORK OVERVIEW AND DEPLOYMENT
VOICE AND DATA SWITCHES
We are deploying Nortel switches in each of our major markets. We use Nortel
DMS switches for local and long distance services and Nortel Passport ATM
switches for advanced data services. The Nortel DMS 500 switch can provide local
and long distance services using the same switch, reducing expenses such as
training, maintenance, facilities, space and power. The Nortel Passport ATM
switch is highly flexible and integrates well with other Nortel voice and DSL
platforms to provide voice and data services over a single network.
COLOCATIONS AND DSL EQUIPMENT
We use the Nortel Universal Edge 9000 UE9000 access node technology in each
of our colocation sites to provide DSL and local or long distance services to
our customers. The UE9000 access node enables voice services and various types
of DSL data services to be offered to customers over a single line. With the
addition of an integrated access device at the customer location, our equipment
will also allow us to provide voice-over DSL. The UE9000 also combines voice and
data equipment into a single network bay thereby reducing colocation space in
telephone company central offices which is a finite and costly resource. With
this integrated equipment we can also achieve greater port densities allowing
over 10,000 voice and data lines to be served from a single 10 ft. by 10 ft.
colocation cage.
INTRA-CITY FIBER DEPLOYMENT
As we develop a significant voice service customer base in each market and
overlay our Internet and data services, we anticipate a significant demand for
fiber optic bandwidth to support this traffic. Since we will start by leasing
fiber capacity in each market, the recurring monthly lease expense will grow
with this demand. We can achieve cost savings by purchasing long term rights to
high capacity fiber optic lines in our markets by interconnecting our switch
sites and colocations. This fiber is purchased by a one-time upfront fee that
offsets the recurring monthly lease expenses. We will install our own fiber
optic electronics equipment to "light" the fiber and directly manage the
bandwidth and capacity.
INTER-CITY ATM BACKBONE NETWORK
Our Nortel Passport ATM switches will provide data service switching in our
major markets. The Passport switches will be interconnected through leased
long-haul transport obtained from other wholesale providers. This ATM backbone
will be capable of carrying both voice and data traffic over shared connections
between switch locations. Customer access to the Internet, virtual private
networks and long-haul voice service will travel over this network. ATM is a
fully redundant, state-of-the-art transmission and switching technology that is
more efficient than traditional dedicated circuit networks.
DATA CENTERS
We are building data centers in each major market that will function as
multi-service communications centers. Each center will include space for
cabinets of servers, as well as our customers' colocated equipment. We typically
have between 500 and 2,700 square feet of space available in each center in
which to provide colocations.
Colocating provides our customers with inexpensive equipment housing in a
highly secure, environmentally controlled and monitored space. We will offer
secured racks, cabinets or caged colocation space ranging from 12 to 100 square
feet of space. In the future, we expect to host applications services using
these data centers.
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CUSTOMER ACCESS METHODS
We have the ability to serve all of the small and medium-sized business
customers in our targeted markets by one or more of the following methods:
- UNBUNDLED NETWORK ELEMENTS. We colocate our telephone access equipment in
the incumbent local telephone company's central offices and lease the
incumbent telephone company's copper wires, known as unbundled network
elements, to connect to the customer's location. Customer locations with
fewer than 12 phone lines are most likely to be served with this method.
We provide broad facilities-based coverage by colocating in
densely-populated areas so that we can access unbundled network elements
to reach approximately 70% of the business access lines within our markets
from approximately 15% of the available colocation sites.
- DEDICATED DIRECT CONNECTION TO A SINGLE CUSTOMER. Larger customers with
greater than 12 lines at a single location can be accessed by leasing high
capacity connections directly from our switch site to the customer's
location. We can also offer the ability to share a single T-1 connection
for both voice and data services and apportion the circuit capacity for
voice and data depending upon customer requirements. With this option, a
customer with fewer than 12 lines and high speed data needs can justify a
dedicated connection.
- DEDICATED BUILDING ACCESS. We will deploy digital loop carrier equipment
and building wiring into some multi-customer locations, thereby
aggregating traffic from several customers onto a high capacity line back
to our switch.
- DSL. We provide dedicated connections over a pair of copper wires
utilizing DSL technology. Our customers use DSL lines for data
applications such as Internet access, intranets, extranets, telecommuting,
ecommerce, e-mail, video conferencing and multimedia. DSL is provided on
the same copper wires as voice service or as a dedicated line dependent
upon customer upstream data speed requirements. DSL is not available to
all customers due to copper loop length limitations.
- CENTREX. We offer Centrex, a value-added business telephone service we
purchase through US WEST and Nevada Bell at attractive wholesale rates and
invoice on our own bill. We can serve from two to 40-line single location
customers with this method. This method is preferred in areas where we
have assembled a large number of customers, but have not yet colocated
equipment in the central office.
- FLAT RATE BUSINESS RESALE. This method fills in service areas with low
customer concentrations. Customers with fewer than 12 lines that fall
outside our colocation footprint or in an area where there are few other
customers will be served by this method. As a concentration develops in
these areas we expect to migrate these customers to other access methods.
As we expand our colocation facilities, we expect the number of customers
served by flat rate business resale will decrease significantly.
NORTEL RELATIONSHIP
We maintain a very positive working relationship with Nortel, our key
telecommunications equipment supplier. We have established the following
relationships with Nortel:
EQUIPMENT. In June 1999, we entered into a renewable three-year equipment
purchase agreement with Nortel. Under this agreement Nortel agreed to finance
the purchase of $10 million in telecommunications equipment and services related
to the network deployment in our first four major markets. This agreement was
amended in November 1999 to allow for the purchase of up to $45 million of
additional equipment and services related to our network deployment. Pursuant to
this agreement, we will be one of the first integrated communications providers
to distribute both the new
41
<PAGE>
Enterprise Edge 1000 PBX product and the Meridian digital Centrex business
telephones. The Enterprise Edge 1000 is a new business telephone system that can
operate on the customer's local area network and pass traffic to other locations
over the customer's wide area network.
SERVICES. Nortel provides network planning, installation, and project
management services during network implementation and deployment in each market.
In June 1999, we entered into a professional services agreement under which
Nortel provides us ongoing operational resources, including a full-time, on-site
technician to assist in the maintenance and operation of our equipment at each
switch site. In addition, a Nortel network operations center provides off-hour
and weekend system surveillance and maintenance services. We anticipate
utilizing these resources for a period of one year following the deployment of
each switch site. With this arrangement we can operate more cost-effectively and
we are better able to focus our internal resources on entering new markets and
servicing customers during the first year of service.
SYSTEMS. In December 1999, we entered into an agreement to purchase
Nortel-integrated network management systems. These systems allow us to monitor
network conditions, create trouble tickets and automatically test customer
lines. We are the first integrated communications provider to deploy many of
these new systems. We will become a Nortel-designated showcase site for these
types of network management systems.
PRODUCTS AND SERVICES
As an integrated communications provider, we offer a broad range of voice,
data and integrated telecommunications products and services to meet the needs
of small and medium-sized business customers. Our product lines and suppliers
are selected based on the size and required services of our target customers,
the manufacturer or supplier's reputation, reliability and support programs,
contract terms and projected profitability, and the availability of agency
programs, wholesale programs and marketplace distributorships.
VOICE AND DATA SERVICES
We offer a comprehensive selection of voice and data services, including
local telephone line service and features, long distance services, advanced data
services including Internet access.
LOCAL BUSINESS TELEPHONE SERVICES. We provide customers with a variety
of local telephone line services and features designed to meet their
specific needs.
LOCAL ACCESS LINES. We offer traditional business lines (private
branch exchange, or PBX, interconnection trunks), direct inward and
outward dial trunks, and analog and digital access. We also offer local
high capacity access lines to help high-volume users with 12 or more
phone numbers to save on line and feature costs.
LOCAL SERVICE ENHANCED FEATURES. Many of our service packages include
features at no additional cost. The most popular features are those that
are essential in managing call receipt, management and distribution,
including hunting, forwarding and transferring. Other features, such as a
full service of voice messaging, caller ID, call waiting, three-way
calling and call hold, are convenient and can help improve employee
efficiency and system capacity. We currently offer and support over 100
features to enhance customers' telecommunications services.
LONG DISTANCE SERVICES. We provide a comprehensive line of domestic and
international long distance services.
OUTBOUND SERVICES. We offer a number of long distance service
packages created to meet the needs of our customers based on volume and
calling patterns.
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<PAGE>
INBOUND SERVICES. We provide toll free 800/888 service to our
customers.
SERVICES BETWEEN CITIES OR WITHIN A GREATER METROPOLITAN
AREA. Customers can use us for long distance services between cities or
within greater metropolitan areas.
CALLING CARDS. Our private label calling card, "The Travel Card,"
allows customers to access our network and receive published rates when
they make long distance calls when away from their offices.
OPERATOR SERVICES. Our customers have access to operator services for
assistance in placing calls.
DATA SERVICES. We currently offer the following data services:
DSL. We offer a variety of DSL service levels ranging from 144
kilobits per second up to 1.1 megabits per second using synchronous and
asynchronous DSL technology. Historically, we have offered DSL service
provided by Covad and US WEST. As we deploy our network, we will be able
to provide DSL service over our own facilities. By the end of 2000, we
also expect to offer a DSL technology known as G-lite, or "splitterless
DSL," which will not require a technician to install a splitter at the
customer location. This technology will allow us to serve customers in a
more expedited manner at a lower cost.
DEDICATED DATA LINES. We offer dedicated high capacity data
connections using frame relay technology over leased T-1 lines.
DIAL-UP INTERNET ACCESS. We offer dial-up Internet access primarily
as a complement to our business services to allow employees of our
customers to access the Internet from home.
ADVANCED DATA SERVICES. We offer advanced data services including
e-mail, webhosting services, virtual private networking and firewall
services. By the end of 2000, we plan to offer applications services over
our network.
LOCAL AND EXTENDED AREA NETWORK CONSULTING AND IMPLEMENTATION. We
provide our customers the hardware and software installations and network
capabilities required to connect locations throughout the United States
on the same network on a real or virtual dedicated network.
SECURE NETWORK CAPABILITY. We provide our customers with a variety of
security offerings including virtual private networks, firewalls and
secure routers.
COLOCATION SPACE IN OUR DATA CENTERS. We offer racks, cabinets and
caged colocation space and dedicated bandwidth to Internet service
providers, web deployers and systems integrators. Colocation provides our
customers with inexpensive equipment housing in a highly secure,
environmentally controlled and monitored space.
BUSINESS TELEPHONE SYSTEMS. Our business telephone systems products and
services include the initial sale of voice and data telecommunications hardware,
and subsequent sales of additional phone line equipment, maintenance agreements,
technical services and repairs.
PRODUCTS. Our hardware products include:
TELEPHONE TRANSMISSION PRODUCTS. We feature telephone equipment and
accessories manufactured by Inter-Tel, NEC, Mitel, Vodavi and Telrad. We
are also planning to add Nortel equipment to our product line this year.
DATA TRANSMISSION PRODUCTS. We use and offer data communications
products by AdTran, Newbridge, Micom, Cisco, FastCom and Ascend to
support our short and longer distance telecommunications network.
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<PAGE>
VOICE MESSAGING PRODUCTS. Voice messaging products are available for
customers who choose to own and operate their own systems. We sell
telecommunications products manufactured by our telephone system
suppliers, most of which are designed to augment their specific brands.
In addition, we sell telecommunications products by Active Voice, which
supports various other manufacturers' telephone equipment.
SERVICES. While initial product sales typically represent a one-time
transaction, we also generate recurring revenue streams from the following
services:
SYSTEM CONFIGURATIONS. We frequently advise customers of product
updates and are called upon to facilitate changes in our customers'
telephone system configurations.
MAINTENANCE AGREEMENTS. We offer our customers multi-year maintenance
agreements as part of our aftermarket service program.
TECHNICAL SERVICE AND REPAIR. We provide service and repair on a
time-and-materials basis for those customers not on maintenance programs.
SALES AND MARKETING
Each of our markets has dedicated personnel assigned to both sell and
maintain customer accounts. The sales force uses a consultative approach to
selling both communications products and services. Typically, initial contact is
made with a potential customer over the telephone by an inside salesperson. An
outside sales representative then meets with the potential customer to present a
general overview of our capabilities and listen to the potential customer's
needs and concerns regarding telecommunications products and services. Our sales
representatives then prepare and present a comprehensive service proposal based
on the potential customer's needs.
There are three types of personnel involved in our team sales approach:
- INSIDE SALES REPRESENTATIVES. The inside sales representatives use
telemarketing to generate customer leads for our outside sales
representatives, sell basic services to new customers and provide customer
service support. The inside sales positions are filled by entry level
people with some sales experience who are organized, persuasive and have
high energy levels. As of March 31, 2000, we employed 12 inside sales
people.
- OUTSIDE SALES REPRESENTATIVES. The outside sales representatives pursue
customer leads generated by the inside sales representatives and prospect
for their own customers. The outside sales representatives are dynamic,
highly motivated individuals who typically have transactional sales
experience, preferably in the telecommunications industry. Each of these
representatives is a sales specialist with expertise in one of the
following areas:
- advanced data;
- traditional voice services; and
- business telephone systems sales.
When a representative identifies a customer desiring services outside of
that person's area of expertise, the representative brings in another
sales specialist to help close the sale. As of March 31, 2000, we
employed 133 outside salespeople.
- ACCOUNT MANAGERS. The account managers manage the relationships with our
customers and respond to and support their ongoing needs. In addition to
account retention, account managers are responsible for proactively
identifying the changing telecommunications requirements of the customers.
As of March 31, 2000, we employed 40 account managers.
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<PAGE>
These three sales groups integrate their efforts through a team approach
created by a cross-commission structure to provide incentives to the sales team
to involve multiple sales personnel to cross-sell products and services. This
cross-commission structure has been organized around two central principles:
- The sales representative with the initial customer contact maintains that
relationship and coordinates bringing in required sales specialists; and
- All sales specialists involved in a sale share in commissions paid.
We believe that this type of incentive structure will reward all sales
representatives for cross-selling products and services to new and existing
customers, reducing the cost of sales and strengthening our relationships with
our customers.
CUSTOMER SERVICE
We have proven business processes and information management systems which
allow us to market, sell, install, service, bill and account for a complete
product and service set.
Each market has its own customer service personnel that reside locally. We
use a staff of highly-trained customer service representatives to address
initial business inquiries and customer orders as well as billing and service
issues arising after installation.
We achieve superior service by:
- having a local direct account manager that maintains a personalized
customer relationship;
- utilizing a proven customer-friendly billing system;
- utilizing proven customer installation processes in order to minimize
provisioning delays;
- providing centralized, disciplined and consistent service training; and
- having a management structure in each local market to make prompt
operational and tactical decisions.
We regularly solicit feedback from our customers regarding our performance
and, when required, take action to improve our service. We report the results of
our surveys to appropriate personnel and use the results to measure progress on
a frequent and ongoing basis.
BACK OFFICE SYSTEMS
Back office systems refer to the hardware and software systems that support
the primary functions of our operations, including:
- work flow order management and provisioning;
- billing;
- trouble management;
- electronic bonding interface; and
- sales force automation.
Our goal is to have a back office that allows us to convert our customers'
service from their current communications providers to our networks easily and
quickly. Over time, we strive to have "flow through" provisioning capabilities,
allowing services to be implemented through a single system that updates all
ordering, inventory, billing and monitoring systems.
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We have implemented the primary elements of our back office systems,
including systems that support order tracking, line installation and billing. We
believe we have selected the best application for each function. The following
table describes our key back office systems.
<TABLE>
<CAPTION>
SYSTEM PURPOSE IMPLEMENTATION
- ------ ------- --------------
<S> <C> <C>
MetaSolv Provisioning and workflow management Complete
ADC-Saville Billing Complete
US WEST IMA Electronic direct ordering and line installation Complete
Mantiss Interconnection communication Q2 2000
Access Care Trouble management/testing Q2 2000
Vitria Application/integration Q2 2000
Onyx Sales force automation/sales support Q2 2000
CDG Wholesale billing Q2 2000
</TABLE>
PROVISIONING AND WORKFLOW MANAGEMENT
Order entry involves the initial loading of customer data into our
information systems. Currently, our sales representatives take orders and our
customer care and line installation representatives load the initial customer
information into our ADC-Saville billing system and our MetaSolv workflow
management system. We intend to increase the efficiency and data accuracy of
these installation activities by implementing a sales force automation system to
be combined with ADC-Saville customer billing and MetaSolv workflow management
through application integration software. Implementing this system will
eliminate several manual steps in the provisioning process.
We use the MetaSolv workflow management system to manage and track the
timely completion of each step in the provisioning process. When MetaSolv is
coupled with the capabilities of the Mantiss interconnection communications
system, we believe we will be able to submit orders to external business
partners, including US WEST, electronically, thereby minimizing implementation
time, coordination complexities and installation costs. Currently, we process
orders electronically through US WEST's IMA electronic system.
In addition to the cost benefits associated with the electronic installation
of access lines and inventory management system, the MetaSolv software system
improves our internal processes in various other ways, including:
- directing electronic customer orders to the appropriate employee,
prompting them to complete required line installation tasks, including
network component assignments and management of outside vendor activities;
and
- tracking order progress and alerting operations personnel of steps
required to fulfill orders within standard work intervals.
BILLING
The ADC-Saville billing system provides our customers with a consolidated
invoice for all of our services. Customer calls generate billing records that
are transmitted from the call records to the ADC-Saville billing system. These
records are then processed by the billing software, which calculates usage,
integrates fixed monthly charges, calculates taxation and provides the data
necessary to create a simple customer invoice. We provide invoice information to
a third party printer, which prepares and distributes bills to our customers.
Our customers remit payments directly to our bank account.
This ADC-Saville system allows us to add advanced features such as special
discounts based on call volume, or number of services used, complex local
taxation and discrete billing options by type of service ordered. We believe
these features are exceptionally important given our focus on customer service.
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<PAGE>
US WEST INTERCONNECT MEDIATED ACCESS
Interconnect Mediated Access, or IMA is the US WEST system that allows our
customer service, trouble management and service line installation
representatives to access the US WEST operating systems. IMA allows us to send
local service requests to receive order commitments back from, reserve new
telephone numbers with, view an order's status at, and report customer problems
to US WEST.
MERGERS AND ACQUISITIONS
We expect to pursue merger and acquisition activity to further growth and
expansion both into new markets and more broadly across existing markets.
The following is a list of our acquisitions since 1996:
<TABLE>
<CAPTION>
PURCHASE
TYPE OF PURCHASE PRICE
ACQUISITION MARKETS BUSINESS DATE (IN MILLIONS)
- ----------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Cady Communications Minneapolis Business July 1996 $ 7.0
and St. telephone
Paul systems
American Telephone Technology Portland Business February 1997 2.0
and Seattle telephone
systems
Electro-tel Denver and Business December 1997 0.6
Boulder telephone
systems
Tele-Contracting Specialists Seattle and Business July 1998 1.0
Portland telephone
systems
One Call Telecom Minneapolis Centrex August 1998 1.2
and St. services
Paul
Infinite Voice Mail Denver and Voice mail August 1999 0.1
Boulder services
Fishnet.com Minneapolis Internet January 2000 6.8
and St. services
Paul
-----
Total $18.7
=====
</TABLE>
COMPETITION
The telecommunications industry is highly competitive. We believe we compete
principally on the basis of customer service, accurate billing, variety of
services and, to a lesser extent, pricing levels and less complex pricing
structures. Our ability to compete effectively depends upon our continued
ability to maintain high quality, market-driven services at prices generally
equal to or below those charged by competitors. To maintain our competitive
posture, we believe that we must be able to provide high quality integrated
communications services and be positioned to reduce our prices in response to
potential competition. Any of these reductions could adversely affect us. Many
of our current and potential competitors have financial, technical, marketing,
personnel and other resources, including brand name recognition, substantially
greater than ours, as well as other competitive advantages over us.
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<PAGE>
INCUMBENT TELEPHONE COMPANIES
In our existing markets, we compete principally with US WEST. As a recent
entrant in the telecommunications services industry, we may not achieve a
significant market share for any of our services in our markets. In particular,
US WEST and other incumbent telephone companies have long-standing relationships
with their customers, have financial, technical and marketing resources
substantially greater than ours, have the potential to subsidize competitive
services with revenue from a variety of businesses and currently benefit from
existing regulations that favor these incumbent telephone companies over us in
some respects. While recent regulatory initiatives, which allow incumbent
communications provider such as us to interconnect with the incumbent telephone
companies facilities, provide increased business opportunities for us, these
interconnection opportunities have been, and likely will continue to be,
accompanied by increased pricing flexibility for and relaxation of regulatory
oversight of the incumbent telephone companies. Future regulatory decisions
could grant incumbent telephone companies increased pricing flexibility or other
regulatory relief. These initiatives could also have a material adverse effect
on us.
INTEGRATED COMMUNICATIONS PROVIDERS, INCUMBENT TELEPHONE COMPANIES AND OTHER
MARKET ENTRANTS
We also face competition from other current and potential market entrants.
These market entrants include long distance providers that compete with our long
distance services and seek to enter, reenter or expand into the local
telecommunications market. AT&T, GTE, Worldcom and Sprint are among these
providers. Incumbent communications providers, resellers of local telephone
services, competitive access providers, cable television companies, electric
utilities, microwave carriers, wireless telephone system operators and private
networks built by large end-users also compete with us. In addition,
consolidation and strategic alliances within the telecommunications industry, or
the development of new technologies could put us at a competitive disadvantage.
Not only does the Telecommunications Act impose regulatory requirements on all
incumbent communications providers, but it also grants the FCC expanded
authority to reduce the level of regulation applicable to any incumbent
communications provider, including any incumbent telephone companies. The manner
in which these provisions of the Telecommunications Act are implemented and
enforced could have a material adverse effect on our ability to compete
successfully against the incumbent telephone companies and other incumbent
communications providers.
The changes in the Telecommunications Act radically altered the market
opportunity for new integrated communications providers. Because the
Telecommunications Act requires incumbent telephone companies to unbundle their
networks, new integrated communications providers are able to rapidly enter the
market by installing switches and leasing fiber lines. Newer providers, like us,
and some competitors that we may encounter in some of our markets, will not have
to replicate existing facilities until traffic volume justifies building them,
and can be more opportunistic in designing and implementing networks.
In addition to the new telecommunications services providers, incumbent
telephone companies and other competitors listed above, we may face competition
from other market entrants such as electric utilities, cable television
companies and wireless companies. Electric utilities have existing assets and
low cost access to capital which could allow them to enter a market rapidly and
accelerate network development. Cable television companies are entering the
telecommunications market by upgrading their networks with fiber optic lines and
installing facilities to provide fully interactive transmission of broadband
voice, video and data communications. Finally, wireless companies intend to
develop wireless technology for deployment in the United States as a broadband
substitute for traditional wireline local telephones. Some Internet companies
are also developing applications to deliver switched voice communications over
the Internet.
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<PAGE>
LONG DISTANCE SERVICE
The long distance telecommunications industry has numerous entities
competing for the same customers and a high churn rate, as customers frequently
change long distance providers in response to offerings of lower rates or
promotional incentives. Prices in the long distance market have declined
significantly in recent years and are expected to continue to decline. Our
primary competitors are the major incumbent telephone companies and resellers of
long distance services. We believe that pricing levels are a principal
competitive factor in providing long distance service; however, we seek to avoid
direct price competition by packaging long distance service, local service,
customer premises equipment and Internet access service together with a simple
pricing plan.
BUSINESS TELEPHONE SYSTEMS SALES
We compete with numerous equipment vendors and installers and
telecommunications management companies for the business telephone systems and
related services. We generally offer our products at prices consistent with
other providers and differentiate our service through our product packages.
DATA/INTERNET SERVICES
The Internet services market is highly competitive, and we expect that
competition will continue to intensify. Internet service, meaning both Internet
access and on-line content services, is provided by Internet services providers,
satellite-based companies, long distance providers and cable television
companies. Many of these companies provide direct access to the Internet and a
variety of supporting services to businesses and individuals. In addition, many
of these companies, such as America Online, MSN, Prodigy and WebTV, offer
on-line content services consisting of access to closed, proprietary information
networks. Long distance companies, among others, are aggressively entering the
Internet access markets. Long distance providers have substantial transmission
capabilities, traditionally carry data to large numbers of customers and have an
established billing system infrastructure that permits them to add new services.
Satellite companies are offering broadband access to Internet from desktop PCs.
Cable companies are starting to provide Internet services using cable modems to
customers in major markets. Many of these competitors have substantially greater
financial, technological, marketing, personnel, name-brand recognition and other
resources than those available to us.
EMPLOYEES
As of March 31, 2000, we employed almost 600 employees. Twenty-eight
technicians who install and service business telephone systems are members of
the International Brotherhood of Electrical Workers. The current bargaining
agreement is in effect through February 28, 2002.
We believe that relations with our employees, including members of the labor
union, are good. We have not experienced any work stoppage due to labor
disputes.
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PROPERTIES
We are headquartered in Minneapolis and currently have operations in
Minneapolis, St. Paul, Seattle, Portland, Denver, Boulder, Reno, Phoenix and
Salt Lake City.
The table below lists our current leased facilities:
<TABLE>
<CAPTION>
SQUARE
LOCATION LEASE EXPIRATION FOOTAGE PURPOSE
- -------- ------------------ -------- -------------------------------------
<S> <C> <C> <C>
Minneapolis, MN October 31, 2004 23,644 Main Office
Minneapolis, MN June 30, 2009 17,342 Office/Voice and Data Switch Facility
Minneapolis, MN November 30, 2004 10,609 Office/Data Switch Facility
Seattle, WA December 31, 2009 12,645 Switch Facility
Denver, CO February 1, 2010 6,763 Switch Facility
Salt Lake City, UT January 31, 2010 6,744 Switch Facility
Phoenix, AZ May 15, 2010 6,028 Switch Facility
Portland, OR December 31, 2009 4,878 Switch Facility
Golden Valley, MN January 31, 2007 33,246 Office/Warehouse
Tukwila, WA December 31, 2002 12,500 Office/Warehouse
Maple Grove, MN September 14, 2000 12,035 Office/Warehouse
Portland, OR May 31, 2002 6,193 Office/Warehouse
Wheatridge, CO January 31, 2001 3,653 Office/Warehouse
Englewood, CO January 31, 2004 3,552 Office/Warehouse
Wheatridge, CO November 30, 2006 9,514 Office
Redmond, WA September 30, 2001 3,847 Office
Portland, OR November 30, 2004 2,064 Office
Reno, NV September 14, 2001 1,536 Office
</TABLE>
LEGAL PROCEEDINGS
We are not currently involved in any material legal or administrative
proceedings, nor have we been involved in any such proceedings that have or may
have a significant effect on our financial condition. We are not aware of any
material legal or administrative proceedings pending or threatened against us.
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<PAGE>
GOVERNMENT REGULATION
OVERVIEW
Our telecommunications services are subject to regulation by federal, state
and local government agencies. Generally Internet and data services are not
directly regulated, although the underlying telecommunications services may be
regulated in certain instances. We hold various federal, state and local
regulatory authorizations for our regulated service offerings. The FCC has
jurisdiction over our facilities and services used in the provision of
interstate or international telecommunications. State regulatory commissions
also have jurisdiction over our facilities and services used in intrastate
telecommunications. Municipalities and other local government agencies may
require integrated communications providers to obtain permits such as zoning,
approving and building permits, licenses or franchises regulating use of
telecommunications equipment placed in public rights-of-way. At present, we have
not placed any facilities in public rights-of-way, although we may do so in the
future. The networks also are subject to other local regulations such as
building codes and public safety and welfare requirements. Many of the
regulations issued by these regulatory bodies may change and may be the subject
of various judicial proceedings, legislative hearings and administrative
proposals. We cannot predict the results of any of these proceedings or changes,
nor what impacts they may have upon our business.
FEDERAL REGULATION
The FCC regulates us as a non-dominant common carrier, or one that is not
considered to have market power in the product or geographic markets in which we
operate. Non-dominant providers are subject to less regulation than dominant
providers, but are nonetheless required to offer rates that are just, reasonable
and nondiscriminatory. We have obtained authority from the FCC to provide
domestic interstate long distance services and international services between
the United States and foreign countries. While we believe we are in compliance
with applicable laws and regulations, we cannot assure you that the FCC or third
parties will not raise issues with regard to our compliance.
THE TELECOMMUNICATIONS ACT
DUTIES IMPOSED ON INTEGRATED COMMUNICATIONS PROVIDERS AND INCUMBENT
TELEPHONE COMPANIES
In February 1996, the Telecommunications Act became law. This comprehensive
telecommunications legislation was designed to increase competition for long
distance and local telecommunications services. The Telecommunications Act
imposes a variety of duties on providers of local telecommunications services to
facilitate competition in the provision of local telecommunications and access
services. Like all incumbent telephone companies, where we provide local
services, we are required to:
- interconnect our networks with those of other telecommunications
providers;
- establish reciprocal compensation arrangements for the line and
termination of telecommunications;
- permit resale of our services;
- provide nondiscriminating access to telephone numbers, operator services,
directory assistance and directory listing with no unreasonable dialing
delay;
- permit users to retain their telephone numbers when changing providers;
and
- provide competing providers with access to poles, ducts, conduits and
rights-of-way, if any.
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<PAGE>
Incumbent telephone companies, such as a regional Bell operating company,
must also:
- permit any requesting telecommunications carrier to interconnect with
their network at any technically feasible location on rates, terms and
conditions that are just, reasonable and nondiscriminatory and at least as
favorable as those the company provides to itself or to any of its
subsidiaries or affiliates;
- provide access to individual network elements or unbundled elements,
including network facilities, features and capabilities, on just,
reasonable and non-discriminatory terms;
- permit colocation of competitors' equipment that is necessary for
interconnection or access to unbundled network elements at their premises
on rates, terms and conditions that are just, reasonable and
nondiscriminatory; and
- offer their retail telecommunications services for resale at wholesale
rates.
REGIONAL BELL OPERATING COMPANY ENTRY INTO LONG DISTANCE MARKETS
In addition to imposing these duties upon incumbent telephone companies, the
Telecommunications Act also eliminates the ban on the provision of long distance
services by the regional Bell operating companies. Regional Bell operating
companies, such as US WEST, are currently permitted to provide long distance
service outside those states, or out-of-region, in which they provide local
service. To provide out-of-region long distance services, the regional Bell
operating company must receive state and federal regulatory approval. GTE and
other independent incumbent telephone providers may also provide "in-region"
long distance service; that is, they may provide long distance service within
the regions in which they also provide local telecommunications service. The
regional Bell operating companies, however, are not permitted to provide
in-region long distance service until they demonstrate to the FCC, with input
from state regulatory agencies and the U.S. Department of Justice, that they
have complied with a statutory checklist of requirements intended to open local
telephone markets to competitors.
To date, the FCC has approved only Bell Atlantic's application to provide
in-region long distance service in New York. US WEST has requested state
regulatory agencies to review its compliance with the checklist to provide
in-region long distance service in Arizona, Colorado and Nebraska and has
petitioned other state commissions to initiate workshops or other proceedings to
address US WEST's compliance. Prior to Bell Atlantic's application, the FCC had
rejected every in-region long distance application by other regional Bell
operating companies in large part because they did not provide adequate
operational support systems to telecommunications providers seeking to provide
local telephone service through resale or through lease unbundled network
elements. A Regional Oversight Committee, or ROC, a body comprised of
commissioners from every state in which US WEST operates as a incumbent
telephone provider except Arizona, has been established to develop a
comprehensive test of the adequacy of US WEST's operational support systems. The
ROC process may aid US WEST in gaining in-region long distance approval from the
FCC for all its states.
While our business may benefit as a result of US WEST's efforts to open its
local markets to competitors in order to provide in region long distance
service, it may well be adversely affected as US WEST's competitive position is
strengthened by its ability to provide a comprehensive suite of
telecommunications services to its customers. However, the Telecommunications
Act imposes restrictions on regional Bell operating companies after they are
permitted to provide in-region long distance services. Among other things, for
the first three years, unless this time period is extended by the FCC, US WEST
will be able to provide these services only through separate subsidiaries with
separate books and records, financing, management and employees. In addition,
transactions between US WEST affiliates and these subsidiaries must be conducted
on a non-discriminatory basis.
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FCC LOCAL COMPETITION RULEMAKINGS
The Telecommunications Act charges the FCC with establishing national rules
to implement its important provisions. In August 1996, the FCC released an order
adopting an extensive set of rules governing local competition, including
interconnection with and unbundling of incumbent telephone company networks and
resale of incumbent telephone company services. Among other rules, the FCC
established a list of seven network elements, comprising most of the significant
facilities, features, functionalities or capabilities of the network that the
incumbent telephone company must unbundle. The FCC also ruled that incumbent
telephone companies must provide new telecommunications service providers with
combinations of unbundled network elements, making it possible for new
telecommunications service providers, in many instances, to provide service to
customers by leasing all of the component unbundled network elements from the
incumbent telephone company. In addition, the FCC mandated a particular
forward-looking pricing methodology for these network elements that produces
relatively low element prices that are favorable to competitors.
In July 1997, the U.S. Court of Appeals for the Eighth Circuit vacated
substantial portions of these rules, principally on the ground that the FCC had
improperly encroached upon state jurisdiction. In January 1999, the U.S. Supreme
Court largely reversed the Eighth Circuit's decision and supported the FCC's
jurisdiction over the local competition provisions of the Telecommunications
Act. In particular, the Supreme Court found that the FCC has authority to
establish pricing guidelines for unbundled network elements and wholesale
services, to prevent incumbent telephone companies from disaggregating existing
combinations of network elements and to permit integrated communications
providers to select all or portions of any existing incumbent telephone company
interconnection agreements in fashioning their own agreements. The Supreme
Court, however, did not evaluate the specific pricing methodology adopted by the
FCC and remanded the case to the Eighth Circuit for further consideration. The
Eighth Circuit heard oral arguments on this pricing issue on September 16, 1999,
but has not yet issued a ruling. We cannot predict the outcome of this
proceeding. If the Eighth Circuit fails to uphold the FCC's forward-looking
pricing methodology, it may materially adversely affect our business. While the
Supreme Court resolved many issues, including the FCC's jurisdictional
authority, other issues remain subject to further consideration by the courts
and the FCC.
Although most of the FCC's local competition rules were upheld by the
Supreme Court, the Supreme Court did find that the FCC had not adequately
considered the statutory criteria for requiring incumbent telephone companies to
make unbundled network elements available to competitors. The FCC then conducted
new proceedings to reexamine which unbundled network elements incumbent
telephone companies must provide. On November 5, 1999, the FCC released an order
in which it reaffirmed its requirement that incumbent telephone companies make
available most, but not all, of the network elements specified in its initial
order, as well as certain new network elements not included on the original
list. These network elements that must be made available include the loop,
subloop, network interface device, circuit switching in certain markets, packet
switching (in limited circumstances), interoffice transmission facilities
(including dark fiber), signaling and call related databases and operations
support systems (pre-ordering, ordering, provisioning, repair, and billing
systems). The FCC also clarified the obligation of incumbent telephone companies
to provide certain combinations of network elements. At least one appeal of this
order has been filed and more may follow.
The FCC also modified the local switching unbundled network element,
concluding that incumbent telephone companies need not provide access to
unbundled local circuit switching for customers with four or more lines that are
located in the densest parts of the top 50 metropolitan statistical areas so
long as they make available an alternative arrangement for reaching customers,
known as the enhanced extended link. The enhanced extended link allows new
telecommunications service providers to gain access to customers without
colocating in every central office, because it combines the local loop with a
line to the new telecommunications service provider's local existing colocated
facilities or switch. The
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FCC's decision regarding unbundled network elements is currently the subject of
petitions for reconsideration filed at the FCC by various parties.
In the spring of 1998, four regional Bell operating company, including US
WEST, petitioned the FCC to be relieved of unbundling and resale requirements
for advanced telecommunications services. Advanced telecommunications services
are wireline, broadband telecommunications services, as opposed to traditional
voice services, and are widely used for Internet access, often relying on DSL
technology and packet-switched technology. In August 1998, the FCC clarified its
views on the applicability of the Telecommunication Act's provisions regarding
network interconnection and unbundling and sought comment on a wide variety of
related issues associated with the provision of advanced services by wireline
providers.
In March 1999, the FCC adopted an order further strengthening the rights of
competitors to obtain physical colocation to interconnect with incumbent
telephone company networks. The FCC ruled that incumbent telephone companies
must permit other providers to colocate equipment used for interconnection and
access to unbundled network elements even if the equipment can provide switching
or enhanced services functions. The FCC also adopted rules designed to limit
incumbent telephone companies' ability to deny competitors the ability to deploy
transmission hardware in colocation space by purporting that the equipment will
cause electrical interference with other wires, and it proposed rules making
these requirements more specific. The U.S. Court of Appeals for the D.C. Circuit
recently vacated and remanded certain portions of this order to the FCC for
reconsideration. Although much of the order was upheld, we may be adversely
affected by the D.C. Circuit's determination that the FCC had not properly
justified its requirement that incumbent telephone companies provide integrated
communications provider to integrated communications provider cross connections.
In its November 5, 1999 order on unbundled network elements, however, the FCC
declined to require incumbent telephone companies to provide competitors with
unbundled access to packet-switching services, except in limited circumstances.
The FCC also has not yet determined whether it will permit incumbent telephone
companies to deploy advanced communications services through separate
affiliates, which would not be regulated as incumbent telephone companies and
therefore would not be subject to the Telecommunication's Act unbundling and
resale provisions. The FCC also has pending requests from several incumbent
telephone companies for pricing flexibility in data services in certain markets.
Further, the FCC is reconsidering its earlier position that advanced
telecommunications services are local telephone services or exchange access
services under the Telecommunications Act. A negative conclusion would further
limit the incumbent telephone companies' obligations under the
Telecommunications Act. The FCC's decisions on these matters are currently
subject or expected to be subject to judicial review. We cannot predict the
ultimate outcome of these proceedings or the effects they will have on our
business.
ACCESS REFORM
The FCC regulates the interstate access rates charged by incumbent telephone
companies for the origination and termination of interstate long distance
traffic. Access charges are a significant cost of providing long distance
services. Over the past few years, the FCC has sought to restructure the access
charge system and reduce access rates. On the direction of an appellate court,
the FCC is conducting further proceedings to explain and refine its access
charge reforms. These and related actions by the FCC may significantly reduce
change access rates. Our access revenues, like those of all incumbent telephone
companies, could be reduced to the benefit of long distance providers. The
impact of access charge reform will not be known until it is fully implemented.
The FCC has also raised the issue of whether it should begin to regulate the
access charges imposed by integrated communications providers. Currently,
integrated communications providers are free to charge access rates at any
levels they deem appropriate. The current proceeding seeks comment from the
industry on whether integrated communications providers should be required to
justify the
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cost of the access charges they impose on incumbent telephone companies or
whether such rates should be limited to a range of reasonable charges. A
decision by the FCC to regulate integrated communications provider access
charges could reduce the rates charged by some integrated communications
providers.
DSL, SPECIAL ACCESS AND SWITCHED ACCESS
In November 1998, the FCC ruled that DSL services used to provide dedicated
access to interstate services, such as Internet access, are interstate services
subject to the FCC's jurisdiction. The FCC permitted incumbent telephone
companies to include such DSL services in their interstate access service
tariffs.
The FCC has issued a series of orders on the ability of new
telecommunications service providers to provide DSL lines and other high
bandwidth services to their customers for, among other things, Internet access.
Those orders have made clear that new telecommunications service providers are
entitled to colocate the equipment necessary to provide those services in
incumbent telephone companies' central offices; that incumbent telephone
companies must, where technically feasible, provide new telecommunications
service providers with high-quality loops capable of supporting DSL lines; and
that the incumbent telephone companies must provide new telecommunications
service providers with information concerning the make-up of their networks to
allow the new telecommunications providers to determine if a particular customer
can be served with DSL service. Many of the details of the orders'
implementation are unsettled, however, and we cannot assure you that the rules
are sufficient to ensure that the incumbent telephone companies will meet their
obligations.
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Over the past few years, the FCC has granted incumbent telephone companies
significant flexibility in pricing their interstate special and switched access
services. We anticipate that this pricing flexibility will result in incumbent
telephone companies lowering their prices in high traffic density areas, the
probable areas of competition with us. We also anticipate that the FCC will
grant incumbent telephone companies increasing pricing flexibility as the number
of competitors increases in each of these markets. In August 1999, the FCC
released an order that granted substantial additional pricing flexibility to
incumbent telephone companies. Among other things, the FCC granted immediate
pricing flexibility to many incumbent telephone companies in the form of
streamlined introduction of new services, the ability to change rates for
certain interstate services based on geographic locations and the removal of
pricing restrictions, once toll dialing requirements are met, on certain
interstate long distance services. The FCC also established a framework for
granting many incumbent telephone companies greater flexibility in the pricing
of all interstate access services once they satisfy competitive criteria. The
FCC is considering granting even greater pricing flexibility and has invited
public comment on various proposals.
In addition to the pricing flexibility described above, the FCC is currently
considering a joint proposal from AT&T, Bell Atlantic, BellSouth, GTE, SBC
Communications and Sprint to lower significantly and deleverage interstate
access charges for participating price cap local telephone companies. The FCC
could issue an order on this proposal in the first half of 2000. If adopted,
these pricing reforms could increase competition among providers offering local
telephone service in our operating area.
UNIVERSAL SERVICE
In 1997, the FCC established a significantly expanded universal service
program to subsidize the cost of telecommunications services to qualifying
schools, libraries and rural health care providers in addition to consumers in
high cost areas and to low-income consumers. Providers of telecommunications
services, like us, must pay for these programs. Our share of the payments into
these subsidy funds will be based on our telecommunications revenues. Currently,
the FCC is assessing these payments on the basis of a provider's interstate and
international revenue for the previous year. Various states are also in the
process of implementing their own universal service programs. We are currently
unable to quantify the amount of subsidy payments we will be required to make in
the future or the effect that these required payments will have on our financial
condition.
The FCC has recently adopted the cost model that it will use to determine
the support needed in high-cost areas and the inputs for the model. The new
high-cost support mechanism, which went into effect on January 1, 2000 for
non-rural providers, substantially increases the amount of high-cost support
provided to non-rural providers. The U.S. Court of Appeals for the Fifth Circuit
recently issued an order upholding in part, and reversing in part, the May 8,
1999 FCC order implementing these funds. Numerous FCC orders revising these
funds are subject to petitions for reconsideration and further appeals. The
outcome of these proceedings or their effect cannot be predicted.
In addition to the universal service mechanisms described above, the FCC is
currently considering a joint proposal from Bell Atlantic, Bell South, GTE, SBC
Communications and Sprint to create a $650 million fund to provide universal
service support for interstate access charges. If adopted, this proposal could
significantly increase the contribution obligations of other telecommunications
providers.
COMMUNICATIONS ASSISTANCE FOR LAW ENFORCEMENT ACT
Under this Act, telecommunications providers are required to provide law
enforcement officials with call content and call identifying information under a
valid electronic surveillance warrant, and reserve a sufficient number of
circuits for use by law enforcement officials in executing court-authorized
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electronic surveillance. Because we provide facilities-based services, we will
incur costs in meeting both of these requirements.
DETARIFFING
In November 1996, the FCC issued an order that required non-dominant, long
distance providers, like us, to cease filing tariffs for our domestic long
distance services. A tariff is a statement of the terms, conditions and pricing
of services offered to the public. Traditionally, telephone companies were
required to file tariffs of interstate telecommunications service offerings with
the FCC and tariffs of intrastate service offerings with state regulatory
authorities. The FCC's order gave service providers nine months to withdraw
federal long distance tariffs and move to contractual relationships with their
customers. This order subsequently was stayed by a federal appeals court, and it
is unclear at this time whether or when the detariffing order will be
implemented. In June 1997, the FCC issued another order stating that
non-dominant local service providers may withdraw their tariffs for interstate
access services provided to long distance providers. The FCC continues to
require that service providers obtain authority to provide service between the
United States and foreign points and file tariffs for international service.
In March 1999, the FCC adopted rules that, while still maintaining mandatory
detariffing, further required long distance providers to make specific public
disclosures on the service providers' Internet websites of their rates, terms
and conditions for domestic interstate services. The effective date of these
rules is delayed until a court decision is rendered on the appeal of the FCC's
detariffing order. The D.C. Circuit heard oral argument on the merit of the
FCC's detarrifing order on March 14, 2000, but has not yet issued an order. If
the FCC's orders become effective, non-dominant interstate service providers
will no longer be able to rely on the filing of tariffs with the FCC as a means
of providing notice to customers of prices, terms and conditions under which
they offer their domestic interstate services. Instead, they will have to rely
more heavily on individually negotiated agreements with end-users.
Tariffs also allow a telephone provider to limit its liability to its
customers, including in connection with service interruptions. If tariffs are
eliminated, we may be liable for costs that we would have been able to limit
through tariff filings, and we cannot assure you that potential liabilities will
not have a material adverse effect on our results of operations and financial
conditions.
RECIPROCAL COMPENSATION
Recently, the FCC has determined that both dedicated access and dial-up
calls from a customer to an Internet service provider are primarily interstate
in nature and therefore are to be considered interstate calls, subject to the
FCC's jurisdiction. The FCC has initiated a proceeding to determine the effect
that this regulatory classification will have on the obligation of service
providers to pay reciprocal compensation for dial-up calls to Internet service
providers that originate on one provider's network and terminate on another
provider's network. Currently, the FCC has permitted existing reciprocal
compensation arrangements between providers, as set forth in interconnection
agreements and approved by state regulatory commissions, to remain intact. The
FCC is currently determining whether a new compensation mechanism should be
implemented. A decision by the FCC invalidating current reciprocal compensation
arrangements could result in the reduction, or elimination, of reciprocal
compensation payments for traffic terminated to Internet service providers.
However, in March 2000, the D.C. Circuit vacated the FCC's determination that
calls to an Internet service provider are primarily interstate and remanded the
matter to the FCC for further proceedings. The jurisdictional nature of such
calls remains uncertain as does the question of whether they will be subject to
reciprocal compensation. Until the matter is resolved by federal authorities,
state commission determinations will prevail.
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INTERNET TELEPHONY
Another area of regulatory uncertainty involves calls made over the
Internet. In various contexts, a number of incumbent telephone companies have
asked the FCC to rule that certain calls made over the Internet are subject to
regulation as telecommunications services, including the assessment of
interstate switched access charges and universal service fund assessments.
Although the FCC has suggested that Internet-based telephone-to-telephone calls
may be considered telecommunications services, it has not reached a final
decision on this issue. Internet telephony may develop into a significant
competitor to other technologies, and to the extent it is not subject to similar
charges and fees, may have economic advantages over traditional wireline
telephony.
ANTI-SLAMMING
A customer's choice of local or long distance telecommunications company is
recorded in a customer record which is used to route the customer's calls so
that the customer is served and billed by the desired company. A customer may
change service providers at any time, but the FCC and some states regulate this
process and require that specific procedures be followed. The violation of these
procedures together with unauthorized or fraudulent change of service provider
is called "slamming." Slamming is such a significant problem that it has been
addressed in detail by Congress in the Telecommunications Act, by some state
legislatures, and by the FCC in recent orders. The FCC has levied substantial
fines for slamming. The risk of financial damage and harm to business reputation
from slamming is significant. While we do not engage in these practices, even
one slamming complaint could cause extensive litigation expenses for us. The FCC
recently decided to apply its slamming rules (which originally covered only long
distance) to local service as well.
CUSTOMER PRIVACY
The Communications Act of 1934 and FCC rules protect the privacy of certain
information that a telecommunications carrier such as us acquires by providing
telecommunications services to our customers. This protected information, known
as "Customer Proprietary Network Information," includes information related to
the quantity, technological configuration, type, destination and amount of use
of service by a customer. Under the FCC's rules, a carrier may not use this
information acquired through one of its offerings of telecommunications services
to market other services without the approval of the affected customers. The
U.S. Court of Appeals for the Tenth Circuit recently overturned the FCC's rules
regarding the use and protection of this information. The FCC relaxed these
rules recently, but has sought reconsideration of the Tenth Circuit's decision.
EEO REPORT
The FCC requires us to file an annual employment report to comply with the
FCC's equal employment opportunity policies.
TRUTH IN BILLING
The FCC has adopted new rules designed to make it easier for customers to
understand the bills of telecommunications providers. These new rules establish
requirements regarding the formatting of bills and the information that must be
included on bills. These rules have been appealed in federal court.
STATE REGULATION
The Telecommunications Act preempts state and local statutes and regulations
that would tend to prohibit the provision of competitive telecommunications
services. As a result, we will be free to provide the full range of local, long
distance and data services in all states in which we currently
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operate and in any states into which we may wish to expand. While this action
greatly increases our potential for growth, it also increases the amount of
competition to which we may be subject.
Although the FCC establishes nationwide guidelines governing entry by new
telecommunications service providers, state regulatory commissions also have
major roles in implementing the local competition provisions of the
Telecommunications Act. Among other things, state regulatory commissions must
approve or reject interconnection agreements, and they have primary
responsibility for arbitrating and mediating these agreements if the negotiating
providers cannot reach an understanding on the agreement's terms. State
regulatory commissions are also charged with developing and implementing
cost-based prices for interconnection and unbundled network elements in
accordance with the Telecommunications Act and the forward-looking pricing
guidelines set by the FCC.
Because we provide intrastate common carrier services, we are subject to
various state laws and regulations. Most state public utility and public service
commissions require some form of certification or registration. We must acquire
this authority before commencing service. In most states, we are also required
to file tariffs or price lists setting forth the terms, conditions and prices
for services that are classified as intrastate. We are required to update or
amend these tariffs when we adjust our rates or add new products and are subject
to various reporting and record-keeping requirements in these states.
Many states also require prior approval for transfers of control of
certified providers, corporate reorganizations, acquisitions of
telecommunications operations, assignment of carrier assets, carrier stock
offerings and the incurring of significant debt obligations. If in the future
our business plans call for any of these regulated events to occur, we may not
be able to receive the necessary approvals.
States generally retain the right to sanction a service provider or to
revoke certification if a service provider violates relevant laws or
regulations. If any regulatory agency were to conclude that we are or were
providing intrastate services without the appropriate authority, the agency
could initiate enforcement actions, which could include the imposition of fines,
a requirement to disgorge revenues or the refusal to grant the regulatory
authority necessary for the future provision of intrastate telecommunications
services. We hold authority to provide resold and facilities-based intrastate,
intrastate long distance, and interstate long distance services in Colorado,
Minnesota, Nevada, Oregon, Utah and Washington. Our application for similar
authority in Arizona is pending. There can be no guarantee that we will receive
the authorizations we seek currently in Arizona or will seek in other states in
the future.
LOCAL INTERCONNECTION
The Telecommunications Act imposes a duty upon all incumbent telephone
companies to negotiate in good faith with potential local service competitors to
provide interconnection to their networks, exchange local traffic, make
unbundled network elements available and permit resale of most local services.
In the event that negotiations do not succeed, we have a right to seek
arbitration with the state regulatory authority of any unresolved issues.
Arbitration decisions involving interconnection arrangements in several states
have been challenged and appealed to federal courts. We may experience
difficulty in obtaining timely incumbent telephone company implementation of
local interconnection agreements, and we can provide no assurance we will offer
local services in these areas in accordance with our projected schedule, if at
all. We have entered into interconnection agreements with US WEST in Colorado,
Minnesota, Oregon, Utah and Washington. We also have an interconnection
agreement with Sprint/United Telephone Company in Minnesota, with Nevada Bell in
Nevada, and with GTE in Washington and Oregon. W have asked the Arizona
Commission to approve an interconnection agreement with US WEST. A number of our
interconnection agreements will expire at various times over the next six to
36 months, after which time we will be required to renegotiate each such
agreement. It is uncertain how successful we will be in negotiating the terms
critical to our provision of local voice and data services, and we may be forced
to arbitrate certain provisions of such agreements.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Our executive officers, directors and certain other key employees, and their
ages as of April 14, 2000 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ---- -------- -----------
<S> <C> <C>
EXECUTIVE OFFICERS:
Clifford D. Williams(2)............. 52 Chairman of the Board and Chief Executive Officer
Richard A. Smith.................... 49 President and Chief Operating Officer
Geoffrey M. Boyd.................... 32 Chief Financial Officer
Robert E. Pickens................... 39 Executive Vice President, Marketing
David A. Kunde...................... 40 Executive Vice President, Operations and Technology
Planning
James J. Lawrence................... 45 Executive Vice President and General Manager--Central
Region
Michael J. Robinson................. 52 Executive Vice President and General Manager--Western
Region
Steven S. Solbrack.................. 42 Executive Vice President, IP Services
Steven K. Wachter................... 38 Executive Vice President, Sales
NON-MANAGEMENT DIRECTORS:
Tansukh V. Ganatra.................. 56 Director
Michael A. Krupka(2)................ 34 Director
Marvin C. Moses(1).................. 55 Director
Mark E. Nunnelly.................... 41 Director
E. Theodore Stolberg(1)(2).......... 50 Director
Peter M. Van Genderen(1)............ 35 Director
KEY EXECUTIVES:
John E. Beesley..................... 35 Vice President, Minnesota Sales
Carol L. Braun...................... 41 Vice President, Human Resources
Michael A. Donahue.................. 38 Vice President, Accounting and Controller
Arlin B. Goldberg................... 44 Vice President, Information Technology
F. Lynne Powers..................... 35 Vice President, Finance
Satish C. Tiwari.................... 41 Vice President, Engineering and Network Implementation
</TABLE>
- ------------------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
EXECUTIVE OFFICERS
CLIFFORD D. WILLIAMS, our founder, has served as our chairman and chief
executive officer since July 1996. From September 1995 to July 1996 Mr. Williams
was raising capital for the formation of our Company. From March 1992 to
September 1995, Mr. Williams was president and chief executive officer of
Enhanced Telemanagement Incorporated, an integrated communications provider that
offered a full line of telecommunications products and services to small
businesses in Minnesota, Washington, Oregon, Illinois and Ohio. From 1973 to
1991, Mr. Williams held a variety of senior management positions, leading to
executive vice president and general manager at Rogers Cable TV, the largest
cable television system in Minnesota. He also managed Rogers Cable TV, Ltd. in
Toronto, Ontario.
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Additionally, Mr. Williams was one of the founders of the Twin Cities Cable
Consortium and Prime Sports Network-Upper Midwest.
RICHARD A. SMITH has served as our chief operating officer since March 1999
and was recently elected president. He served as our chief financial officer
from October 1998 to March 2000. From April 1997 to October 1998, Mr. Smith
served as vice president of financial management for Frontier Corp. (now Global
Crossing) where he had been employed since March 1972. Prior to serving in this
role at Frontier, Mr. Smith held several other positions including controller,
chief information officer, president of Frontier Information Technologies, vice
president of Midwest telephone operations, network plant operations director and
director of business development.
GEOFFREY M. BOYD has served as our chief financial officer since
March 2000. From November 1998 to March 2000, Mr. Boyd was the chief financial
officer of Logix Communications Enterprises, Inc. From September 1997 to
November 1998, Mr. Boyd was director of mergers and acquisitions and strategic
planning for Dobson Communications Corporation, the parent company of Logix.
From August 1996 to September 1997 he was a vice president at MLC
Industries, Inc. a company that has managed several cellular and paging
companies. From January 1996 to September 1996, Mr. Boyd worked at a start-up
cellular acquisition company. From November 1994 to December 1995, he served as
a vice president at Shawmut Bank.
ROBERT E. PICKENS has served as executive vice president, marketing since
April 1996. From July 1995 to March 1996, Mr. Pickens served as general manager
of local services and operations for Frontier Corp. (now Global Crossing). From
June 1990 to June 1995, Mr. Pickens served as marketing manager and marketing
director for Enhanced Telemanagement Incorporated.
DAVID A. KUNDE has served as our executive vice president, operations and
technology planning since May 1999. From October 1994 to May 1999, Mr. Kunde
held the positions of vice president of network engineering and director of
network engineering and operations at Citizens Utilities. At Citizens Utilities,
he was responsible for long distance and local telecommunications network
engineering, design and construction and managed an integrated long distance
network. From 1986 to 1994, Mr. Kunde held a variety of positions with Frontier
Corp. (now Global Crossing).
JAMES J. LAWRENCE has served as our executive vice president and general
manager--Central Region since May 1999. Mr. Lawrence has been president of Cady
Communications, Inc. since February 1998. From October 1995 to February 1998,
Mr. Lawrence was vice president, finance and administration and chief financial
officer for Perigee Communications, Inc. (doing business as Inacom Professional
Services). From October 1987 to October 1995, Mr. Lawrence was vice president,
finance and administration and chief financial officer for Enhanced
Telemanagement Incorporated. From March 1982 to October 1987, Mr. Lawrence held
a variety of senior management positions with Norstan, Inc. From August 1979 to
March 1982, Mr. Lawrence practiced as a certified public accountant with
Deloitte & Touche LLP.
MICHAEL J. ROBINSON has served as our executive vice president and general
manager--Western Region since September 1999. From April 1994 to
September 1999, Mr. Robinson served as senior vice president/general
manager--California for ICG Telecom Inc. From 1993 to 1994, he served as
director, multiple system operator services for Teleport Communication Group.
From 1991 to 1993, Mr. Robinson served as a consultant to several companies in
the competitive access provider industry. From 1988 to 1991, Mr. Robinson served
as vice president and general manager for Bay Area Teleport, a competitive
access provider owned by Pacific Telecom, Inc.
STEVEN S. SOLBRACK has served as our executive vice president, IP services
since January 2000. In September, 1996, Mr. Solbrack co-founded Fishnet.com, a
Minneapolis-based Internet Service Provider and was its chief financial officer
until January 2000. From June, 1995 to August, 1996, Mr. Solbrack served in
various senior management capacities at Popp Telcom.
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STEVEN K. WACHTER has served as our executive vice president, sales since
August 1999. From October 1994 to August 1999, Mr. Wachter served in a variety
of positions at Ameritech Corporation, including director business
sales--Wisconsin, East Region general manager/director--small business
marketplace, general manager/director--premises sales and director of sales
programming.
NON-MANAGEMENT DIRECTORS
TANSUKH V. GANATRA has served as a member of our board of directors since
February 2000. Mr. Ganatra co-founded US LEC in June 1996 and is a specialist in
the field of intelligent switching technology and transport network systems.
From January 1991 to September 1996, Mr. Ganatra served in a senior advisory
role with ACC Corporation. From January 1987 to January 1991 US LEC, he served
in various positions with ACC Corp., including president and chief operating
officer, president of the long distance division and vice president of
engineering and operations. Mr. Ganatra previously held various positions during
a 19-year career with Rochester Telephone Corp. (now Global Crossing),
culminating with the position of director of network engineering.
MICHAEL A. KRUPKA has served as a member of our board of directors since
October 1999. Mr. Krupka joined Bain Capital in 1991 and has been a managing
director since 1997. Prior to joining Bain Capital, he spent several years as a
management consultant at Bain & Company where he specialized in
technology-related companies. In addition, Mr. Krupka has served in several
senior operating roles at Bain Capital portfolio companies. Mr. Krupka's other
directorships include Sealy Corporation, Integrated Circuit Systems, Inc. and
Travel CLICK, Inc.
MARVIN C. MOSES has served as a member of our board of directors since
January 1999. Currently, Mr. Moses serves as a telecommunications consultant to,
and a member of, the board of directors of Teleglobe, Inc. and Advanced
Communications Group. Mr. Moses is a private investor and has acted as a
telecommunications consultant from 1996 to the present. From 1988 to 1996,
Mr. Moses served as executive vice president and chief financial officer of ALC
Communications/Frontier. Mr. Moses was the senior vice president and chief
financial officer at Cable & Wireless Communications (US operations) from 1982
to 1988.
MARK E. NUNNELLY has served as a member of our board of directors since
September 1999. Mr. Nunnelly has been a managing director of Bain Capital since
1990. Previously, he was a partner of Bain & Company, where he managed several
investment portfolio companies in the manufacturing sector, and held a position
in product development for Procter & Gamble Company Inc. Mr. Nunnelly's other
directorships include Stream International, Inc., Doubleclick Inc. and
Domino's, Inc.
E. THEODORE STOLBERG has served as a member of our board of directors since
July 1996. In 1993, Mr. Stolberg founded Stolberg Meehan & Scano, Inc. (SMS) a
private equity investment firm based in New York and Denver. Prior to founding
SMS, he was a partner at Weiss Peck & Greer (WPG) and also served as a director
for a number of the corporations in which WPG funds were invested. Mr. Stolberg
began his career in 1973 at The First Boston Corporation in its corporate
finance department. Mr. Stolberg's other directorships include Capital
Returns, Inc. and Central Security Group, Inc.
PETER M. VAN GENDEREN has served as a member of our board of directors since
December 1997. Mr. Van Genderen is a partner with SMS, which he joined in 1996.
From 1990 to 1995, he was employed by UniLink Software, Inc. where he served as
its General Manager and Controller. Previously, Mr. Van Genderen worked in the
corporate finance department at Bankers Trust Company, where he was responsible
for structuring acquisition and merchant banking transactions. Mr. Van
Genderen's other directorships include Capital Returns, Inc., and Central
Security Group, Inc.
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KEY EXECUTIVES
JOHN E. BEESLEY has served as our vice president, Minnesota sales since
August 1999. From March 1998 to August 1999, Mr. Beesley served as director of
sales, strategic and major accounts for McLeod USA/Ovation Communications. From
September 1995 to April 1998, he served as senior regional marketing manager at
MCI Telecommunications. From October 1994 to September 1995, Mr. Beesley served
as general manager with ESI Network Solutions. He served as an account executive
with Lucent Technologies/AT&T General Business Solutions from February 1989 to
October 1994.
CAROL L. BRAUN has served as our vice president of human resources since
July 1999 and has been with the company since July 1997. She previously served
as our director of human resources. From January 1995 to July 1997, Ms. Braun
served as manager of accounting, finance and human resources with Cady
Communications, Inc., which we acquired in July 1996. Previously, she held
several accounting positions with Cady from 1990 to 1994.
MICHAEL A. DONAHUE has served as our vice president, accounting and
controller since July 1999 and has been with the company since July 1996. From
July 1995 to July 1996, Mr. Donahue was a division controller at Frontier Corp.
(now Global Crossing). From November 1988 to July 1995, he was the director of
finance and controller at Enhanced Telemanagement Incorporated. From June 1984
to November 1988, Mr. Donahue was a corporate auditor and accounting manager
with Burlington Northern Financial Services, Inc. Mr. Donahue is a certified
public accountant.
ARLIN B. GOLDBERG has served as our vice president, information services
since July 1999 and has been with the company since October 1996. From
July 1995 to September 1996, Mr. Goldberg was the director of information
services at Frontier Corp. (now Global Crossing). From February 1993 to
June 1995, Mr. Goldberg was the director of information services for Enhanced
Telemanagement Incorporated. From March 1978 to February 1993, Mr. Goldberg was
employed by Norstan in a variety of roles, including assistant controller,
systems analyst, MIS manager, manager of corporate LAN development and senior
business analyst.
F. LYNNE POWERS has served as our vice president, finance since July 1999
and has been with the company since December 1998. From November 1994 to
December 1998, Ms. Powers was the finance manager of MEANS Telecom (now Onvoy),
responsible for management of the finance, accounting, tax and billing
functions. During her tenure she performed merger and acquisition analysis,
contract negotiations and management of due diligence processes. From
September 1990 to November 1994, Ms. Powers was an assistant accounting manager
at Frontier Corp. (now Global Crossing). She is a certified public accountant.
SATISH C. TIWARI has served as vice president, engineering and network
implementation since May 1999. Mr. Tiwari is responsible for the installation
and maintenance of all of our switching platforms and network facilities. From
August 1998 to December 1998, Mr. Tiwari served as director of network
implementation for MCI/WorldCom. From 1996 to August 1998, Mr. Tiwari worked for
MFS/ WorldCom in several roles including director of network implementation and
director of local switch network implementation. Mr. Tiwari also held a variety
of positions with ACS, Inc., including president from 1988 to 1996.
BOARD COMMITTEES
Our by-laws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.
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<PAGE>
Our audit committee, currently comprised of Messrs. Moses, Stolberg and Van
Genderen performs the following functions:
- recommends to our board of directors the independent auditors to
conduct the annual audit of our books and records;
- reviews the proposed scope and results of the audit;
- approves the audit fees to be paid;
- reviews accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
- reviews and approves transactions between us and our directors,
officers and affiliates.
Our compensation committee, currently comprised of Messrs. Krupka, Stolberg
and Williams performs the following functions:
- reviews and recommends the compensation arrangements for management,
including the compensation for our president and chief executive
officer;
- establishes and reviews general compensation policies with the
objective to attract and retain superior talent, to reward individual
performance and to achieve our financial goals; and
- administers our stock option plans.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
From October 1998 to November 1999, members of our compensation committee
were Messrs. Van Genderen and Stolberg. Since November 1999 the members of our
compensation committee have been Messrs. Krupka, Stolberg and Williams.
Mr. Williams has been our chief executive officer and chairman of our board
since our inception. None of our executive officers has served as a member of a
compensation committee (or other committee serving an equivalent function) of
any other entity, whose executive officers served as a director of our company
or member of our compensation committee.
COMPENSATION OF DIRECTORS
In February 2000, two of our directors, Messrs. Ganatra and Moses received
10,000 shares of our common stock, valued at $6.00 per share, as compensation
for service on our board of directors for the year 2000. Mr. Moses received
17,640 shares of our common stock, valued at $2.83 per share as compensation for
service on our board of directors for the year 1999. We also reimburse our
directors for reasonable expenses they incur to attend board and committee
meetings.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to our chief executive
officer and the other four most highly paid executive officers whose total
salary and bonus exceeded $100,000 for the year ended December 31, 1999. We
refer to these individuals as our named executive officers.
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<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
SUMMARY COMPENSATION TABLE AWARDS
------------------------------ ------------
ANNUAL COMPENSATION SHARES
NAME AND ------------------- UNDERLYING
PRINCIPAL POSITION SALARY BONUS OTHER OPTIONS
------------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Clifford D. Williams(2)........................... $206,350 $120,528 $ -- --
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
Richard A. Smith(3)............................... 158,846 94,374 -- 184,020
PRESIDENT AND CHIEF OPERATING OFFICER
James J. Lawrence................................. 163,327 27,250 -- --
EXECUTIVE VICE PRESIDENT AND GENERAL
MANAGER--CENTRAL REGION
Robert E. Pickens................................. 100,253 32,744 -- 9,000
EXECUTIVE VICE PRESIDENT, MARKETING
David A. Kunde.................................... 88,846 16,240 81,273(1) 90,000
EXECUTIVE VICE PRESIDENT, OPERATIONS AND
TECHNOLOGY PLANNING
</TABLE>
- ------------------------
(1) This amount represents a one-time reimbursement for moving expenses and
related tax liability.
(2) Mr. Williams also served as president during the fiscal year 1999.
(3) Mr. Smith became president in April 2000 and also served as chief financial
officer.
OPTION GRANTS
The table below contains information concerning the grant of options to
purchase shares of our common stock to each of the named executive officers
during the year ended December 31, 1999. All options were granted at or above
fair market value as determined by the board of directors on the date of grant.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------- POTENTIAL REALIZABLE
PERCENT OF VALUE AT ASSUMED
TOTAL ANNUAL RATES OF
NUMBER OF OPTIONS STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OR OPTION TERM(3)
OPTIONS IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED 1999(1) ($/SHARE)(2) DATE 5% 10%
- ---- ---------- ---------- ------------ ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Clifford D. Williams........... -- --% $ -- -- $ -- $ --
Richard A. Smith............... 64,020 4.6 2.83 2/15/09 113,941 288,749
60,000 4.3 5.00 8/01/09 188,668 478,123
60,000 4.3 5.00 10/01/09 188,668 478,123
James J. Lawrence.............. -- -- -- --
Robert E. Pickens.............. 9,000 0.6 2.68 2/15/09 15,169 38,441
David A. Kunde................. 90,000 6.4 5.00 12/31/09 283,003 717,184
</TABLE>
- ------------------------
(1) The percentage of total options granted to employees set forth below is
based on an aggregate of 1,407,780 shares subject to options granted to our
employees in 1999.
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<PAGE>
(2) The exercise or base price per share reflects the fair market value of the
common stock at the time of issuance.
(3) The options have ten year terms, subject to earlier termination upon death,
disability or termination of employment. The potential realizable value is
calculated based on the term of the option at the time of grant. Stock price
appreciation of 5% and 10% is assumed pursuant to rules promulgated by the
SEC and does not represent our prediction of our stock price performance.
The potential realizable values at 5% and 10% appreciation are calculated by
assuming that the exercise price on the date of grant represents the fair
value of a share of common stock on that date, that the value appreciates
annually at the indicated rate for the entire term of the option and that
the option is exercised at the exercise price and sold on the last day of
its term at the appreciated price.
YEAR-END OPTION VALUES
The following table shows information regarding exercisable and
unexercisable stock options held as of December 31, 1999 by each named executive
officer.
1999 YEAR-END OPTIONS VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999 (1)
--------------------------- -----------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Clifford D. Williams........................... 278,592 69,648
Richard A. Smith............................... 113,560 66,460
James J. Lawrence.............................. 31,680 21,120
Robert E. Pickens.............................. 50,760 34,440
David A. Kunde................................. 18,000 72,000
</TABLE>
- ------------------------
(1) There was no public trading market for our common stock as of December 31,
1999. The value of unexercised in-the-money options has been calculated by
multiplying the difference between the exercise price per share and an
assumed initial public offering price of $ per share by the number of
shares underlying the options.
STOCK OPTION PLAN
1996 AMENDED AND RESTATED EMPLOYEE STOCK OPTION PLAN
Under our 1996 employee stock option plan, as amended, options to purchase
shares of our common stock in the form of both incentive stock options and
nonqualified stock options were granted to our employees or employees of certain
of our subsidiaries. A total of 4,400,000 shares of our common stock were
reserved for issuance under this option plan. As of December 31, 1999, options
to acquire 2,510,700 shares were issued and outstanding with a weighted average
exercise price of $3.22 per share. These options generally vest 25% per year
over four years from the date of grant.
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<PAGE>
GRANTS OF OPTIONS
The following table summarizes the options for purchase of our common stock
that we have granted to directors and executive officers:
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
SUBJECT TO
GRANTEE OPTIONS GRANT DATE EXERCISE PRICE
- ------- ---------- -------------- --------------
<S> <C> <C> <C>
Clifford D Williams................................... 348,240 July 1996 $1.46
378,575 March 2000 $6.00
Richard A. Smith...................................... 96,000 October 1998 $2.08
64,020 February 1999 $2.83
60,000 August 1999 $5.00
60,000 October 1999 $5.00
378,575 March 2000 $6.00
Geoffrey M. Boyd...................................... 250,000 March 2000 $6.00
Robert E. Pickens..................................... 19,200 July 1996 $1.46
18,000 April 1997 $1.82
9,000 February 1998 $2.03
30,000 July 1998 $2.17
9,000 February 1999 $2.68
20,000 March 2000 $6.00
David A. Kunde........................................ 90,000 April 1999 $5.00
90,000 December 1999 $5.00
James J. Lawrence..................................... 52,500 February 1998 $2.08
20,000 March 2000 $6.00
Steven S. Solbrack.................................... 45,000 January 2000 $6.00
Steven K. Wachter..................................... 90,000 August 1999 $5.00
33,000 August 1999 $0.01
Michael J. Robinson................................... 60,000 September 1999 $5.00
30,000 December 1999 $5.00
Marvin C. Moses....................................... 58,800 December 1998 $2.83
</TABLE>
401(K) PLAN
In May 1998, we adopted a tax-qualified employee savings and retirement
plan, or 401(k) plan, which generally covers our full-time employees located in
the United States who have attained age 20 and completed three months of
service. The plan is intended to qualify under Section 401(a) of the Internal
Revenue Code of 1986, as amended, so that contributions, and income earned
thereon, are not taxable to employees until withdrawn from the plan. Under the
plan, employees may elect to reduce their current compensation up to the
statutorily prescribed annual limit and have the amount of the reduction
contributed to the plan. The plan also permits us to make matching contributions
to the plan on behalf of participants up to 6% of the participant's
compensation. We may also make other discretionary contributions to the plan on
behalf of participants.
EMPLOYMENT AGREEMENTS
We have executed employment agreements with the following of our named
executive officers:
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<PAGE>
Mr. Williams serves as our chairman of the board and chief executive officer
Mr. Williams receives an annual base salary that is determined at the discretion
of the board or compensation committee. He is also eligible to receive an annual
performance based bonus up to 120% of his base salary, determined at the
discretion of the board of directors or compensation committee.
Mr. Smith serves as our president and chief operating officer. His annual
base salary is $130,000 and he is eligible to receive an annual performance
based bonus up to 120% of his base salary, determined at the discretion of the
board of directors or compensation committee. Under his employment agreement
Mr. Smith received options to purchase 1,600 and 1,067 shares of common stock at
exercise prices of $2.08 and $2.83 per share, respectively. These options are in
addition to other stock options awarded under our stock incentive plan. In the
event of a change in control of our company, Mr. Smith could receive a payment
of up to $2,000,000 in exchange for his transfer to us of all of his stock
options and 97,876 shares of our preferred stock.
Mr. Lawrence serves as our executive vice president and general
manager-central region. He receives a base salary of $110,000, subject to annual
adjustments and is eligible for a quarterly bonus of up to $10,000. He is also
eligible to receive a performance-based bonus up to 30% of his annual salary.
Mr. Kunde serves as our executive vice president, operations and technology
planning. His annual base salary is $150,000 per year and he is eligible to
receive an annual performance based bonus up to 60% of his annual base salary,
determined at the discretion of the board of directors or compensation
committee.
EMPLOYEE CONFIDENTIALITY AGREEMENTS
We enter into agreements with certain of our employees containing
non-competition and confidentiality provisions. The agreements prohibit these
employees from competing with us or disclosing confidential information about us
for a period up to two years after their employment ends.
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<PAGE>
RELATED PARTY TRANSACTIONS
ISSUANCES OF SECURITIES
SALES OF COMMON STOCK. From time to time, we have issued shares of our
common stock to certain of our officers and directors for cash. In April 2000,
the following officers and directors purchased shares of our common stock at a
price of $6.54 per share:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF OFFICER OR DIRECTOR SHARES ACQUIRED
- --------------------------- ---------------
<S> <C>
Richard A. Smith............................................ 18,349
Michael J. Robinson......................................... 11,000
Marvin C. Moses............................................. 9,100
Steven K. Wachter........................................... 7,645
David A. Kunde.............................................. 3,058
Geoffrey M. Boyd............................................ 1,529
Robert E. Pickens........................................... 1,529
</TABLE>
In March 2000, we issued 40,000 shares of our common stock to Super STAR
Associates, L.P. of which Mr. Ganatra is a beneficial owner in exchange for
$240,000 in cash.
In February 1999, we issued 88,260 shares of our common stock at a price of
$2.83 per share to the Moses Family Limited Partnership, of which, Mr. Moses is
a beneficial owner.
COMPENSATION OF DIRECTORS In February 2000, the following shares, valued at
$6.00 per share, were issued as compensation for service on our board of
directors:
<TABLE>
<CAPTION>
NUMBER OF
NAME OF DIRECTOR SHARES ACQUIRED
- ---------------- ---------------
<S> <C>
Tansukh V. Ganatra.......................................... 10,000
Marvin C. Moses............................................. 10,000
</TABLE>
We also issued 17,640 shares of common stock to Mr. Moses at a price of
$2.83 per share as compensation for his service on our board of directors during
1999.
GUARANTY OF OUR OBLIGATION BY PRINCIPAL STOCKHOLDERS. In October 1998,
Stolberg Partners, L.P. and Stolberg, Meehan & Scano II, L.P., two of our
principal stockholders, agreed to guarantee a portion of our indebtedness to
Imperial Bank. As compensation for this guaranty, we periodically issued the
following amounts of common stock to these principal stockholders:
<TABLE>
<CAPTION>
NUMBER OF
DATE SHARES
- ---- ------------
<S> <C>
May 1999.................................................... 36,000
March 1999.................................................. 32,250
January 1999................................................ 58,920
October 1998................................................ 39,960
</TABLE>
ISSUANCE OF CONVERTIBLE SUBORDINATED PROMISSORY NOTES. To finance our
acquisitions of American Telephone Technology, Inc. and Electrotel, Inc. and
provide working capital, we issued series A and series B convertible
subordinated promissory notes. We paid to each noteholder a loan commitment fee
of 2% of the face value of the note. From February 1997 to March 1999, we issued
notes in the
69
<PAGE>
aggregate amount of $8,283,240.79, including the following transactions with
certain of our officers, directors and principal stockholders:
<TABLE>
<CAPTION>
AMOUNT OF CONVERSION PRICE NUMBER AND SERIES OF PREFERRED
NAME OF OFFICER/DIRECTOR OR STOCKHOLDER DATE PROMISSORY NOTES PER SHARE SHARES UPON CONVERSION
- --------------------------------------- -------------- ---------------- ---------------- ------------------------------
<S> <C> <C> <C> <C>
Richard A. Smith.......................... March 1999 $200,000 $2.08 96,052 (B3); 1,824 (B4)
Stolberg Partners, L.P. .................. December 1997 1$,000,000 $2.08 480,261 (B3); 29,241 (B4)
Stolberg, Meehan & Scano II, L.P. ........ December 1997 1$,500,000 $2.08 720,391 (B3); 43,029 (B4)
Strolberg Partners, L.P.(1)............... December 1997 $100,000 $2.03 39,372 (B2); 2,416 (B4)
Stolberg Partners, L.P. .................. August 1997 3$,000,000 $2.03 1,476,523 (B2); 106,122 (B4)
Clifford D. Williams...................... April 1997 $140,000 $1.82 76,893 (B1); 5,920 (B4)
Robert E. Pickens......................... April 1997 $ 5,000 $1.82 2,746 (B1); 211 (B4)
Stolberg Partners, L.P.(1)................ April 1997 $100,064 $1.82 54,956 (B1) 4,224 (B4)
Stolberg Partners, L.P. .................. February 1997 2$,057,500 $1.82 1,130,059 (B1); 92,583 (B4)
</TABLE>
- ------------------------------
(1) Serves as nominee on behalf of investor.
In September 1999, all of the series A and series B convertible subordinated
promissory notes were converted into one of three series of preferred B stock:
B1, B2 and B3. In addition, the accrued and unpaid interest on each of the
promissory notes was converted into series B4 preferred stock.
LOAN TRANSACTION WITH PRINCIPAL STOCKHOLDER. In June 1997, we borrowed
$750,000 from Stolberg Partners, L.P. in connection with a $1.5 million line of
credit. We also paid Stolberg Partners, L.P. a 2% fee. In August 1997, we repaid
the loan.
SALE OF SERIES C AND C1 CONVERTIBLE PREFERRED STOCK. To finance our Phase I
and Phase II operations, we issued a total of 9,156,000 shares of series C at a
price of $5.00 per share and 1,684,634 shares of series C1 at a price of $6.00
per share convertible preferred stock between September 1999 and January 2000.
Included among these issuances were the following purchases by some of our
principal stockholders:
<TABLE>
<CAPTION>
NUMBER AND SERIES
NAME OF STOCKHOLDER DATE OF PURCHASE OF PREFERRED SHARES
- ------------------- ---------------- -------------------
<S> <C> <C>
Stolberg, Meehan & Scano II, L.P. ......................... January 2000 666,667 (C1)
Bain Capital Fund VI, L.P.(1) ............................. January 2000 666,667 (C1)
Stolberg, Meehan & Scano II, L.P. ......................... December 1999 580,000 (C)
Stolberg, Meehan & Scano II, L.P. ......................... September 1999 1,420,000 (C)
Bain Capital Fund VI, L.P. (1) ............................ September 1999 7,080,000 (C)
</TABLE>
- ------------------------
(1) Includes affiliated entities
CONTINGENT PAYMENT TO EXECUTIVE OFFICER
In connection with our January 2000 acquisition of Fishnet.com Inc., we may
incur an additional obligation of up to $1.3 million through an earnout
provision. The earnout payments are based on our meeting certain financial
targets for the year ended December 31, 2000. If all of the targets are
achieved, we will pay Mr. Solbrack, our executive vice president, IP services,
approximately $350,000.
ADVISORY AGREEMENT
In September 1999, we entered into an advisory agreement with Bain Capital
Partners VI, L.P. and Stolberg Partners, L.P., two of our principal
stockholders, under which we agreed to pay each of them $50,000 per year for
consulting and advisory services. In April 2000, we entered into a termination
70
<PAGE>
agreement under which we will pay to each of Bain Capital Partners VI and
Stolberg Partners, L.P. $77,500 to terminate our obligation under this
agreement.
EMPLOYMENT AGREEMENTS
We have employment agreements with certain of our named executive officers
as described in "Management--Employment arrangements."
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<PAGE>
DESCRIPTION OF INDEBTEDNESS
We and our subsidiaries entered into loan agreements dated March 30, 1998
and December 30, 1998 with Commerce Financial Group providing for equipment
loans totaling $1,500,000, the proceeds of which were used to finance equipment
purchases. Interest accrues at 12.4%. The equipment loans are secured by
equipment purchased with the proceeds of the loan.
In July 1999, we entered into a entered into a credit agreement led by NTFC
Capital and GE Capital. The credit agreement provided for a seven year,
$65 million term loan facility to finance a portion of our costs to purchase
equipment and services from Nortel and other equipment vendors, and for working
capital and general corporate purposes. The credit facility is secured by a
pledge of substantially all of the assets and stock of our subsidiaries to NTFC
Capital and GE Capital. The credit facility is also guaranteed by us and certain
of our subsidiaries. Loans under the credit facility are available to be drawn
until July 16, 2001. We have the option to pay the interest on the credit
facility at a rate per annum of either the base rate plus 3.75% or the LIBOR
rate plus 4.75%.
We must pay a commitment fee on the last day of October, January, April and
July of each year on the daily average unused amount of each lender's commitment
under the credit facility for such quarter at a rate equal to between 0.75% and
1.50% depending on the aggregate outstanding principal amount of the loans under
the credit facility.
As of December 31, 1999 we had $22,444,000 outstanding under the credit
facility. On April 5, 2000, we entered into a commitment letter with GE Capital
pursuant to which GE Capital agreed to provide $50 million of an increased term
loan facility in the aggregate amount of $135 million, and to arrange for a
syndicate of lenders to provide the remainder of the increased facility. Such
increased facility will be guaranteed and secured on the same basis as the
existing credit facility. Proceeds of the increased credit facility will be used
for working capital and general corporate purposes and, the build-out of our
Phase II markets. We anticipate that affiliates of two of the underwriters of
this offering will participate in the lending syndicate for this increased
facility. For more information, see "Underwriting."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of April 14, 2000, and as adjusted to reflect
the sale of shares offered hereby, by:
- each person known by us to beneficially own more than 5% of our
outstanding capital stock;
- each of our directors and named executive officers; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each stockholder listed is c/o
Eschelon Telecom, Inc., 730 Second Avenue, Suite 1200, Minneapolis, Minnesota
55402. Except as otherwise indicated, each of the persons named in this table
has sole voting and investment power with respect to all the shares indicated.
For purposes of calculating the percentage of shares beneficially owned:
24,072,589 shares of common stock equivalents are deemed outstanding before the
offering, including 2,826,897 shares of common stock outstanding as of
April 14, 2000, and 21,245,692 shares of common stock equivalents issuable upon
conversion of the preferred stock. For purposes of calculating the percentage
beneficially owned, the number of shares deemed outstanding after the offering
includes: (a) all shares deemed to be outstanding before the offering and
(b) shares being sold in this offering, assuming the exercise of the
underwriters' over-allotment option. Share ownership in each case includes
shares issuable upon exercise of outstanding options and warrants that are
exercisable within 60 days of April 14, 2000 as described in the footnotes
below.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
NUMBER OF SHARES --------------------------------
BENEFICIAL OWNER BENEFICIALLY OWNED BEFORE OFFERING AFTER OFFERING
- ---------------- ------------------ --------------- --------------
<S> <C> <C> <C>
Stolberg Partners L.P. (1)........................ 11,839,542
370-17(th) Street, Suite 4240
Denver, CO 80202
Stolberg, Meehan & Scano II, L.P. (1)............. 11,839,542
370-17(th) Street, Suite 4240
Denver, CO 80202
Bain Capital Fund VI, L.P. (2).................... 7,746,667
Two Copley Place, 7(th) Floor
Boston, MA 02116
Clifford D. Williams (3).......................... 844,100
Richard A. Smith (4).............................. 315,940
Robert E. Pickens (5)............................. 62,726
James Lawrence (6)................................ 42,820
David A. Kunde (7)................................ 39,058
Tansukh V. Ganatra................................ 50,000
Michael Krupka (2)(8)............................. 7,746,667
Marvin C. Moses (9)............................... 164,240
Mark E. Nunnelly (2)(10).......................... 7,746,667
E. Theodore Stolberg (1)(11)...................... 11,839,542
Peter M. Van Genderen (1)(12)..................... 11,839,542
All executive officers and directors as a group
(11 persons)(13)................................ 21,105,093
</TABLE>
- ------------------------
* Less than one per cent.
73
<PAGE>
(1) Includes 3,542,827 shares of stock owned by Stolberg, Meehan & Scano II,
L.P., an affiliate of Stolberg Partners, L.P., 38,982 shares of stock owned
by 780 Partners, a Wisconsin general partnership, an affiliate of Stolberg
Partners, L.P., 25,242 shares of stock owned by Larry Walker, an affiliate
of Stolberg Partners, L.P., 25,115 shares of stock owned by Lawrence
Freeborg, an affiliate of Stolberg Partners, L.P., 10,447 shares of stock
owned by Peter Van Genderen, an affiliate of Stolberg Partners, L.P. 13,740
shares of stock owned by Nottingham & Spirk, an affiliate of Stolberg
Partners, L.P. and 13,740 shares of stock owned by Gary Snyder, an
affiliate of Stolberg Partners, L.P. Stolberg Partners, L.P. disclaims
beneficial interest in those shares except to the extent of its pecuniary
interest in each entity.
(2) Includes 769,634 shares of stock owned by BCIP Associates II, 309,744
shares of stock owned by BCIP Associates II-C, 219,668 shares of stock
owned by BCIP Trust Associates II, 185,734 shares of stock owned by BCIP
Associates II-B and 49,796 shares of stock owned by BCIP Trust Associates
II-B, 19,874 shares of stock owned by PEP Investments PTY Ltd., and 153,401
shares of stock owned by Sankaty High Yield Asset Partners, L.P.,
affiliates of Bain Capital Fund VI, L.P. Bain Capital Fund VI, L.P.
disclaims beneficial interest in those shares except to the extent of its
pecuniary interest in each entity.
(3) Includes 354,307 shares of common stock issuable upon exercise of vested
options.
(4) Includes 189,275 shares of common stock issuable upon exercise of vested
options.
(5) Includes 54,760 shares of common stock issuable upon exercise of vested
options.
(6) Includes 35,680 shares of common stock issuable upon exercise of vested
options.
(7) Includes 36,000 shares of common stock issuable upon exercise of vested
options.
(8) Includes 7,746,667 shares of stock beneficially owned by Bain Capital Fund
VI, L.P. Mr. Krupka, a director, is a managing director of Bain Capital
Fund VI, L.P. Mr. Krupka shares voting and dispositive control over shares
beneficially owned by Bain Capital Fund VI, L.P. and disclaims beneficial
interest in those shares except to the extent of his pecuniary interest.
Mr. Nunnelly's address is c/o Bain Capital Fund VI, L.P., Two Copley Place,
7(th) Floor, Boston, MA 02116.
(9) Includes 39,240 vested options for purchase of common stock and 88,260
shares of common stock beneficially owned by the Moses Family Limited
Partnership. Mr. Moses, a director, shares voting and dispositive control
over those shares beneficially owned by the Moses Family Limited
Partnership and disclaims beneficial interest in those shares except to the
extent of his pecuniary interest. The address of Mr. Moses is 2942 Chestnut
Run, Bloomfield Hills, MI 48302.
(10) Includes 7,746,667 shares of stock beneficially owned by Bain Capital Fund
VI, L.P. Mr. Nunnelly, a director, is a managing director of Bain Capital
Fund VI, L.P. Mr. Nunnelly shares voting and dispositive control over
shares beneficially owned by Bain Capital Fund VI, L.P. and disclaims
beneficial interest in those shares except to the extent of his pecuniary
interest. Mr. Nunnelly's address is c/o Bain Capital Fund VI, L.P., Two
Copley Place, 7(th) Floor, Boston, MA 02116.
(11) Includes 11,839,542 shares of stock beneficially owned by Stolberg
Partners, L.P. and by Stolberg, Meehan & Scano II, L.P., an affiliate of
Stolberg Partners, L.P. Mr. Stolberg, a director, is a principal of
Stolberg Partners, L.P. and Stolberg, Meehan & Scano II, L.P. and shares
voting and dispositive control over the shares they hold to the extent of
his pecuniary interest. Mr. Stolberg's address is c/o Stolberg Partners,
L.P. 370-17(th) Street, Suite 4240, Denver, CO 80202.
(12) Includes 11,839,542 shares of stock beneficially owned by Stolberg
Partners, L.P. and by Stolberg, Meehan & Scano II, L.P., an affiliate of
Stolberg Partners, L.P. Mr. Van Genderen, a director, is a principal of
Stolberg Partners, L.P. and Stolberg, Meehan & Scano II, L.P. and shares
voting and dispositive control over the shares they hold to the extent of
his pecuniary interest. The address of Mr. Van Genderen is c/o Stolberg
Partners, L.P. 370-17(th) Street, Suite 4240, Denver, CO 80202.
(13) Includes 670,022 shares of common stock issuable upon exercise of vested
options.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
On the closing of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock, par value $0.01 per share and 15,000,000
shares of undesignated capital stock, par value $0.01 per share.
The following table sets forth our outstanding equity securities as of
April 14, 2000.
<TABLE>
<CAPTION>
DESCRIPTION NUMBER OF SHARES
- ----------- ----------------
<S> <C>
Common stock................................................ 2,826,897
Series A convertible preferred stock........................ 5,912,440
Series B1 convertible preferred stock....................... 1,349,506
Series B2 convertible preferred stock....................... 1,552,154
Series B3 convertible preferred stock....................... 1,296,704
Series B4 convertible preferred stock....................... 294,254
Series C convertible preferred stock........................ 9,156,000
Series C1 convertible preferred stock....................... 1,684,634
Warrants to purchase common stock........................... 440,500
Options to purchase common stock............................ 4,400,000
----------
TOTAL:.................................................. 28,913,089
==========
</TABLE>
As of April 14, 2000, there were 80 holders of record of our common stock.
Our series A, B and C convertible preferred stock are held of record by 20, 24,
and 21 stockholders, respectively. Immediately prior to the closing of the
offering, all outstanding shares of convertible preferred stock will be
converted into 21,245,692 shares of common stock and such preferred shares will
no longer be issued and outstanding.
After this offering, we will have outstanding shares of common
stock if the underwriters do not exercise their over-allotment option, or
shares of common stock if the underwriters exercise their
over-allotment option in full.
The following is a summary of the material features of our capital stock.
For more detail, please see our third amended and restated certificate of
incorporation and our third amended and restated by-laws to be effective after
the closing of this offering, filed as exhibits to the registration statement of
which this prospectus is a part. See "Additional Information."
COMMON STOCK
Holders of common stock are entitled to one vote for each share of record on
all matters submitted to a vote of stockholders. The holders of common stock are
entitled to receive ratably such lawful dividends as may be declared by the
board of directors. However, such dividends are subject to preferences that may
be applicable to the holders of any outstanding shares of preferred stock. In
the event of a liquidation, dissolution, or winding up of the affairs of our
company, whether voluntary or involuntary, the holders of common stock will be
entitled to receive pro rata all of our remaining assets available for
distribution to stockholders. Any such pro rata distribution would be subject to
the rights of the holders of any outstanding shares of preferred stock. Our
common stock has no preemptive, redemption, conversion or subscription rights.
Piper Marbury Rudnick & Wolfe LLP, our counsel, will opine that the shares of
common stock to be issued by us in this offering, when issued and sold in the
manner described in the prospectus and in accordance with the resolutions
adopted by the board of directors, will be fully paid and non-assessable. The
rights, powers, preferences and privileges of holders of our common stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of preferred stock that we may designate and issue in the
future.
75
<PAGE>
WARRANTS
In April 1999, we issued a warrant to Imperial Bank for the purchase of up
to 12,000 shares of common stock at an exercise price of $0.01 per share. This
warrant is immediately exercisable and expires April 2009. In July 1999, we
issued a warrant to purchase 428,500 shares of common stock at an exercise price
of $0.01 per share in connection with our GE Capital credit facility. Up to
one-half is exercisable on or prior to December 31, 2000. If we receive
$30 million of additional capital prior to December 31, 2000, one-half of the
warrant must be returned to us for cancellation.
UNDESIGNATED CAPITAL STOCK
Immediately following the offering, our board will have the authority to
designate and issue up to 15,000,000 shares of capital stock, in one or more
series. Our board can establish the preferences, rights and privileges of each
series, which may be superior to the rights of the common stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 21,245,692 shares of
common stock and rights to acquire common stock will be entitled to certain
rights with respect to the registration of such shares under the Securities Act.
Under the terms of the agreement between us and the holders of such registrable
securities, 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, these holders are entitled to notice of such
registration and are entitled to include shares of such common stock therein.
Additionally, these holders are also entitled to certain demand registration
rights pursuant to which they may require us on up to two occasions to file a
registration statement under the Securities Act at our expense with respect to
our shares of common stock. We are required to use our best efforts to effect
any such registration. Further, holders may require us to file an unlimited
number of additional registration statements on Form S-3 at our expense,
provided, however that we are not required to effect a registration within six
months after the effective date of any other registration statement of our
company and we are not required to effect more than two registrations in any
12-month period. Under these registration rights, the underwriters of an
offering may limit the number of shares included in the registration, and we
have the right not to effect a requested registration within 180 days following
an offering of our securities on Form S-1, including this offering.
POSSIBLE ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BY-LAWS
AND DELAWARE GENERAL CORPORATION LAW
GENERAL. Certain provisions of our certificate of incorporation and bylaws
and Delaware law could make our acquisition by a third party, a change in our
incumbent management, or a similar change of control more difficult, including:
- an acquisition of us by means of a tender or exchange offer;
- an acquisition of us by means of a proxy contest or otherwise; or
- the removal of a majority or all of our incumbent officers and directors.
These provisions, which are summarized below, are likely to discourage
certain types of coercive takeover practices and inadequate takeover bids. These
provisions are also designed to encourage persons seeking to acquire control of
us to first negotiate with our board of directors. We believe that these
provisions help to protect our potential ability to negotiate with the proponent
of an unfriendly or unsolicited proposal to acquire or restructure us, and that
this benefit outweighs the potential disadvantages of discouraging such a
proposal because our ability to negotiate with the proponent could result in an
improvement of the terms of the proposal.
76
<PAGE>
ELECTION AND REMOVAL OF DIRECTORS. Our certificate of incorporation and
by-laws also contain provisions that effectively restrict the ability of our
stockholders to remove directors without a showing of cause. In addition, our
bylaws provide that, except as otherwise provided by law or our certificate of
incorporation, newly created directorships resulting from an increase in the
authorized number of directors or vacancies on the board may be filled only by a
majority of the directors then in office (even though less than a quorum is then
in office) or by the sole remaining director.
STOCKHOLDER MEETINGS. Under our certificate of incorporation and by-laws,
only the chairman of the board, the president or a majority of the board of
directors may call special meetings of stockholders. Stockholders are not
permitted to call special meetings or demand that a special meeting be called by
us.
REQUIREMENTS FOR ADVANCE NOTIFICATION OF STOCKHOLDER NOMINATIONS AND
PROPOSALS. Our by-laws will establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of the board of
directors or a committee of the board.
DELAWARE ANTI-TAKEOVER LAW. We are subject to Section 203 of the Delaware
general corporation law, an anti-takeover law. In general, Section 203 prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
the person became an interested stockholder, unless the "business combination"
or the transaction in which the person became an interested stockholder is
approved in a prescribed manner. Generally, a "business combination" includes a
merger, asset or stock sale, or other transaction resulting in a financial
benefit to the interested stockholder. An "interested stockholder" is defined
generally as a person who, together with affiliates and associates, owns or
within three years prior to the determination of interested stockholder status,
did own, 15% or more of a corporation's voting stock. The existence of this
provision may have an anti-takeover effect with respect to transactions not
approved in advance by the board of directors, including discouraging attempts
that might result in a premium over the market price for the shares of common
stock held by stockholders.
ELIMINATION OF STOCKHOLDER ACTION BY WRITTEN CONSENT. Upon the completion
of the offering, our certificate of incorporation will eliminate the right of
stockholders to act by written consent without a meeting, unless the consent is
unanimous.
NO CUMULATIVE VOTING. Our certificate of incorporation and by-laws do not
provide for cumulative voting in the election of directors.
UNDESIGNATED CAPITAL STOCK. The authorization of undesignated capital stock
will make it possible for our board of directors to issue stock with voting or
other rights or preferences that could impede the success of any attempt to
change control of us.
LIMITATION OF LIABILITY. As permitted by the Delaware general corporation
law, our certificate of incorporation provides that our directors will not be
personally liable to us or our stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to us or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the Delaware general corporation law, relating to
unlawful payment of dividends or unlawful stock purchase or redemption of
stock; or
- for any transaction from which the director derives an improper personal
benefit.
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<PAGE>
As a result of this provision, we and our stockholders may be unable to
obtain monetary damages from a director for breach of his or her duty of care.
Our certificate of incorporation and by-laws also provide for the
indemnification of our directors and officers to the fullest extent authorized
by the Delaware general corporation law. The indemnification provided under our
certificate of incorporation and by-laws includes the right to be paid expenses
in advance of any proceeding for which indemnification may be payable, provided
that the payment of these expenses incurred by a director or officer in advance
of the final disposition of a proceeding may be made only upon delivery to us of
an undertaking by or on behalf of the director or officer to repay all amounts
so paid in advance if it is ultimately determined that the director or officer
is not entitled to be indemnified.
Under our by-laws, we have the power to purchase and maintain insurance on
behalf of any person who is or was one of our directors, officers, employees or
agents, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against the person or incurred by the
person in any of these capacities, or arising out of the person's fulfilling one
of these capacities, and related expenses, whether or not we would have the
power to indemnify the person against the claim under the provisions of the
Delaware general corporation law. We intend to maintain director and officer
liability insurance on behalf of our directors and officers.
STOCK TRANSFER AGENT
The transfer agent and registrar for our common stock is Chase Mellon
Shareholder Services, L.L.C.
78
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our existing stockholders sell a large number of shares of our common
stock in the public market following the offering, the market price of the
common stock could decline significantly. The perception in the public market
that our existing stockholders might sell shares of common stock could depress
our market price.
Immediately after this offering, approximately shares of our common
stock will be outstanding, assuming no exercise of the underwriters'
over-allotment option and no exercise of outstanding options or warrants. Of
these shares, all shares of common stock sold in this offering will be
freely tradable in the public market without restriction or further registration
under the Securities Act, unless those shares are purchased by "affiliates" as
that term is defined in Rule 144 under the Securities Act. The remaining
shares, or % of our total outstanding shares, will constitute "restricted
securities" as that term is defined in Rule 144. Restricted Securities may be
sold in the public market only of registered under the Securities Act or if they
qualify for an exemption from registration under Rules 144, 144(k) or 701 under
the Securities Act. These shares will become available for resale in the public
market as shown on the chart below. Of these remaining shares, shares are
also subject to lock-up agreements restricting the sale of such shares for
180 days from the date of this prospectus. However, the underwriters may waive
this restriction and allow these stockholders to sell their shares at any time.
<TABLE>
<CAPTION>
NUMBER OF SHARES DATE OF FIRST AVAILABILITY FOR RESALE
- ---------------- -------------------------------------
<S> <C>
Immediately after the date of this
prospectus
90 days after the date of this
prospectus
180 days from the date of this
prospectus subject, in some cases, to
volume limitations
</TABLE>
Prior to this offering, there has been no public market for our common
stock, and we cannot predict what effect, if any, that market sales of shares of
our common stock or the availability of shares of our common stock for sale will
have on the market price of our common stock prevailing from time to time. Sales
of substantial amounts of our common stock in the public market could adversely
affect prevailing market prices and could impair our future ability to raise
capital through the sale of our equity securities.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the offering, a stockholder who has beneficially owned our
shares for at least one year is entitled to sell, within any three-month period,
a number of shares that does not exceed the greater of:
- one percent of the then-outstanding shares of our common stock, or
approximately shares immediately after this offering; or
- the average weekly trading volume in our common stock on the Nasdaq
National Market during the four calendar weeks preceding the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, in
order to sell shares of common stock held by them that are not restricted
securities. All sales made under Rule 144 are also subject to certain manner of
sale provisions and notice requirements and to the availability of current
public information about us.
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<PAGE>
RULE 144(K)
Under Rule 144(k), a person who is not currently an affiliate of ours, and
who has not been an affiliate of ours for at least three months before the sale,
and who has beneficially owned the shares of our common stock proposed to be
sold for at least two years (including the holding period of any prior
beneficial owner other than an affiliate of ours) may resell these shares
without compliance with the manner of sale, volume limitation, current public
information or notice requirements of Rule 144. The one- and two-year holding
periods described above do not begin to run until the full purchase price is
paid by the person acquiring the restricted shares from us or an affiliate of
ours.
RULE 701
In general, under Rule 701 of the Securities Act as currently in effect, any
of our employees, consultants or advisors who purchases shares of our common
stock in connection with a compensatory stock or option plan or other written
agreement relating to compensation is eligible to resell those shares 90 days
after we became a reporting company under the Securities Exchange Act of 1934 in
reliance on Rule 144, but without compliance with some of the restrictions
provided in Rule 144, including the holding period requirements, contained in
Rule 144.
STOCK OPTIONS
Following the offering, we intend to file a registration statement on
Form S-8 under the Securities Act covering approximately shares of common
stock issued or issuable upon the exercise of stock options, subject to
outstanding options or reserved for issuance under our equity-based benefit
plans. Accordingly, shares registered under the Form S-8 registration statement
will, subject to Rule 144 provisions applicable to affiliates, be available for
sale in the open market, except to the extent that the shares are subject to
vesting restrictions or the contractual lock-up agreements described herein.
REGISTRATION RIGHTS
We have entered into a stockholders' rights agreement with some of our
stockholders, who will own an aggregate of 21,245,692 shares of our common stock
following this offering. These stockholders have registration rights which, upon
exercise, require us to file registration statements covering the sale of their
shares of common stock and to include the sale of their shares in registration
statements covering our sale of shares to the public. See "Description of our
Capital Stock--Registration Rights."
LOCK-UP AGREEMENTS
Officers and directors and stockholders who will hold a total of
shares of common stock upon completion of this offering will enter into lock-up
agreements under which they will agree 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, without the prior written consent of
Credit Suisse First Boston, on behalf of the underwriters.
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<PAGE>
CERTAIN UNITED STATES FEDERAL TAX CONSIDERATIONS
TO NON-U.S. HOLDERS
The following discussion summarizes the principal U.S. federal tax
consequences of the purchase, ownership and disposition of our common stock by
non-United States holders. This summary is based on the Internal Revenue Code of
1986, or the Code, final, temporary, and proposed Treasury regulations
promulgated thereunder, administrative pronouncements and rulings, and judicial
decisions, changes to any of which subsequent to the date hereof may affect the
tax consequences described herein, possibly with retroactive effect.
This summary discusses only the common stock held as capital assets within
the meaning of Code section 1221. It does not discuss all of the tax
consequences that may be relevant to a holder in light of the holder's
particular circumstances or to holders subject to special rules, such as certain
financial institutions, banks, insurance companies, regulated investment
companies, dealers in securities or foreign currencies, tax exempt
organizations, or persons holding common stock as part of a straddle, hedging or
conversion transaction. PERSONS CONSIDERING PURCHASING COMMON STOCK SHOULD
CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF UNITED STATES
FEDERAL TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION.
As used in this summary, the term "United States Holder" means the
beneficial owner of common stock that is, for United States federal tax
purposes, (i) a citizen or resident of the United States (including certain
former citizens and former long-term residents), (ii) a corporation, partnership
or other entity created or organized in or under the laws of the United States
or of any political subdivision thereof, (iii) an estate the income of which is
subject to United States federal income taxation regardless of its source or
(iv) a trust with respect to the administration of which a court within the
United States is able to exercise primary supervision and one or more United
States fiduciaries have the authority to control all substantial decisions of
the trust. As used in this summary, the term "non-United States holder" means a
beneficial owner of the common stock that is not a United States holder.
PAYMENT OF DIVIDENDS
In general, any dividends (to the extent we have earnings and profits for
federal income tax purposes) paid to a non-United States holder on common stock
will be subject to 30% U.S. federal income tax withholding, unless such rate is
reduced by an applicable income tax treaty or the dividends are effectively
connected with such holder's conduct of a trade or business in the United States
(in which latter case the dividends generally will be subject to U.S. federal
income tax at regular rates and may also be subject to an additional branch
profits tax at a 30% rate).
SALE OR DISPOSITION OF COMMON STOCK
Under present U.S. federal tax law, and subject to the discussion below
concerning backup withholding, a non-United States holder of common stock, will
not be subject to U.S. Federal income tax on gain realized on the sale, exchange
or other disposition of the common stock, unless (i) such gain is effectively
connected with the conduct by such non-United States holder of a trade or
business in the United States, (or, if an applicable tax treaty so provides, the
gain is attributable to a U.S. permanent establishment maintained by the
non-United States holder) or (ii) we have been a "U.S. real property holding
corporation" for federal income tax purposes at any time during the five year
period ending on the date of disposition and the holder at any time during such
five-year period held, actually or constructively, more than 5% of such common
stock. We do not anticipate that it will be a U.S. real property holding
corporation.
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<PAGE>
ESTATE TAX
Unless an applicable estate tax treaty provides otherwise, common stock will
be treated as property within the United States for United States estate tax
purposes, and hence will be included in the gross estate of an individual who
dies while owning common stock.
BACKUP WITHHOLDING
A payment by a U.S. office of a broker of the proceeds of a sale of the
common stock is subject to both backup withholding and information reporting
unless the beneficial owner provides a completed IRS Form W-8 which certifies
under penalties of perjury that such owner is a non-United States holder who
meets all the requirements for exemption from United States federal income tax
on any gain from the sale, exchange or retirement of common stock.
In general, backup withholding and information reporting will not apply to a
payment of the gross proceeds of a sale of the common stock effected at a
foreign office of a broker. If, however, such a broker is, for U.S. federal
income tax purposes, a U.S. person, a controlled foreign corporation, or a
foreign person 50 percent or more of whose gross income for certain periods is
derived from activities that are effectively connected with the conduct of a
trade or business in the United States or certain other persons with specified
U.S. relationships, such payments will not be subject to backup withholding, but
will be subject to information reporting unless (i) such broker has documentary
evidence in its records that the beneficial owner is a non-United States holder
and certain other considerations are met; or (ii) the beneficial owner otherwise
establishes an exemption, provided such broker does not have actual knowledge
that the payee is a U.S. person. non-United States holders should consult their
own tax advisors regarding the application of these rules to their particular
situations, the availability of an exemption therefrom, and the procedure for
obtaining such an exemption, if applicable.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be allowed as a credit against a United States
holder's or a non-United States holder's United States federal income tax
liability and may entitle such holder to a refund, provided the required
information is furnished to the IRS.
The Treasury Department has issued final rules with respect to withholding
tax on income paid to non-United States holders and related matters, the New
Withholding Regulations, which are currently scheduled generally to go into
effect for payments made after December 31, 2000. The New Withholding
Regulations modify the requirements imposed on a non-United States holder and
certain intermediaries for establishing the recipients's status as a non-United
States holder eligible for exemption from withholding and backup withholding. In
particular, the New Withholding Regulations impose more stringent conditions on
the ability of financial intermediaries acting for a non-United States holder to
provide certifications on behalf of the non-United States holder which may
include entering into an agreement with the IRS to audit certain documentation
with respect to such certifications. Non-United States holders that are subject
to withholding are urged to consult their own tax advisors with respect to the
New Withholding Regulations.
The federal income tax summary set forth above is included for general
information only and may not be applicable depending upon a holder's particular
situation. Prospective purchasers of the common stock are urged to consult their
own tax advisors as to the precise federal, state, local, foreign and other tax
consequences of acquiring, owning and disposing of the common stock.
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<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, Bear, Stearns &
Co. Inc., J.P. Morgan Securities Inc., and Banc of America Securities LLC 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......................
Bear, Stearns & Co. Inc.....................................
J.P. Morgan Securities Inc..................................
Banc of America Securities LLC..............................
-------
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 the 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 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 broker/dealers may be changed by
the representative.
The following table summarizes the compensation and estimated expenses of $
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>
Credit Suisse First Boston, an affiliate of Credit Suisse First Boston
Corporation, and Morgan Guaranty Trust Company of New York, an affiliate of J.P.
Morgan Securities Inc., anticipate becoming lenders under our credit facility
led by GE Capital. We anticipate that the aggregate maximum commitment of this
credit facility will be approximately $135.0 million. Of this amount, we
anticipate that Credit Suisse First Boston and Morgan Guaranty Trust Company of
New York will make maximum commitments of approximately $10.0 million and $15.0
million, respectively. Other than interest as stated in the loan documents and
other customary fees which will be payable directly to Credit Suisse First
Boston and Morgan Guaranty Trust Company of New York, no fees will be paid to
Credit Suisse
83
<PAGE>
First Boston Corporation or J.P. Morgan Securities Inc. or their affiliates as a
result of these commitments. We expect that this transaction will close in the
second quarter of 2000. In November 1999, Morgan Guaranty Trust Company of New
York also participated in the syndication of our current $65.0 million credit
facility by making a commitment to lend us a maximum of $4.0 million.
In January 2000, J.P. Morgan Ventures Corporation, an affiliate of J.P.
Morgan Securities Inc., purchased 333,333 shares of our series C1 convertible
preferred stock at a price of $6.00 per share. This investment represents
approximately 19.8% of the issued and outstanding series C1 convertible
preferred stock. As part of the same offering in January 2000, institutional
investors purchased approximately % of the issued and outstanding series C1
convertible preferred stock.
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, directors and stockholders who will hold a total of shares
of common stock upon completion of this offering have agreed that they will not
offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, any shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock, enter into a
transaction which would have the same effect, or enter into any swap, hedge, or
other arrangement that transfers, in whole or in part, any of the economic
consequences of ownership of our common stock, whether any such aforementioned
transaction is to be settled by delivery of our common stock or such other
securities, in cash or otherwise, or publicly disclose the intention to make any
such offer, sale, pledge or disposition, or to enter into any such transaction,
swap, hedge or other arrangement, without, in each case, the prior written
consent of Credit Suisse First Boston Corporation for a period of 180 days after
the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock 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 available for sale to the
general public in the offering will be reduced to the extent these persons
purchase 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 contribute to payments which the underwriters may be required
to make in that respect.
We are applying to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "ESCH".
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be negotiated
by us and representatives of the underwriters. Among the principal factors to be
considered in determining the initial public offering price will be:
- market conditions for initial public offerings;
- the history of and prospects for our business, our past and present
operations;
- our past and present earnings and current financial position;
84
<PAGE>
- an assessment of our management;
- the market of securities of companies in businesses similar to ours; and
- the general condition of the securities markets.
There can be no assurance that the initial public offering price will
correspond to the price at which the common stock will trade in the public
market subsequent to the offering or that an active trading market will develop
and continue after the offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transaction 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 or syndicate covering
transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids
may cause the price of the common stock to be higher than it would otherwise be
in the absence of such transactions. These transaction may be effected on The
Nasdaq National Market or otherwise and, if commenced, may be discontinued at
any time.
A prospectus in electronic format will be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make internet distributions on the same
basis as other allocations.
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 our common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that: (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that
85
<PAGE>
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 the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons may be located outside of Canada and, as a result, it may not
be possible to satisfy a judgment against the issuer or such persons in Canada
or to enforce a judgment obtained in Canadian courts against such issuer or
persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the SECURITIES ACT (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
86
<PAGE>
VALIDITY OF THE SHARES
Piper Marbury Rudnick & Wolfe LLP, Washington, D.C., will pass upon the
validity of the shares of common stock on our behalf. Latham & Watkins,
Washington, D.C., is acting as counsel to the underwriters in the offering.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1998 and 1999 and for each of the three
years in the period ended December 31, 1999 as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement, including exhibits,
schedules and amendments. This prospectus is a part of the registration
statement and includes all of the information that we believe is material to an
investor considering whether to make an investment in our common stock. We refer
you to the registration statement for additional information about us, our
common stock and this offering, including the full texts of the exhibits, some
of which have been summarized in this prospectus. The registration statement is
available for inspection and copying at the SEC's Public Reference Room at
450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information about
the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
In addition, the SEC maintains an Internet site that contains the registration
statement. The address of the SEC's Internet site is "HTTP://WWW.SEC.GOV."
87
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statement of Stockholders' Equity.............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Eschelon Telecom, Inc.
We have audited the accompanying consolidated balance sheets of Eschelon
Telecom, Inc. (formerly known as Advanced Telecommunications, Inc.) as of
December 31, 1998 and 1999, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. 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 in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Eschelon
Telecom, Inc. (formerly known as Advanced Telecommunications, Inc.) at
December 31, 1998 and 1999, and the consolidated 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.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 7, 2000
F-2
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31 EQUITY
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,014 $ 34,473
Accounts receivable, net of allowance for doubtful
accounts of $240 and $353............................... 4,753 6,440
Other receivables......................................... 276 1,224
Inventories............................................... 2,202 2,252
Prepaid expenses.......................................... 340 320
-------- --------
Total current assets........................................ 8,585 44,709
Property and equipment, net................................. 2,454 19,801
Other assets................................................ 74 145
Intangible assets, net...................................... 10,101 12,622
-------- --------
Total assets................................................ $ 21,214 $ 77,277
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,601 $ 2,096
Accrued expenses.......................................... 1,098 2,325
Deferred revenue.......................................... 1,029 1,346
Accrued compensation expenses............................. 1,161 2,049
Capital lease obligation, current maturities.............. 79 554
Notes payable, current maturities......................... 503 589
Notes payable to related parties, current maturities...... 416 --
-------- --------
Total current liabilities................................... 5,887 8,959
Long-term liabilities:
Liability associated with put warrant..................... -- 2,567
Convertible subordinated notes payable to related
parties................................................. 9,245 --
Capital lease obligation.................................. 65 1,553
Notes payable............................................. 5,252 22,659
-------- --------
Total liabilities........................................... 20,449 35,738
Stockholders' equity:
Series A Convertible Preferred Stock...................... 56 59 $ --
Series B Convertible Preferred Stock...................... -- 45 --
Series C Convertible Preferred Stock...................... -- 92 --
Class A Common Stock...................................... 16 17 213
Class B Common Stock...................................... 4 -- --
Additional paid-in capital................................ 11,451 63,444 63,444
Accumulated deficit....................................... (10,762) (21,744) (21,744)
-------- -------- --------
765 41,913 41,913
Deferred compensation..................................... -- (374) (374)
-------- -------- --------
Total stockholders' equity.................................. 765 41,539 41,539
-------- -------- --------
Total liabilities and stockholders' equity.................. $ 21,214 $ 77,277 $ 77,277
======== ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1997 1998 1999
-------- ---------- -----------
<S> <C> <C> <C>
Revenue:
Voice and data services................................. $ 2,420 $ 9,885 $ 18,725
Business telephone systems.............................. 16,367 18,624 22,991
-------- ---------- -----------
18,787 28,509 41,716
Cost of sales:
Voice and data services................................. 2,396 7,921 13,564
Business telephone systems.............................. 7,568 10,056 13,402
-------- ---------- -----------
9,964 17,977 26,966
Gross profit:
Voice and data services................................. 24 1,964 5,161
Business telephone systems.............................. 8,799 8,568 9,589
-------- ---------- -----------
8,823 10,532 14,750
Operating expenses:
General and administrative.............................. 7,543 10,632 14,193
Sales and marketing..................................... 3,296 4,527 8,129
Depreciation and amortization........................... 943 1,272 1,800
-------- ---------- -----------
Operating loss............................................ (2,959) (5,899) (9,372)
Other income (expense):
Interest income......................................... 70 86 582
Interest expense........................................ (432) (1,202) (2,192)
-------- ---------- -----------
Net loss.................................................. (3,321) (7,015) (10,982)
Less preferred stock dividends............................ -- -- (1,274)
-------- ---------- -----------
Net loss applicable to common stockholders................ $ (3,321) $ (7,015) $ (12,256)
======== ========== ===========
Net loss per share applicable to common stockholders:
Basic and diluted....................................... $ (3.68) $ (5.50) $ (6.18)
======== ========== ===========
Weighted average number of common shares outstanding:
Basic and diluted....................................... 903,085 1,276,539 1,982,441
======== ========== ===========
Pro forma net loss per share:
Basic and diluted....................................... $ (.99)
===========
Shares used in calculation of pro forma net loss per
share:
Basic and diluted....................................... 11,129,205
===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- --------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................... 5,634,960 $56 -- $-- -- $--
Issuance of Class A Common Stock in connection
with ATTI acquisition....................... -- -- -- -- -- --
Issuance of Class A Common Stock in connection
with ETI acquisition........................ -- -- -- -- -- --
Issuance of Class A Common Stock in exchange
for non-compete agreement................... -- -- -- -- -- --
Net loss for the year......................... -- -- -- -- -- --
--------- --- --------- --- --------- ---
Balance at December 31, 1997.................... 5,634,960 56 -- -- -- --
Issuance of Class A Common Stock in connection
with TSI acquisition........................ -- -- -- -- -- --
Issuance of Class A Common Stock in connection
with OCT acquisition........................ -- -- -- -- -- --
Issuance of Class A Common Stock in exchange
for Note Guarantee.......................... -- -- -- -- -- --
Net loss for the year......................... -- -- -- -- -- --
--------- --- --------- --- --------- ---
Balance at December 31, 1998.................... 5,634,960 56 -- -- -- --
Issuance of Class A Common Stock in connection
with OCT acquisition........................ -- -- -- -- -- --
Sale of Class A Common Stock.................. -- -- -- -- -- --
Issuance of Class A Common Stock to a Board
Member for services......................... -- -- -- -- -- --
Repurchase of stock........................... (129,500) (1) (102,036) (1) -- --
Issuance of Class A Common Stock in exchange
for note guarantee.......................... -- -- -- -- -- --
Issuance of Class A Common Stock in connection
with TSI acquisition........................ -- -- -- -- -- --
Issuance of Series B Convertible Preferred
Stock through the conversion of debt........ -- -- 4,594,654 46 -- --
Series A Convertible Preferred Stock issued
through conversion of Class B Common
Stock....................................... 406,980 4 -- -- -- --
Stock options exercised....................... -- -- -- -- -- --
Issuance of Series C Convertible Preferred
Stock....................................... -- -- -- -- 9,162,601 92
Issuance of Class A Common Stock warrants in
connection with debt........................ -- -- -- -- -- --
Deferred compensation related to stock
options..................................... -- -- -- -- -- --
Amortization of deferred compensation......... -- -- -- -- -- --
Net loss for the year......................... -- -- -- -- -- --
--------- --- --------- --- --------- ---
Balance at December 31, 1999.................... 5,912,440 $59 4,492,618 $45 9,162,601 $92
========= === ========= === ========= ===
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------- PAID-IN ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT
--------- -------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.................... -- $-- 406,980 $ 4 $ 8,287 $ (426)
Issuance of Class A Common Stock in connection
with ATTI acquisition....................... 549,240 6 -- -- 994 --
Issuance of Class A Common Stock in connection
with ETI acquisition........................ 118,140 1 -- -- 239 --
Issuance of Class A Common Stock in exchange
for non-compete agreement................... 4,920 -- -- -- 10 --
Net loss for the year......................... -- -- -- -- -- (3,321)
--------- --- -------- --- ------- --------
Balance at December 31, 1997.................... 672,300 7 406,980 4 9,530 (3,747)
Issuance of Class A Common Stock in connection
with TSI acquisition........................ 296,100 3 -- -- 622 --
Issuance of Class A Common Stock in connection
with OCT acquisition........................ 478,260 5 -- -- 1,032 --
Issuance of Class A Common Stock in exchange
for Note Guarantee.......................... 98,880 1 -- -- 267 --
Net loss for the year......................... -- -- -- -- -- (7,015)
--------- --- -------- --- ------- --------
Balance at December 31, 1998.................... 1,545,540 16 406,980 4 11,451 (10,762)
Issuance of Class A Common Stock in connection
with OCT acquisition........................ 120,960 1 -- -- 528 --
Sale of Class A Common Stock.................. 88,260 1 -- -- 249 --
Issuance of Class A Common Stock to a Board
Member for services......................... 17,640 -- -- -- 50 --
Repurchase of stock........................... (160,000) (2) -- -- (1,894) --
Issuance of Class A Common Stock in exchange
for note guarantee.......................... 68,520 1 -- -- 266 --
Issuance of Class A Common Stock in connection
with TSI acquisition........................ 17,861 -- -- -- 38 --
Issuance of Series B Convertible Preferred
Stock through the conversion of debt........ -- -- -- -- 9,945 --
Series A Convertible Preferred Stock issued
through conversion of Class B Common
Stock....................................... -- -- (406,980) (4) -- --
Stock options exercised....................... 1,140 -- -- -- 5 --
Issuance of Series C Convertible Preferred
Stock....................................... -- -- -- -- 42,368 --
Issuance of Class A Common Stock warrants in
connection with debt........................ -- -- -- -- 34 --
Deferred compensation related to stock
options..................................... -- -- -- -- 404 --
Amortization of deferred compensation......... -- -- -- -- -- --
Net loss for the year......................... -- -- -- -- -- (10,982)
--------- --- -------- --- ------- --------
Balance at December 31, 1999.................... 1,699,921 $17 -- $-- $63,444 $(21,744)
========= === ======== === ======= ========
<CAPTION>
DEFERRED
COMPENSATION TOTAL
------------ --------
<S> <C> <C>
Balance at December 31, 1996.................... $ -- $ 7,921
Issuance of Class A Common Stock in connection
with ATTI acquisition....................... -- 1,000
Issuance of Class A Common Stock in connection
with ETI acquisition........................ -- 240
Issuance of Class A Common Stock in exchange
for non-compete agreement................... -- 10
Net loss for the year......................... -- (3,321)
----- --------
Balance at December 31, 1997.................... -- 5,850
Issuance of Class A Common Stock in connection
with TSI acquisition........................ -- 625
Issuance of Class A Common Stock in connection
with OCT acquisition........................ -- 1,037
Issuance of Class A Common Stock in exchange
for Note Guarantee.......................... -- 268
Net loss for the year......................... -- (7,015)
----- --------
Balance at December 31, 1998.................... -- 765
Issuance of Class A Common Stock in connection
with OCT acquisition........................ -- 529
Sale of Class A Common Stock.................. -- 250
Issuance of Class A Common Stock to a Board
Member for services......................... -- 50
Repurchase of stock........................... -- (1,898)
Issuance of Class A Common Stock in exchange
for note guarantee.......................... -- 267
Issuance of Class A Common Stock in connection
with TSI acquisition........................ -- 38
Issuance of Series B Convertible Preferred
Stock through the conversion of debt........ -- 9,991
Series A Convertible Preferred Stock issued
through conversion of Class B Common
Stock....................................... -- --
Stock options exercised....................... -- 5
Issuance of Series C Convertible Preferred
Stock....................................... -- 42,460
Issuance of Class A Common Stock warrants in
connection with debt........................ -- 34
Deferred compensation related to stock
options..................................... (404) --
Amortization of deferred compensation......... 30 30
Net loss for the year......................... -- (10,982)
----- --------
Balance at December 31, 1999.................... $(374) $ 41,539
===== ========
</TABLE>
SEE ACCOMPANYING NOTES.
F-5
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,321) $(7,015) $(10,982)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization expense..................... 943 1,272 1,800
Provision for bad debt expense............................ 43 174 452
Value of stock and options issued in lieu of interest and
compensation............................................ -- 125 348
Accretion of discount on note payable and put warrant..... -- -- 590
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable..................................... (1,535) (1,159) (2,172)
Other receivables....................................... (25) 145 (948)
Inventories............................................. (571) (69) (50)
Prepaid expenses and other assets....................... (183) 69 (51)
Accounts payable........................................ 764 (1,107) 424
Accrued expenses........................................ 1,145 828 1,774
Deferred revenue........................................ 398 215 317
Accrued compensation expenses........................... (53) 389 888
------- ------- --------
Net cash used in operating activities....................... (2,395) (6,133) (7,610)
INVESTING ACTIVITIES
Purchase of subsidiaries, net of cash acquired.............. (1,070) (507) (40)
Purchases of property and equipment......................... (1,530) (604) (16,151)
Cash paid for other intangibles............................. (195) (464) (894)
Purchase of non-compete agreement........................... -- -- (5)
------- ------- --------
Net cash used in investing activities....................... (2,795) (1,575) (17,090)
FINANCING ACTIVITIES
Proceeds from issuance of convertible subordinated notes.... 8,284 -- 200
Proceeds from issuance of other notes payable............... -- 5,950 27,055
Payments made on related party notes........................ (92) (95) (416)
Payments made on other notes payable........................ (285) (219) (7,695)
Proceeds from issuance of Preferred Stock................... -- -- 42,460
Proceeds from issuance of Common Stock...................... -- -- 250
Proceeds from exercise of stock options..................... -- -- 5
Increase in debt issuance costs............................. -- -- (1,802)
Repurchase of stock......................................... -- -- (1,898)
------- ------- --------
Net cash provided by financing activities................... 7,907 5,636 58,159
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 2,717 (2,072) 33,459
Cash and cash equivalents at beginning of year.............. 369 3,086 1,014
------- ------- --------
Cash and cash equivalents at end of year.................... $ 3,086 $ 1,014 $ 34,473
======= ======= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest...................................... $ 155 $ 378 $ 515
SUPPLEMENTAL NONCASH FINANCING ACTIVITIES
Equipment purchases under capital lease..................... -- -- 2,105
</TABLE>
See accompanying notes.
F-6
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Eschelon Telecom, Inc. (the "Company") is an integrated communications
provider offering facilities-based broadband voice and data services to small
and medium-sized business customers in select markets within the western United
States. The Company offers the following products and services:
- LOCAL BUSINESS TELEPHONE SERVICES--Local access lines including
traditional business lines, direct dial trunks and analog and digital
access; local service enhanced features including hunting, forwarding,
transferring, voice messaging, caller ID, call waiting, three-way calling
and call hold.
- LONG DISTANCE SERVICES--Outbound services, inbound services including
800/888 services, intralata and interlata, calling cards and operator
services.
- DATA SERVICES--DSL, frame relay/T-1, dial-up internet access advanced data
services, LAN and WAN consulting and implementation, secure network
capability and dedicated bandwidth and colocation space.
- BUSINESS TELEPHONE SYSTEMS PRODUCTS AND SERVICES--Products include
telephone transmission products, data transmission products and voice
messaging products; services include system configurations, maintenance
agreements and technical service and repair.
The Company was originally incorporated in Minnesota, and in September 1999
reincorporated in Delaware. The Company changed its name to Eschelon
Telecom, Inc. in April 2000.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents. Cash equivalents
are carried at cost which approximates market value. On December 31, 1998 and
1999, the Company had investments of $3 and $33,926, respectively, in securities
with maturities of less than three months which are included in cash and cash
equivalents.
INVENTORIES
Inventories consist primarily of telephone equipment and parts held for sale
or rent and are stated at the lower of cost or market. The Company has recorded
a valuation reserve against inventories of $155 and $123 as of December 31, 1998
and 1999, respectively.
F-7
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment, including leasehold improvements, are stated at
cost. Depreciation is provided using the straight-line method over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Vehicles.................................................... 5 years
Office furniture and equipment.............................. 5-7 years
Computer equipment.......................................... 5 years
</TABLE>
Leasehold improvements are amortized over the shorter of the related lease
term or the estimated useful life of the asset.
Construction in progress includes equipment and other internal costs
directly related to the construction of switches and internal systems which are
not complete as of the balance sheet dates. When construction of the switches
and internal systems is complete, the balance of the assets will be transferred
to switch equipment and software, and depreciated in accordance with the
Company's policy. All internal costs directly related to the construction of the
switches and systems, including interest and salaries of certain employees, are
capitalized. Such costs amounted to $2,601 in 1999, including interest of
$1,066.
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Vehicles.................................................. $ 197 $ 191
Office furniture and equipment............................ 2,716 4,280
Computer equipment........................................ 690 1,840
Leasehold improvements.................................... 181 293
Construction in progress.................................. -- 15,450
------- -------
3,784 22,054
Less accumulated depreciation and amortization............ (1,330) (2,253)
------- -------
$ 2,454 $19,801
======= =======
</TABLE>
INTANGIBLE ASSETS
Intangibles consist of goodwill, debt issuance costs, certain one-time
customer set-up costs, non-compete agreements and license fees. The goodwill
represents the excess of cost over the fair value of net assets acquired and is
amortized on a straight-line basis over 20 years. Debt issuance costs were
incurred in connection with the issuance of long-term debt during 1999. These
costs are being amortized over the term of the debt facility on a straight-line
basis. The customer set-up costs are being amortized over a period of
48 months, which approximates the average life of a customer contract.
F-8
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Non-compete agreement costs represent costs associated with various agreements
the Company has entered into with existing management of the companies they have
acquired. These costs are being amortized over the terms of the agreements.
Capitalized license fee costs represent the costs associated with licensing the
billing software the Company is currently using. These costs are being amortized
over the term of the license agreement.
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Goodwill................................................. $10,120 $ 10,817
Debt issuance costs...................................... -- 1,802
Customer set-up costs.................................... 659 1,551
Non-compete agreements................................... 418 423
License fees............................................. 63 63
------- --------
11,260 14,656
Less accumulated amortization............................ (1,159) (2,034)
------- --------
$10,101 $ 12,622
======= ========
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to undiscounted future net cash
flows expected to be generated by the assets. If such assets are considered to
be impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
REVENUE RECOGNITION
The Company recognizes voice and data services revenue in the month the
service is provided. Revenue related to business telephone systems is recognized
at the time installation is complete. Periodic maintenance, warranty and service
charges are deferred and recorded as revenue over the term of the contract.
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to credit risk
consist principally of accounts receivable. The Company has a credit policy
which helps minimize credit risk. Management believes this risk is limited due
to the large number and diversity of clients which comprise the Company's
customer base.
F-9
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
Advertising costs are expensed as incurred. The total amount charged to
advertising expense was $248, $262 and $469 for the years ended December 31,
1997, 1998 and 1999, respectively.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform with the 1999 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between financial reporting and tax
bases of assets and liabilities.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related interpretations in
accounting for its stock options. Under APB 25, when the exercise price of stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
NET LOSS PER SHARE
Basic net loss per share is computed using the weighted average number of
shares of common stock outstanding during the periods presented. Diluted net
loss per share is the same as basic net loss per share because the effect of all
options and warrants is anti-dilutive.
In May 1999, the Board of Directors approved a 60-for-1 stock split for all
Convertible Preferred and Common Stock. Accordingly, all share and per share
information has been restated to reflect the split.
PRO FORMA SHAREHOLDERS' EQUITY
Upon the closing of the Company's planned initial public offering, all
outstanding shares of Series A, B and C Preferred Stock will automatically
convert into 19,567,659 shares of Common Stock. The pro forma effects of these
transactions are unaudited and have been reflected in the accompanying pro forma
shareholders' equity section at December 31, 1999.
F-10
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRO FORMA NET LOSS PER SHARE
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the automatic conversion of the Company's
Series A, B and C Preferred Stock into shares of the Company's Common Stock as
if such conversion occurred on January 1, 1999, or at the date of original
issuance, if later. The resulting pro forma adjustment includes an increase in
the weighted average shares used to compute basic and diluted net loss per share
of 9,146,764 shares for the year ended December 31, 1999. The pro forma effects
of these transactions are unaudited.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1999, the Company adopted SFAS No. 131, DISCLOSURES
ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION (SFAS 131). SFAS 131
superseded FASB Statement No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS
ENTERPRISE. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The adoption of SFAS 131 did not affect results of
operations, financial position or the footnote disclosure, as the Company
operates in a single industry segment. The Company will continue to assess the
impact of SFAS No. 131 and modify its reporting and disclosure requirements if
necessary.
2. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Accrued telecommunication costs............................. $ 301 $ 882
Customer deposits........................................... 332 753
Accrued taxes............................................... 204 323
Accrued office rent......................................... 28 51
Other....................................................... 233 316
------ ------
$1,098 $2,325
====== ======
</TABLE>
3. ACQUISITIONS
The Company acquired all of the issued and outstanding stock of American
Telephone Technology, Inc. ("ATTI") in February 1997 in exchange for 549,240
shares of Class A Common Stock and $1,000 in cash. The Company incurred
additional costs relating to the acquisition of ATTI of $179.
F-11
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
3. ACQUISITIONS (CONTINUED)
The Company acquired all of the issued and outstanding stock of
Electro-Tel, Inc. ("ETI") in December 1997 in exchange for 118,140 shares of
Class A Common Stock and $160 in cash. The Company incurred additional costs
relating to the acquisition of ETI of $48. The Company also entered into a
non-compete agreement with an ETI employee. Under the agreement, the Company
issued 4,920 shares of Class A Common Stock valued at $10. The non-compete
agreement is being amortized over five years. In connection with the acquisition
of ETI, the Company has the ability to reacquire up to 49,260 shares of Class A
Common Stock issued to the seller, in the event certain gross sales and EBIT
targets are not achieved, for each of the 12-month periods ending June 30, 2000
and 2001.
The Company acquired all of the issued and outstanding stock of
Tele-Contracting Specialists, Inc. ("TSI") in July 1998 in exchange for 296,100
shares of Class A Common Stock and $526 in cash. The Company incurred additional
costs relating to the acquisition of TSI of $69. In addition to the purchase
price already paid, the Company is required to issue cash or shares of Class A
Common Stock having a value of $250 to the seller if certain financial targets
are achieved during the 12-month periods ending June 30, 1999, 2000, 2001, 2002
and 2003. The maximum consideration that can be earned in any 12-month period is
$50. As part of this agreement, the Company issued 17,861 shares of Common Stock
valued at $38 in 1999.
The Company acquired all of the issued and outstanding stock of One Call
Telecom, Inc. ("OCT") in August 1998 in exchange for 478,260 shares of Class A
Common Stock. The Company incurred additional costs relating to the acquisition
of OCT of $370. The Common Stock issued at the closing of the acquisition was
net of shares held in escrow by the Company. These escrowed shares were
associated with certain holdbacks that existed at closing. In 1999, the Company
issued 120,960 shares of Common Stock valued at $529 as final consideration for
the outstanding stock of OCT.
The Company acquired all of the assets of Infinite Voice Mail, LLC ("IVM")
in October 1999 in exchange for $40 in cash. In addition, the Company paid $5 to
obtain a non-compete agreement with the former owners of IVM. The cost of the
agreement has been capitalized and will be amortized over five years.
The acquisitions were all accounted for as purchases. Goodwill related to
these acquisitions and the 1996 acquisition of Cady Communications ("CCI"),
amounting to $10,817, has been capitalized and is being amortized over
20 years. In addition, the Company paid $408 to obtain non-compete agreements
with various employees at CCI. All acquisitions are immaterial to the Company
and as a result, no pro forma information has been presented.
F-12
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
4. NOTES PAYABLE
Notes payable consist of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Term note payable......................................... $ -- $22,444
Line of credit............................................ 4,450 --
Equipment financing....................................... 1,306 804
Related party notes payable............................... 416 --
Related party Series A Convertible Subordinated Notes
payable................................................. 9,244 --
------- -------
15,416 23,248
Less current portion...................................... (919) (589)
------- -------
$14,497 $22,659
======= =======
</TABLE>
TERM NOTE PAYABLE
In July 1999, ATI Operating Company, a subsidiary of the Company, entered
into a credit agreement with NTFC Capital Corporation and General Electric
Capital Corporation ("GECC"), in the aggregate principal amount of $65,000. The
agreement expires on July 16, 2006 or the earlier date, if any, on which the
note matures by notice of prepayment, acceleration or otherwise. The agreement
has both Base and LIBOR Rate advances. As of December 31, 1999, the Company only
had advances outstanding on the LIBOR Rate portion of the agreement. The Base
and LIBOR Rate advances accrue interest at 3.75% over the Base Rate and 4.75%
over the LIBOR Rate (ranging from 5.80% to 6.39% at December 31, 1999).
Repayment of accrued interest on Base Rate advances is due on a quarterly basis.
Repayment of accrued interest on LIBOR Rate advances is due the last day of the
applicable LIBOR period, and in the case the interest period is greater than
three months, the three-month intervals after the first day of such interest
period. The Company is also required to pay commitment fees on a quarterly basis
in arrears on the last day of October, January, April and July. The fees are
calculated based on the average unused portion of the commitments for such
quarter at rates ranging from .75% to 1.50%. The Company is required to begin
repayment of the facility at a rate of 10%, 15%, 20%, 25% and 30% each year
beginning July 19, 2001, 2002, 2003, 2004 and 2005, respectively. Payment shall
be made on a quarterly basis.
Under the facility, the Company has the ability to use advances to offset
$50,000 of telecommunications equipment cost the Company will incur, while
$15,000 of the proceeds can be used for other general and working capital needs.
Also, as part of the loan agreement, 66 2/3% of all telecommunication equipment
must be purchased from Northern Telecom, Inc. ("Nortel").
In connection with the Credit Agreement, the Company issued to GECC a
detachable warrant exercisable through July 2009 to acquire 428,500 shares of
Class A Common Stock at $.01 per share. The $2,138 fair value of the warrant was
recorded as a liability and will be amortized as additional interest expense
over the life of the agreement. The Company used the Black-Scholes pricing model
to estimate the fair value of the warrants. In the absence of an underwritten
public equity offering, after
F-13
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
4. NOTES PAYABLE (CONTINUED)
October 1, 2004, GECC has the right to put the warrant to the Company at the
greater of the fair market value of the warrant or a price reflecting the
average price-to-earnings ratio of ten industry peers. The Company has accreted
the value of the warrant at year-end by $429, and has recorded it as additional
interest expense as of December 31, 1999. The agreement is secured by all assets
of the Company not secured under the Equipment Financing agreements and also
contains various covenants regarding reporting and information requirements,
indebtedness, prohibition of mergers, etc.
As of December 31, 1999, the Company paid $830 in interest and commitment
fee amounts associated with the credit agreement, and also accrued $236 of
interest and commitment fee expenses outstanding under the credit agreement.
LINE OF CREDIT
The Company had a $6,000 line of credit agreement with a bank which was to
expire on June 1, 2000. In connection with this agreement, the Company issued a
warrant to purchase 12,000 shares of Class A Common Stock at a price of $.0002
per share to the financial institution. The fair value of the warrant was
determined to be $34, and was treated as a discount on the Company's debt and
amortized as additional interest expense over the life of the agreement. The
Company used the Black-Scholes pricing model to estimate the fair value of the
warrant. This facility was paid off in July 1999 with proceeds from the Term
Note Payable.
EQUIPMENT FINANCING
In 1998, the Company entered into two note agreements with a financial
institution in the amounts of $1,000 and $500, respectively. Interest accrues at
a rate of 12.4% per annum. Principal and interest amortizing to $55 is due on a
monthly basis through April 1, 2001. These agreements are secured by the
equipment financed from the proceeds of these agreements.
RELATED PARTY NOTES PAYABLE
The Company entered into various note agreements with related parties to the
Company. These agreements were paid off (or paid in full) during 1999.
RELATED PARTY SERIES A CONVERTIBLE SUBORDINATED NOTES PAYABLE
During 1997 and 1999, the Company issued $8,284 and $200 of Series A
Convertible Subordinated Notes to shareholders and employees which are
convertible into Class A Common Stock at rates ranging from $1.82 to $2.08. In
September 1999, $9,991 of the notes and accrued interest were converted into
4,594,654 shares of Series B Convertible Preferred Stock (see Note 7).
The carrying amounts of the Company's debt instruments in the balance sheets
at December 31, 1998 and 1999 approximate fair value.
F-14
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
4. NOTES PAYABLE (CONTINUED)
The maturities of notes payable as of December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 589
2001........................................................ 776
2002........................................................ 2,525
2003........................................................ 3,647
2004........................................................ 4,769
Thereafter.................................................. 10,942
-------
$23,248
=======
</TABLE>
5. COMMITMENTS
In November 1999, the Company entered into an agreement which amended an
earlier Master Purchase and Services agreement with Nortel Networks Inc.
("Nortel Networks"). Under this amendment the Company has committed to purchase
and/or license a minimum of $35,000 of Nortel Networks equipment or services.
Such amount shall include without limitation, no less than $10,000 in carrier
network switching products and no less than $10,000 in access node products.
In July 1999, the Company entered into a two-year term contract with a
supplier of telecommunications services for the purpose of receiving discounts
off the standard service offerings. Under this agreement, the Company is
required to purchase net usage of $100 per month for months one through three of
the term and $150 per month for months four through twenty-four. In the case of
early termination of the agreement, a termination penalty will occur. The
termination penalty is based on 50% of the sum of the minimum commitment for
each month remaining in the term of the contract.
6. OPERATING AND CAPITAL LEASES
The Company leases office space, vehicles and office equipment under
operating leases. The office leases generally require a base rent plus amounts
covering operating expenses and property tax. Rent expense for the years ended
December 31, 1997, 1998 and 1999 was $443, $888 and $1,455, respectively.
F-15
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
6. OPERATING AND CAPITAL LEASES (CONTINUED)
Future minimum lease payments under operating leases with a term in excess
of one year as of December 31, 1999, are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 2,732
2001........................................................ 2,705
2002........................................................ 2,435
2003........................................................ 2,253
2004........................................................ 2,146
Thereafter.................................................. 7,743
-------
$20,014
=======
</TABLE>
The Company also leases certain furniture and equipment under other leases
which are accounted for as capital leases for financial statement purposes. The
cost of equipment in the accompanying balance sheets includes the following
amounts under capital leases:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Cost........................................................ $190 $2,295
Less accumulated depreciation............................... (21) (127)
---- ------
$169 $2,168
==== ======
</TABLE>
Future minimum lease payments required under capital leases together with
the present value of the net future minimum lease payments at December 31, 1999
are as follows:
<TABLE>
<S> <C>
Year ending December 31:
2000...................................................... $ 770
2001...................................................... 740
2002...................................................... 721
2003...................................................... 291
2004...................................................... 71
------
Total minimum lease payments................................ 2,593
Less amount representing interest........................... (486)
------
Present value of net minimum payments....................... 2,107
Less current portion........................................ (554)
------
Capital lease obligations, net of current portion........... $1,553
======
</TABLE>
F-16
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
7. CAPITAL STOCK
The Company has the following classes of capital stock:
- Undesignated Convertible Preferred Stock, $.01 par value; 4,309,442 shares
authorized in 1999; no shares issued or outstanding.
- Series A Convertible Preferred Stock, $.01 par value; 30,000,000 and
6,041,940 shares authorized in 1998 and 1999, respectively; 5,634,960 and
5,912,440 shares issued and outstanding in 1998 and 1999, respectively.
- Series B Convertible Preferred Stock, $.01 par value; 4,492,618 shares
authorized, issued and outstanding in 1999.
- Series C Convertible Preferred Stock, $.01 par value; 15,156,000 shares
authorized in 1999; 9,162,601 shares issued and outstanding in 1999.
- Class A Common Stock, $.01 par value; 15,000,000 and 45,000,000 shares
authorized in 1998 and 1999, respectively; 1,545,540 and 1,699,921 shares
issued and outstanding in 1998 and 1999, respectively; 21,267,580 shares
issued and outstanding in 1999 on a pro forma basis.
- Class B Common Stock, $.01 par value; 15,000,000 and -0- shares authorized
in 1998 and 1999, respectively; 406,980 and -0- shares issued and
outstanding in 1998 and 1999, respectively. The Company's current charter
does not allow for the issuance of any additional Class B Common Stock.
In July 1996, the Company acquired all of the issued and outstanding stock
of Cady Communications, Inc. ("CCI"), in exchange for 649,500 shares of
Series A Convertible Preferred Stock ("Series A Preferred") of the Company and
$5,353. Also in July 1996, the Company issued 4,985,460 shares of Series A
Preferred at $1.46 per share in a private placement of stock. Net proceeds from
this offering amounted to $7,240. The Series A Preferred is convertible into
shares of Common Stock at a rate of 1:1 and carries a mandatory conversion in
the event of an initial public offering in which the gross proceeds of the
Company are at least $30,000. The Series A Preferred also accrues dividends at a
rate of 8% per year, payable when and if declared by the Board of Directors.
Such dividends will be cumulative and accrue if not declared by the Board of
Directors. At December 31, 1999, dividends in arrears were $193. The Series A
Preferred ranks senior to the Common Stock as to dividends and upon liquidation,
dissolution or winding up.
In February 1999, the Company issued 88,260 shares of Class A Common Stock
at $2.83 per share in a private placement of stock to a member of the Company's
Board of Directors. Net proceeds from this issuance amounted to $250. The
Company also issued this director 17,640 shares of Class A Common Stock at a
value of $50 as compensation for Board service during 1999.
In July 1999, the Company granted options to purchase 81,000 shares of
Common Stock at an exercise price of $.01 to two employees of the Company. The
Company valued these options at $404 and is amortizing this amount to expense
over the vesting period of five years. The Company recorded
F-17
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
7. CAPITAL STOCK (CONTINUED)
$30 as compensation expense in 1999. The Company used the Black-Scholes option
pricing model to estimate the fair value of the warrants.
In September 1999, the Company issued 4,594,654 shares of Series B
Convertible Preferred Stock ("Series B Preferred") in exchange for $9,991 in
principal and accrued interest on convertible subordinated debt. The Series B
Preferred consists of four series: Series B1, Series B2, Series B3 and Series
B4. The Series B Preferred is convertible into shares of Common Stock at a rate
of 1:1 and requires mandatory conversion in the event of an initial public
offering in which the gross proceeds of the Company are at least $30,000. The
Series B Preferred also accrues dividends at a rate of 8% per year. The
dividends are payable when and if declared by the Board of Directors. Such
dividends will be cumulative and accrue if not declared by the Board of
Directors. At December 31, 1999, dividends in arrears were $197. The Series B
Preferred ranks senior to the Series A Preferred Stock and Common Stock as to
dividends and upon liquidation, dissolution or winding up.
In September 1999, the Company issued 9,162,601 shares of Series C
Convertible Preferred Stock ("Series C Preferred") at $5.00 per share through a
private placement of stock. Net proceeds from this offering amounted to $42,460.
The Series C Preferred is convertible into shares of Common Stock at a rate of
1:1 and requires mandatory conversion in the event of an initial public offering
in which the gross proceeds of the Company are at least $30,000. The Series C
also accrues dividends at a rate of 8% per year, payable when and if declared by
the Board of Directors. Such dividends will be cumulative and accrue if not
declared by the Board of Directors. At December 31, 1999, dividends in arrears
were $884. The Series C Preferred ranks senior to the Series A Preferred,
Series B Preferred and Common Stock as to dividends and upon liquidation,
dissolution or winding up.
Also in September 1999, the Company entered into a Stock and Stock Option
Repurchase Agreement with two shareholders of the Company. As part of this
agreement, the Company repurchased 129,500 shares of Series A Preferred Stock,
102,036 shares of Series B Preferred Stock, 160,000 shares of Common Stock and a
vested option to purchase 125,820 shares of Common Stock. The total amount of
this repurchase was $2,341. As part of this transaction, the $443 paid to
repurchase the vested option was recorded as compensation expense during 1999.
8. STOCK OPTIONS
In July 1996, the Board of Directors approved the Eschelon Telecom, Inc.
Stock Option Plan of 1996. The plan provides for the issuance of incentive and
nonqualified stock options to key management staff. Under the plan, the exercise
price of options granted is determined by the Board of Directors, providing that
incentive stock options are granted at exercise prices equal to the fair market
value of the Company's stock on the date of grant. A total of 4,400,000 shares
of the Company's Class A Common Stock have been reserved for issuance under the
plan.
F-18
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
8. STOCK OPTIONS (CONTINUED)
The following table summarizes the options to purchase shares of the
Company's Class A Common Stock under the Company's stock option plan:
<TABLE>
<CAPTION>
SHARES PLAN WEIGHTED
AVAILABLE FOR OPTIONS AVERAGE
GRANT OUTSTANDING EXERCISE PRICE
------------- ----------- --------------
<S> <C> <C> <C>
Balance at December 31, 1997............. -- 1,114,380 $1.55
Additional shares reserved............. 1,285,620 -- --
Granted................................ (323,940) 323,940 2.21
Canceled............................... 9,000 (9,000) 1.82
---------- ---------
Balance at December 31, 1998............. 970,680 1,429,320 1.71
Additional shares reserved............. 2,000,000 -- --
Granted................................ (1,407,780) 1,407,780 4.54
Canceled............................... 199,980 (199,980) 1.58
Exercised.............................. -- (126,420) 1.46
---------- ---------
Balance at December 31, 1999............. 1,762,880 2,510,700 $3.22
========== =========
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------ ----------------------
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
RANGE OF NUMBER AVERAGE REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ------------------------------------- ----------- ----------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.46-$1.82.......................... 803,700 6.77 years $1.58 489,204 $1.58
2.03- 2.17.......................... 291,300 8.41 years 2.08 106,820 2.07
2.68- 4.50.......................... 395,400 9.06 years 2.82 82,020 2.74
4.55- 5.00.......................... 1,020,300 9.66 years 5.00 -- --
--------- -------
$1.46-$5.00.......................... 2,510,700 8.50 years $3.22 678,044 $1.80
========= =======
</TABLE>
The weighted average grant date fair value of options granted at market
prices during the years ended December 31, 1997, 1998 and 1999 was $.60, $.77
and $1.49 per share, respectively.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES ("APB 25"), and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement 123, ACCOUNTING FOR STOCK BASED COMPENSATION ("Statement 123"),
requires use of option valuation models that were not developed to value
employee stock options.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the
F-19
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
8. STOCK OPTIONS (CONTINUED)
fair value method of Statement 123. The fair value of these options was
estimated at the date of grant using the Black-Scholes option pricing model with
the following assumptions for the years ended December 31, 1997, 1998 and 1999:
a risk-free interest rate of 5.20%, 4.65% and 5.30%, respectively, dividend
yield of 0%; volatility factor of the expected market price of the Company's
common stock of 25%; and a weighted average life of the options of five years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions. Because the Company's employee stock options have
characteristics significantly different from those of traded options and because
changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily
provide a reliable single measure of the fair value of its employee stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Pro forma net loss applicable to common
stockholders................................... $(3,417) $(7,136) $(12,520)
Pro forma net loss per share..................... $ (3.78) $ (5.59) $ (6.32)
</TABLE>
The pro forma effect on net loss as stated above is not necessarily
representative of the effects on reported net loss for future years due to,
among other things, the vesting period of the stock options and the fair value
of additional stock options granted in future years.
9. INCOME TAXES
The Company has incurred net operating losses since inception. As of
December 31, 1999, the Company had net operating loss (NOL) carryforwards of
approximately $19,000 available to offset its future income tax liability. The
NOL carryforwards begin to expire in the year 2012. No benefit has been recorded
for such loss carryforwards, and utilization in future years may be limited if
significant ownership changes have occurred.
F-20
<PAGE>
ESCHELON TELECOM, INC.
(FORMERLY KNOWN AS ADVANCED TELECOMMUNICATIONS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
DECEMBER 31, 1999
9. INCOME TAXES (CONTINUED)
Components of the deferred tax asset at December 31, 1998 and 1999 are as
follows:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward......................... $ 3,800 $ 7,600
Bad debts............................................... 96 141
Vacation accrual........................................ 67 81
Inventory obsolescence.................................. 56 49
Other temporary differences............................. 140 261
------- -------
4,159 8,132
Deferred tax liabilities:
Depreciation............................................ (120) (132)
------- -------
4,039 8,000
Valuation allowance....................................... (4,039) (8,000)
------- -------
Net deferred tax asset.................................... $ -- $ --
======= =======
</TABLE>
10. RELATED PARTY TRANSACTIONS
The Company has entered into various Guaranty and Reimbursement agreements
with a significant shareholder during 1998 and 1999. These agreements guaranteed
up to $2,500 of indebtedness previously outstanding on a revolving note payable.
In exchange for these guarantees, the Company issued 98,880 and 68,520 shares of
Class A Common Stock during 1998 and 1999, respectively. The Company valued
these shares at $268 and $267, respectively, and has recognized it as additional
interest expense during 1998 and 1999.
11. SUBSEQUENT EVENTS
In January 2000, the Company acquired all of the issued and outstanding
stock of Fishnet.com in exchange for 569,166 shares of Class A Common Stock and
$2,075. In addition to the purchase price, the Company has entered into an
earnout agreement with the shareholders of Fishnet.com not to exceed $1,340. The
earnout payments are based on meeting certain financial targets.
In January 2000, the Company issued 1,684,633 shares of Series C1 Preferred
Stock at $6.00 per share in a private placement offering. Net proceeds
associated with this issuance amounted to $9,767.
In March 2000, the Company signed a term sheet to expand its $65,000 debt
facility to $135,000.
In March 2000, the Company sold 40,000 shares of Common Stock to a member of
the Board of Directors resulting in proceeds to the Company of $240.
In March and April 2000, the Company sold 305,810 shares of Common Stock to
third parties resulting in proceeds of $2,000. In addition, the Company also
sold 180,680 shares of Common Stock to certain members of management and the
Board of Directors resulting in proceeds of $1,182.
F-21
<PAGE>
[LOGO]
<PAGE>
[INSERT FINANCIALS]
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses payable by us in
connection with the sale and distribution of the securities offered hereby,
other than underwriting discounts and commissions. All of the amounts shown are
estimated except the Securities and Exchange Commission registration fee, the
National Association Securities Dealers, Inc. filing fee and the Nasdaq National
Market listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $45,540
National Association of Securities Dealers, Inc. filing
fee....................................................... 17,750
Nasdaq National Market listing fee.......................... *
Transfer agent's and registrar's fees....................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses........................... *
Miscellaneous expenses...................................... *
-------
Total..................................................... *
-------
</TABLE>
- ------------------------
* To be filed by amendment.
14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware general corporation law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations. Our
bylaws include provisions to require us to indemnify our directors and officers
to the fullest extent permitted by Section 145, including circumstances in which
indemnification is otherwise discretionary. Section 145 also empowers us to
purchase and maintain insurance that protects our officers, directors, employees
and agents against any liabilities incurred in connection with their service in
such positions.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, we have issued unregistered securities in the
transactions described below. These securities were offered and sold by us in
reliance upon the exemptions provided for in Section 4(2) of the Securities Act,
relating to sales not involving any public offering, Rule 506 of the Securities
Act relating to sales to accredited investors and Rule 701 of the Securities Act
relating to compensatory benefit plans and contracts relating to compensation.
The sales were made without the
II-1
<PAGE>
use of an underwriter and the certificates representing the securities sold
contain a restrictive legend that prohibits transfer without registration or an
applicable exemption.
1) In August 1997 and December 1997, we issued series A convertible
subordinated promissory notes in the aggregate principal amount of
$3,153,677 to Stolberg Partners, L.P. and certain employees.
2) In December 1997, we issued series B convertible subordinated promissory
notes in the aggregate principal amount of $2,500,000 to Stolberg, Meehan &
Scano II, L.P. and Stolberg Partners, L.P.
3) In July 1998, we issued 296,160 shares of common stock in consideration for
the merger of Tele-Contracting Specialists, Inc. with and into American
Telephone Technology, Inc.
4) In October 1998, in connection with a loan guaranteed by Stolberg Partners,
L.P., we issued 39,960 shares of common stock Stolberg Partners, L.P. In
January 1999, in connection with loans guaranteed by Stolberg Partners,
L.P., we issued 58,920 shares of common stock to Stolberg Partners, L.P.
5) In October 1998, we issued 360 shares of our common stock in consideration
of contribution for retention bonuses to Artesian Capital and two other
investors.
6) In December 1998, in connection with the merger of One Call Telecom, Inc.,
with and into Cady Communications, Inc. we issued 468,000 shares of our
common stock to former One Call shareholders.
7) In December 1998, we granted to Mr. Moses, a member of our board of
directors, options to purchase 58,800 shares of our common stock at an
exercise price of $2.85, in connection with his service as a member of our
board of directors.
8) In July 1998, we granted options to purchase 30,000 shares of common stock
to one of our executive officers at an exercise price of $2.17 per share.
9) In February 1998, we granted options to purchase 9,000 shares of common
stock to one of our executive officers at an exercise price of $2.03 per
share.
10) In December 1999, we granted options to purchase 90,000 shares of common
stock to one of our executive officers at an exercise price of $5.00 per
share.
11) In February 1998, we granted options to purchase 52,800 shares of common
stock to one of our executive officers at an exercise price of $2.08 per
share.
12) In December 1999, we granted options to purchase 30,000 shares of common
stock to one of our executive officers at an exercise price of $5.00 per
share.
13) In October 1998, we granted options to purchase 96,000 shares of common
stock to our president and chief operating officer at an exercise price of
$2.08 per share.
14) In January 1999, we issued 39,960 shares of our common stock to two
stockholders as part of the consideration for the merger of One Call Telecom
merger consideration.
15) In January 1999, we issued 18,960 shares of our common stock to Stolberg
Meehan & Scano, II, L.P. in consideration of a $500,000 guarantee of our
indebtedness to Imperial Bank.
16) In February 1999, we issued 88,260 shares of common stock to a stockholder
in exchange for cash and 17,640 shares of common stock to one of our
directors as compensation for serving on our board.
17) In February 1999, we granted options to purchase 64,020 shares of common
stock to our president and chief operating officer at an exercise price of
$2.83 per share.
II-2
<PAGE>
18) In February 1999, we granted options to purchase 9,000 shares of common
stock to one of our executive officers at an exercise price of $2.68 per
share.
19) In March 1999, we issued 32,520 shares of common stock to Stolberg Partners,
L.P. and Stolberg Meehan & Scano II. L.P. in connection with a guaranty of
indebtedness to Imperial Bank.
20) In March 1999, we issued series B convertible subordinated promissory notes
to our president and chief operating officer in the aggregate principal
amount of $200,000.
21) In April 1999, we issued a warrant to acquire 12,000 shares of our common
stock to one of our lenders.
22) In April 1999, we granted options to purchase 90,000 shares of common stock
to one of our executive officers at an exercise price of $5.00 per share.
23) In May 1999, we issued 36,000 shares of common stock to Stolberg Partners,
L.P. and Stolberg, Meehan & Scano II, L.P. in connection with a $1,000,000
guaranty of our indebtedness to one of our lenders.
24) In July 1999, we issued a warrant to acquire 428,500 shares of common stock
to one of our lenders.
25) In August 1999, we granted options to purchase 60,000 shares of common stock
to our president and chief operating officer at an exercise price of $5.00
per share.
26) In August 1999, we granted options to purchase 33,000 shares of common stock
to one of our executive officers at an exercise price of $.01 per share.
27) In August 1999, we granted options to purchase 90,000 shares of common stock
to one of our executive officers at an exercise price of $5.00 per share.
28) In August 1999, we issued 76,260 shares of common stock to former One Call
Telecom stockholders in connection with the merger of One Call
Telecom, Inc. with and into Cady Communications, Inc.
29) In August 1999, we issued 11,880 shares of common stock pursuant to an
earnout provision under the merger agreement with Tele-Contracting, Inc. and
American Telephone Technology, Inc. and us.
30) In September 1999, we granted options to purchase 60,000 shares of common
stock to one of our executive officers at an exercise price of $5.00 per
share.
31) In September 1999, we issued 8,576,000 shares of our series C convertible
preferred stock to a group of accredited investors at a price per share of
$5.00.
32) In September 1999, we issued 1,349,506 shares of series B1 convertible
preferred stock, 1,552,154 shares of series B2 convertible preferred stock,
1,296,704 shares of series B3 convertible preferred stock and 294,254 shares
of series B4 convertible preferred stock to a group of 24 accredited
investors.
33) In November 1999, we issued 114,300 shares of common stock to One Call
Telecom shareholders in connection with the merger of One Call
Telecom, Inc. with and into Cady Communications.
34) In December 1999, we issued 580,000 shares of series C convertible preferred
stock to Stolberg, Meehan & Scano II, L.P.
35) In January 2000, we granted options to purchase 45,000 shares of common
stock to one of our executive officers at an exercise price of $6.00 per
share.
II-3
<PAGE>
36) In January 2000, we issued an aggregate of 1,684,634 shares of series C1
convertible preferred stock issued to a group of accredited investors at an
exercise price of $6.00 per share.
37) In January 2000, we issued 569,166 shares of our common stock to
shareholders of Fishnet.com in connection with our acquisition of them.
38) In January 2000, we issued an aggregate of 40,000 shares of common stock to
two members of our board of directors at a price per share of $6.00.
39) In March 2000, we granted options to purchase 378,575 shares of common stock
to our chairman and chief executive officer at an exercise price of $6.00
per share.
40) In March 2000, we granted options to purchase 378,525 shares of common stock
to our president and chief operating officer at an exercise price of $6.00
per share.
41) In March 2000, we granted options to purchase 250,000 shares of common stock
to our chief financial officer at an exercise price of $6.00 per share.
42) In March 2000, we granted options to purchase 20,000 shares of common stock
to one of our executive officers at an exercise price of $6.00 per share.
43) In October 1999, we granted options to purchase 60,000 shares of common
stock to our president and chief operating officer at an exercise price of
$5.00 per share.
44) In March 2000, we granted options to purchase 20,000 shares of common stock
to one of our executive officers at an exercise price of $6.00 per share.
45) In April 2000, we issued an aggregate of 480,206 shares of common stock to a
group of investors at a price of $6.54 per share.
II-4
<PAGE>
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
2.1.1 Agreement and Plan of Merger Dated July 14, 1998 by and
among Eschelon Telecom, Inc., American Telephone Technology,
Inc., Tele-Contracting Specialists, Inc.,
2.1.2 Agreement and Plan of Merger by and among Eschelon Telecom,
Inc., One Call Acquisition Corp and One Call Telecom, Inc.
dated June 22, 1998
2.1.3 Agreement and Plan of Merger by and among Eschelon Telecom,
Inc., Cady Communications, Inc. and One Call Telecom, Inc.
dated June 22, 1998
2.1.4 Agreement and Plan of Merger by and among Eschelon Telecom,
Inc., Fishnet Acquisition Corp., Fishnet.com, Inc. and
Stevens Solbrack, Steven Holland and Steven G. Kolar dated
December 23, 1999.
3.1.1 Second Amended and Restated Certificate of Incorporation
dated December 10, 1999
3.1.2 Certificate of Amendment to Second Amended and Restated
Certificate of Incorporation, dated April , 2000
3.1.3* Form of Third Amended and Restated Certificate of
Incorporation (to be effective immediately after the closing
of this offering)
3.1.4 Bylaws dated September 30, 1999
3.1.5 First Amendment to Bylaws dated September 30, 1999
3.1.6* Second Amendment to Bylaws dated April , 2000
3.1.7* Form of Amended and Restated Bylaws (to be effective
immediately after the closing of this offering)
4.1* Specimen stock certificate for shares of common stock
5.1* Form of opinion of Piper Marbury Rudnick & Wolfe LLP,
regarding legality of securities being registered
10.1.1 Amended and Restated Stockholders Agreement dated
September 30, 1999 by and among Eschelon Telecom, Inc. and
the Persons listed herein.
10.1.2 Baker Center Lease of Office Space dated August 14, 1996
between St. Paul Properties, Inc. and Eschelon Telecom, Inc.
10.1.3 First Amendment to Baker Center Lease dated September 5,
1996 between St. Paul Properties, Inc. and Eschelon
Telecom, Inc.
10.1.4 Baker Center Lease of additional office space dated
January 22, 1997 between St. Paul Properties and Eschelon
Telecom, Inc.
10.1.5 Baker Center Amendment of Lease dated May 15, 1997 between
St. Paul Properties and One Call Telecom, Inc.
10.1.6 Baker Center Second Lease of additional office space dated
August 4, 1997 between St. Paul Properties, Inc. and
Eschelon Telecom, Inc.
10.1.7 Baker Center Lease dated September 15, 1997 between
St. Paul Properties and Eschelon Telecom, Inc.
10.1.8 Baker Center Second Amendment of Lease dated October 15,
1998 between St. Paul Properties, Inc. and Eschelon
Telecom, Inc.
10.1.9 Lease Agreement between Denver FDS, L.P. and Eschelon
Telecom, Inc. dated November 29, 1999
10.1.10 Lease Agreement between Alco Investment Company and Eschelon
Telecom, Inc. dated November 29, 1999
10.1.11 Lease Agreement between SOFI-IV SIM Office Investors II,
Limited Partnership and Eschelon Telecom, Inc. dated
December 1, 1999
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1.12 Lease Agreement between Seattle Telecom and Eschelon
Telecom, Inc. dated December , 1999
10.1.13 Lease Agreement between Parkside Salt Lake Corporation and
Eschelon Telecom, Inc. dated December 28, 1999.
10.1.14 Lease Agreement between Timeshare Systems, Inc, and Eschelon
Telecom, Inc.
10.1.15* Eschelon Telecom, Inc. Series C Preferred Stock Purchase
Agreement dated as of September 30, 1999.
10.1.16 Loan and Security Agreement dated as of July 16, 1999 among
ATI Operating Company, as Borrower, Eschelon Telecom, Inc.
and Certain Operating Subsidiaries of Eschelon Telecom,
Inc., as Guarantors, NTFC Capital Corporation, as Lender,
The other Lenders party hereto and General Electric Capital
Corporation as Administrative Agent
10.1.17 Stock Purchase Warrant Agreement dated as of July 19, 1999,
by and between ATI and General Electric Capital Corporation
10.1.18 General Electric Capital Corporation Warrant Certificate
10.1.19 Form of Non-competition Agreement
10.1.20 1996 Amended and Restated Stock Option Plan
10.1.21 Employment Agreement dated July 1, 1996 between Eschelon
Telecom, Inc. and Clifford D. Williams
10.1.22 Employment Agreement dated April 15, 1999 between Eschelon
Telecom, Inc. and Satish Tiwari
10.1.23 Employment Agreement dated August 4, 1999 between Eschelon
Telecom, Inc. and Michael J. Robinson
10.1.24 Employment Agreement dated March 19, 1999 between Eschelon
Telecom, Inc. and David A. Kunde
10.1.25 Employment Agreement dated July 16, 1999 between Eschelon
Telecom, Inc. and John E. Beesley
10.1.26 Employment Agreement dated March 7, 2000 between Eschelon
Telecom, Inc. and Geoffrey Boyd
10.1.27 Employment Agreement dated July 19, 1999 between Eschelon
Telecom, Inc. and Steven K. Wachter
10.1.28 Employment Agreement dated June 4, 1998 between Eschelon
Telecom, Inc. and Richard Smith
10.1.29 Amendment to Employment Agreement dated March 10, 1999
between Eschelon Telecom, Inc. and Richard Smith
10.1.30 Advisory Agreement
21 Subsidiaries of Eschelon Telecom, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Piper Marbury Rudnick & Wolfe LLP (included as
part of Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES:
Schedules have been omitted because the information required to be shown in
the schedules is not applicable or is included elsewhere in our financial
statements or the notes thereto.
II-6
<PAGE>
17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Delaware
General corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted form the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial BONA FIDE offering thereof.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Minneapolis, Minnesota,
on the 14th day of April, 2000.
<TABLE>
<S> <C> <C>
ESCHELON TELECOM, INC.
By: /s/ CLIFFORD D. WILLIAMS
-----------------------------------------
Clifford D. Williams
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
in so signing also makes, constitutes and appointed Clifford D. Williams and
Richard A. Smith, and each of them acting alone, his true and lawful
attorney-in-fact, with full power of substitution, for him in any and all
capacities, to execute and cause to be filed with the Securities and Exchange
Commission any and all amendments and post-effective amendments to this
Registration Statement, or any registration statement for this offering that is
to be effective upon filing pursuant to rule 462(b) under the Securities Act of
1933, with exhibits thereto and other documents in connection therewith, and
hereby ratifies and confirms all that said attorney-in-fact or his or her
substitute or substitutes may do or cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ CLIFFORD D. WILLIAMS Chairman of the Board and April 14, 2000
- ------------------------------------------- Chief Executive Officer
Clifford D. Williams (Principal Executive
Officer)
/s/ RICHARD A. SMITH President and Chief April 14, 2000
- ------------------------------------------- Operating Officer
Richard A. Smith
/s/ GEOFFREY M. BOYD Chief Financial Officer April 14, 2000
- ------------------------------------------- (Principal Accounting and
Geoffrey M. Boyd Financial Officer)
/s/ TANSUKH V. GANATRA Director April 14, 2000
- -------------------------------------------
Tansukh V. Ganatra
/s/ MICHAEL A. KRUPKA Director April 14, 2000
- -------------------------------------------
Michael A. Krupka
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ MARVIN C. MOSES Director April 14, 2000
- -------------------------------------------
Marvin C. Moses
/s/ MARK E. NUNNELLY Director April 14, 2000
- -------------------------------------------
Mark E. Nunnelly
/s/ E. THEODORE STOLBERG Director April 14, 2000
- -------------------------------------------
E. Theodore Stolberg
/s/ PETER M. VAN GENDEREN Director April 14, 2000
- -------------------------------------------
Peter M. Van Genderen
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1* Form of Underwriting Agreement
2.1.1 Agreement and Plan of Merger Dated July 14, 1998 by and
among Eschelon Telecom, Inc., American Telephone Technology,
Inc., Tele-Contracting Specialists, Inc.,
2.1.2 Agreement and Plan of Merger by and among Eschelon Telecom,
Inc., One Call Acquisition Corp and One Call Telecom, Inc.
dated June 22, 1998
2.1.3 Agreement and Plan of Merger by and among Eschelon Telecom,
Inc., Cady Communications, Inc. and One Call Telecom, Inc.
dated June 22, 1998
2.1.4 Agreement and Plan of Merger by and among Eschelon Telecom,
Inc., Fishnet Acquisition Corp., Fishnet.com, Inc. and
Steven Solbrack, Steven Holland and Steven G. Kolar dated
December 23, 1999.
3.1.1 Second Amended and Restated Certificate of Incorporation
dated December 10, 1999
3.1.2 Certificate of Amendment to Second Amended and Restated
Certificate of Incorporation, dated April , 2000
3.1.3* Form of Third Amended and Restated Certificate of
Incorporation (to be effective immediately after the closing
of this offering)
3.1.4 Bylaws dated September 30, 1999
3.1.5 First Amendment to Bylaws dated September 30, 1999
3.1.6 Second Amendment to Bylaws dated April , 2000
3.1.7* Form of Amended and Restated Bylaws (to be effective
immediately after the closing of this offering)
4.1* Specimen stock certificate for shares of common stock
5.1* Form of opinion of Piper Marbury Rudnick & Wolfe LLP,
regarding legality of securities being registered
10.1.1 Amended and Restated Stockholders Agreement dated
September 30, 1999 by and among Eschelon Telecom, Inc. and
the Persons listed herein.
10.1.2 Baker Center Lease of Office Space dated August 14, 1996
between St. Paul Properties, Inc. and Eschelon Telecom, Inc.
10.1.3 First Amendment to Baker Center Lease dated September 5,
1996 between St. Paul Properties, Inc. and Eschelon
Telecom, Inc.
10.1.4 Baker Center Lease of additional office space dated
January 22, 1997 between St. Paul Properties and Eschelon
Telecom, Inc.
10.1.5 Baker Center Amendment of Lease dated May 15, 1997 between
St. Paul Properties and One Call Telecom, Inc.
10.1.6 Baker Center Second Lease of additional office space dated
August 4, 1997 between St. Paul Properties, Inc. and
Eschelon Telecom, Inc.
10.1.7 Baker Center Lease dated September 15, 1997 between
St. Paul Properties and Eschelon Telecom, Inc.
10.1.8 Baker Center Second Amendment of Lease dated October 15,
1998 between St. Paul Properties, Inc. and Eschelon
Telecom, Inc.
10.1.9 Lease Agreement between Denver FDS, L.P. and Eschelon
Telecom, Inc. dated November 29, 1999
10.1.10 Lease Agreement between Alco Investment Company and Eschelon
Telecom, Inc. dated November 29, 1999
10.1.11 Lease Agreement between SOFI-IV SIM Office Investors II,
Limited Partnership and Eschelon Telecom, Inc. dated
December 1, 1999
10.1.12 Lease Agreement between Seattle Telecom and Eschelon
Telecom, Inc. dated December , 1999
10.1.13 Lease Agreement between Parkside Salt Lake Corporation and
Eschelon Telecom, Inc. dated December 28, 1999.
10.1.14 Lease Agreement between Timeshare Systems, Inc, and Eschelon
Telecom, Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.1.15 Eschelon Telecom, Inc. Series C Preferred Stock Purchase
Agreement dated as of September 30, 1999.
10.1.16 Loan and Security Agreement dated as of July 16, 1999 among
ATI Operating Company, as Borrower, Eschelon Telecom, Inc.
and Certain Operating Subsidiaries of Eschelon Telecom,
Inc., as Guarantors, NTFC Capital Corporation, as Lender,
The other Lenders party hereto and General Electric Capital
Corporation as Administrative Agent
10.1.17 Stock Purchase Warrant Agreement dated as of July 19, 1999,
by and between ATI and General Electric Capital Corporation
10.1.19 Form of Non-competition Agreement
10.1.20 [2000 Stock Incentive Plan]
10.1.21 Employment Agreement dated July 1, 1996 between Eschelon
Telecom, Inc. and Clifford D. Williams
10.1.22 Employment Agreement dated April 15, 1999 between Eschelon
Telecom, Inc. and Satish Tiwari
10.1.23 Employment Agreement dated August 4, 1999 between Eschelon
Telecom, Inc. and Michael J. Robinson
10.1.24 Employment Agreement dated March 19, 1999 between Eschelon
Telecom, Inc. and David A. Kunde
10.1.25 Employment Agreement dated July 16, 1999 between Eschelon
Telecom, Inc. and John E. Beesley
10.1.26 Employment Agreement dated March 7, 2000 between Eschelon
Telecom, Inc. and Geoffrey Boyd
10.1.27 Employment Agreement dated July 19, 1999 between Eschelon
Telecom, Inc. and Steven K. Wachter
10.1.28 Employment Agreement dated June 4, 1998 between Eschelon
Telecom, Inc. and Richard Smith
10.1.29 Amendment to Employment Agreement dated March 10, 1999
between Eschelon Telecom, Inc. and Richard Smith
10.1.20 [Employee Stock Option Grant Agreements]
10.1.21 Advisory Agreement
21 Subsidiaries of Eschelon Telecom, Inc.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Piper Marbury Rudnick & Wolfe LLP (included as
part of Exhibit 5.1 hereto)
24.1 Power of Attorney (included in signature pages)
27 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
Exhibit 2.1.1
AGREEMENT AND PLAN
OF
MERGER
DATED JULY __, 1998
BY AND AMONG
ADVANCED TELECOMMUNICATIONS, INC.
AMERICAN TELEPHONE TECHNOLOGY, INC.
TELE-CONTRACTING SPECIALISTS, INC.
MICHAEL D. LOPATA
AND
WILLIAM S. WHITNEY
<PAGE>
TABLE OF CONTENTS
Section Page
----
ARTICLE 1 The Merger.......................................................1
1.1 Merger...........................................................1
1.2 Closing Payments.................................................2
1.3 Working Capital..................................................2
1.4 Additional Purchase Price (Earnout)..............................3
1.5 Plan of Merger...................................................4
1.6 Release from Guaranties..........................................4
ARTICLE 2 The Closing......................................................5
2.1 Closing and Closing Date.........................................5
2.2 Closing Deliveries...............................................5
ARTICLE 3 Pre-Closing Deliveries and Filings...............................6
3.1 Company Deliveries...............................................6
3.2 Other Filings....................................................7
ARTICLE 4 Pre-Closing Covenants............................................7
4.1 Pending Closing..................................................7
4.2 Interim Financial Information....................................8
ARTICLE 5 Warranties and Representations of the Company and the
Shareholders.....................................................8
5.1 Duly Organized...................................................8
5.2 Qualification....................................................9
5.3 Investments......................................................9
5.4 Capital Stock....................................................9
5.5 Due Authorization................................................9
5.6 No Conflicts....................................................10
5.7 Good Title......................................................10
5.8 Real Property...................................................10
5.9 Litigation......................................................10
5.10 Compliance with Laws............................................11
5.11 Labor Matters...................................................11
5.12 Financial Statements............................................11
5.13 Undisclosed Balance Sheet Liabilities...........................11
5.14 Changes Since Balance Sheet Date................................11
5.15 Contracts.......................................................12
5.16 Intellectual Property...........................................12
5.17 Taxes...........................................................13
i
<PAGE>
5.18 Employee Plans..................................................13
5.19 Insurance.......................................................14
5.20 Restrictions on Subsequent Dispositions.........................14
5.21 Condition of Assets.............................................14
5.22 Transactions with Affiliates....................................15
5.23 Products........................................................15
5.24 Product Warranties..............................................15
5.25 Employees.......................................................15
5.26 Compliance with Environmental Laws..............................16
5.27 Licenses; Permits...............................................17
5.28 Customers; Suppliers............................................17
5.29 Accounts; Safe Deposit Boxes....................................17
5.30 Warranties True and Correct.....................................17
ARTICLE 6 Warranties and Representations of Purchaser and ATTI............17
6.1 Duly Organized..................................................17
6.2 Due Authorization...............................................18
6.3 No Conflicts....................................................18
6.4 Litigation......................................................18
ARTICLE 7 Conditions of Closing Applicable to Purchaser and ATTI..........18
7.1 No Termination..................................................18
7.2 Bring-Down of Warranties........................................19
7.3 No Injunction...................................................19
7.4 Necessary Proceedings...........................................19
7.5 Regulatory Approval.............................................19
7.6 Schedules.......................................................19
7.7 Resignations....................................................19
7.8 Addendum to Stockholders Agreement..............................19
ARTICLE 8 Conditions to Closing Applicable to the Company and the
Shareholders....................................................20
8.1 No Termination..................................................20
8.2 Bring-Down of Warranties........................................20
8.3 No Injunction...................................................20
8.4 Necessary Proceedings...........................................20
8.5 Regulatory Approval.............................................20
ARTICLE 9 Termination.....................................................21
9.1 Termination Events..............................................21
9.2 Effects of Termination..........................................21
ARTICLE 10 Indemnification.................................................22
ii
<PAGE>
10.1 Indemnification of Purchaser....................................22
10.2 Indemnification of Shareholders.................................22
10.3 Procedure Relative to Indemnification...........................23
10.4 Limitation on Indemnification Liabilities.......................24
ARTICLE 11 Covenant Not to Compete.........................................24
11.1 Definitions. ..................................................24
11.2 Non-Competition.................................................26
11.3 Confidentiality.................................................26
11.4 Remedies in the Event of Breach.................................26
11.5 Reasonableness of Restrictions.................................26
11.6 Termination of Non-competition..................................27
ARTICLE 12 Miscellaneous...................................................27
12.1 Expenses........................................................27
12.2 Financial Advisors' Fees........................................28
12.3 Accrued Vacation Pay............................................28
12.4 Survival of Warranties and Representations......................28
12.5 Entire Agreement................................................28
12.6 Pre-Closing Publicity...........................................28
12.7 Counterparts....................................................29
12.8 Savings Clause..................................................29
12.9 Successors and Assigns..........................................29
12.10 No Third Party Beneficiary......................................29
12.11 Governing Law and Consent to Jurisdiction.......................29
12.12 Notices.........................................................29
12.13 Schedules.......................................................30
12.14 No Waiver.......................................................30
iii
<PAGE>
EXHIBITS AND SCHEDULES
Exhibits
Exhibit A.................................................................1, 1
Exhibit B....................................................................5
Exhibit C....................................................................6
Schedules
Schedule 1.4.................................................................3
Schedule 4.1.............................................................7, 19
Schedule 5.2............................................................11, 14
Schedule 5.3.................................................................9
Schedule 5.4.................................................................9
Schedule 5.6................................................................10
Schedule 5.8................................................................10
Schedule 5.9................................................................10
Schedule 5.10...............................................................11
Schedule 5.11...............................................................11
Schedule 5.13...............................................................11
Schedule 5.14...............................................................11
Schedule 5.15...............................................................12
Schedule 5.16...........................................................12, 13
Schedule 5.17...............................................................13
Schedule 5.18...........................................................13, 14
Schedule 5.19...............................................................14
Schedule 5.21...............................................................14
Schedule 5.22...............................................................15
Schedule 5.23...............................................................15
Schedule 5.24...............................................................15
Schedule 5.25...............................................................15
Schedule 5.27...............................................................17
Schedule 5.28...............................................................17
Schedule 5.29...............................................................17
iv
<PAGE>
AGREEMENT AND
PLAN OF MERGER
This Agreement is made as of the ____ day of July, 1998, by and
among Advanced Telecommunications, Inc., a Minnesota corporation ("Purchaser"),
American Telephone Technology, Inc., a Minnesota corporation ("ATTI"),
Tele-Contracting Specialists, Inc., a Colorado corporation (the "Company"),
Michael Lopata ("Lopata"), and William Whitney ("Whitney") (each of the
foregoing individuals being sometimes referred to as a "Shareholder" and such
individuals collectively as the "Shareholders").
RECITALS
A. The Company has authorized capital stock of 10,000 shares of
common stock, with no par value ("Company Common Stock") of which 1,000 shares
are outstanding as of the date hereof.
B. ATTI is a wholly-owned subsidiary of Purchaser.
C. Purchaser, ATTI, the Company and the Shareholders desire to have
the Company merge with and into ATTI pursuant to a transaction in which the
separate existence of the Company will cease and ATTI shall continue as the
surviving corporation. Each share of Company Common Stock will be exchanged for
either shares of Purchaser's Class A common stock or cash and the parties intend
that the transaction qualify as a tax free reorganization under Section 368(a)
of the Internal Revenue Code of 1986 (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, Purchaser, ATTI, the Company and
the Shareholders hereby agree as follows:
<PAGE>
ARTICLE 1
The Merger
1.1 Merger. The acquisition of the Company by Purchaser shall be
effected through the merger (the "Merger") of the Company with and into ATTI
pursuant to which the separate existence of the Company shall cease, and ATTI
shall continue as the surviving corporation as a wholly-owned subsidiary of
Purchaser under the corporate name of American Telephone Technology, Inc. (ATTI
is herein sometimes referred to as the "Surviving Corporation") all in
accordance with the plan of merger (the "Plan of Merger") to be filed with the
Secretaries of State of Colorado and Minnesota in substantially the form of
Exhibit A attached hereto. At the Effective Time of the Merger:
(1) All shares of Company Common Stock outstanding immediately prior
to the Effective Time of the Merger will be exchanged for cash and shares
of Purchaser's Class A common stock ("Purchaser Common Stock"). Each share
of Purchaser Common Stock has an agreed value of $126.65.
(2) The "Effective Time of the Merger" shall be the time when the
Plan of Merger and all other necessary documents are accepted for filing
by the Secretaries of State of Minnesota and Colorado.
1.2 Closing Payments.
(1) At the Closing (as hereinafter defined) Purchaser shall deliver
the following cash and share considerations:
Purchaser Total Merger
Shareholder Share Value Cash Consideration
- ----------- ----------- ---- -------------
Lopata 468,830 312,553 781,383
Whitney 156,276 104,185 260,461
TOTAL 625,106 416,738 1,041,844
(2) The cash portion of the consideration payable by Purchaser
pursuant to Section 1.2(a) shall be wire transferred on the Closing Date
(as herein defined) to a bank account designated by the Company (subject
to the rights of Pacific Acquisition, the business broker engaged by the
Company and the Shareholders) established for the benefit of the
<PAGE>
Shareholders upon Purchaser's receipt of the certificates representing all
of the issued and outstanding Company Common Stock held by Shareholders.
At Closing, $51,167 of the cash consideration paid by Purchaser shall be
payable to Pacific Acquisition, such payment having the effect of ratably
reducing the cash payable to each of the Shareholders.
(3) To secure the Shareholders' obligations under Article 10 of this
Agreement and to further secure performance by the Company and the
Shareholders of their obligations under Section 1.3 below, the
Shareholders agree that Purchaser may hold in reserve 395 shares of the
Purchaser's Common Stock received by the Shareholders under this
Agreement. Such shares held in reserve and not subject to claim of
Purchaser at the end of twelve months from the date hereof and shall be
delivered to the Shareholders.
1.3 Working Capital. The Company will have Working Capital of not
less than $188,000 as of June 30, 1998. For purposes of this Section 1.3,
"Working Capital" is the sum of cash, accounts receivable less than 90 days past
due, and inventory, less any trade or other payables, accrued expenses and other
current liabilities. The parties to this Agreement have agreed that the
inventory of the Company has a value of $36,000.
Within 30 days after the Closing Date, Purchaser's accountants will
prepare a balance sheet accurately reflecting the actual Working Capital of the
Company as of June 30, 1998 (the "June Balance Sheet"). The amount of cash
payable to the Shareholders under Section 1.2 above shall be adjusted upward or
downward based upon Working Capital being more or less than $188,000 as set
forth in the June Balance Sheet. Any amounts owed by the Shareholders as a
result of such determination shall be paid to Purchaser within 30 days of
issuance of the June Balance Sheet. Any amount owed by Purchaser to the
Shareholders by reason of such adjustment shall be made within 30 days of the
issuance of the June Balance Sheet, payable as follows:
First, four percent (4%) of the excess Working Capital to Pacific
Acquisition;
Second, seventy-two percent (72%) of the excess Working Capital to
Lopata; and
Third, twenty-four percent(24%) of the excess Working Capital to
Whitney.
1.4 Additional Purchase Price (Earnout). In addition to the purchase
price set forth in Section 1.2 hereof, cash and shares of Purchaser Common Stock
(as specified below) having a value of $250,000 (the "Earnout Proceeds"), shall
be paid by Purchaser to Shareholders as provided herein if Pro Forma TSI and
ATTI achieve certain specified levels of financial performance (Purchaser's
obligation to pay all or a portion of the Earnout Proceeds to Shareholders is
hereinafter referred to as the "Earnout"). For purposes of this Agreement, the
term "Pro Forma TSI" means the Company and all of the Company's income and
expense items accounted for after the Effective Date of the Merger as if the
Merger did not occur. The Earnout will be based on the Financial performance of
Pro Forma TSI over the twelve-month period ending on June 30, 1999, and ATTI
3
<PAGE>
(including Pro Forma TSI) over each of the succeeding four twelve-month periods
ending on June 30, 2000, 2001, 2002 and 2003. The maximum value of Earnout
Proceeds that can be received by the Shareholders pursuant to the Earnout in
each of the five twelve-month periods is $50,000.
In the first fiscal year after Closing the Earnout will work as
follows: First, Pro Forma TSI must achieve, on a quarterly bis, (a) the gross
revenue (net of sale tax) amounts and (b) the minimum levels of normal operating
earnings before interest, income taxes and amortization ("EBITA") set forth for
quarters 1, 2, 3 and 4 on Schedule 1.4 to this Agreement. Achievement of both
revenue and EBITA targets for a particular fiscal quarter will entitle the
Shareholders to Earnout Proceeds having a value of $12,500. The revenue targets
are accorded a 25% weighting and the EBITA targets are accorded a 75% weighting.
For example, if Pro Forma TSI meets the revenue target for quarter 1 it shall be
entitled to receive Earnout Proceeds having a value of $3,125. If in that same
quarter Pro Forma TSI meets the EBITA target, it shall be entitled to additional
Earnout Proceeds having a value of $9,375. Failure to achieve one of the
financial performance targets in a particular quarter will not prevent the
Shareholders from receiving Earnout Proceeds for meeting the other performance
target for such quarter. If Pro Forma TSI fails to achieve a performance target
in a particular fiscal quarter, it can still receive the Earnout Proceeds
attributable to that quarter if available from revenue or EBITA amounts which
exceed the targeted revenue and EBITA amounts achieved in the following two
fiscal quarters.
In the second through the fifth years of the Earnout, comparable
revenue and EBITA targets shall be agreed upon for ATTI (including Pro Forma
TSI) and the parties agree to negotiate in good faith the amounts of revenue and
EBITA target for ATTI. If the parties fail to so agree on revenue and EBITA
targets for ATTI, the Earnout shall continue to be based upon the revenue and
EBITA targets set forth on Schedule 1.4 with respect to Pro Forma TSI alone.
The EBITA for Pro Forma TSI and ATTI shall be calculated within
one-hundred twenty (120) days of fiscal year ends 1999, 2000, 2001, 2002, and
2003.
For the first three years of the Earnout (those ending June 30,
1999, 2000 and 2001), any portion of the Earnout Proceeds payable to
Shareholders shall be paid in Purchaser Common Stock (based on a fixed price per
share of $126.65). For the final two years of the Earnout (those ending June 30,
2002 and 2003), any portion of the Earnout Proceeds payable to the Shareholders
shall be paid in cash or Purchaser Common Stock at the then-prevailing "market
price", at the election of each of the Shareholders. For purposes of this
Agreement, the term "market price" of Purchaser Common Stock shall mean, for any
date, the average closing sale price of shares of such stock on any stock
exchange during the 30 trading days immediately preceding the date in question
or, if the shares are not listed on any such exchange, the "market value" is the
fair market value on the date in question of the shares as determined in good
faith by the Board of Directors of Purchaser.
1.5 Plan of Merger. As soon as practicable after the execution of
this Agreement, but prior to the Effective Time of the Merger, ATTI and the
Company shall execute the Plan of
4
<PAGE>
Merger and any and all other documents or instruments as may be required by
Colorado and Minnesota law. If this Agreement terminates and the Closing is not
held hereunder, the Plan of Merger shall be deemed to have been terminated and
abandoned pursuant to Section 2 of the Plan of Merger.
1.6 Release from Guaranties. After Closing, Purchaser will use its
best efforts to obtain the releases of the Shareholders from personal guaranties
given by such Shareholders to equipment suppliers and automobile lessors.
Purchaser agrees to indemnify the Shareholders and hold them harmless from and
against any and all claims, damages, losses, deficiencies, actions, demands,
judgments, costs and expenses (including, without limitation, attorneys' and
accountants' fees) of or against the Shareholders resulting from any guaranty of
obligations of the Company given by the Shareholders prior to the Closing Date.
ARTICLE 2
The Closing
1.7 Closing and Closing Date. Subject to the provisions of Articles
7 and 8 hereof, the closing (the "Closing") of the Merger will take place at
Purchaser's offices on June 18, 1998 or at such other place, at such other time,
or on such other date as the Company, the Shareholders and Purchaser may
collectively agree. The date on which the Closing takes place is referred to as
the "Closing Date."
1.8 Closing Deliveries. At the Closing:
(1) The executed Plan of Merger (together with the articles of
merger) satisfying the requirements of Colorado and Minnesota law shall be
filed by ATTI and the Company with the Secretaries of State of Colorado
and Minnesota.
(2) The Shareholders will execute and deliver to Purchaser 395
shares of Purchaser Common Stock to Purchaser together with Stock powers
exercised in blank.
(3) Purchaser and/or ATTI shall deliver to the Company and the
Shareholders the following:
(1) the certificates and other documents and instruments
referred to in Article 8 hereof;
(2) a true and complete copy of the Articles of Incorporation
of each of Purchaser and ATTI, including all amendments thereto, as
certified to by an appropriate governmental official;
5
<PAGE>
(3) a copy of the resolutions adopted by the Board of
Directors of each of Purchaser and ATTI authorizing the execution
and delivery of this Agreement and the consummation of the Merger
and other transactions contemplated hereby, as certified to by the
Secretary of Purchaser and ATTI, respectively;
(4) an opinion of counsel for Purchaser and ATTI in
substantially the form of Exhibit B --------- attached hereto; and
(5) payment by ATTI of the amounts payable in respect of
accrued vacation pay as described in Section 12.3 of this Agreement.
(4) The Company and the Shareholders shall deliver to Purchaser the
following:
(1) the certificates and other documents and instruments
referred to in Article 7 hereof;
(2) A true and complete copy of the Articles of Incorporation
of the Company, including all amendments thereto, as certified to by
an appropriate governmental official, and a true and complete copy
of the By-Laws of the Company, as certified to by the Secretary of
the Company;
(3) A true and complete copy of each material contract,
agreement, commitment or plan described on any Schedule hereto;
(4) A copy of the resolutions adopted by the Board of
Directors of the Company authorizing the execution and delivery of
this Agreement and the Plan of Merger by the Company and the
consummation of the Merger and other transactions contemplated
hereby, as certified to by the Secretary of the Company;
(5) The resignations of the directors and officers of the
Company, effective as of the Closing Date;
(6) an opinion of counsel for the Company and Shareholders in
substantially the form of Exhibit C attached hereto;
(7) Noncompetition Agreements executed by Shareholders; and
(8) Employment letter agreements executed by Shareholders.
(9) Addendum to Stockholders Agreement executed by
Shareholders.
6
<PAGE>
ARTICLE 3
Pre-Closing Deliveries and Filings
1.9 Company Deliveries.
(1) The Company has heretofore delivered to Purchaser and ATTI, the
financial statements of the Company for the fiscal years ended December,
1995, 1996, and 1997 and the fiscal quarter ended March 31, 1998
(collectively, the Financial Statements"). The balance sheet of the
Company as of December 31, 1997 is hereinafter referred to as the "Balance
Sheet" and December 31, 1997 is hereinafter referred to as the "Balance
Sheet Date."
(2) The Company and the Shareholders shall prepare and deliver to
Purchaser all of the Schedules to this Agreement by June 15, 1998, and
shall from time to time prior to Closing promptly amend, supplement and
update the Schedules as necessary.
1.10 Other Filings. The Company and Purchaser agree to use all
commercially reasonable efforts to (a) promptly file, or cause to be promptly
filed, with any United States agency or any state or local governmental body or
agency, all such notices, applications or other documents as may be necessary to
consummate the transactions contemplated hereby; and (b) thereafter diligently
pursue all consents or approvals from any such governmental agencies or bodies
as may be necessary to consummate the transactions contemplated hereby.
ARTICLE 4
Pre-Closing Covenants
1.11 Pending Closing. From the date hereof until the Closing Date,
except as set forth on Schedule 4.1 or as otherwise required by this Agreement,
the Company shall, unless Purchaser shall otherwise agree in writing:
(1) carry on the business of the Company in the ordinary course;
(2) continue to insure the Company and its properties substantially
in accordance with its past practices;
(3) use reasonable efforts to preserve the Company's business
organization intact, keep available the Company's present management and
employees, and preserve the Company's present relationships with its
suppliers and customers and others with which it has business
relationships;
7
<PAGE>
(4) not solicit, initiate or intentionally encourage the submission
of offers or proposals from any Person (other than Purchaser and ATTI) for
the acquisition of the stock or any significant portion of the assets or
business of the Company;
(5) not issue, sell or otherwise dispose of any of its shares of
capital stock or grant any options, warrants or other rights to acquire
any of its shares of capital stock;
(6) not declare or pay any cash or non-cash dividends on its capital
stock or any other cash or non-cash distributions in respect of its
capital stock;
(7) pay all trade accounts and other accounts payable of the Company
when due in the ordinary course or in accordance with past practices
(provided that such practices are and have been reasonably acceptable to
the Company's creditors in the past);
(8) not extend or shorten the time for payment of the Company's
accounts receivable other than in accordance with past practices or in the
ordinary course;
(9) not (i) issue any debt securities or (ii) incur any indebtedness
for money borrowed whether long or short term other than trade payables
incurred in the ordinary course;
(10) not incur or agree to incur any obligations or liabilities
except current liabilities accrued in the ordinary course of business,
none of which materially adversely affect the Company's business or
assets;
(11) not sell, lease or otherwise dispose or agree to sell, lease or
otherwise dispose of any of its assets except sales of inventory to end
user customers at standard industry prices and terms, in the ordinary
course of business;
(12) not make any change in the rate of compensation, commission,
bonus or other remuneration payable or paid or agreed to be paid to any of
its employees; and
(13) make any write down or write up of the value of any of its
inventory.
If there is a breach of this Section 4.1(d), and the Closing is not
consummated, the Company and Shareholders jointly and severally agree to
pay Purchaser damages in the amount of $50,000 in cash plus all of
Purchaser's out-of-pocket expenses (including, but not limited to,
attorneys' and accountants' fees and expenses).
1.12 Interim Financial Information. The Company shall deliver to
Purchaser such financial information that is available to the Company and which
Purchaser shall reasonably request,
8
<PAGE>
reflecting the results of operations for the Company subsequent to March 31,
1998, but prior to the Closing.
ARTICLE 5
Warranties and Representations of the Company and the Shareholders
The Company and the Shareholders jointly and severally warrant and
represent to and covenant with Purchaser as follows:
1.13 Duly Organized. The Company is a corporation, duly
incorporated, validly existing and in good standing under Colorado law. The
Company has the corporate power and holds all rights, privileges, franchises,
immunities, licenses, permits, authorizations and approvals (governmental or
otherwise) necessary to own and operate its properties and to conduct its
business as presently conducted, the failure of which to hold would have an
adverse effect on the financial condition or operations of the Company.
1.14 Qualification. Except as set forth in Schedule 5.2, the Company
is duly qualified to do business and in good standing as a foreign corporation
in each jurisdiction in which the nature or location of the Company's business
or properties requires such qualification, except such jurisdictions in which
the failure so to qualify is not likely to have a material adverse effect on the
financial condition or operations of the Company.
1.15 Investments. Except as set forth on Schedule 5.3, the Company
does not own, and on the Closing Date will not own, any securities or any other
direct or indirect interest in any person or entity.
1.16 Capital Stock.
(1) The total number of shares of capital stock and the par value
thereof which the Company is authorized to issue, the number of such
shares which are issued and outstanding, and the number of treasury shares
are set forth on Schedule 5.4. All of the issued and outstanding shares of
the Company's Common Stock are now, and will on the Closing Date, be owned
by the Shareholder and will be transferred to the Purchaser free and clear
of all mortgages, pledges, liens, security interests, restrictions,
adverse claims or charges or third party rights of any kind.
(2) Except as set forth on Schedule 5.4, there are no outstanding
options, conversion rights, warrants or other rights in existence to
acquire from the Company any of its shares of capital stock.
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(3) The issued and outstanding shares of capital stock of the
Company as of the date hereof and as of the Closing Date have been and
will be duly and validly issued and are fully paid and nonassessable and
have not been issued in violation of, and are not subject to, any
preemptive rights, and, except as set forth on Schedule 5.4, there are no
voting trust agreements or other contracts, agreements or arrangements to
which either the Company or either of the Shareholders is a party
restricting voting or dividend rights or transferability with respect to
the outstanding shares of capital stock of the Company.
1.17 Due Authorization. The Company has all right, power and
authority required for it to enter into, and, subject to the requisite approval
of the Shareholders, to perform its obligations under this Agreement and the
Plan of Merger; the Company has taken all corporate actions on its part
necessary or appropriate to execute, deliver and perform this Agreement and the
Plan of Merger and to consummate the Merger, and this Agreement has been duly
authorized, executed and delivered by the Company and is binding upon and
enforceable against the Company in accordance with its terms and conditions,
and, when executed and delivered by the Company, the Plan of Merger will be duly
authorized, executed and delivered by the Company and will be binding upon, and
enforceable against, the Company in accordance with its terms and conditions.
1.18 No Conflicts. Except as set forth on Schedule 5.6, neither the
execution or delivery by the Company of this Agreement or the Plan of Merger,
nor the performance by the Company of its obligations hereunder or thereunder,
does or will, after the giving of notice, or the lapse of time, or otherwise:
(1) conflict with, result in a breach of, or constitute a default
under, the Articles of Incorporation or By-Laws of the Company or (i) any
federal, state or local law, statute, code, ordinance, rule or regulation
applicable to it, (ii) any federal, state or local court or administrative
order or process to which the Company is a party or is bound, or (iii) any
material contract, agreement, arrangement, commitment, or plan to which
the Company is a party, or under which the Company may be obligated, or by
which the Company or any of its material rights, properties or assets may
be subject or bound;
(2) result in the creation of any mortgage, pledge, lien, claim,
charge, encumbrance or assessment upon any of the material rights,
properties or assets of the Company; or
(3) terminate, amend or modify, or give any party the right to
terminate, amend, modify, abandon or refuse to perform or comply with, any
material contract, agreement, arrangement, commitment or plan to which the
Company is a party, or under which the Company may be obligated, or by
which the Company or any of the rights, properties or assets of the
Company may be subject or bound.
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1.19 Good Title. On the Balance Sheet Date, the Company had, and on
the date hereof has, and on the Closing Date will have, good and marketable
title to all the properties and assets reflected on the Balance Sheet, subject
to no mortgages, pledges, security interests, liens, encumbrances or other
charges of any kind, except (a) as to personal property sold or otherwise
disposed of after the Balance Sheet Date in the ordinary course of business; (b)
mechanics', carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business; (d) liens for taxes, assessments
and other governmental charges which are not yet due and payable; and (d) other
imperfections of title or encumbrances which do not materially impair the use
and operations of the Company's assets or properties to which they relate in the
operation of the Company's business as presently conducted.
1.20 Real Property. Schedule 5.8 contains a true and complete list
and brief description of all real property owned or leased by the Company,
either as lessor or lessee.
1.21 Litigation. Except as set forth on Schedule 5.9 there are no
actions, suits or proceedings pending, threatened in writing against the
Company, at law or in equity, before any federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which if determined adversely to the Company would have a
material adverse effect on the financial condition or operations of the Company.
Except as set forth on Schedule 5.2, the Company is not operating under, or
subject to, any governmental order, writ, injunction or decree.
1.22 Compliance with Laws. The Company is not conducting its
business or affairs in violation of any applicable federal, state or local law,
statute, ordinance, rule, permit or regulation except (a) as set forth on
Schedule 5.10 or (b) for violations which individually or in the aggregate would
not have a material adverse effect on the financial condition or operations of
the Company.
1.23 Labor Matters. Except as set forth on Schedule 5.11, there is
no labor dispute, grievance, strike or request for union representation
affecting any of the Company's employees generally pending, or threatened
against the Company. The Company is not a party to any collective bargaining
agreement and no such contract is currently being negotiated with the Company.
No representation question exists or has been raised respecting the employees of
the Company, nor are there any campaigns being conducted to solicit cards from
the employees of the Company to authorize representation by any labor
organization.
1.24 Financial Statements. The Financial Statements were prepared
from the Company's books and records consistent with historical accounting
practices and present fairly in all material respects the financial position,
results of operations and changes in cash flows of the Company at the dates and
for the periods indicated therein. The accounts receivable reflected in the
Financial Statements were generated in the ordinary course and are collectible,
subject to the reserves in the Financial Statements for doubtful accounts.
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1.25 Undisclosed Balance Sheet Liabilities. Except as set forth on
Schedule 5.13,
(1) on the Balance Sheet Date, the Company did not have any material
liability of a nature required to be reflected on a balance sheet prepared
in accordance with generally accepted accounting principles, which was not
disclosed, reflected or reserved against in the Balance Sheet; and
(2) except for liabilities which have been incurred in the ordinary
course of business, since the Balance Sheet Date, the Company has not
incurred any material liability of any nature which would be required to
be reflected on a balance sheet prepared in accordance with generally
accepted accounting principles.
1.26 Changes Since Balance Sheet Date. Since the Balance Sheet Date,
the Company has conducted its business in the ordinary course, and, except as
contemplated by this Agreement or as set forth on Schedule 5.14, there has not
been any:
(1) material adverse change in the financial condition or business
of the Company other than changes relating to general economic conditions
or developments affecting the Company's industry generally;
(2) sale, assignment, transfer, mortgage, pledge or lease of any
material amount of assets of the Company, except in the ordinary course of
business;
(3) declaration, payment or distribution in respect of, or purchase
or redemption of, any shares of the Company's capital stock;
(4) capital expenditures by the Company in excess of $5,000 for any
single item or $20,000 in the aggregate;
(5) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(6) loan by the Company to any Person or guaranty by the Company of
any loan, other than routine advances to employees in the ordinary course
of business;
(7) amendment of the Articles of Incorporation or By-Laws of the
Company; or
(8) agreement by the Company to do any of the foregoing.
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1.27 Contracts.
(1) All contracts and agreements which are material to the financial
condition or operations of the Company (collectively, "Contracts") are
described on Schedule 5.15, except for the following contracts and
agreements which are not required to be set forth on Schedule 5.15: (i)
normal purchase and sale commitments heretofore or hereafter entered into
in the ordinary course of business; (ii) any Contract that involves an
aggregate commitment by the Company of less than $10,000; and (iii) any
Contract which is terminable by the Company by notice of not more than 30
days for a cost of less than $10,000.
(2) Each Contract listed on Schedule 5.15 is in full force and
effect. The Company has performed in all material respects all obligations
required to be performed by it to date under the Contracts and it is not
(with or without the lapse of time or the giving of notice, or both) in
breach or default thereunder.
1.28 Intellectual Property.
(1) Schedule 5.16 sets forth all patents, trade names, service marks
and copyrights (whether or not such trademarks, trade names, service marks
and copyrights are registered), and all pending applications therefor,
owned by the Company, or in which the Company has any interest, which are
material to the business of the Company.
(2) There is not any claimed or actual infringement or
misappropriation by the Company of any valid patent, trademark, trade
name, service mark or copyright which relates to the business of the
Company and which is owned by any third party, and which will have a
material adverse effect on the financial condition or operations of the
Company.
(3) Except as set forth on Schedule 5.16, there is no pending or
threatened claim asserted in writing by the Company against others for
infringement or misappropriation of any patent, trademark, trade name,
service mark or copyright owned by the Company.
(4) Except as set forth on Schedule 5.16, all applications to
register patents, trademarks, trade names, service marks or copyrights
which have been filed by or on behalf of the Company, and any resulting
registrations are owned by the Company, free and clear of any security
interest, lien, encumbrance or any interest of any nature of any third
party.
1.29 Taxes. The Company has timely filed without extensions or will
file all foreign, federal, state and local tax returns and estimates for all
years and periods (and portions thereof) through the Closing Date for which any
such returns, reports or estimates were due or will be due and any and all
amounts shown on such returns and reports to be due and payable through the
Closing Date have been or will be paid in full, and since the Balance Sheet
Date, the Company has not incurred any liability with respect to any taxes based
on income, gross revenues, gross
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receipts, purchases, sales, business, capital stock or surplus, properties or
assets of the Company except in the ordinary course of business. The federal
income tax returns of the Company have never been examined by the Internal
Revenue Service. Except as set forth on Schedule 5.17, there are no pending
audits, investigations or examinations, by any federal, state, local or foreign
taxing authority of any payment, return or report made or filed by the Company
nor has there been any claim made against the Company alleging a failure to pay
or report any kind of tax which may be assessed by any such taxing authority
against the Company. Schedule 5.17 sets forth the states in which the Company
has made sales during the past three years.
1.30 Employee Plans.
(1) For the purposes of this Section 5.18, the term "Employee Plan"
includes all pension, retirement, disability, medical, dental or other
health insurance plans, life insurance or other death benefit plans,
profit sharing, deferred compensation, stock option, bonus or other
incentive plans, vacation benefit plans, severance plans, or other
employee benefit plans or arrangements, including, without limitation, any
pension plan as defined in Section 3(2) of The Employee Retirement Income
Security Act of 1974 ("ERISA") and any welfare plan as defined in Section
3(1) of ERISA, whether or not funded, to which the Company is a party.
(2) There are no Employee Plans other than those set forth on
Schedule 5.18.
(3) Prior to the date hereof, the Company has delivered to Purchaser
a copy of each Employee Plan set forth on Schedule 5.18.
(4) The Company does not maintain any "pension plans" as defined in
Section 3 (2) of ERISA other than those set forth on Schedule 5.18.
(5) Each Employee Plan, if any, and the administrators and
fiduciaries of each Employee Plan and the Company have complied, in all
material respects, with all applicable requirements of ERISA and of any
other applicable law (including regulations and rulings thereunder)
governing each Employee Plan.
(6) The Company has no obligation. to contribute to a
"Multi-Employer Plan," as defined in Section 3(37) of ERISA.
(7) No "reportable event" (as defined in ERISA) has occurred with
respect to any Employee Plan.
1.31 Insurance. The Company has in full force and effect all
policies of insurance set forth on Schedule 5.19; the Company will have in full
force and effect on the Closing Date such policies of insurance or policies of
insurance of substantially the same character and coverage AS
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those set forth on Schedule 5.19; and the Company will notify Purchaser in
writing of any changes in such insurance coverage occurring prior to the Closing
which would have a material adverse effect on the financial condition or
operations of the Company.
1.32 Restrictions on Subsequent Dispositions. Each of the
Shareholders receiving shares of Purchaser's Common Stock in the Merger agrees
not to dispose of any shares in a manner that would cause the Merger to violate
the continuity of Shareholder interest requirements set forth in Treasury
Regulation ss. 1.368-1. Each of the Shareholders acknowledges that his right to
transfer any shares of Purchaser Common Stock will be further restricted
contractually pursuant to the terms of Purchaser's Stockholders Agreement dated
July 1, 1996, to which each Shareholder will become a party upon the Closing
Date. Each of the Shareholders receiving shares of Purchaser's Common Stock in
the Merger represents that such shares are being purchased for his own account
and for investment and without the intention of reselling or redistributing the
same; each such Shareholder further acknowledges that the shares to be received
in the Merger have not been registered under the Securities Act of 1933 or
relevant state securities laws and are, therefore, restricted.
1.33 Condition of Assets. Except as set forth in Schedule 5.21, all
of the tangible personal property of the Company is (i) in good operating
condition and repair, ordinary wear and tear excepted and (ii) maintained in
accordance with sound maintenance practices. The Company's assets are sufficient
for the operation of its business in the ordinary course and are suitable for
the purpose for which they are being used. The amount of the Company's inventory
and supplies currently on hand (i) is sufficient for the operation of the
Company's business in the ordinary course based on current levels of operation;
(ii) has been purchased in the ordinary course of business; (iii) is consistent
in quality and quantity with past practices of the Company; and (iv)is not
obsolete and is of a quality and quantity usable and salable in the ordinary
course of business within twelve (12) months subsequent to the Closing. All
property leased by the Company is in the condition required of such property by
the terms of the lease applicable thereto during the term of the lease and upon
the expiration thereof. None of the Shareholders has any direct or indirect
interest in any right, property or asset used or required by the Company in the
conduct of its business.
1.34 Transactions with Affiliates. Except as disclosed in Schedule
5.22, since December 31, 1992, no stockholder, director, officer or employee of
the Company, nor any ancestor, sibling, descendent or spouse (an "Affiliate") of
any such person, or any trust, partnership or corporation in which any of such
persons or their Affiliates have a material interest, has had: (i) except for
passive investments, any interest in any entity which has purchased, sold or
furnished to the Company any goods or services; (ii) a beneficial interest in
any lease, contract, commitment or understanding to which the Company is a party
or by which it is bound or affected; (iii) except for salary and bonuses in the
ordinary course of business consistent with past practices, any interest or
claim against the Company or any assets of the Company; or (iv) any interest in
any assets used in the business of the Company.
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1.35 Products. Except as disclosed in Schedule 5.23, no claim for
product liability has ever been asserted against the Company and no event has
occurred which might give rise to the assertion of any such claim. There is no
deficiency or inadequacy in the manufacture, design or formulation of any of the
Company's products which may hereafter give rise to any such failure or result
in any such claim.
1.36 Product Warranties. All products sold and services provided by
the Company (and the delivery thereof) have been in conformity with all
applicable contractual commitments and all express or implied warranties by the
Company and its suppliers. No liability for any warranty claims exist for the
repair or replacement thereof or other damages in connection with such services,
sales or deliveries, except for any such claims incurred in the ordinary course
of business consistent in amount and character with past experience of the
Company. Copies of the standard terms and conditions of sale, delivery or lease
of the Company (including, without limitation, all warranty provisions) are
attached hereto as Schedule 5.24.
1.37 Employees. Attached Schedule 5.25 lists:
(1) all employee handbooks and/or manuals relating to the employees
of the Company, true and correct copies of which have been delivered to
Purchaser; and
(2) all employees of the Company, together with their job
descriptions, rates of salary or wages, vacation benefits, and each bonus,
deferred compensation, stock option, incentive compensation, severance or
termination pay agreement or employment benefit applicable to each such
employee, whether formal or informal and whether legally binding or not.
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1.38 Compliance with Environmental Laws.
(1) Neither the Company, any Shareholder nor, to the Shareholders'
knowledge, any other user or owner of the Company's leased real property
(the "Real Estate") has violated or been threatened with or received a
notice, directive, violation report or charge asserting any violation of
the Federal Solid Waste Disposal Act, the Federal Clean Air Act, the
Federal Clean Water Act, the Federal Resource Conservation Recovery Act of
1976 ("RCRA"), the Federal Comprehensive Environmental Responsibility,
Cleanup and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control
Act of 1976, or any other Laws regulating or otherwise affecting or
relating to the environment ("Environmental Laws"), as the same may have
been amended. To the Shareholder's knowledge, no action has been taken
against the Real Estate, any Shareholder, the Company or any other user or
owner of the Real Estate by any federal, state or local department or
agency concerning any Environmental Laws. To the Shareholders' knowledge
the Real Estate and the Company are, and at all times in the past have
been, in compliance with all Environmental Laws. No assets of the Company
are required to be upgraded, modified or replaced to be in compliance with
Environmental Laws.
(2) Neither the Company, any Shareholder nor, to the Shareholders'
knowledge, any user or owner of the Real Estate has generated, stored,
used, disposed of, spilled, discharged or released any substance in any
manner on the Real Estate and the improvements thereon or on property
adjacent to the Real Estate or performed an environmental cleanup on the
Real Estate or adjacent property which may form the basis for any present
or future claim against the Company based upon Environmental Laws, or any
demand or action seeking cleanup of any site, location or body of water,
surface or subsurface, under any Environmental Laws, or otherwise, or
which may subject the Company and/or Purchaser to claims for damages.
(3) To the Shareholders' knowledge, (i) no septic systems or wells
exist on, in or under any of the Real Estate; (ii) the Real Estate has
never been used as a landfill, dump site or any other use which involves
the disposal of solid waste on the Real Estate in a manner which may
subject the Company to any claim for cleanup or damages under
Environmental Laws; and (iii) no hazardous or toxic substances or waste,
as defined under Environmental Laws, are located at, on or under any of
the Real Estate, or have been used, generated, treated, stored, disposed
of, handled or removed from any of the Real Estate.
(4) To the Shareholders' knowledge, (i) no above ground or
underground storage tanks have ever been located at, on or under any of
the Real Estate; (ii) at no time prior to or during the Company's use of
the Real Estate have hazardous or toxic substances or wastes, as defined
under Environmental Laws, been spilled, discharged, leaked, discarded,
released or otherwise deposited on any of the Real Estate;
and (iii) none of the Real Estate
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is contaminated by hazardous or toxic substances or wastes, as defined
under Environmental Laws, originating from off-site sources.
(5) No environmental claims have been asserted or are threatened or
are anticipated to be asserted against the Company with respect to the
Real Estate, any of its assets and/or the operation of its business.
The phrase "to the Shareholders' knowledge," as used in this Section 5.26, means
the actual knowledge of either Shareholder without having made independent
inquiry concerning the factual matters referred to in this Section.
1.39 Licenses; Permits. Except as disclosed in Schedule 5.2, the
Company is in compliance with and has all permits, registrations and
authorizations required by all applicable Laws in the operation of the Company's
business. Attached hereto as Schedule 5.27 is a true and complete list of all
licenses, permits, registrations and authorities issued or granted to the
Company by local, state or federal government authorities or agencies. The
Company is not in breach or violation of any applicable Law relating thereto and
all such licenses, registrations, permits and authorities are current and
effective.
1.40 Customers; Suppliers. Schedule 5.28 attached hereto sets forth,
with respect to the last three (3) fiscal years of the Company, a list of the
ten (10) largest customers of the Company determined by dollar amount of goods
purchased from the Company. The Company and the Shareholders have received no
notice or indication, and have no reason to believe, that any customer, supplier
or third party to material contracts of the Company intends to cease doing
business or reduce in any material respect the business transacted with the
Company or to terminate or modify any agreements with the Company (whether as a
result of consummation of the transactions contemplated hereby or otherwise).
1.41 Accounts; Safe Deposit Boxes. Attached hereto as Schedule 5.29
is (i) a true and complete list of the bank and savings accounts, certificates
of deposit and safe deposit boxes of the Company and those persons authorized to
sign thereon, and (ii) true and correct copies of all corporate borrowing,
depository and transfer resolutions and those persons entitled to act
thereunder.
1.42 Warranties True and Correct. No warranty or representation by
the Shareholders contained in this Agreement or in any writing to be furnished
pursuant hereto contains or will contain any untrue statement of fact or omits
or will omit to state any material fact required to make the warranties or
representations herein or therein contained not misleading. The Company and the
Shareholders have disclosed to Buyer all material adverse facts known to the
Company or the Shareholders relating to the Company, its assets or business.
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ARTICLE 6
Warranties and Representations of
Purchaser and ATTI
Purchaser and ATTI warrant and represent to and covenant with the
Company and the Shareholders as follows:
1.43 Duly Organized. Purchaser and ATTI are corporations duly
incorporated, validly existing and in good standing under the laws of Minnesota.
Each of Purchaser and ATTI has the corporate power and holds all rights,
privileges, franchises, immunities, licenses, permits, authorizations and
approvals (governmental or otherwise) necessary to own and operate its
properties and to conduct its business as presently conducted, the failure of
which to hold would have a material adverse effect on the financial condition or
operations of either Purchaser or ATTI.
1.44 Due Authorization. Each of Purchaser and ATTI has all right,
power and authority required for it to enter into and perform its obligations
under this Agreement and, in the case of ATTI, the Plan of Merger. Upon approval
of this Agreement by the Boards of Directors of Purchaser and ATTI, each of
Purchaser and ATTI will have taken all corporate actions on its part necessary
or appropriate to execute, deliver and perform this Agreement and, in the case
of ATTI, to consummate the Merger, and this Agreement will have been duly
authorized, executed and delivered by each of Purchaser and ATTI and will be
binding upon, and enforceable against it in accordance with its terms and
conditions; and, when executed and delivered by ATTI, the Plan of Merger will be
duly authorized, executed and delivered by ATTI and will be binding upon, and
enforceable against, ATTI in accordance with its terms and conditions.
1.45 No Conflicts. The execution and delivery of this Agreement by
Purchaser and ATTI, and the execution and delivery of the Plan of Merger by
ATTI, and the performance of their respective obligations hereunder and under
the Plan of Merger, will not conflict with or constitute a default under the
Articles of Incorporation or By-Laws of Purchaser or ATTI or to the knowledge of
Purchaser or ATTI, any material contract, agreement, note, debt instrument,
security agreement, mortgage, arrangement, commitment or plan to which Purchaser
or ATTI is a party, or under which Purchaser or ATTI may be obligated, or by
which Purchaser or ATTI or any of its material rights, properties or assets may
be subject or bound.
1.46 Litigation. There are no actions, suits or proceedings pending,
or to the knowledge of Purchaser and ATTI, threatened in writing against
Purchaser or ATTI, at law or in equity, before any federal, state, municipal or
other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, which if determined adversely to Purchaser
or ATTI, would have a material adverse effect on the ability of Purchaser or
ATTI to perform its respective obligations hereunder.
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ARTICLE 7
Conditions of Closing Applicable to
Purchaser and ATTI
The obligations of Purchaser and ATTI under this Agreement are
subject to the following conditions precedent:
1.47 No Termination. Neither Purchaser nor the Company shall have
terminated this Agreement pursuant to Section 9.1 hereof.
1.48 Bring-Down of Warranties. The warranties and representations
made herein by the Company and the Shareholders to Purchaser and ATTI shall be
true and correct in all material respects on and as of the Closing Date with the
same effect as if such warranties and representations had been made on and as of
the Closing Date, and the Company and the Shareholders shall have performed and
complied in all material respects with all agreements, covenants and conditions
on their respective parts required to be performed or complied with on or prior
to the Closing Date; and at the Closing, Purchaser and ATTI shall have received
a certificate executed by the Company and the Shareholders to the foregoing
effect.
1.49 No Injunction. No court or other governmental Person shall have
issued an order which shall be in effect on the Closing Date restraining or
prohibiting the consummation of the transactions contemplated hereby.
1.50 Necessary Proceedings. All proceedings to be taken in
connection with the consummation of the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
all material respects and in form and substance to Purchaser and its counsel,
and Purchaser shall have received copies of such documents as Purchaser and its
counsel may reasonably request in connection with said transactions.
1.51 Regulatory Approval. The approval or consent of all United
States agencies and all state and local governmental bodies and agencies as may
be necessary to consummate the transactions contemplated hereunder shall have
been received.
1.52 Schedules. All amendments or supplements to the Schedules
hereto made by the Company pursuant to Section 3.1(b) hereof which are
individually or in the aggregate material to the business, operations or
financial condition of the Company shall be acceptable to Purchaser and ATTI.
1.53 Resignations. The directors and officers of the Company shall
have resigned their positions as such as of the Closing Date.
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1.54 Addendum to Stockholders Agreement. The Shareholders shall have
executed and delivered to Purchaser an Addendum to Stockholders Agreement in the
form submitted by Purchaser, pursuant to which each of the Shareholders agrees
to become a party to the Stockholders Agreement and be bound by all of the terms
thereof.
Except for the condition set forth in Section 7.5 hereof, Purchaser
and ATTI shall have the right to waive any of the foregoing conditions
precedent.
ARTICLE 8
Conditions to Closing Applicable to the Company and the Shareholders
The obligations of the Company and the Shareholders under this
Agreement are subject to the foregoing conditions precedent:
1.55 No Termination. Neither Purchaser nor the Company shall have
terminated this Agreement pursuant to Section 9.1 hereof.
1.56 Bring-Down of Warranties. All warranties and representations
made by Purchaser and ATTI herein to the Company shall be true and correct in
all material respects on and as of the Closing Date with the same effect as if
such warranties and representations had been made on and as of the Closing Date,
and Purchaser and ATTI shall have performed and complied in all material (except
for the payment obligations which shall be absolute) with all agreements,
covenants and conditions on their part required to be performed or complied with
on or prior to the Closing Date; and at the Closing, the Company shall have
received a certificate executed by the President or any Vice President of each
of Purchaser and ATTI to the foregoing effect.
1.57 No Injunction. No court or other governmental Person shall have
issued an order which shall be in effect on the Closing Date restraining or
prohibiting the consummation of the transactions contemplated hereby.
1.58 Necessary Proceedings. All proceedings to be taken in
connection with the consummation of the transactions contemplated by this
Agreement (including the approval of this Agreement by the Board of Directors of
Purchaser and ATTI) and all documents incident thereto shall be reasonably
satisfactory in all material respects and in form and substance to the Company,
the Shareholders and their respective counsel, and the Company, the Shareholders
and such counsel shall have received copies of such documents as they and
counsel may reasonably request in connection with the transactions.
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1.59 Regulatory Approval. The approval or consent of all United
States agencies and all state and local governmental bodies and agencies as may
be necessary to consummate the transactions contemplated hereunder shall have
been received.
Except for the condition set forth in Sections 8.5 hereof, the
Company and the Shareholders shall have the right to waive any of the foregoing
conditions precedent.
ARTICLE 9
Termination
1.60 Termination Events. This Agreement may be terminated at any
time prior to the Closing as follows, and in no other manner:
(1) By mutual agreement of Purchaser and the Company (and the
Shareholders);
(2) By Purchaser or the Company (and the Shareholders), if at or
before the Closing any condition set forth herein for the benefit of
Purchaser or the Company (and the Shareholders), respectively, shall not
have been timely met and cannot be met on or before the Closing Date and
has not been waived, provided that the terminating party has not defaulted
in any material respect in the performance of any of its obligations under
this Agreement;
(3) By Purchaser or the Company, if the Closing of the transactions
contemplated by this Agreement shall not have occurred on or before June
30, 1998, or such later date as may have been agreed upon in writing by
the parties hereto, provided that any such failure to close is not due to
any default in any material in the performance of any obligation under
this Agreement by the terminating party;
(4) By Purchaser, if any warranty or representation made herein for
the benefit of Purchaser or in any certificate, schedule, or documents
furnished to Purchaser pursuant to this Agreement is untrue in any
material respect or the Company or the Shareholders shall have defaulted
in any material respect in the performance of any material obligation
under this Agreement;
(5) By the Company, if the board of Directors of Purchaser and/or
ATTI have not approved this Agreement (and notified the Company of the
same in writing) on or before June 18, 1998.
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1.61 Effects of Termination.
(1) In the event of any termination of this Agreement pursuant to
Section 9.1, this Agreement shall forthwith become void and have no
further effect, and there shall be no liability on the part of any party
hereto.
(2) Notwithstanding any other provision of this Agreement, no
termination of this Agreement shall release any party from liability for
any breach of its obligations hereunder or any misrepresentation or other
violation of the terms and conditions of this Agreement.
ARTICLE 10
Indemnification
1.62 Indemnification of Purchaser. The Shareholders jointly and
severally agree to indemnify Purchaser and to hold it harmless from and against
any and all damages, losses, deficiencies, actions, demands, judgments, costs
and expenses (including, without limitation, attorneys' and accountants' fees)
(collectively, "Losses") of or against Purchaser or ATTI resulting from:
(1) any misrepresentation or breach of any warranty or
representation of the Company or the Shareholders, or any of them, in this
Agreement or in any document, instrument or agreement executed and/or
delivered pursuant to or in connection with this Agreement by
Shareholders;
(2) any breach or nonfulfillment of any agreement or covenant of the
Company or the Shareholders, or any of them, contained in this Agreement
or in any certificate, document or instrument executed and/or delivered
pursuant to or in connection with this Agreement by Shareholders;
(3) any assessments, claims or liabilities (including interest and
penalties) for federal, state or local income, sales, use, franchise or
other taxes relating to, imposed upon or assessed against the sales,
income, property or business of the Company for all periods prior to the
Closing Date, except for any federal, state or local tax liabilities which
are identified as such and fully reflected as a current liability on the
Balance Sheet; and
(4) third party claims (including fines and penalties sought to be
imposed or enforcement proceedings commenced by governmental agencies)
based upon, alleging or arising out of any act, omission or occurrence on
or before the Closing Date, including, without limitation, any claim for
nonperformance or breach of contract, any claim for worker's compensation
or unemployment compensation, and/or claims for personal injury or for
property damage.
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1.63 Indemnification of Shareholders. Purchaser agrees to indemnify
the Shareholders and to hold them harmless from and against any and all Losses
of or against the Shareholders resulting from:
(1) any misrepresentation or breach of any warranty or
representation of Purchaser in this Agreement or in any document,
instrument or agreement executed and/or delivered by Purchaser pursuant to
or in connection with this Agreement;
(2) any breach or nonfulfillment of any agreement or covenant of the
Purchaser contained in this Agreement or in any certificate, document or
instrument executed and/or delivered by Purchaser pursuant to or in
connection with this Agreement; and
(3) third party claims (including fines and penalties sought to be
imposed or enforcement proceedings commenced by governmental agencies)
based upon, alleging or arising out of any act, omission or occurrence
after the Closing Date, including, without limitation, any claim for
nonperformance or breach of contract, any claim for worker's compensation
or unemployment compensation, and/or claims for personal injury or for
property damage.
1.64 Procedure Relative to Indemnification.
(1) If a party shall claim that it is entitled to be indemnified
pursuant to the terms of this Article, it (the "Claiming Party") shall so
notify the party or parties against which the claim is made (the
"Indemnifying Party") in writing of such claim within sixty (60) days
after the Claiming Party receives notice of any action, proceeding, demand
or assessment or otherwise has received notice of any claim of a third
party that may reasonably be expected to result in a claim for
indemnification by the Claiming Party against the Indemnifying Party;
provided, however, that failure to give such notification shall not affect
the indemnification provided hereunder except to the extent the
Indemnifying Party is actually prejudiced as a result of such failure.
Such notice shall specify the breach of representation, warranty or
agreement claimed by the Claiming Party and the Losses incurred by or
imposed upon the Claiming Party on account thereof. If such Losses are
liquidated in amount, the notice shall so state and such amount shall be
deemed the amount of the claim of the Claiming Party. If the amount is not
liquidated, the notice shall so state and in such event a claim shall be
deemed asserted against the Indemnifying Party on behalf of the Claiming
Party, but no payment shall be made on account thereof until the amount of
such claim is liquidated and the claim is finally determined.
(2) The following provisions shall apply to any claim of the
Claiming Party which is based upon (i) a suit, action or proceeding filed
or instituted by any third party, or (ii) any form of proceeding or
assessment instituted by any governmental entity:
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(1) The Indemnifying Party shall, upon receipt of such written
notice and at its expense, actively and in good faith defend such claim in
its own name or, if necessary, in the name of the Claiming Party;
provided, however, that if the proceeding involves a matter solely of
concern to the Claiming Party in addition to the claim for which
indemnification under this Agreement is being sought, such matter shall be
within the sole responsibility of the Claiming Party and its counsel. The
Claiming Party will cooperate with and make available to the Indemnifying
Party such assistance and materials as may be reasonably requested of it,
and the Claiming Party shall have the right, at its expense, to
participate in the defense. The Indemnifying Party shall have the right to
settle and compromise such claim only with the consent of the Claiming
Party (which consent shall not be unreasonably withheld).
(2) If the Indemnifying Party notifies the Claiming Party that it
disputes any claim made by the Claiming Party and/or it fails to defend
such claim actively and in good faith, then the Claiming Party shall have
the right to conduct a defense against such claim and shall have the right
to settle and compromise such claim upon three (3) days notice to, but
without the consent of, the Indemnifying Party. Once the amount of such
claim is liquidated and the claim is finally determined, the Claiming
Party shall be entitled to pursue each and every remedy available to it at
law or in equity to enforce the indemnification provisions of this
Agreement and, in the event it is determined, or the Indemnifying Party
agrees, that it is obligated to indemnify the Claiming Party for such
claim, the Indemnifying Party agrees to pay all costs, expenses and fees,
including, without limitation, all reasonable attorneys' fees which may be
incurred by the Claiming Party in enforcing or attempting to enforce
indemnification under this Agreement, whether the same shall be enforced
by suit or otherwise.
1.65 Limitation on Indemnification Liabilities.
(1) Any claims asserted by the Shareholders against Purchaser on
account of Losses arising under Section 10.2 must be asserted in writing
within three (3) years from the Closing Date.
(2) Any claims asserted by Purchaser against the Shareholders on
account of Losses resulting from any misrepresentation or breach of any
warranty or representation of the Company or the Shareholders set forth in
this Agreement must be asserted in writing within three (3) years of the
Closing Date.
25
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(3) Shareholders will not be obligated to indemnify, defend or hold
Purchaser harmless pursuant to Section 10.1 and unless the aggregate
Losses of or against Purchaser as a result of the matters described in
Sections 10.1(a), (b) or (c) exceed $10,000.
ARTICLE 11
Covenant Not to Compete
1.66 Definitions. For purposes of this Article 11, the following
definitions apply:
(1) "Competitive Business" means any business (i) which sells,
resells, services, leases, rents distributes or maintains any of the
products or services, or both, which the Company sold, resold, serviced,
leased, rented, distributed or maintained at any time during the five (5)
year period immediately prior to the Closing Date or (ii) which otherwise
competes with the Company in the sale, resale, service, lease, rental,
distribution or maintenance of telecommunication products or services,
anywhere within the Restricted Territory.
(2) "Competitive Product or Service" means the products and services
described in clauses (i) and (ii) of the definition of Competitive
Business set forth in subparagraph (a) above including, specifically, the
NEAX 2400 phone system product line (the "NEAX 2400") manufactured by NEC
America, Inc. ("NEC") or a successor NEC flagship PBX product should the
NEC NEAX 2400 system evolve or be discontinued.
(3) "Confidential Information" means (i) all technical information
relating to the Company; (ii) any information concerning any product or
service under development by, or being tested by, the Company but not yet
offered for sale; (iii) any information concerning the pricing policies of
the Company, the prices charged by the Company to any Customer, the volume
of orders of any Customer, any bids or negotiations being submitted by or
being conducted by the Company and all other information concerning the
transactions of the Company with any Customer or proposed Customer; (iv)
any information concerning the marketing programs or strategies of the
Company; (v) any financial information concerning the salaries or wages
paid to, the work records of or any other personnel information relating
to any employee of the Company; and (vi) any other information determined
by the Company to be confidential and proprietary and which is identified
as confidential and proprietary prior to or at the time of its disclosure
to the Shareholders. Notwithstanding the foregoing, no information will be
considered to be Confidential Information which (i) was generally
available to the public on the date of this Agreement, (ii) is disclosed
or published after the date hereof through no fault of the Shareholders,
or (iii) becomes general public information without disclosure by the
Shareholders after the date hereof.
26
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(4) "Customer" means any person or entity regardless of where
located to whom the Company has (i) at any time sold products or services,
or both, or (ii) at any time during the three (3) year period immediately
prior to and including the Closing Date, solicited to sell products or
services, or both.
(5) "Related Entity" means Purchaser and any other entity which,
directly or indirectly, controls or is controlled by or is under common
control with Purchaser.
(6) "Restricted Period" means the five (5) year period immediately
after the Closing Date.
(7) "Restricted Territory" means the States of Washington and
Oregon.
(8) "Supplier" means any person or entity regardless of where
located from whom the Company has purchased or solicited to purchase
products or services, or both, during the three (3) year period
immediately prior to and including the Closing Date.
(9) "Authorized NEC NEAX 2400 Dealer" means an entity which has an
executed agreement in effect with NEC which authorizes the entity to
market, install and service the NEAX 2400 product line (or a successor NEC
flagship PBX product should the NEAX 2400 product line evolve or be
discontinued) within a specified geographical area with the complete
support of and access to NEC.
1.67 Non-Competition. Each Shareholder covenants and agrees that he
will not, during the Restricted Period, directly or indirectly, whether as
agent, stockholder (except as the holder of stock of Purchaser or of not more
than 5% of the stock of any publicly held company, provided such Shareholder
does not participate in the business of that publicly held company or render
advice or assistance to it), employee, officer, director, trustee, partner,
consultant, proprietor or otherwise, except on behalf of Purchaser, ATTI or any
Related Entity:
(1) acquire an ownership interest in, engage in or render advice or
assistance to any Competitive Business anywhere within the Restricted
Territory; or
(2) entice or attempt to entice any of the Suppliers or Customers so
as to cause, or attempt to cause, any Supplier or Customer not to do
business, or reduce its business, with the Company or to purchase any
Competitive Product or Service; or
(3) hire or attempt to hire any employees, contractors or agents of
any Related Entity, or attempt to induce any of those parties to leave
their employment, agency or independent contractor relationship with a
Related Entity.
1.68 Confidentiality. Each Shareholder covenants and agrees that he
will not, at any time during the Restricted Period, directly or indirectly,
disclose any Confidential Information
27
<PAGE>
to any person or entity other than an employee or agent of any Related Entity
having the need to know that information in the ordinary course of business.
1.69 Remedies in the Event of Breach. Each Shareholder recognizes
that irreparable injury may result to the Purchaser and Related Entities and
their businesses and properties in the event of a breach by the Shareholders of
the restrictions imposed by this Agreement, and each Shareholder's acceptance of
those restrictions was a material factor in Purchaser's decision to enter into
this Agreement and consummate the transactions contemplated in this Agreement. A
Shareholder's engagement in any act in violation of this Agreement will entitle
the Purchaser or a Related Entity or both, in addition to any other remedies and
damages available to them, to an injunction prohibiting the offending
Shareholders from engaging in those acts.
1.70 Reasonableness of Restrictions. The Shareholders acknowledge
(i) that they are familiar with the nature of the Company's business and its
products and services; (ii) that Shareholders have read and understand the
nature and scope of the restrictions imposed by this Agreement; and (iii) that
the Purchaser has invested and will continue to invest substantial effort and
sums of money to develop and promote the products and services and goodwill of
the Related Entities. THE SHAREHOLDERS THEREFORE ACKNOWLEDGE AND REPRESENT THAT
THE SCOPE OF THOSE RESTRICTIONS ARE APPROPRIATE, NECESSARY AND REASONABLE FOR
THE PROTECTION OF THE BUSINESS, GOODWILL AND PROPERTY RIGHTS OF PURCHASER, ATTI
AND ANY OTHER RELATED ENTITY AND WILL NOT PREVENT THE SHAREHOLDERS FROM EARNING
A LIVING SUBSEQUENT TO THE DATE OF THIS AGREEMENT.
1.71 Termination of Non-competition. Notwithstanding anything in the
foregoing to the contrary, the non-competition restrictions of Section 11.2(a)
shall not apply to a Shareholder with respect to the sale, installation or
service of the NEAX 2400 or successor NEC product line within the Restricted
Territory where a Related Entity is not an Authorized NEC NEAX 2400 Dealer or
where such Related Entity has not actively tried to sell, install or service the
Competitive Product or Service during the immediately preceding one year period.
A Related Entity shall be deemed to have "actively tried to sell, install or
service" the Competitive Product or Service in a part of the Restricted
Territory if it is servicing a customer which has a NEAX 2400 and has made a
proposal to obtain a new NEAX 2400 customer or sell a new NEAX 2400 or successor
NEC system within the immediately preceding one year period. Additionally, after
a Shareholder's employment by ATTI or a Related Entity has terminated, any entry
by a Related Entity into an area which is not part of the Restricted Territory
shall have no effect on the Shareholder, whether or not the Shareholder is then
active in such area and shall be as if the Related Entity did not enter such
area.
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ARTICLE 12
Miscellaneous 1.72 Expenses.
(1) The Shareholders shall pay for all attorneys' fees and other
legal costs and expenses, all investment banking or business brokerage
fees and all accountants' fees and other accounting costs and expenses
incurred by the Company and the Shareholders in connection with the
negotiation, preparation and execution of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby;
(2) Except as provided in Section 4.1 of this Agreement or in
subsection (c) below, each of Purchaser and ATTI shall pay all attorneys'
fees and other legal costs and expenses and accountants' fees and other
accounting costs and expenses incurred by it in connection with its
negotiation, preparation and execution of this Agreement and its
consummation of the Merger and the other transactions contemplated hereby;
(3) If Closing of the Merger occurs, the Purchaser will pay the cost
of the financial due diligence investigation of the Company for the period
ended December 31, 1997, conducted by Ernst and Young prior to Closing. If
Closing does not occur by reason of the discovery by Purchaser, prior to
Closing, of a material adverse condition or fact with respect to the
Company or the Shareholders, the Shareholders will be responsible for
one-half of the cost of the Ernst and Young financial audit up to a
maximum amount of $5,000.
1.73 Financial Advisors' Fees. Except for the retention of Pacific
Acquisition by the Company and the Shareholders, and except for attorneys and
accountants for the respective parties, none of the Company, the Shareholders,
Purchaser or ATTI has retained any broker, finder, investment banker or
financial advisor in connection with this Agreement or the Merger or any other
transaction contemplated hereby
(1) The Company and the Shareholders have agreed to pay a commission
to Pacific Acquisition pursuant to a separate agreement. Such commission
shall be paid by the Company and the Shareholders from the cash proceeds
of the Merger.
(2) Agency Disclosure. Pacific Acquisition represents that it has
represented the Company and the Shareholders in this transaction and that
it has not had any agency relationship with the Purchaser or ATTI.
1.74 Accrued Vacation Pay. At Closing, ATTI will make the following
payments in respect of accrued vacation pay of certain employees of the Company:
29
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----------------------------------
Michael Lopata $12,022.40
----------------------------------
William Whitney $4,147.37
----------------------------------
Gregory Lopata $1,809.47
----------------------------------
As of the Effective Time of the Merger, Michael Lopata, William Whitney and Greg
Lopata will each have 120 hours of accrued vacation on the books and records of
ATTI. Accrued vacation benefits of all other employees of the Company to be
employed by ATTI will be transferred to and assumed by ATTI. All accrued
vacation benefits of employees of the Company not used in the one year following
the Closing, shall be paid to such employees in cash.
1.75 Survival of Warranties and Representations. The warranties and
representations of the Company contained in this Agreement shall survive the
Effective Time of the Merger.
1.76 Entire Agreement. This Agreement (including all Schedules and
the Exhibits hereto and any other agreements executed and delivered herewith)
contain the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. This Agreement supersedes any and
all prior agreements and understandings between the parties with respect to such
subject matter. No waiver and no modification or amendment of any provision of
this Agreement shall be effective unless specifically made in writing and duly
signed by the party to be bound thereby.
1.77 Pre-Closing Publicity. Prior to the Closing Date, all notices
to third parties and all other publicity relating to the transaction
contemplated by this Agreement shall be jointly planned, coordinated and agreed
to by Purchaser and the Company. Prior to the Closing Date, none of the parties
hereto shall act unilaterally in this regard without the prior written approval
of the others, such approval not to be unreasonably withheld.
1.78 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which, together, shall
constitute one and the same instrument.
1.79 Savings Clause. If any provision hereof shall be held invalid
or unenforceable by any court of competent jurisdiction or as a result of future
legislative action, such holding or action shall be strictly construed and shall
not affect the validity or effect of any other provision hereof.
1.80 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and permitted assigns of the parties
hereto. None of Purchaser, ATTI nor the Company or any of the Shareholders may
assign or transfer any of its or his rights or obligations under this Agreement,
except with the prior written consent of the other parties.
30
<PAGE>
1.81 No Third Party Beneficiary. This Agreement is for the sole
benefit of the parties hereto and nothing herein expressed or implied shall give
or be construed to give any Person other than the parties hereto any legal or
equitable rights hereunder, except as otherwise set forth in Section 10.1
hereof.
1.82 Governing Law and Consent to Jurisdiction. THE VALIDITY,
INTERPRETATION AND EFFECT OF THIS AGREEMENT SHALL BE GOVERNED EXCLUSIVELY BY THE
LAWS OF THE STATE OF MINNESOTA, EXCLUDING THE "CONFLICT OF LAWS" RULES OF THAT
STATE.
1.83 Notices. All notices or other communications required or
permitted by this Agreement shall be in writing and shall be deemed to have been
duly received (a) if given by facsimile, when transmitted and the appropriate
telephonic confirmation received if transmitted on a Business Day and during
normal business hours of the recipient, and otherwise on the next Business Day
following transmission, (b) if given by certified or registered mail, return
receipt requested, postage prepaid, three Business Days after being deposited in
the U.S. mails and (c) if given by courier or other means, when received or
personally delivered, and addressed as follows:
To the Company or Shareholders: Tele-Contracting Specialists, Inc.
8528 154th Avenue N.E.
Redmond, Washington 98052
Attention: Mr. Michael D. Lopata
Phone: (425) 556-5021
Fax: (425) 556-5029
To Purchaser or ATTI: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 410
Minneapolis, Minnesota 55402
Attention: Michael J. Karangelen
Phone: (612) 376-4400
Fax: (612) 376-4411
With a copy to: David L. Mitchell, Esq.
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Ave.
Minneapolis, Minnesota 55402-2015
Phone: (612) 349-8282
Fax: (612) 339-4181
or to such other addresses as may be specified by any party hereto to the other
parties pursuant to notice given by such party in accordance with the provisions
of this Section 12.12.
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1.84 Schedules. A disclosure contained in any item of any Schedule
or in any section of this Agreement shall constitute a disclosure for all
relevant items of the Schedules and all relevant sections of this Agreement.
1.85 No Waiver. The failure of any party at any time or times to
require the performance of any provision hereof shall in no manner affect the
right at a later time to enforce the same. The waiver by any party of any
condition, or the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
The parties hereto have duly executed this Agreement on the day and
year first above written.
ADVANCED TELECOMMUNICATIONS, INC. AMERICAN TELEPHONE
TECHNOLOGY, INC.
By: By:
-------------------------------- -------------------------------------
Cliff D. Williams Sheldon Allen
Chief Executive Officer President
TELE-CONTRACTING SPECIALISTS, INC.
By:
------------------------------- -------------------------------------
Michael D. Lopata MICHAEL D. LOPATA
President
-------------------------------------
WILLIAM S. WHITNEY
32
<PAGE>
EXHIBIT A
PLAN OF MERGER
This Plan of Merger (this "Plan of Merger"), dated as of July ___,
1998, is by and between Tele-Contracting Specialists, Inc., a Colorado
corporation (the "Company"), and American Telephone Technology, Inc., a
Minnesota corporation ("ATTI").
RECITALS:
A. The Company has authorized capital stock of 10,000 shares of
common stock, with no par value (the "Common Stock"), of which 1,000 shares are
outstanding as of the date hereof.
B. ATTI is a wholly-owned subsidiary of Advanced Telecommunications,
Inc., a Minnesota corporation ("Purchaser").
C. The Company, ATTI and Purchaser have entered into an Agreement
dated as of July __, 1998 (the "Merger Agreement") containing certain
warranties, representations, covenants, and agreements in connection with the
transactions contemplated therein and herein.
D. The Company, ATTI and Purchaser desire to have the Company merge
with and into ATTI pursuant to the terms and conditions set forth in this Plan
of Merger.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants contained herein, the parties hereto agree that the Company and ATTI
shall be merged and that the terms and conditions of such merger and the mode of
carrying the same into effect shall be as follows:
13. Merger.
13.1 Merger. Pursuant to the applicable laws of Colorado and
Minnesota, the Company shall merge with and into ATTI, and ATTI shall be
the surviving corporation after the merger and shall continue to exist as
a corporation created and governed by the laws of Minnesota.
13.2 Surviving Corporation. At the Effective Time of the Merger (as
hereinafter defined):
1. The separate existence of the Company shall cease (ATTI and
the Company are sometimes collectively referred to herein as the
"Constituent
1
<PAGE>
Corporations" and ATTI after the Merger is sometimes referred to
herein as the "Surviving Corporation").
2. The By-Laws of ATTI in effect immediately prior to the
Effective Time of the Merger shall be the By-laws of the Surviving
Corporation until altered, amended or repealed in accordance with
the Articles of Incorporation of the Surviving corporation and
applicable law.
3. The initial directors and officers of the surviving
corporation shall be as follows:
DIRECTORS OFFICE
Cliff Williams Chief Executive Officer
Paul Cady Chief Operating Officer
Sheldon Allen President
Greg Griffiths Vice President
Michael Lopata Vice President
Robert Pickens Secretary/Treasurer
Michael Karangelen
William Whitney (Ex officio)
4. The Merger shall, from and after the Effective Time of the
Merger, have all of the effects provided by applicable law.
13.3 Effectiveness of Merger.
1. If all of the conditions precedent to the obligations of
each of the Company and the Purchaser as set forth in the Merger
Agreement shall have been satisfied or, to the extent permitted,
waived, articles of merger executed by duly authorized officers of
each of the Company and ATTI, complying in all respects with the
Colorado Business Corporation Act and the Minnesota Business
Corporation Act shall be filed with the Secretaries of State of
Colorado and Minnesota.
2. The "Effective Time of the Merger" shall be the time when
the Plan of Merger and all other necessary documents (including, but
not limited to, articles of merger) and certificates with respect
thereto are accepted for filing by the Secretaries of State of
Colorado and Minnesota.
13.4 Shares of Constituent Corporations. The manner and basis of
exchanging the capital stock of the Company for cash and the Stock of
Purchaser upon the Effective Time of the merger shall be as follows:
2
<PAGE>
Each share of Company Stock which shall be outstanding immediately
prior to the Effective Time of the Merger and all rights in respect
thereof shall be exchanged for cash and/or shares of Purchaser's Stock
having an agreed value of One Hundred Twenty-six Dollars and Sixty-five
Cents ($126.65) per share. From and after the Effective Time of the
Merger, each holder of an outstanding certificate representing Company
Stock shall surrender the same to Purchaser. Until so surrendered, the
outstanding shares of Company Stock which are to be converted into the
stock of Purchaser as provided herein, may be treated by Purchaser for all
corporate purposes as evidencing the ownership of shares of Purchaser as
though the surrender and exchange had taken place.
14. Termination.
14.1 Termination. This Plan of Merger may be terminated at any time
prior to the Effective Time of the Merger by the Company or ATTI, by
written notice to the other party hereto if either such party has
terminated the Merger Agreement in accordance with its terms.
14.2 Effects of Termination.
1. Subject to Sections 2.2.B, in the event of any termination
of this Plan of Merger pursuant to Section 2.1, this Plan of Merger
shall forthwith become void and have no further effect, and there
shall be no liability on the part of any party hereto.
2. Notwithstanding any other provision of this Plan of Merger
(including Section 2.2.A), no termination of this Plan of Merger
shall release any party from liability for any knowing and
intentional breach of its obligations hereunder.
15. Further Assurances. In case at any time after the Effective Time
of the Merger any further action is reasonably necessary or desirable to carry
out the purposes of this Plan of Merger or to vest Purchaser with full title to
all properties, assets, rights, approvals, immunities and franchises of either
of the Constituent Corporations, the Company and ATTI and their respective
officers and directors shall take all such reasonably necessary action.
16. Amendment. At any time prior to the Effective Time of the
Merger, this Plan of Merger may be amended by the parties hereto by an agreement
in writing authorized by their respective Boards of Directors.
3
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Plan of
Merger as of the date first above written.
AMERICAN TELEPHONE TECHNOLOGY, INC.
By:
--------------------------------
Sheldon Allen
President
TELE-CONTRACTING SPECIALISTS, INC.
By:
--------------------------------
Michael Lopata
President
4
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SCHEDULE 4.1
Pending Closing
As disclosed in Due Diligence, one employee (Kathleen M. Dort) has resigned her
position with the Company since the beginning of the Due Diligence period.
<PAGE>
SCHEDULE 5.2
Foreign Qualification
TSI is a Colorado Corporation and registered and in good standing with the State
of Colorado. TSI maintains fixed offices in both the States of Washington and
Oregon. TSI is current in its tax filings, unemployment payments, workers
compensation payments, and withholding payments in Washington and Oregon.
TSI is not registered as a foreign corporation in Washington or Oregon.
<PAGE>
SCHEDULE 5.3
Investments
With the exception of a small amount (90 shares) of Lamonts corporate stock, TSI
does not own any securities or direct or indirect interest in any person or
entity. The 90 Lamonts shares were awarded to TSI in conjunction with Lamonts'
bankruptcy reorganization and in payment for a long past due debt incurred prior
to Lamonts' bankruptcy.
<PAGE>
SCHEDULE 5.4
Capital Stock
TSI's authorized capital consists of 10,000 shares of Common Stock, of which
1,000 are issued and outstanding. TSI's shareholders (Michael Lopata (750
shares) and William Whitney (250 shares)) will be able to transfer all shares
free and clear on the closing date.
<PAGE>
SCHEDULE 5.8
Real Property
1. Lease dated August 29, 1996 to 8528 - 154th Ave. N.E., Redmond, WA 98052
(Building P).
>> Premises: 3,847 sq. ft.
>> Landlord: Teachers Insurance & Annuity Association Teachers
Insurance & Annuity Association.
>> Term: 60 months commencing October 1, 1996 until September 30, 2001;
one option to renew the term for an additional 60 months on same
terms and conditions except for rent to be determined by the
landlord.
>> Rent: $3,975 with increase to $4,372 on October 1, 1999.
>> Operating Expenses: Tenant pays proportionate share of all operating
expenses as additional rent.
>> Security Deposit: $4,372.
Under Section 19 of this lease, the contemplated merger is deemed a
voluntary assignment of the lease and the tenant may not assign without
the prior written consent of the landlord which the landlord may withhold
or condition in its sole discretion. If tenant requests the landlord's
consent to a proposed assignment, tenant must pay to the landlord, whether
or not consent is ultimately given, $100 or landlord's reasonable
attorneys' fees incurred in connection with such request, whichever is
greater.
2. Lease dated August 29, 1996 to 8528 - 154th Ave. N.E., Redmond, WA 98052
(Building N).
>> Premises: 1,050 sq. ft.
>> Landlord: Teachers Insurance & Annuity Association.
>> Term: 60 months commencing October 1, 1996 through September 30,
2001; one option to extend the term for an additional 60 month term
upon the same terms and conditions except for rent which is to be
determined by the landlord.
>> Rent: $1,155 per month, adjusted October 1, 1999 to $1,270 per
month.
>> Operating Expense: Tenant is responsible for its pro rata share of
all of the building operating expenses as additional rent.
>> Security Deposit: $1,270.
This lease is identical with the lease described in paragraph 1 above
except for the square footage and, consequently, the base rent. These
premises have been subleased to CoreNet Services, Inc. for the period
October 1, 1997 through September 30, 1999. The same provisions concerning
the landlord's consent apply to this lease.
<PAGE>
3. Lease dated May 28, 1996 to 1400 N.W. Compton Drive, Beaverton, OR.
>> Premises: 665 rentable sq. ft. in Amber Glen Business Center, Suite
215.
>> Landlord: Science Park Limited Partnership I.
>> Term: 2 years commencing July 1, 1996 and terminating on July 1,
1998; no options to renew.
>> Rent: $498.75 per month plus tenant's share of operating expenses.
>> Security Deposit: $500.
TSI may not voluntarily or by operation of law (e.g., merger) assign the
premises without the prior written consent of the landlord which will not
be unreasonably withheld. In addition, the landlord has the right to
terminate this lease under Section 14.3 if the tenant requests the
landlord's consent to assign 50% or more of its interest in the lease.
<PAGE>
SCHEDULE 5.10
Compliance with Laws
The Company has not obtained certificates of authority to do business as a
foreign corporation in Washington or Oregon.
<PAGE>
SCHEDULE 5.13
Undisclosed Balance Sheet Liabilities
Additionally, as of 5/21/98 TSI is obligated to complete the following tasks for
which no additional revenue will be received:
Whidbey General Hospital: Send one Whidbey General Hospital employee
through an AVT training seminar at a cost of
$750.00;
Conduct one two day training seminar;
Complete miscellaneous programming changes
through the acceptance period;
We expect the 30 day acceptance period to
begin no later than 5/22/98. The system has
performed perfectly since cutover and we
have no reason to believe it will not be
completely accepted. However, Whidbey
General has the ability to reject the system
and obtain a complete refund should the
system not meet stated performance criteria.
In General: TSI may have a small quantity of client
obligations which are considered typical and
normal in this industry to maintain client
goodwill and satisfaction. It is not
expected but it would not be surprising if
some invoices have to be adjusted or a part
supplied but TSI does not expect the sum of
all outstanding (and unknown at this time)
obligations to have more than a minor impact
on the balance sheet.
<PAGE>
SCHEDULE 5.15
Contacts
Applied Voice Technology, Inc. dated March 19, 1993.
<PAGE>
SCHEDULE 5.16
Intellectual Property
Trade/Corporate Name: Tele-Contracting Specialists, Inc.
<PAGE>
SCHEDULE 5.17
Taxes
As disclosed during the Due Diligence period TSI paid some employees bonuses at
the end of 1997. These bonuses were paid outside of the payroll system. A small
amount of payroll tax may be owed in the event TSI's books are audited for the
specified period. TSI's shareholders (Michael Lopata and William Whitney) agree
to pay the payroll taxes should the need arise following an IRS audit.
TSI has made all sales through its Washington based corporate office during the
last three years. TSI technicians have been dispatched and have completed tasks
in the following States during the past three years; Washington; Oregon; Alaska;
Kentucky; Alabama; and Idaho.
TSI has undergone both a federal and state tax audit and the results of both
audits have been submitted to ATI auditors by TSI.
<PAGE>
SCHEDULE 5.18
Employee Plans
TSI has paid all employees (with the exception of Michael Lopata and William
Whitney) a $1 benefit per RT hour in lieu of a company insurance/health plan.
This was done at the employees' request.
<PAGE>
SCHEDULE 5.19
Insurance
TSI currently has the following insurance policies in effect:
StateFarm 98-CT-0408-4 Property and General Liability Effective
2/14/98-2/14/99, $5,598.00 annual premium.
State Farm L057162F21-47A Automobile
Effective 12/21/97-12/21/98, $4,309.00 annual premium.
<PAGE>
SCHEDULE 5.21
Condition of Assets
Michael Lopata owns personally a Micron laptop computer on which he maintains
information concerning the Company.
<PAGE>
SCHEDULE 5.22
Transactions with Affiliates
None.
<PAGE>
SCHEDULE 5.24
Product Warranties
[Attach copies of standard purchase agreement, maintenance agreement, and work
ticket]
<PAGE>
SCHEDULE 5.25
Employees
Mike Lopata
Bill Whitney
Courtney Templeton
Steve Lamberson
Michelle Newlin
Greg Lopata
Brian Webber
Ken Toombs
Commission plan relative to Steve Lamberson. When Steve was hired he was to
receive a sales commission on all approved sales. During the beginning of his
employment he did receive a few commission checks but his failure to satisfy any
reasonable sales quota has resulted in his receiving his salary but not
receiving any commission checks. This was not a written policy, but one which
was reached verbally between Steve and Bill Whitney to enable him to maintain
his position with the company.
It had been TSI's desire to see Steve succeed and we have kept him on the
payroll through the long negotiation between TSI and ATI. TSI does not see any
potential liability in this area. It is TSI's assumption Steve will be absorbed
into the ATTI sales staff and he will be subjected to the policies and
procedures of the position he accepts.
<PAGE>
SCHEDULE 5.27
Licenses; Permits
None.
<PAGE>
SCHEDULE 5.28
Customers; Suppliers
CUSTOMERS
1997 Top 15 Clients By Sales Volume:
Alaska Airlines $281,935.00
Clinitech $210,690.00
Vancouver Clinic $154,722.00
Holland America $138,357.00
Mason General $125,877.00
Lone Star Northwest $119,714.00
Clark County $100,117.00
OGI Telecomm $ 89,813.00
CMI $ 73,155.00
Horizon House $ 50,097.00
IMS $ 32,073.00
World Technology $ 28,619.00
Travel Unlimited $ 24,181.00
Super Valu $ 24,049.00
Couer D'Alene Resort $ 23,871.00
SUPPLIERS
None.
<PAGE>
SCHEDULE 5.29
Accounts; Safe Deposit Boxes
TSI maintains two bank accounts as follows:
Key Bank of Washington, #0082201955; and
Key Bank of Washington, #471821000661
The authorized signers on both accounts are:
Michael D. Lopata, President; and
Laura S. Lopata, Secretary/Treasurer.
<PAGE>
I N P U T
AUTHOR: Mitchell, David X 8592/8282 Flr 27 DATE/TIME:
--------------------------------------- ---------------
ATTORNEY TIME NUMBER: 164 DATASET: MP2
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FILE NO.: 028302-0028 DATE/TIME NEEDED:
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DOC# AND VERSION: 1178600-6 ORIGINAL TYPIST:
----------------------------- ---------
Acquisition Agreement and Plan of Merger ATI & TCSI
Note: Word Processing only works on the most recent version.
FINAL FORMAT: 81/2x 11 Single Spaced Input Ethical Wall? No
-------- ------------------- --
Right Justified? Yes DATE/TIME DELIVERED:
---
FOR BLACKLINED DOCUMENTS: PLEASE CIRCLE ONE
Continue Blacklining Blackline NEW changes only Copy and create new
document called:
Other:
SPECIAL INSTRUCTIONS:
R E V I S I O N S
TO BE COMPLETED BY ATTORNEY TO BE COMPLETED BY W.P.
<TABLE>
<CAPTION>
DATE/TIME DATE/TIME
ATTORNEY DELIV.NEEDED DRAFT FINAL PROOFED SPECIALIST DELIVERED
- ----------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Mitchel 6/12 6/12 ASAP X Sandi Sandi 6/12; 7:08p
- ----------------------------------------------------------------- ------------------------
Mitchell 6/16/98 ASAP X COOP 6/16/98
13:56
- ----------------------------------------------------------------- ------------------------
Mitchell 6/16/98 ASAP X COOP 6/16/98
16:05
- ----------------------------------------------------------------- ------------------------
Mitchell 6/24/98 asap x Kampff 6/24/98
1:57 p
- ----------------------------------------------------------------- ------------------------
Mitchell 6/25/98 asap x Kampff 6/25/98
10:23 pm
- ----------------------------------------------------------------- ------------------------
Mitchell 6/25/98 asap x Kampff 6/25/98
1:38 pm
- ----------------------------------------------------------------- ------------------------
Mitchell 7/10/98 asap x Kampff 7/10/98
- ----------------------------------------------------------------- ------------------------
</TABLE>
<PAGE>
Exhibit 2.1.2
AGREEMENT AND PLAN
OF
MERGER
BY AND AMONG
ADVANCED TELECOMMUNICATIONS, INC.
ONE CALL ACQUISITION CORP.
AND
ONE CALL TELECOM, INC.
JUNE 22, 1998
TABLE OF CONTENTS
SectionPage
EXHIBITS AND SCHEDULES
ExhibitsPage
EXHIBIT B Plan of Merger1
EXHIBIT C Stock Options5
EXHIBIT D Escrow Agreement6
EXHIBIT E Opinion of Counsel of Purchaser7
EXHIBIT F Opinion of Counsel of Company8
EXHIBIT H Noncompete Agreement11
SchedulesPage
Schedule 1.73-5
Schedule 4.18
Schedule 5.1014
Schedule 5.1114
<PAGE>
Schedule 5.1214
Schedule 5.1314
Schedule 5.1415
Schedule 5.1515
Schedule 5.1616
Schedule 5.1716
Schedule 5.1817
Schedule 5.1917
Schedule 5.212, 14, 21
Schedule 5.218
Schedule 5.2118
Schedule 5.2218
Schedule 5.2318
Schedule 5.2419
Schedule 5.2520
Schedule 5.2720
Schedule 5.2820
Schedule 5.2912
Schedule 5.312
Schedule 5.413
Schedule 5.613
Schedule 5.814
Schedule 5.922
Schedule 6.522
Schedule 6.622
Schedule 6.723
Schedule 6.823
AGREEMENT AND
PLAN OF MERGER
This Agreement is made as of June ___, 1998, by and among Advanced
Telecommunications, Inc., a Minnesota corporation ("Purchaser"), One Call
Acquisition Corp., Minnesota corporation ("Acquisition Sub") and One Call
Telecom, Inc., a Minnesota corporation (the "Company").
RECITALS
A. The issued and outstanding capital stock of the Company and the holders
thereof (individually a "Shareholder " and, collectively, the "Shareholders") as
of the date of this Agreement is reflected on Exhibit A attached hereto
("Company Capital Stock").
B. Acquisition Sub is a wholly-owned subsidiary of Purchaser.
<PAGE>
C. Purchaser, Acquisition Sub, the Company and the Shareholders desire to
have the Company merge with and into Acquisition Sub pursuant to a transaction
in which the separate existence of the Company will cease and Acquisition Sub
shall continue as the surviving corporation. Each share of Company Capital Stock
will be exchanged for shares of Purchaser's Class A common stock and the parties
intend that the transaction qualify as a tax free reorganization under Section
368(a) of the Internal Revenue Code of 1986 (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, Purchaser, Acquisition Sub, the Company
and the Shareholders hereby agree as follows:
. Upon the terms and subject to the conditions of this Agreement, at the
Effective Time in accordance with the Minnesota Business Corporation Act
("MBCA"), Acquisition Sub shall be merged with and into the Company in
accordance with this Agreement (the "Merger"). The Acquisition Sub shall be the
surviving corporation in the Merger as a wholly-owned subsidiary of Parent
(Acquisition Sub is hereinafter sometimes referred to as the "Surviving
Corporation"). The parties shall prepare, execute or file an appropriate
certificate of merger (the "Plan of Merger") substantially in the form of
Exhibit B attached hereto to comply with the requirements of the MBCA and the
separate existence of the Company shall thereupon cease.
. The Merger shall have the effects set forth in Section 302A.641 of the MBCA.
. The Merger shall become effective at the time of the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota in accordance with
the applicable provisions of the MBCA, or at such later time as may be specified
in the Articles of Merger. The Articles of Merger shall be filed as soon as
practicable after all of the conditions set forth in this Agreement have been
satisfied or waived by the party or parties entitled to the benefit of the same.
The time when the Merger shall become effective is herein referred to as the
"Effective Time". . On the terms and subject to the conditions set forth in this
Agreement, the aggregate Merger consideration to be paid to the Shareholders
(the "Purchase Price") shall be 12,963 shares of Class A Common Stock of
Purchaser ("Purchaser Common Stock") less (a) the Company's "working capital"
deficit on June 30, 1998 and (b) further adjusted in accordance with Section 1.5
and Section 3.1(g). For every $1,000 deficit in working capital, the Purchase
Price shall be reduced by 3.7 shares of Purchaser Common Stock. For purposes of
this Section, working capital shall mean the Company's current assets less
current liabilities (inclusive of (i) retirement of Old Notes of $400,000 (as
defined in Section 1.12) and (ii) assumption of capital leases identified on
Schedule 5.7) (calculated in accordance with generally accepted accounting
principles ("GAAP")) plus accrued or paid expenses incurred pursuant to Section
11.1(a), plus those items listed on Schedule 1.4(a) An example illustrating the
calculation of the adjustment to the Purchase Price is set forth on Schedule
1.4(b).
<PAGE>
.
(a) Pre-Closing Adjustments. A pre-closing review (the "Review")
shall be undertaken by a least two persons, one selected by the Purchaser
and one selected by the Company, to determine any necessary pre-closing
adjustments to the Purchase Price arising out of, in connection with or in
any way resulting from the Company's obligations stated on its June 30,
1998 balance sheet, prepared in accordance with GAAP, with US West, Sprint
and AT&T (the "Matter"). Company agrees to cooperate fully with the
Purchaser in the Review, including providing the member(s) of the
Purchaser's staff with access to such documents related to the Matter so
that the Purchaser's staff can identify and determine any adjustments to
the Purchase Price. The written results of the Review shall be provided to
the Purchaser and the Company no later than thirty (30) business days
prior to the Closing Date. Company and Purchaser shall, within twenty (20)
business days prior to the Closing Date, notify the other in writing
whether it agrees or disagrees with the results of the Review.
If both parties agree with the results of the Review, the Purchase
Price shall be adjusted by 3.7 shares of Purchaser Common Stock for every
$1,000 difference between the amount of the Matter as represented by the
Company as of June 30, 1998, and the amount of the Matter as determined in
the Review.
For example, if the results of the Review conclude that the
amount of the Matter is $5,000 greater than what was
represented by the Company as of June 30, 1998, the Purchase
Price shall be reduced by 18.5 shares (5 x 3.7 shares). On the
other hand, if the results of the Review conclude that the
amount of the Matter is $5,000 less than what was represented
by the Company as of the date of this Agreement, the Purchase
Price shall be increased by 18.5 shares (5 x 3.7 shares).
If the Purchaser and the Company disagree with the results of the
Review, then the independent certified public accounting firm of McGladrey
& Pullen LLP ("McGladrey") shall determine the adjustment, if any, to the
Purchaser's balance sheet at June 30, 1998 required in accordance with the
provisions of this Agreement, and such determination shall be final and
binding on the Company and Purchaser.
For purposes of this paragraph, the "Differential" shall mean the
difference in dollar amount between the Purchaser's proposed adjustment
and the Company's June 30, 1998 stated amount. If the dollar amount of the
adjustment that is determined by McGladrey falls within 25% of the
Differential from the Purchaser's proposed adjustment, then the Purchaser
will be entitled to recover from the Company all reasonable costs in
connection with retaining the accounting firm. If the dollar amount of the
adjustment that is determined by McGladrey falls within 25% of the
Differential from the Company's June 30, 1998 stated amount, then the
Company will be entitled to recover from the Purchaser all reasonable
costs in connection with retaining McGladrey. Except as set forth above,
the costs of retaining McGladrey will be borne equally by the Company and
the Purchaser.
<PAGE>
The Company and the Purchaser agree to initiate conversations with
US West, Sprint and AT&T and, on a good faith best efforts basis, attempt
to reduce the amount of Company's obligations to US West, Sprint and AT&T
with respect to the Matter as soon as practical, but no later than one
year from the date of this Agreement. To the extent that the Company
and/or the Purchaser obtain a reduction of the amount of the obligation of
US West, Sprint and AT&T from the amount set forth in the Company's June
30, 1998 balance sheet adjusted pursuant to this Section 1.5(a) plus any
amounts accrued from June 30, 1998 through Closing, whether such reduction
occurs before or after Closing, the Purchase Price shall be increased by
such reduction at the rate of 3.7 shares of Purchaser's Common Stock for
every $1,000 of reduction. The additional shares of Purchaser's Common
Stock shall be distributed to Shareholders as soon as practical after the
determination of such reduction.
(b) Post-Closing Adjustments.
(i) The Purchase Price shall be adjusted by the difference in
the working capital deficit between June 30, 1998 and the Closing.
The adjustment shall be 3.7 shares of Purchaser Common Stock for
every $1,000 in such working capital deficit and shall be deducted
from the Purchase Price at the Closing; provided however, the
Purchaser shall provide the Company with a credit of 370.4 shares of
Purchaser Common Stock as an offset against this adjustment.
Further, any adjustments made pursuant to Section 1.5(a) above will
be not used in the calculation of adjustments under this Section
1.5(b).
Within thirty (30) days following the month-end in which
the Closing occurs, the Company shall prepare and provide Purchaser
with the financial statements for such month-end and financial
statements as of the Closing Date, calculated through a pro rata
allocation based on the number of days in the month preceding and
including the Closing Date as related to the total number of days in
the month. If Purchaser disagrees with the financial statements in
the preceding sentence, Purchaser shall within ten (10) business
days notify the Company of such dispute.
If the Purchaser and the Company are unable to resolve
the dispute within ten (10) business days of the Purchaser's notice,
Purchaser shall place in escrow such number of shares of Purchaser
Common Stock equal to the amount of the dispute and promptly pay the
balance of the Purchase Price (less the Escrowed Consideration
defined in Section 1.11) to the Company.
(ii) In the event there are any claims by the Purchaser
relating to breaches of warranties by the Company contained in this
Agreement, the Purchaser shall notify the Company in writing within
six (6) months of the date of Closing of the amount of such claims.
If the Company does not dispute the amount or existence of such
claims, the Purchaser shall off-set the Escrowed Consideration by an
amount equal to 3.7 shares for every $1,000 worth of claims,
<PAGE>
and the Purchaser shall recalculate Schedule 1.7 accordingly. At the
end of the escrow period specified in Section 1.11 below, the
Purchaser shall pay to each of the Shareholders the pro rata portion
of the Escrowed Consideration not subject to such off-set as
reflected on the recalculated Schedule 1.7.
If Company disagrees regarding the existence or the amounts of the
claims identified by the Purchaser under this Section 1.5(b), the Company
shall, within ten (10) business days of the date of such notice from the
Purchaser, notify the Purchaser of such dispute. The Company and the
Purchaser shall use their good faith efforts to resolve such dispute
within thirty (30) days following the date of the Company's notice.
. At the Effective Time, by virtue of the Merger and as set forth in this
Section, subject to the other provisions of this Article 1, each share of Series
A Preferred Stock of the Company ("Series A") and Series B Preferred Stock of
the Company ("Series B") (collectively, Series A and Series B are hereinafter
referred to as the "Company Preferred Stock") issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive that
number of validly issued, fully paid and nonassessable shares of Purchaser
Common Stock (the "Merger Consideration"), pro rata based upon the liquidation
preference of each share of Company Preferred Stock as set forth in the
Company's Certificate of Designation for Series A and Series B filed with the
Minnesota Secretary of State on December 20, 1996 and December 10, 1997,
respectively (the "Liquidation Preference"). The shares of common stock of the
Company (the "Company Common Stock") will receive no shares of Purchaser Common
Stock since it is the Company's belief that the Liquidation Preference exceeds
the value of the Merger Consideration.
At the Effective Time, all shares of Company Capital Stock issued and
outstanding shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent the right to receive the Merger
Consideration. The holders of certificates previously evidencing shares of
Company Capital Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to shares of Company Capital Stock.
Certificates previously evidencing shares of Company Preferred Stock shall be
exchanged for certificates evidencing whole shares of Purchaser Common Stock
issued in consideration therefor in accordance with the procedures of this
Section. Certificates previously evidencing shares of Company Common Stock shall
be transferred to the Purchaser for no consideration. No fractional shares of
Purchaser Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made.
At the Effective Time, each outstanding share of the Company Capital Stock
shall automatically be converted into a share of Common Stock of the Surviving
Corporation and such shares shall continue to be owned by Purchaser
. Following surrender at the Closing of a Shareholder's stock certificate
representing shares of Company Preferred Stock, there shall be paid to the
holder of such certificates promptly the Merger Consideration in the form of the
Purchaser Common Stock in the amounts reflected on Schedule 1.7 attached hereto,
less the escrowed shares pursuant to Section 1.11 and Section 5.31.
<PAGE>
Such amounts may be adjusted in accordance with the dividend accruals of the
Company between the date of this Agreement and the Closing.
. All shares of Purchaser Common Stock issued and cash paid upon conversion of
the shares of Company Capital Stock in accordance with the terms hereof shall be
deemed to have been issued or paid in full satisfaction of all rights pertaining
to such shares of Company Capital Stock.
. No certificates or scrip evidencing fractional shares of Purchaser Common
Stock shall be issued upon the surrender for exchange of certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Purchaser. In lieu of any such fractional shares,
each holder of Company Capital Stock upon surrender of a certificate for
exchange, shall be paid an amount in cash (without interest), rounded to the
nearest cent.
. At the Effective Time, each issued and outstanding stock option, warrant,
right or other agreement to purchase or sell any capital stock of the Company
granted by the Company shall be cancelled by the holder and the Company. At the
Closing, the Purchaser shall grant options to purchase shares of Purchaser
Common Stock at an exercise price of $270 per share to certain employees as
indicated on Exhibit C. At the Effective Time, the holders of options granted by
the Company shall cease to have any rights with respect to shares of Company
Capital Stock and will only have rights with respect to Purchaser Common Stock
as set forth in this Section. The Company shall take such actions as are
necessary to ensure that from and after the date hereof the Company shall not
grant any rights to purchase any capital stock of the Company.
. Certificates representing 741 shares of Purchaser Common Stock (the "Escrowed
Consideration"), shall be held in reserve by Purchaser. The Purchaser shall hold
the Escrowed Consideration for six months following the Closing Date for
possible claims by Purchaser relating to breaches of warranties by the Company
and Shareholders contained in this Agreement. Any amounts held in reserve and
not subject to claim of Purchaser at the end of such escrow period will be paid
to the Shareholders in accordance with Schedule 1.7.
. At the Closing, Purchaser shall assume the outstanding debt due and owing by
the Company to Artesian Capital Limited Partnership II ("Artesian") pursuant to
those certain Promissory Notes dated (i) October 15, 1997 in the principal
amount of Fifty Thousand Dollars ($50,000), (ii) November 14, 1997 in the
principal amount of One Hundred Thousand Dollars ($100,000), (iii) November 26,
1997 in the principal amount of Fifty Thousand Dollars ($50,000) and (iv) April
21, 1998 in the principal amount of Two Hundred Thousand Dollars ($200,000)
(collectively, the "Old Notes"). The Old Notes shall be surrendered by Artesian
for cancellation at the Closing and Purchaser will execute a promissory note
payable to Artesian in the amount of Four Hundred Thousand Dollars ($400,000)
which will accrue interest at the rate of ten percent (10%) per annum and be
payable on the earlier to occur of (i) December 31, 1999 or (ii) the closing of
any financing of $15 million or more by the Purchaser (the "New Note"). The
Company's (i) Series A 8% Convertible Subordinated Promissory Notes due June 30,
2001 and (ii) Series B 15% Convertible Subordinated Promissory Notes due June
30, 2001, shall have a liquidation preference over the New Note.
<PAGE>
. Subject to the provisions of Articles 7 and 8 hereof, the closing (the
"Closing") of the Merger will take place at Purchaser's offices two days after
receipt of approval from the Minnesota Public Utilities Commission or at such
other place, at such other time, or on such other date as the Company and the
Purchaser may agree. The date on which the Closing takes place is referred to as
the "Closing Date."
. At the Closing:
(a) The executed Plan of Merger (together with the Articles of
Merger) satisfying the requirements of Minnesota law shall be filed by
Acquisition Sub and the Company with the Secretary of State of Minnesota.
(b) Purchaser will hold in escrow 741 shares of Purchaser Common
Stock in accordance with Section 1.11 of this Agreement.
(c) Purchaser and Acquisition Sub shall deliver to the Company and
the Shareholders the following:
(i) the certificates and other documents and instruments
referred to in Article 8 hereof;
(ii) a true and complete copy of the Articles of Incorporation
of each of Purchaser and Acquisition Sub, including all amendments
thereto, as certified to by an appropriate governmental official;
(iii) a copy of the resolutions adopted by the Board of
Directors of each of Purchaser and Acquisition Sub authorizing the
execution and delivery of this Agreement and the consummation of the
Merger and other transactions contemplated hereby, as certified to
by the Secretary of Purchaser and Acquisition Sub, respectively;
(iv) stock options to purchase shares of the Purchaser Common
Stock to those individuals set forth on Exhibit C ;
(v) the New Note for delivery to Artesian; and
(vi) an opinion of counsel for Purchaser and Acquisition Sub
in substantially the form of Exhibit E attached hereto.
(d) The Company shall, and cause the Shareholders to deliver to
Purchaser the following:
(i) the certificates and other documents and instruments
referred to in Article 7 hereof;
<PAGE>
(ii) a true and complete copy of the Articles of Incorporation
of the Company, including all amendments thereto, as certified to by
an appropriate governmental official, and a true and complete copy
of the By-Laws of the Company, as certified to by the Secretary of
the Company;
(iii) a true and complete copy of each material contract,
agreement, commitment or plan described on any Schedule hereto;
(iv) a copy of the resolutions adopted by the Board of
Directors of the Company authorizing the execution and delivery of
this Agreement and the Plan of Merger by the Company and the
consummation of the Merger and other transactions contemplated
hereby, as certified to by the Secretary of the Company;
(v) a copy of the resolutions adopted by the Shareholder of
the Company approving this Agreement and the Plan of Merger by the
Company and the consummation of the Merger and other transactions
contemplated hereby, as certified to by the Secretary of the
Company;
(vi) the resignations of the directors and officers of the
Company, effective as of the Closing Date;
(vii) an opinion of counsel for the Company and Shareholders
in substantially the form of Exhibit F attached hereto;
(viii) Noncompete Agreement from Artesian;
(ix) Exchange Agreement from the Shareholders in substantially
the form of Exhibit G attached hereto;
(x) Cancellation of all stock options, warrants and other
rights to acquire the Company Capital Stock; and
(xi) such other documents as Purchaser may request to convey
title to all of the Company's assets.
.
(a) The Company will deliver to Purchaser and Acquisition Sub, the
audited financial statements of the Company for the fiscal year ended
December 31, 1997 and the unaudited financial statements for the period
ended April 30, 1998 (collectively, the Financial Statements"). The
balance sheet of the Company as of December 31, 1997 is
<PAGE>
hereinafter referred to as the Company's "Balance Sheet" and December 31,
1997 is hereinafter referred to as the "Balance Sheet Date."
(b) The Company shall deliver to Purchaser the Company's balance
sheet, income statement, statement of cash flows, accounts receivable and
accounts payable (aging), schedule of disputed charges, and the detail on
accrued expense accounts at June 30, 1998, by July 31, 1998.
(c) The Company shall prepare and deliver to Purchaser all of the
Schedules to this Agreement by the date of this Agreement, and shall from
time to time prior to Closing promptly amend, supplement and update the
Schedules as necessary.
(d) Purchaser has heretofore delivered to the Company the audited
financial statements of the Purchaser for the fiscal year ended June 30,
1997 and the unaudited financial statements for the period ended April 30,
1998 (the "Purchaser Financial Statements").
(e) Purchaser shall prepare and deliver to the Company the Schedules
necessary to be completed by the Company by the date of this Agreement,
and shall from time-to-time prior to Closing promptly amend, supplement
and update the Schedules as necessary.
(f) Company shall deliver to Purchaser a fully executed Release and
Termination Agreement with Sprint Communications Company L.P. ("Sprint")
in a form reasonably acceptable to the Purchaser which, among other
things, waives the Company's minimum commitment surcharges owed to Sprint.
(g) Company shall deliver to Purchaser the US West Report relating
to the traffic study on the Centron common blocks for the five central
offices of the Company, the results of which shall reflect a rating no
worse than an average P.02 grade of service in the busy hour of the week
for each central office. To the extent that this grade is not met for any
central office, the Purchaser shall pay the installation costs reasonably
required to meet a P.02 grade and these installation costs (together with
monthly costs for the remaining contract terms for the Company's high call
volume customers for each central office which fails to meet a P.02 grade)
will be deducted from the Purchase Price on the basis of 3.7 shares of
Purchaser Common Stock for every $1,000 expended to make the upgrades.
. The Company and Purchaser agree to use all commercially reasonable efforts to
(a) promptly file, or cause to be promptly filed, with any United States agency
or any state or local governmental body or agency, all such notices,
applications or other documents as may be necessary to consummate the
transactions contemplated hereby; and (b) thereafter diligently pursue all
consents or approvals from any such governmental agencies or bodies as may be
necessary to consummate the transactions contemplated hereby.
<PAGE>
. From the date hereof until the Closing Date, except as set forth on Schedule
4.1 or as otherwise required by this Agreement, the Company shall, unless
Purchaser shall otherwise agree in writing:
(a) carry on the business of the Company in the ordinary course;
(b) continue to insure the Company and its properties substantially
in accordance with its past practices;
(c) use reasonable efforts to preserve the Company's business
organization intact, keep available the Company's present management and
employees, and preserve the Company's present relationships with its
suppliers and customers and others with which it has business
relationships;
(d) not solicit, initiate or intentionally encourage the submission
of offers or proposals from any Person (other than Purchaser and
Acquisition Sub) for the acquisition of the stock or any significant
portion of the assets or business of the Company;
(e) not issue, sell or otherwise dispose of any of its shares of
capital stock or grant any options, warrants or other rights to acquire
any of its shares of capital stock;
(f) not declare or pay any cash or non-cash dividends on its capital
stock or any other cash or non-cash distributions in respect of its
capital stock;
(g) pay payroll when due in the ordinary course or in accordance
with past practices;
(h) not extend or shorten the time for payment of the Company's
accounts receivable other than in accordance with past practices or in the
ordinary course;
(i) not (i) issue any debt securities or (ii) incur any indebtedness
for money borrowed whether long or short term other than trade payables
incurred in the ordinary course;
(j) not incur or agree to incur any obligations or liabilities
except current liabilities accrued in the ordinary course of business,
none of which materially adversely affect the Company's business or
assets;
(k) not sell, lease or otherwise dispose or agree to sell, lease or
otherwise dispose of any of its assets except sales of inventory to end
user customers at standard industry prices and terms, in the ordinary
course of business;
(l) not make any change in the rate of compensation, commission,
bonus or other remuneration payable or paid or agreed to be paid to any of
its employees;
<PAGE>
(m) not make any write down or write up of the value of any of its
inventory; and
(n) not make any change in the Company's coupon program or policy
with customers other than in the ordinary course.
. The Company shall deliver to Purchaser such financial information that is
available to the Company which Purchaser shall reasonably request, reflecting
the results of operations of the Company after April 30, 1998. The Purchaser
shall deliver to the Company such financial information that is available to the
Purchaser which the Company shall reasonably request reflecting the results of
operations of the Purchaser after April 30, 1998.
. The Company shall deliver to Purchaser the audit of the Company's books and
records for the year ended December 31, 1997 as conducted by Arthur Andersen
LLP, the Company's independent accountants, within thirty (30) days after the
date of this Agreement.
. From the date of this Agreement until the Effective Time, the Company will
give Purchaser and its respective officers, employees, counsel, advisors and
representatives reasonable access, during normal business hours, to the offices
and other facilities and to the books and records of the Company and will
furnish Purchaser to the extent available with such financial and operating data
and such other information with respect to the business and operations of the
Company as Purchaser may from time to time reasonably request.
. Subject to the terms and conditions herein provided and to applicable legal
requirements, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, and to assist and cooperate with the other parties hereto in doing, as
promptly as practicable, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
. Purchaser and the Company shall promptly notify each other of (a) the
occurrence or non-occurrence of any fact or event which would be reasonably
likely (i) to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time or (ii) to cause any material covenant, condition
or agreement under this Agreement not to be complied with or satisfied in all
material respects and (b) any failure of the Company or Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder in any material respect; provided,
however, that no such notification shall affect the representations or
warranties of any party or the conditions to the obligations of any party
hereunder.
. The Company shall not directly or indirectly, encourage, solicit, participate
in or initiate discussions or negotiations with, or provide any information to,
any corporation, partnership, person or other entity or group (other than
Purchaser, any of its affiliates or representatives) concerning any proposal or
offer to acquire all or a substantial part of the business or properties
<PAGE>
of the Company or any capital stock of the Company, whether by merger, tender
offer, exchange offer, sale of assets or similar transaction involving the
Company.
. The Company shall not disclose to any other potential buyer that the Purchaser
is acquiring the Company or the price or terms thereof without the prior written
consent of the Purchaser.
. The Company shall promptly submit this Agreement and the transactions
contemplated hereby for the approval of the Shareholders as soon as practicable
and shall use its best efforts to obtain shareholder approval of this Agreement
and the transactions contemplated hereby.
. Purchaser and Acquisition Sub will use their best efforts to assist in the
termination of certain personal guarantees of Artesian and Frank B. Bennett
("Bennett") dated December 13, 1996, January 16, 1997 and October 14, 1997 and
in effect on the date of this Agreement. To the extent such personal guarantees
are not terminated, Purchaser and Acquisition Sub will indemnify Artesian and
Bennett to the extent of such guarantees.
. The Purchaser will pay accrued bonuses due and owing to those persons
identified on Schedule 4.11 in the amounts indicated thereon on the earlier to
occur of (i) December 15, 1998, or (ii) the closing of any financing of $15
million or more by the Company.
. The Company shall secure agreements from a majority of the holders of Common
Stock, Series A Preferred Stock and Series B Preferred Stock to vote the Company
Capital Stock in favor of the Merger by causing Artesian, and any of (i) RWJ
Company, (ii) J.M. Hixon Partners, or (iii) Minnesota Management Partners I
Investment to execute and deliver to the Purchaser Agreements to Facilitate
Merger in the Form of Exhibit H attached hereto.
. Purchaser and the Company shall hold in confidence all information as required
and in accordance with the Non-disclosure Agreement dated May 7, 1998 between
Purchaser and the Company.
. The Purchaser and the Company will use their good faith efforts to effect the
tax treatment set forth in Recital 1C above.
. The Company shall have made the adjustments identified on Schedule 4.15 to its
financial statements.
The Company and the Shareholders jointly and severally warrant and
represent to and covenant with Purchaser as follows:
. The Company is a corporation, duly incorporated, validly existing and in good
standing under the laws of Minnesota. The Company has the corporate power and
holds all rights, privileges, franchises, immunities, licenses, permits,
authorizations and approvals (governmental or otherwise) necessary to own and
operate its properties and to conduct its business as presently
<PAGE>
conducted, the failure of which to hold would have a material adverse effect on
the financial condition or operations of the Company.
. The Company is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the nature or location of the
Company's business or properties requires such qualification, except such
jurisdictions in which the failure so to qualify is not likely to have a
material adverse effect on the financial condition or operations of the Company.
Schedule 5.2 sets forth all jurisdictions in which the Company is qualified to
do business as a foreign corporation.
. Except as set forth on Schedule 5.3, the Company does not own, and on the
Closing Date will not own, any securities or any other direct or indirect
interest in any person or entity.
.
(a) The total number of shares of capital stock and the par value
thereof which the Company is authorized to issue, the number of such
shares which are issued and outstanding, and the number of treasury shares
are set forth on Schedule 5.4. All of the issued and outstanding shares of
the Company's Common Stock are now, and will on the Closing Date, be owned
by the Shareholders and will be transferred to the Purchaser free and
clear of all mortgages, pledges, liens, security interests, restrictions,
adverse claims or charges or third party rights of any kind.
(b) Except as set forth on Schedule 5.4, there are no outstanding
options, conversion rights, warrants or other rights in existence to
acquire from the Company any of its shares of capital stock.
(c) The issued and outstanding shares of capital stock of the
Company as of the date hereof and as of the Closing Date have been and
will be duly and validly issued and are fully paid and nonassessable and
have not been issued in violation of, and are not subject to, any
preemptive rights, and, except as set forth on Schedule 5.4, there are no
voting trust agreements or other contracts, agreements or arrangements to
which either the Company or, to the Company's best knowledge, the
Shareholders is a party restricting voting or dividend rights or
transferability with respect to the outstanding shares of capital stock of
the Company.
. The Company has all right, power and authority required for it to enter into,
and, subject to the requisite approval of the Shareholders, to perform its
obligations under this Agreement and the Plan of Merger. Subject to Shareholder
approval, the Company has taken all corporate actions on its part necessary or
appropriate to execute, deliver and perform this Agreement and the Plan of
Merger and to consummate the Merger. This Agreement has been duly authorized,
executed and delivered by the Company and is binding upon and enforceable
against the Company in accordance with its terms and conditions; and, when
executed and delivered by the Company, the Plan of Merger will be duly
authorized, executed and delivered by the Company and will be binding upon, and
enforceable against, the Company in accordance with its terms and conditions.
<PAGE>
. Except as set forth on Schedule 5.6, neither the execution or delivery by the
Company of this Agreement or the Plan of Merger, nor the performance by the
Company of its obligations hereunder or thereunder, does or will, after the
giving of notice, or the lapse of time, or otherwise:
(a) conflict with, result in a breach of, or constitute a default
under, (i) the Articles of Incorporation or By-Laws of the Company or (ii)
any federal, state or local law, statute, code, ordinance, rule or
regulation applicable to it, (iii) any federal, state or local court or
administrative order or process to which the Company is a party or is
bound, or (iv) any material contract, agreement, arrangement, commitment,
or plan to which the Company is a party, or under which the Company may be
obligated, or by which the Company or any of its material rights,
properties or assets may be subject or bound;
(b) result in the creation of any mortgage, pledge, lien, claim,
charge, encumbrance or assessment upon any of the material rights,
properties or assets of the Company; or
(c) terminate, amend or modify, or give any party the right to
terminate, amend, modify, abandon or refuse to perform or comply with, any
material contract, agreement, arrangement, commitment or plan to which the
Company is a party, or under which the Company may be obligated, or by
which the Company or any of the rights, properties or assets of the
Company may be subject or bound.
. Except as set forth on Schedule 5.7, on the Balance Sheet Date, the Company
had, and on the date hereof has, and on the Closing Date will have, good and
marketable title to all the properties and assets reflected on the Balance
Sheet, subject to no mortgages, pledges, security interests, liens, encumbrances
or other charges of any kind, except (a) as to personal property sold or
otherwise disposed of after the Balance Sheet Date in the ordinary course of
business; (b) mechanics', carriers', workmens', repairmens' or other like liens
arising or incurred in the ordinary course of business; (c) liens for taxes,
assessments and other governmental charges which are not yet due and payable;
(d) other imperfections of title or encumbrances which do not materially impair
the use and operations of the Company's assets or properties to which they
relate in the operation of the Company's business as presently conducted, and
(e) the security interest of Artesian (which will be terminated on or before the
Closing Date).
. Schedule 5.8 contains a true and complete list and brief description of all
real property owned or leased by the Company, either as lessor or lessee.
. Except as set forth on Schedule 5.9 there are no actions, suits or proceedings
pending, threatened in writing against the Company, at law or in equity, before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Company would have a material adverse effect on the
financial condition or operations of the Company. Except as set
<PAGE>
forth on Schedule 5.9 and Schedule 5.27, the Company is not operating under, or
subject to, any governmental order, writ, injunction or decree.
. The Company is not conducting its business or affairs in violation of any
applicable federal, state or local law, statute, ordinance, rule, permit or
regulation except (a) as set forth on Schedule 5.10 or (b) for violations which
individually or in the aggregate would not have a material adverse effect on the
financial condition or operations of the Company.
. Except as set forth on Schedule 5.11, there is no labor dispute, grievance,
strike or request for union representation affecting any of the Company's
employees generally pending, or threatened against the Company. The Company is
not a party to any collective bargaining agreement and no such contract is
currently being negotiated with the Company. No representation question exists
or has been raised respecting the employees of the Company, nor are there any
campaigns being conducted to solicit cards from the employees of the Company to
authorize representation by any labor organization.
. The Financial Statements attached hereto as Schedule 5.12 were prepared from
the Company's books and records in accordance with generally accepted accounting
principles, subject, in the case of the interim financial statements, to normal
recurring year-end adjustments (the effect of which will not , individually or
in the aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the audited
financial statements of the Company for the fiscal year ended December 31, 1997
consistently applied, and present fairly in all material respects the financial
position, results of operations and changes in cash flows of the Company at the
dates and for the periods indicated therein. The accounts receivable reflected
in the Financial Statements were generated in the ordinary course and are
collectible, subject to the reserves in the Financial Statements for doubtful
accounts.
. Except as set forth on Schedule 5.13,
(a) on the Balance Sheet Date, to the best of its knowledge, the
Company did not have any material liability of a nature required to be
reflected on a balance sheet prepared in accordance with generally
accepted accounting principles, which was not disclosed, reflected or
reserved against in the Company's Balance Sheet; and
(b) except for liabilities which have been incurred in the ordinary
course of business, since the Company's Balance Sheet Date, to the best of
its knowledge, the Company has not incurred any material liability of any
nature which would be required to be reflected on a balance sheet prepared
in accordance with generally accepted accounting principles.
. Since the Balance Sheet Date, the Company has conducted its business in the
ordinary course, and, except as contemplated by this Agreement or as set forth
on Schedule 5.14, there has not been any:
<PAGE>
(a) material adverse change in the financial condition or business
of the Company other than changes relating to general economic conditions
or developments affecting the Company's industry generally;
(b) sale, assignment, transfer, mortgage, pledge or lease of any
material amount of assets of the Company, except in the ordinary course of
business;
(c) declaration, payment or distribution in respect of, or purchase
or redemption of, any shares of the Company's capital stock;
(d) capital expenditures by the Company in excess of $5,000 for any
single item or $20,000 in the aggregate;
(e) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(f) loan by the Company to any Person or guaranty by the Company of
any loan, other than routine advances to employees in the ordinary course
of business;
(g) amendment of the Articles of Incorporation or By-Laws of the
Company; or
(h) agreement by the Company to do any of the foregoing.
.
(a) All contracts and agreements which are material to the financial
condition or operations of the Company (collectively, "Contracts") are
described on Schedule 5.15, except for the following contracts and
agreements which are not required to be set forth on Schedule 5.15: (i)
normal purchase and sale commitments heretofore or hereafter entered into
in the ordinary course of business; (ii) any Contract that involves an
aggregate commitment by the Company of less than $10,000 per year; and
(iii) any Contract which is terminable by the Company by notice of not
more than 30 days for a cost of less than $10,000.
(b) Except as set forth on Schedule 5.15, each Contract listed on
Schedule 5.15 is in full force and effect. Except as set forth on Schedule
5.15, the Company has performed in all material respects all obligations
required to be performed by it to date under the Contracts and it is not
(with or without the lapse of time or the giving of notice, or both) in
breach or default thereunder.
.
(a) Schedule 5.16 sets forth all patents, trademarks, trade names,
service marks and copyrights (whether or not such trademarks, trade names,
service marks and
<PAGE>
copyrights are registered), and all pending applications therefor, owned
by the Company, or in which the Company has any interest, which are
material to the business of the Company.
(b) Except as set forth on Schedule 5.16, there is not any claimed
or actual infringement or misappropriation by the Company of any valid
patent, trademark, trade name, service mark or copyright which relates to
the business of the Company and which is owned by any third party, and
which will have a material adverse effect on the financial condition or
operations of the Company.
(c) There is no pending or threatened claim asserted in writing by
the Company against others for infringement or misappropriation of any
patent, trademark, trade name, service mark or copyright owned by the
Company.
(d) All applications to register patents, trademarks, trade names,
service marks or copyrights which have been filed by or on behalf of the
Company, and any resulting registrations are owned by the Company, free
and clear of any security interest, lien, encumbrance or any interest of
any nature of any third party.
. The Company has timely filed without extensions or will file all foreign,
federal, state and local tax returns and estimates for all years and periods
(and portions thereof) through the Closing Date for which any such returns,
reports or estimates were due or will be due and any and all amounts shown on
such returns and reports to be due and payable through the Closing Date have
been or will be paid in full, and since the Balance Sheet Date, the Company has
not incurred any liability with respect to any taxes based on income, gross
revenues, gross receipts, purchases, sales, business, capital stock or surplus,
properties or assets of the Company except in the ordinary course of business.
The federal income tax returns of the Company have never been examined by the
Internal Revenue Service. Except as set forth on Schedule 5.17, there are no
pending audits, investigations or examinations, by any federal, state, local or
foreign taxing authority of any payment, return or report made or filed by the
Company nor has there been any claim made against the Company alleging a failure
to pay or report any kind of tax which may be assessed by any such taxing
authority against the Company. Schedule 5.17 sets forth the states in which the
Company has made sales during the past three years.
.
(a) For the purposes of this Section 5.18, the term "Employee Plan"
includes all pension, retirement, disability, medical, dental or other
health insurance plans, life insurance or other death benefit plans,
profit sharing, deferred compensation, stock option, bonus or other
incentive plans, vacation benefit plans, severance plans, or other
employee benefit plans or arrangements, including, without limitation, any
pension plan as defined in Section 3(2) of The Employee Retirement Income
Security Act of 1974 ("ERISA") and any welfare plan as defined in Section
3(1) of ERISA, whether or not funded, to which the Company is a party.
<PAGE>
(b) There are no Employee Plans other than those set forth on
Schedule 5.18.
(c) Prior to the date hereof, the Company has delivered to Purchaser
a copy of each Employee Plan set forth on Schedule 5.18 .
(d) The Company does not maintain any "pension plans" as defined in
Section 3 (2) of ERISA other than those set forth on Schedule 5.18.
(e) Each Employee Plan, if any, and to the Company's best knowledge,
the administrators and fiduciaries of each Employee Plan and the Company
have complied, in all material respects, with all applicable requirements
of ERISA and of any other applicable law (including regulations and
rulings thereunder) governing each Employee Plan.
(f) The Company has no obligation. to contribute to a
"Multi-Employer Plan," as defined in Section 3(37) of ERISA.
(g) To the Company's best knowledge, no "reportable event" (as
defined in ERISA) has occurred with respect to any Employee Plan.
. The Company has in full force and effect all policies of insurance set forth
on Schedule 5.19; the Company will have in full force and effect on the Closing
Date such policies of insurance or policies of insurance of substantially the
same character and coverage as those set forth on Schedule 5.19; and the Company
will notify Purchaser in writing of any changes in such insurance coverage
occurring prior to the Closing which would have a material adverse effect on the
financial condition or operations of the Company.
. Each of the Shareholders receiving shares of Purchaser's Common Stock in the
Merger shall agree not to dispose of any shares in a manner that would cause the
Merger to violate the continuity of Shareholder interest requirements set forth
in Treasury Regulation ss. 1.368-1. Each of the Shareholders receiving shares of
Purchaser's Common Stock in the Merger shall represent that such shares are
being purchased for his own account and for investment and without the intention
of reselling or redistributing the same; each such Shareholder shall further
acknowledge that the shares to be received in the Merger have not been
registered under the Securities Act of 1933 or relevant state securities laws
and are, therefore, restricted.
. Except as set forth in Schedule 5.21, all of the tangible personal property of
the Company is (i) in good operating condition and repair, ordinary wear and
tear excepted and (ii) maintained in accordance with sound maintenance
practices. The Company's assets are sufficient for the operation of its business
in the ordinary course and are suitable for the purpose for which they are being
used. The amount of the Company's inventory and supplies currently on hand (i)
is sufficient for the operation of the Company's business in the ordinary course
based on current levels of operation adjusted for any increased level of
operations anticipated by the Company; (ii) has been purchased in the ordinary
course of business; (iii) is consistent in quality and quantity with past
practices of the Company; and (iv) is not obsolete and is of a quality and
<PAGE>
quantity usable and salable in the ordinary course of business within twelve
(12) months subsequent to the Closing. All property leased by the Company is in
the condition required of such property by the terms of the lease applicable
thereto during the term of the lease and upon the expiration thereof. Except as
set forth in Schedule 5.21, none of the Shareholders has any direct or indirect
interest in any right, property or asset used or required by the Company in the
conduct of its business.
. Except as disclosed in Schedule 5.22, since June 3, 1996, no stockholder,
director, officer or employee of the Company, nor any ancestor, sibling,
descendent or spouse (an "Affiliate") of any such person, or any trust,
partnership or corporation in which any of such persons or their Affiliates have
a material interest, has had: (i) except for passive investments, any interest
in any entity which has purchased, sold or furnished to the Company any goods or
services; (ii) a beneficial interest in any lease, contract, commitment or
understanding to which the Company is a party or by which it is bound or
affected; (iii) except for salary and bonuses in the ordinary course of business
consistent with past practices, any interest or claim against the Company or any
assets of the Company; or (iv) any interest in any assets used in the business
of the Company.
. Except as disclosed in Schedule 5.23, no claim for product liability has ever
been asserted against the Company and, to the Company's best knowledge, no event
has occurred which might give rise to the assertion of any such claim. To the
Company's best knowledge, there is no deficiency or inadequacy in the
manufacture, design or formulation of any of the Company's products which may
hereafter give rise to any such failure or result in any such claim.
. To the Company's best knowledge, all products sold and services provided by
the Company (and the delivery thereof) have been in conformity with all
applicable contractual commitments and all express or implied warranties by the
Company and its suppliers. To the Company's best knowledge, no liability for any
warranty claims exist for the repair or replacement thereof or other damages in
connection with such services, sales or deliveries, except for any such claims
incurred in the ordinary course of business consistent in amount and character
with past experience of the Company. Copies of the standard terms and conditions
of sale, delivery or lease of the Company (including, without limitation, all
warranty provisions) are attached hereto as Schedule 5.24.
. Attached Schedule 5.25 lists:
(a) all employee handbooks and/or manuals relating to the employees
of the Company, true and correct copies of which have been delivered to
Purchaser; and
(b) all employees of the Company, together with their job
descriptions, rates of salary or wages, vacation benefits, and each bonus,
deferred compensation, stock option, incentive compensation, severance or
termination pay agreement or employment benefit applicable to each such
employee, whether formal or informal and whether legally binding or not.
<PAGE>
.
(a) Neither the Company, or to the knowledge of the Company any
other user or owner of the Company's owned or leased real property (the
"Real Estate") has violated or been threatened with or received a notice,
directive, violation report or charge asserting any violation of the
Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation Recovery Act of 1976
("RCRA"), the Federal Comprehensive Environmental Responsibility, Cleanup
and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control Act of
1976, or any other Laws regulating or otherwise affecting or relating to
the environment ("Environmental Laws"), as the same may have been amended.
No action has been taken against the Company or, to the knowledge of the
Company, the Real Estate or any other user or owner of the Real Estate by
any federal, state or local department or agency concerning any
Environmental Laws. The Company is, and to the knowledge of the Company at
all times in the past has been, in compliance with all Environmental Laws.
To the knowledge of the Company, no asbestos, urea formaldehyde or
polychlorinated biphenyls or any other hazardous substances are present
in, on or under any of the Real Estate. No assets of the Company are
required to be upgraded, modified or replaced to be in compliance with
Environmental Laws.
(b) Neither the Company, nor to the knowledge of the Company, any
user or owner of the Real Estate has generated, stored, used, disposed of,
spilled, discharged or released any substance in any manner on the Real
Estate and the improvements thereon or on property adjacent to the Real
Estate or performed an environmental cleanup on the Real Estate or
adjacent property which may form the basis for any present or future claim
against the Company based upon Environmental Laws, or any demand or action
seeking cleanup of any site, location or body of water, surface or
subsurface, under any Environmental Laws, or otherwise, or which may
subject the Company and/or Purchaser to claims for damages.
(c) To the knowledge of the Company, no septic systems or wells
exist on, in or under any of the Real Estate. To the knowledge of the
Company, the Real Estate has never been used as a landfill, dump site or
any other use which involves the disposal of solid waste on the Real
Estate in a manner which may subject the Company to any claim for cleanup
or damages under Environmental Laws. To the knowledge of the Company, no
hazardous or toxic substances or waste, as defined under Environmental
Laws, are located at, on or under any of the Real Estate, or have been
used, generated, treated, stored, disposed of, handled or removed from any
of the Real Estate.
(d) To the knowledge of the Company, no above ground or underground
storage tanks have ever been located at, on or under any of the Real
Estate. To the knowledge of the Company, at no time prior to or during the
Company's use of the Real Estate have hazardous or toxic substances or
wastes, as defined under Environmental Laws, been spilled, discharged,
leaked, discarded, released or otherwise deposited on any of the Real
Estate. To the knowledge of Company, none of the Real Estate is
<PAGE>
contaminated by hazardous or toxic substances or wastes, as defined under
Environmental Laws, originating from off-site sources.
(e) No environmental claims have been asserted or are threatened or
are anticipated to be asserted against the Company with respect to the
Real Estate, any of its assets and/or the operation of its business.
(f) For purposes of this Section 5.26, "knowledge of the Company"
shall mean actual knowledge without a duty to inquire.
. The Company is in compliance with and has all permits, registrations and
authorizations required by all applicable Laws in the operation of the Company's
business except where noncompliance would not have a material adverse effect on
the financial condition or operations of the Company. Attached hereto as
Schedule 5.27 is a true and complete list of all licenses, permits,
registrations and authorities issued or granted to the Company by local, state
or federal government authorities or agencies. The Company is not in breach or
violation of any applicable Law relating thereto and all such licenses,
registrations, permits and authorizations are current and effective except where
a breach or violation or the absence of such licenses, registrations, permits or
authorizations would not have a material adverse effect on the financial
condition or operations of the Company.
. Schedule 5.28 attached hereto sets forth, based upon the May 10, 1998 list of
the Company's monthly invoices, a list of the fifteen (15) largest customers of
the Company determined by dollar amount of goods and services purchased from the
Company. Except as set forth on Schedule 5.28, the Company and the Shareholders
have received no notice or indication, and have no reason to believe, that any
customer, supplier or third party to material contracts of the Company intends
to cease doing business or reduce in any material respect the business
transacted with the Company or to terminate or modify any agreements with the
Company (whether as a result of consummation of the transactions contemplated
hereby or otherwise).
. Attached hereto as Schedule 5.29 is a true and complete list of the bank and
savings accounts, certificates of deposit and safe deposit boxes of the Company
and those persons authorized to sign thereon.
5.30 Customer Coupon Program. Schedule 5.30 sets forth the Company's
customer coupon program. The Company's customer coupon program has not been
altered since the Company's inception.
5.31 Brokerage. There are no claims for brokerage commissions, finders
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of the
Company. The Company acknowledges that the Purchaser shall separately escrow 463
shares of Purchaser Common Stock in connection with a potential breach of this
representation (in addition to the Escrowed Consideration). The foregoing escrow
shall terminate six months after the Closing.
<PAGE>
. No warranty or representation by the Company contained in this Agreement or in
any writing to be furnished pursuant hereto contains or will contain any untrue
statement of fact or omits or will omit to state any material fact required to
make the warranties or representations herein or therein contained not
misleading. The Company has disclosed to Purchaser all material adverse facts
known to the Company relating to the Company, its assets or business.
Purchaser and Acquisition Sub warrant and represent to and covenant with
the Company and the Shareholders as follows:
. Purchaser and Acquisition Sub are corporations duly incorporated, validly
existing and in good standing under the laws of Minnesota. Each of Purchaser and
Acquisition Sub has the corporate power and holds all rights, privileges,
franchises, immunities, licenses, permits, authorizations and approvals
(governmental or otherwise) necessary to own and operate its properties and to
conduct its business as presently conducted, the failure of which to hold would
have a material adverse effect on the financial condition or operations of
either Purchaser or Acquisition Sub.
. The Purchaser is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the nature or location of the
Purchaser's business or properties requires such qualification, except such
jurisdictions in which the failure so to qualify is not likely to have a
material adverse effect on the financial condition or operations of the
Purchaser. Schedule 6.2 sets forth all jurisdictions in which the Purchaser is
qualified to do business as a foreign corporation.
. Each of Purchaser and Acquisition Sub has all right, power and authority
required for it to enter into and perform its obligations under this Agreement
and, in the case of Acquisition Sub, the Plan of Merger. Each of Purchaser and
Acquisition Sub has taken all corporate actions on its part necessary or
appropriate to execute, deliver and perform this Agreement and, in the case of
Acquisition Sub, to consummate the Merger, and this Agreement has been duly
authorized, executed and delivered by each of Purchaser and Acquisition Sub and
is binding upon, and enforceable against each in accordance with its terms and
conditions; and, when executed and delivered by Acquisition Sub, the Plan of
Merger will be duly authorized, executed and delivered by Acquisition Sub and
will be binding upon, and enforceable against, Acquisition Sub in accordance
with its terms and conditions.
. Neither the execution and delivery of this Agreement by Purchaser or
Acquisition Sub, nor the execution or delivery of the Plan of Merger by
Acquisition Sub, nor the performance of their respective obligations hereunder
or under the Plan of Merger, does or will, after the giving of notice, or the
lapse of time, or otherwise:
(a) conflict with or constitute a default under the Articles of
Incorporation or By-Laws of Purchaser or Acquisition Sub: (a) conflict
with, result in a breach of, or constitute a default under, the Articles
of Incorporation or By-Laws of the Company, or (i) any federal, state or
local law, statute, code, ordinance, rule or regulation applicable to it,
(ii) any federal, state or local court or administrative order or process
to which the Company is a party or is bound, or (iii) any material
contract, agreement, note, debt
<PAGE>
instrument, security agreement, mortgage, arrangement, commitment or plan
to which Purchaser or Acquisition Sub is a party, or under which Purchaser
or Acquisition Sub may be obligated, or by which Purchaser or Acquisition
Sub or any of its material rights, properties or assets may be subject or
bound; or
(b) result in the creation of any mortgage, pledge, lien, claim,
charge, encumbrance or assessment upon any of the material rights,
properties or assets of the Purchaser.
. There are no actions, suits or proceedings pending, or to the knowledge of
Purchaser, threatened in writing against Purchaser or Acquisition Sub, at law or
in equity, before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which if determined adversely to Purchaser, would have a material
adverse effect on the financial condition or operations of the Purchaser. Except
as set forth on Schedule 6.5, the Purchaser is not operating under or subject
to, any governmental order, writ, injunction or decree.
. The total number of shares of capital stock and the par value thereof which
the Purchaser is authorized to issue, the number of such shares which are issued
and outstanding, and the number of treasury shares are set forth on Schedule
6.6. Except for stock options, warrants or other rights to acquire 20,889 shares
of Purchaser Common Stock, there are no other outstanding options, conversion
rights, warrants or other rights to acquire from the Purchaser any shares of
Purchaser Common Stock. The shares of Purchaser Common Stock to be issued to the
Shareholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth on Schedule 6.6, there are no voting trust
agreements or other contracts, agreements or arrangements to which either the
Purchaser or, to the best of its knowledge, its shareholders is a party
restricting voting or dividend rights or transferability with respect to the
outstanding shares of capital stock of the Purchaser.
. The Purchaser Financial Statements attached hereto as Schedule 6.7 were
prepared from the Purchaser's books and records in accordance with generally
accepted accounting principles, subject, in the case of the interim financial
statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the audited financial statements of the Purchaser for the fiscal year ended June
30, 1997 consistently applied, and present fairly in all material respects the
financial position, results of operations and changes in cash flows of the
Purchaser at the dates and for the periods indicated therein.
. Except as set forth on Schedule 6.8,
(a) on April 30, 1998, to the best of its knowledge, Purchaser did
not have any material liability of a nature required to be reflected on a
balance sheet prepared in accordance with generally accepted accounting
principles, which was not disclosed, reflected or reserved against in the
Purchaser's balance sheet; and
<PAGE>
(b) except for liabilities which have been incurred in the ordinary
course of business, since April 30, 1998, to the best of its knowledge,
the Purchaser has not incurred any material liability of any nature which
would be required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles.
. No warranty or representation by the Purchaser contained in this Agreement or
in any writing to be furnished pursuant hereto contains or will contain any
untrue statement of fact or omits or will omit to state any material fact
required to make the warranties or representations herein or therein contained
not misleading. The Purchaser has disclosed to Company all material adverse
facts known to the Purchaser relating to the Purchaser, its assets or business.
The obligations of Purchaser and Acquisition Sub under this Agreement are
subject to the following conditions precedent:
. Neither Purchaser nor the Company shall have terminated this Agreement
pursuant to Section 9.1 hereof.
. The warranties and representations made by the Company herein and by the
Shareholders in the Exchange Agreements to Purchaser and Acquisition Sub shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as if such warranties and representations had been made on and
as of the Closing Date, and the Company and the Shareholders shall have
performed and complied in all material respects with all agreements, covenants
and conditions on their respective parts required to be performed or complied
with on or prior to the Closing Date; and at the Closing, Purchaser and
Acquisition Sub shall have received a certificate executed by the Company and
the Shareholders to the foregoing effect.
. No court or other governmental agency shall have issued an order which shall
be in effect on the Closing Date restraining or prohibiting the consummation of
the transactions contemplated hereby.
. All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in all material respects and in form and
substance to Purchaser and its counsel, and Purchaser shall have received copies
of such documents as Purchaser and its counsel may reasonably request in
connection with said transactions.
. The approval or consent of all United States agencies and all state and local
governmental bodies and agencies as may be necessary to consummate the
transactions contemplated hereunder shall have been received.
. All amendments or supplements to the Schedules hereto made by the Company
which are individually or in the aggregate material to the business, operations
or financial condition of the Company shall be acceptable to Purchaser and
Acquisition Sub.
<PAGE>
. The directors and officers of the Company shall have resigned their positions
as such as of the Closing Date.
. In accordance with the Company's Articles of Incorporation and Bylaws and
Minnesota corporate law, the Company shall have duly approved the transactions
contemplated by this Agreement. The Company shall not have received notice of
dissenter's rights from more than (i) 3% of the holders of Common Stock, (ii) 5%
of the holders of Series A Preferred Stock and (iii) 2% of the holders of Series
B Preferred Stock.
. All Shareholders of the Company shall have executed Exchange Agreements for
the benefit of Purchaser representing, among other things, good title to the
Company Capital Stock owned by such Shareholder and acknowledging the securities
law restrictions applicable to the Purchaser Common Stock that they will
receive.
. Artesian shall have executed and delivered a Noncompete Agreement in the form
of Exhibit H attached hereto.
Except for the condition set forth in Section 7.5 hereof, Purchaser and
Acquisition Sub shall have the right to waive any of the foregoing conditions
precedent.
The obligations of the Company and the Shareholders under this Agreement
are subject to the foregoing conditions precedent:
. Neither Purchaser nor the Company shall have terminated this Agreement
pursuant to Section 9.1 hereof.
. All warranties and representations made by Purchaser and Acquisition Sub
herein to the Company shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if such warranties and
representations had been made on and as of the Closing Date, and Purchaser and
Acquisition Sub shall have performed and complied in all material respects
(except for the payment obligations which shall be absolute) with all
agreements, covenants and conditions on their part required to be performed or
complied with on or prior to the Closing Date; and at the Closing, the Company
shall have received a certificate executed by the President or any Vice
President of each of Purchaser and Acquisition Sub to the foregoing effect.
. No court or other governmental Person shall have issued an order which shall
be in effect on the Closing Date restraining or prohibiting the consummation of
the transactions contemplated hereby.
. All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Agreement (including the approval of this
Agreement by the Board of Directors of Purchaser and Acquisition Sub) and all
documents incident thereto shall be
<PAGE>
reasonably satisfactory in all material respects and in form and substance to
the Company, the Shareholders and their respective counsel, and the Company, the
Shareholders and such counsel shall have received copies of such documents as
they and counsel may reasonably request in connection with the transactions.
. The approval or consent of all United States agencies and all state and local
governmental bodies and agencies as may be necessary to consummate the
transactions contemplated hereunder shall have been received.
. The Shareholders of Acquisition Sub shall have duly approved the transactions
contemplated by this Agreement.
Except for the condition set forth in Sections 8.5 hereof, the Company and
the Shareholders shall have the right to waive any of the foregoing conditions
precedent.
. This Agreement may be terminated at any time prior to the Closing as follows,
and in no other manner:
(a) By mutual agreement of Purchaser and the Company (and the
Shareholders);
(b) By Purchaser or the Company (and the Shareholders), if at or
before the Closing any condition set forth herein for the benefit of
Purchaser or the Company (and the Shareholders), respectively, shall not
have been timely met and cannot be met on or before the Closing Date and
has not been waived, provided that the terminating party has not defaulted
in any material respect in the performance of any of its obligations under
this Agreement;
(c) By Purchaser on the earlier of (i) the date of the Public
Utilities Commission makes a determination not to approve the transactions
contemplated by this Agreement, (ii) September 30, 1998, or (iii) such
later date as Purchaser may agree upon, provided that any such failure to
close is not due to any default in any material respect in the performance
of any obligation under this Agreement by the terminating party;
(d) By Purchaser, if any warranty or representation made herein for
the benefit of Purchaser or in any certificate, schedule, or documents
furnished to Purchaser pursuant to this Agreement is untrue in any
material respect or the Company or the Shareholders shall have defaulted
in any material respect in the performance of any material obligation
under this Agreement;
(e) By Company, if any warranty or representation made herein for
the benefit of Company or in any certificate, schedule, or documents
furnished to Company pursuant to this Agreement is untrue in any material
respect or the Purchaser or the Shareholders
<PAGE>
shall have defaulted in any material respect in the performance of any
material obligation under this Agreement;
.
(a) In the event of any termination of this Agreement pursuant to
Section 9.1, this Agreement shall forthwith become void and have no
further effect, and there shall be no liability on the part of any party
hereto.
(b) Notwithstanding any other provision of this Agreement, no
termination of this Agreement shall release any party from liability for
any breach of its obligations hereunder or any misrepresentation or other
violation of the terms and conditions of this Agreement.
. The Company agrees to indemnify Purchaser and to hold it harmless from and
against any and all damages, losses, deficiencies, actions, demands, judgments,
costs and expenses (including, without limitation, attorneys' and accountants'
fees) (collectively, "Losses") of or against Purchaser or Acquisition Sub
resulting from:
(a) any misrepresentation or breach of any warranty or
representation of the Company or the Shareholders, or any of them, in this
Agreement or in any document, instrument or agreement executed and/or
delivered pursuant to or in connection with this Agreement by
Shareholders;
(b) any breach or nonfulfillment of any agreement or covenant of the
Company or the Shareholders, or any of them, contained in this Agreement
or in any certificate, document or instrument executed and/or delivered
pursuant to or in connection with this Agreement by Shareholders;
(c) any assessments, claims or liabilities (including interest and
penalties) for federal, state or local income, sales, use, franchise or
other taxes relating to, imposed upon or assessed against the sales,
income, property or business of the Company for all periods prior to the
date of the Closing except as disclosed in the financial statements as of
the Closing Date; and
(d) third party claims (including fines and penalties sought to be
imposed or enforcement proceedings commenced by governmental agencies)
based upon, alleging or arising out of any act, omission or occurrence on
or before the Closing Date, including, without limitation, any claim for
nonperformance or breach of contract, and/or claims for personal injury or
for property damage, except as disclosed in the financial statements as of
the Closing Date or the Schedules attached hereto and delivered on the
date of this Agreement; provided however, Purchaser may not seek
indemnification under this Section 10.1(d) for any amounts that Purchaser
has actually received under any insurance
<PAGE>
policy; provided further, Purchaser may in its sole discretion determine
whether or not it will seek insurance payments or coverage.
. Purchaser agrees to indemnify the Company and the Shareholders and to hold
them harmless from and against any and all Losses of or against the Company and
the Shareholders resulting from (a) any misrepresentation or breach of any
warranty or representation of Purchaser in this Agreement or in any document,
instrument or agreement executed and/or delivered by Purchaser pursuant to or in
connection with this Agreement; and (b) any breach or non-fulfillment of any
agreement or covenant contained in this Agreement or in any certificate,
document or instrument executed or delivered by Purchaser pursuant to or in
connection with this Agreement.
.
(a) If a party shall claim that it is entitled to be indemnified
pursuant to the terms of this Article, it (the "Claiming Party") shall so
notify the party or parties against which the claim is made (the
"Indemnifying Party") in writing of such claim within sixty (60) days
after the Claiming Party receives notice of any action, proceeding, demand
or assessment or otherwise has received notice of any claim of a third
party that may reasonably be expected to result in a claim for
indemnification by the Claiming Party against the Indemnifying Party;
provided, however, that failure to give such notification shall not affect
the indemnification provided hereunder except to the extent the
Indemnifying Party is actually prejudiced as a result of such failure.
Such notice shall specify the breach of representation, warranty or
agreement claimed by the Claiming Party and the Losses incurred by or
imposed upon the Claiming Party on account thereof. If such Losses are
liquidated in amount, the notice shall so state and such amount shall be
deemed the amount of the claim of the Claiming Party. If the amount is not
liquidated, the notice shall so state and in such event a claim shall be
deemed asserted against the Indemnifying Party on behalf of the Claiming
Party, but no payment shall be made on account thereof until the amount of
such claim is liquidated and the claim is finally determined.
(b) The following provisions shall apply to any claim of the
Claiming Party which is based upon (i) a suit, action or proceeding filed
or instituted by any third party, or (ii) any form of proceeding or
assessment instituted by any governmental entity:
(i) The Indemnifying Party shall, upon receipt of such written
notice and at its expense, actively and in good faith defend such
claim in its own name or, if necessary, in the name of the Claiming
Party; provided, however, that if the proceeding involves a matter
solely of concern to the Claiming Party in addition to the claim for
which indemnification under this Agreement is being sought, such
matter shall be within the sole responsibility of the Claiming Party
and its counsel. The Claiming Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as
may be reasonably requested of it, and the Claiming Party shall have
the right, at its expense, to participate in the defense. The
Indemnifying Party shall have the right to settle and
<PAGE>
compromise such claim only with the consent of the Claiming Party
(which consent shall not be unreasonably withheld).
(ii) If the Indemnifying Party notifies the Claiming Party
that it disputes any claim made by the Claiming Party and/or it
fails to defend such claim actively and in good faith, then the
Claiming Party shall have the right to conduct a defense against
such claim and shall have the right to settle and compromise such
claim upon three (3) days notice to, but without the consent of, the
Indemnifying Party. Once the amount of such claim is liquidated and
the claim is finally determined, the Claiming Party shall be
entitled to pursue each and every remedy available to it at law or
in equity to enforce the indemnification provisions of this
Agreement and, in the event it is determined, or the Indemnifying
Party agrees, that it is obligated to indemnify the Claiming Party
for such claim, the Indemnifying Party agrees to pay all costs,
expenses and fees, including, without limitation, all reasonable
attorneys' fees which may be incurred by the Claiming Party in
enforcing or attempting to enforce indemnification under this
Agreement, whether the same shall be enforced by suit or otherwise.
The prevailing party shall be entitled to recover all reasonable
costs in connection therewith.
.
(a) If the Closing of the Merger occurs, (i) Purchaser and
Acquisition Sub shall pay $50,000 of the costs and expenses incurred by
the Company in connection with the negotiation, preparation and execution
of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby and (ii) any amounts in excess of $50,000
shall be paid by the Shareholders. To the extent the Company incurs any
costs or expenses with Arthur Andersen LLP after May 20, 1998 pertaining
to the Company's audit for the year ended December 31, 1997, such costs
and expenses shall be considered incurred by the Company as part of the
foregoing sentence. All costs and expenses incurred by the Purchaser and
the Acquisition Sub in connection with this Agreement shall be paid by the
Purchaser or the Acquisition Sub.
(b) If the Closing of the Merger does not occur, all costs and
expenses incurred in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby shall be paid by the party
incurring such costs or expenses.
. Except for attorneys and accountants for the respective parties, none of the
Company, the Shareholders, Purchaser or Acquisition Sub has retained any broker,
finder, investment banker or financial advisor in connection with this Agreement
or the Merger or any other transaction contemplated hereby.
<PAGE>
. The warranties and representations of the Company contained in this Agreement
shall survive for a period of six (6) months following Effective Time of the
Merger.
. This Agreement (including all Schedules and the Exhibits hereto and any other
agreements executed and delivered herewith) contain the entire understanding of
the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes any and all prior agreements and
understandings between the parties with respect to such subject matter. No
waiver and no modification or amendment of any provision of this Agreement shall
be effective unless specifically made in writing and duly signed by the party to
be bound thereby.
. Prior to the Closing Date, all notices to third parties and all other
publicity relating to the transaction contemplated by this Agreement shall be
jointly planned, coordinated and agreed to by Purchaser and the Company. Prior
to the Closing Date, none of the parties hereto shall act unilaterally in this
regard without the prior written approval of the others, such approval not to be
unreasonably withheld.
. This Agreement may be executed in counterparts, each of which shall be deemed
an original but all of which, together, shall constitute one and the same
instrument.
. If any provision hereof shall be held invalid or unenforceable by any court of
competent jurisdiction or as a result of future legislative action, such holding
or action shall be strictly construed and shall not affect the validity or
effect of any other provision hereof.
. This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. None of Purchaser,
Acquisition Sub nor the Company or any of the Shareholders may assign or
transfer any of its or his rights or obligations under this Agreement, except
with the prior written consent of the other parties.
. This Agreement is for the sole benefit of the parties hereto and nothing
herein expressed or implied shall give or be construed to give any Person other
than the parties hereto any legal or equitable rights hereunder, except as
otherwise set forth in Section 10.1 hereof.
.
(a) THE VALIDITY, INTERPRETATION AND EFFECT OF THIS AGREEMENT SHALL
BE GOVERNED EXCLUSIVELY BY THE LAWS OF THE STATE OF MINNESOTA, EXCLUDING
THE "CONFLICT OF LAWS" RULES OF THAT STATE.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF (i) THE FOURTH JUDICIAL DISTRICT COURT OF THE STATE OF
MINNESOTA, AND (ii) THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MINNESOTA, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY (AND
<PAGE>
AGREES NOT TO COMMENCE ANY ACTION, SUIT OR PROCEEDING RELATING HERETO
EXCEPT IN SUCH COURTS). EACH OF THE PARTIES HERETO FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED
MAIL TO SUCH PARTY'S RESPECTIVE ADDRESS SET FORTH HEREIN SHALL BE
EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN
MINNESOTA WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO
JURISDICTION AS SET FORTH ABOVE IN THE IMMEDIATELY PRECEDING SENTENCE.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING
OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN (x) THE
FOURTH JUDICIAL CIRCUIT COURT OF THE STATE OF MINNESOTA OR (y) THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
. All notices or other communications required or permitted by this Agreement
shall be in writing and shall be deemed to have been duly received (a) if given
by facsimile, when transmitted and the appropriate telephonic confirmation
received if transmitted on a Business Day and during normal business hours of
the recipient, and otherwise on the next Business Day following transmission,
(b) if given by certified or registered mail, return receipt requested, postage
prepaid, three Business Days after being deposited in the U.S. mails and (c) if
given by courier or other means, when received or personally delivered, and
addressed as follows:
To the Company or Shareholders: One Call Telecom, Inc.
706 Second Avenue South
Suite 1200
Minneapolis, MN 55402
Attention: Joseph Rubin
Phone: 612-204-3500
Fax: 612-677-7755
With a copy to: Artesian Capital Limited Partnership II
1700 Foshay Tower
821 Marquette Avenue South
Minneapolis, MN 55402
Attention: Frank B. Bennett
Phone: 612-334-5600
Fax: 612-334-5601
With a copy to: Joseph Alexander
Maslon Edelman Borman & Brand LLP
<PAGE>
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Phone: (612) 672-8200
Fax: (612) 672-8397
To Purchaser or Acquisition Sub: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, Minnesota 55402
Attention: Michael J. Karangelen
Phone: (612) 376-4400
Fax: (612) 376-4411
With a copy to: David L. Mitchell, Esq.
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Ave.
Minneapolis, Minnesota 55402-2015
Phone: (612) 349-8282
Fax: (612) 339-4181
or to such other addresses as may be specified by any party hereto to the other
parties pursuant to notice given by such party in accordance with the provisions
of this Section 11.11.
. A disclosure contained in any item of any Schedule or in any section of this
Agreement shall constitute a disclosure for all relevant items of the Schedules
and all relevant sections of this Agreement.
<PAGE>
. The failure of any party at any time or times to require the performance of
any provision hereof shall in no manner affect the right at a later time to
enforce the same. The waiver by any party of any condition, or the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
. The respective representations and warranties of Purchaser and the Company
contained herein or in any certificates or other documents delivered prior to or
at the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto. Each and every representation and
warranty contained herein shall be deemed to be conditions to the Merger and
shall survive for a period of six months following the Merger. This Section
11.14 shall have no effect upon any other obligation of the parties hereto,
whether to be performed before or after the Closing.
11.15 Company Employees. After the Closing, the Purchaser shall use
reasonable efforts to offer employment to all of the Company's employees.
The parties hereto have duly executed this Agreement on the day and year
first above written.
ADVANCED TELECOMMUNICATIONS, INC. ONE CALL ACQUISITION CORP.
By: By:
Cliff D. Williams Cliff D. Williams
Chief Executive Officer Chief Executive Officer
ONE CALL TELECOM, INC.
By:
Joseph Rubin
President and Chief Executive Officer
EXHIBIT B
PLAN OF MERGER
This Plan of Merger (this "Plan of Merger"), dated as of July ___, 1998,
is by and between One Call Telecom, Inc., a Minnesota corporation (the
"Company"), and One Call Acquisition Corp., a Minnesota corporation
("Acquisition Sub").
<PAGE>
RECITALS:
A. The Company has authorized capital stock of _____ shares of common
stock, with __ par value (the "Common Stock"), of which shares are outstanding
as of the date hereof.
B. Acquisition Sub is a wholly-owned subsidiary of Advanced
Telecommunications, Inc., a Minnesota corporation ("Purchaser").
C. The Company, Acquisition Sub and Purchaser have entered into an
Agreement dated as of June __, 1998 (the "Merger Agreement") containing certain
warranties, representations, covenants, and agreements in connection with the
transactions contemplated therein and herein.
D. The Company, Acquisition Sub and Purchaser desire to have the Company
merge with and into Acquisition Sub pursuant to the terms and conditions set
forth in this Plan of Merger.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, the parties hereto agree that the Company and Acquisition Sub
shall be merged and that the terms and conditions of such merger and the mode of
carrying the same into effect shall be as follows:
1. Merger.
1.1 Merger. Pursuant to the applicable laws of Minnesota, the
Company shall merge with and into Acquisition Sub, and Acquisition Sub
shall be the surviving corporation after the merger and shall continue to
exist as a corporation created and governed by the laws of Minnesota.
1.2 Surviving Corporation. At the Effective Time of the Merger (as
hereinafter defined):
A. The separate existence of the Company shall cease
(Acquisition Sub and the Company are sometimes collectively referred
to herein as the "Constituent Corporations" and Acquisition Sub
after the Merger is sometimes referred to herein as the "Surviving
Corporation").
B. The By-Laws of Acquisition Sub in effect immediately prior
to the Effective Time of the Merger shall be the By-laws of the
Surviving Corporation until altered, amended or repealed in
accordance with the Articles of Incorporation of the Surviving
corporation and applicable law.
<PAGE>
C. The initial directors and officers of the surviving
corporation shall be as follows:
DIRECTORS OFFICE
Cliff D. Williams Chief Executive Officer and
Chairman of the Board
Michael Donahue Secretary and Treasurer
Michael Karangelen
D. The Merger shall, from and after the Effective Time of the
Merger, have all of the effects provided by applicable law.
1.3 Effectiveness of Merger.
A. If all of the conditions precedent to the obligations of
each of the Company and the Purchaser as set forth in the Merger
Agreement shall have been satisfied or, to the extent permitted,
waived, articles of merger executed by duly authorized officers of
each of the Company and Acquisition Sub, complying in all respects
with the Minnesota Business Corporation Act shall be filed with the
Secretary of State of Minnesota.
B. The "Effective Time of the Merger" shall be the time when
the Plan of Merger and all other necessary documents (including, but
not limited to, articles of merger) and certificates with respect
thereto are accepted for filing by the Secretary of State of
Minnesota.
1.4 Shares of Constituent Corporations. The manner and basis of
exchanging the capital stock of the Company for cash and the Stock of
Purchaser upon the Effective Time of the merger shall be as follows:
Each share of Series A Preferred Stock of the Company ("Series A") and Series B
Preferred Stock of the Company ("Series B") (collectively, Series A and Series B
are hereinafter referred to as the "Company Preferred Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive that number of validly issued, fully paid and nonassessable
shares of Purchaser Common Stock reflected in the Agreement (the "Merger
Consideration"), pro rata based upon the liquidation preference of each share of
Company Preferred Stock as set forth in the Company's Certificate of Designation
for Series A and Series B filed with the Minnesota Secretary of State on
December 20, 1996 and December 10, 1997, respectively (the "Liquidation
Preference"). The shares of common stock of the Company (the "Company Common
Stock") will receive no shares of Purchaser Common Stock since it is the
Company's belief that the Liquidation Preference exceeds the value of the Merger
Consideration. At the Effective Time, all shares of Company Capital Stock issued
<PAGE>
and outstanding shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to receive the
Merger Consideration. The holders of certificates previously evidencing shares
of Company Capital Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to shares of Company Capital Stock.
Certificates previously evidencing shares of Company Preferred Stock shall be
exchanged for certificates evidencing whole shares of Purchaser Common Stock
issued in consideration therefor in accordance with the procedures of this
Section. Certificates previously evidencing shares of Company Common Stock shall
be transferred to the Purchaser for no consideration. No fractional shares of
Purchaser Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made.
2. Termination.
2.1 Termination. This Plan of Merger may be terminated at any time
prior to the Effective Time of the Merger by the Company or Acquisition
Sub, by written notice to the other party hereto if either such party has
terminated the Merger Agreement in accordance with its terms.
2.2 Effects of Termination.
A. Subject to Sections 2.2.B, in the event of any termination
of this Plan of Merger pursuant to Section 2.1, this Plan of Merger
shall forthwith become void and have no further effect, and there
shall be no liability on the part of any party hereto.
B. Notwithstanding any other provision of this Plan of Merger
(including Section 2.2.A), no termination of this Plan of Merger
shall release any party from liability for any knowing and
intentional breach of its obligations hereunder.
3. Further Assurances. In case at any time after the Effective Time of the
Merger any further action is reasonably necessary or desirable to carry out the
purposes of this Plan of Merger or to vest Purchaser with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the Constituent Corporations, the Company and Acquisition Sub and their
respective officers and directors shall take all such reasonably necessary
action.
4. Amendment. At any time prior to the Effective Time of the Merger, this
Plan of Merger may be amended by the parties hereto by an agreement in writing
authorized by their respective Boards of Directors.
IN WITNESS WHEREOF, the parties have duly executed this Plan of Merger as
of the date first above written.
ONE CALL ACQUISITION CORP.
<PAGE>
By:
Cliff D. Williams
Chief Executive Officer
ONE CALL TELECOM, INC.
By:
Joseph Rubin
President
EXHIBIT C
STOCK OPTIONS
EXHIBIT D
ESCROW AGREEMENT
EXHIBIT E
OPINION OF COUNSEL OF PURCHASER
EXHIBIT F
OPINION OF COUNSEL OF COMPANY
SCHEDULE 6.2
Foreign Qualification
Purchaser is a Minnesota corporation and registered and in good standing
in the States of Washington, Oregon and Colorado. Through its wholly-owned
subsidiary corporations,
<PAGE>
American Telephone Technology, Inc. and ATI Acquisition, Inc. d/b/a Electrotel,
maintains fixed offices in the States of Colorado, Washington and Oregon.
SCHEDULE 6.5
Litigation
NONE
SCHEDULE 6.6
Capital Stock
1. Purchaser's authorized capital consists of the following:
Issued and
a. Preferred: Authorized Outstanding
----------- -----------
500,000 93,916
b. Common:
- Class A 250,000 11,205*
- Class B 250,000 6,783
*Purchaser has issued and there remain outstanding subordinated
promissory notes convertible into 69,954 shares of Class A common
stock.
2. Transfer of shares is restricted by the Stockholders Agreement dated July
1, 1996, as amended, among Purchaser and all of Purchaser's shareholders.
SCHEDULE 6.8
Undisclosed Balance Sheet Liabilities
<PAGE>
Line of credit of up to $5,000,000 under that certain Loan Agreement dated
as of June 17, 1998 among Purchaser, its wholly-owned subsidiaries, and Imperial
Bank.
<PAGE>
Exhibit 2.1.3
AGREEMENT AND PLAN
OF
MERGER
BY AND AMONG
ADVANCED TELECOMMUNICATIONS, INC.
CADY COMMUNICATIONS, INC.
AND
ONE CALL TELECOM, INC.
JUNE 22, 1998
TABLE OF CONTENTS
SectionPage
----
EXHIBITS AND SCHEDULES
Exhibits
EXHIBIT A Summary of Outstanding Capital Stock (One Call Telecom, Inc.)
EXHIBIT B Plan of Merger
EXHIBIT C Stock Options
EXHIBIT E Opinion of Counsel of Purchaser
EXHIBIT F Opinion of Counsel of Company
EXHIBIT F Opinion of Counsel of Company
EXHIBIT G Agreement to Facilitate Merger
EXHIBIT H Non-Competition Agreement
<PAGE>
Schedules
Schedule 1.4(a)
Schedule 1.4(b)
Schedule 1.7
Schedule 3.1(a)
Schedule 4.1
Schedule 4.11
Schedule 4.15
Schedule 5.2
Schedule 5.3
Schedule 5.4
Schedule 5.6
Schedule 5.7
Schedule 5.8
Schedule 5.9
Schedule 5.10
Schedule 5.11
Schedule 5.12
Schedule 5.13
Schedule 5.14
Schedule 5.15(a)
Schedule 5.15(b)
Schedule 5.16
Schedule 5.17
Schedule 5.18
Schedule 5.19
Schedule 5.21
Schedule 5.22
Schedule 5.23
Schedule 5.24
Schedule 5.25
Schedule 5.27
Schedule 5.28
Schedule 5.29
Schedule 5.30
Schedule 6.2
Schedule 6.5
Schedule 6.6
Schedule 6.7
Schedule 6.8
AGREEMENT AND
PLAN OF MERGER
<PAGE>
This Agreement is made as of June ___, 1998, by and among Advanced
Telecommunications, Inc., a Minnesota corporation ("Purchaser"), Cady
Communications, Inc., Minnesota corporation ("Acquisition Sub") and One Call
Telecom, Inc., a Minnesota corporation (the "Company"). -------
RECITALS
A. The issued and outstanding capital stock of the Company and the holders
thereof (individually a "Shareholder " and, collectively, the "Shareholders") as
of the date of this Agreement is reflected on Exhibit A attached hereto
("Company Capital Stock").
B. Acquisition Sub is a wholly-owned subsidiary of Purchaser.
C. Purchaser, Acquisition Sub, the Company and the Shareholders desire to
have the Company merge with and into Acquisition Sub pursuant to a transaction
in which the separate existence of the Company will cease and Acquisition Sub
shall continue as the surviving corporation. Each share of Company Capital Stock
will be exchanged for shares of Purchaser's Class A common stock and the parties
intend that the transaction qualify as a tax free reorganization under Section
368(a) of the Internal Revenue Code of 1986 (the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, Purchaser, Acquisition Sub, the Company
and the Shareholders hereby agree as follows:
. Upon the terms and subject to the conditions of this Agreement, at the
Effective Time in accordance with the Minnesota Business Corporation Act
("MBCA"), Acquisition Sub shall be merged with and into the Company in
accordance with this Agreement (the "Merger"). The Acquisition Sub shall be the
surviving corporation in the Merger as a wholly-owned subsidiary of Parent
(Acquisition Sub is hereinafter sometimes referred to as the "Surviving
Corporation"). The parties shall prepare, execute or file an appropriate
certificate of merger (the "Plan of Merger") substantially in the form of
Exhibit B attached hereto to comply with the requirements of the MBCA and the
separate existence of the Company shall thereupon cease.
. The Merger shall have the effects set forth in Section 302A.641 of the MBCA.
. The Merger shall become effective at the time of the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota in accordance with
the applicable provisions of the MBCA, or at such later time as may be specified
in the Articles of Merger. The Articles of Merger shall be filed as soon as
practicable after all of the conditions set forth in this Agreement have been
satisfied or waived by the party or parties entitled to the benefit of the same.
The time when the Merger shall become effective is herein referred to as the
"Effective Time".
<PAGE>
. On the terms and subject to the conditions set forth in this Agreement, the
aggregate Merger consideration to be paid to the Shareholders (the "Purchase
Price") shall be 12,963 shares of Class A Common Stock of Purchaser ("Purchaser
Common Stock") less (a) the Company's "working capital" deficit on June 30, 1998
and (b) further adjusted in accordance with Section 1.5 and Section 3.1(g). For
every $1,000 deficit in working capital, the Purchase Price shall be reduced by
3.7 shares of Purchaser Common Stock. For purposes of this Section, working
capital shall mean the Company's current assets less current liabilities
(inclusive of (i) retirement of Old Notes of $400,000 (as defined in Section
1.12) and (ii) assumption of capital leases identified on Schedule 5.7)
(calculated in accordance with generally accepted accounting principles
("GAAP")) plus accrued or paid expenses incurred pursuant to Section 11.1(a),
plus those items listed on Schedule 1.4(a) An example illustrating the
calculation of the adjustment to the Purchase Price is set forth on Schedule
1.4(b).
.
(a) Pre-Closing Adjustments. A pre-closing review (the "Review")
shall be undertaken by a least two persons, one selected by the Purchaser
and one selected by the Company, to determine any necessary pre-closing
adjustments to the Purchase Price arising out of, in connection with or in
any way resulting from the Company's obligations stated on its June 30,
1998 balance sheet, prepared in accordance with GAAP, with US West, Sprint
and AT&T (the "Matter"). Company agrees to cooperate fully with the
Purchaser in the Review, including providing the member(s) of the
Purchaser's staff with access to such documents related to the Matter so
that the Purchaser's staff can identify and determine any adjustments to
the Purchase Price. The written results of the Review shall be provided to
the Purchaser and the Company no later than thirty (30) business days
prior to the Closing Date. Company and Purchaser shall, within twenty (20)
business days prior to the Closing Date, notify the other in writing
whether it agrees or disagrees with the results of the Review.
If both parties agree with the results of the Review, the Purchase
Price shall be adjusted by 3.7 shares of Purchaser Common Stock for every
$1,000 difference between the amount of the Matter as represented by the
Company as of June 30, 1998, and the amount of the Matter as determined in
the Review.
For example, if the results of the Review conclude that the
amount of the Matter is $5,000 greater than what was
represented by the Company as of June 30, 1998, the Purchase
Price shall be reduced by 18.5 shares (5 x 3.7 shares). On the
other hand, if the results of the Review conclude that the
amount of the Matter is $5,000 less than what was represented
by the Company as of the date of this Agreement, the Purchase
Price shall be increased by 18.5 shares (5 x 3.7 shares).
If the Purchaser and the Company disagree with the results of the
Review, then the independent certified public accounting firm of McGladrey
& Pullen LLP ("McGladrey") shall determine the adjustment, if any, to the
Purchaser's balance sheet at
<PAGE>
June 30, 1998 required in accordance with the provisions of this
Agreement, and such determination shall be final and binding on the
Company and Purchaser.
For purposes of this paragraph, the "Differential" shall mean the
difference in dollar amount between the Purchaser's proposed adjustment
and the Company's June 30, 1998 stated amount. If the dollar amount of the
adjustment that is determined by McGladrey falls within 25% of the
Differential from the Purchaser's proposed adjustment, then the Purchaser
will be entitled to recover from the Company all reasonable costs in
connection with retaining the accounting firm. If the dollar amount of the
adjustment that is determined by McGladrey falls within 25% of the
Differential from the Company's June 30, 1998 stated amount, then the
Company will be entitled to recover from the Purchaser all reasonable
costs in connection with retaining McGladrey. Except as set forth above,
the costs of retaining McGladrey will be borne equally by the Company and
the Purchaser.
The Company and the Purchaser agree to initiate conversations with
US West, Sprint and AT&T and, on a good faith best efforts basis, attempt
to reduce the amount of Company's obligations to US West, Sprint and AT&T
with respect to the Matter as soon as practical, but no later than one
year from the date of this Agreement. To the extent that the Company
and/or the Purchaser obtain a reduction of the amount of the obligation of
US West, Sprint and AT&T from the amount set forth in the Company's June
30, 1998 balance sheet adjusted pursuant to this Section 1.5(a) plus any
amounts accrued from June 30, 1998 through Closing, whether such reduction
occurs before or after Closing, the Purchase Price shall be increased by
such reduction at the rate of 3.7 shares of Purchaser's Common Stock for
every $1,000 of reduction. The additional shares of Purchaser's Common
Stock shall be distributed to Shareholders as soon as practical after the
determination of such reduction.
(b) Post-Closing Adjustments.
(i) The Purchase Price shall be adjusted by the difference in
the working capital deficit between June 30, 1998 and the Closing.
The adjustment shall be 3.7 shares of Purchaser Common Stock for
every $1,000 in such working capital deficit and shall be deducted
from the Purchase Price at the Closing; provided however, the
Purchaser shall provide the Company with a credit of 370.4 shares of
Purchaser Common Stock as an offset against this adjustment.
Further, any adjustments made pursuant to Section 1.5(a) above will
be not used in the calculation of adjustments under this Section
1.5(b).
Within thirty (30) days following the month-end in which
the Closing occurs, the Company shall prepare and provide Purchaser
with the financial statements for such month-end and financial
statements as of the Closing Date, calculated through a pro rata
allocation based on the number of days in the month preceding and
including the Closing Date as related to the total number of days in
the month. If Purchaser disagrees with the financial statements in
the
<PAGE>
preceding sentence, Purchaser shall within ten (10) business days
notify the Company of such dispute.
If the Purchaser and the Company are unable to resolve
the dispute within ten (10) business days of the Purchaser's notice,
Purchaser shall place in escrow such number of shares of Purchaser
Common Stock equal to the amount of the dispute and promptly pay the
balance of the Purchase Price (less the Escrowed Consideration
defined in Section 1.11) to the Company.
(ii) In the event there are any claims by the Purchaser
relating to breaches of warranties by the Company contained in this
Agreement, the Purchaser shall notify the Company in writing within
six (6) months of the date of Closing of the amount of such claims.
If the Company does not dispute the amount or existence of such
claims, the Purchaser shall off-set the Escrowed Consideration by an
amount equal to 3.7 shares for every $1,000 worth of claims, and the
Purchaser shall recalculate Schedule 1.7 accordingly. At the end of
the escrow period specified in Section 1.11 below, the Purchaser
shall pay to each of the Shareholders the pro rata portion of the
Escrowed Consideration not subject to such off-set as reflected on
the recalculated Schedule 1.7.
If Company disagrees regarding the existence or the amounts of the
claims identified by the Purchaser under this Section 1.5(b), the Company
shall, within ten (10) business days of the date of such notice from the
Purchaser, notify the Purchaser of such dispute. The Company and the
Purchaser shall use their good faith efforts to resolve such dispute
within thirty (30) days following the date of the Company's notice.
. At the Effective Time, by virtue of the Merger and as set forth in this
Section, subject to the other provisions of this Article 1, each share of Series
A Preferred Stock of the Company ("Series A") and Series B Preferred Stock of
the Company ("Series B") (collectively, Series A and Series B are hereinafter
referred to as the "Company Preferred Stock") issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive that
number of validly issued, fully paid and nonassessable shares of Purchaser
Common Stock (the "Merger Consideration"), pro rata based upon the liquidation
preference of each share of Company Preferred Stock as set forth in the
Company's Certificate of Designation for Series A and Series B filed with the
Minnesota Secretary of State on December 20, 1996 and December 10, 1997,
respectively (the "Liquidation Preference"). The shares of common stock of the
Company (the "Company Common Stock") will receive no shares of Purchaser Common
Stock since it is the Company's belief that the Liquidation Preference exceeds
the value of the Merger Consideration.
At the Effective Time, all shares of Company Capital Stock issued and
outstanding shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent the right to receive the Merger
Consideration. The holders of certificates previously evidencing shares of
Company Capital Stock outstanding immediately prior to the Effective Time shall
cease to have
<PAGE>
any rights with respect to shares of Company Capital Stock. Certificates
previously evidencing shares of Company Preferred Stock shall be exchanged for
certificates evidencing whole shares of Purchaser Common Stock issued in
consideration therefor in accordance with the procedures of this Section.
Certificates previously evidencing shares of Company Common Stock shall be
transferred to the Purchaser for no consideration. No fractional shares of
Purchaser Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made.
At the Effective Time, each outstanding share of the Company Capital Stock
shall automatically be converted into a share of Common Stock of the Surviving
Corporation and such shares shall continue to be owned by Purchaser
. Following surrender at the Closing of a Shareholder's stock certificate
representing shares of Company Preferred Stock, there shall be paid to the
holder of such certificates promptly the Merger Consideration in the form of the
Purchaser Common Stock in the amounts reflected on Schedule 1.7 attached hereto,
less the escrowed shares pursuant to Section 1.11 and Section 5.31. Such amounts
may be adjusted in accordance with the dividend accruals of the Company between
the date of this Agreement and the Closing.
. All shares of Purchaser Common Stock issued and cash paid upon conversion of
the shares of Company Capital Stock in accordance with the terms hereof shall be
deemed to have been issued or paid in full satisfaction of all rights pertaining
to such shares of Company Capital Stock.
. No certificates or scrip evidencing fractional shares of Purchaser Common
Stock shall be issued upon the surrender for exchange of certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Purchaser. In lieu of any such fractional shares,
each holder of Company Capital Stock upon surrender of a certificate for
exchange, shall be paid an amount in cash (without interest), rounded to the
nearest cent.
. At the Effective Time, each issued and outstanding stock option, warrant,
right or other agreement to purchase or sell any capital stock of the Company
granted by the Company shall be cancelled by the holder and the Company. At the
Closing, the Purchaser shall grant options to purchase shares of Purchaser
Common Stock at an exercise price of $270 per share to certain employees as
indicated on Exhibit C. At the Effective Time, the holders of options granted by
the Company shall cease to have any rights with respect to shares of Company
Capital Stock and will only have rights with respect to Purchaser Common Stock
as set forth in this Section. The Company shall take such actions as are
necessary to ensure that from and after the date hereof the Company shall not
grant any rights to purchase any capital stock of the Company.
. Certificates representing 741 shares of Purchaser Common Stock (the "Escrowed
Consideration"), shall be held in reserve by Purchaser. The Purchaser shall hold
the Escrowed Consideration for six months following the Closing Date for
possible claims by Purchaser relating to breaches of warranties by the Company
and Shareholders contained in this Agreement. Any amounts held in reserve and
not subject to claim of Purchaser at the end of such escrow period will be paid
to the Shareholders in accordance with Schedule 1.7.
<PAGE>
. At the Closing, Purchaser shall assume the outstanding debt due and owing by
the Company to Artesian Capital Limited Partnership II ("Artesian") pursuant to
those certain Promissory Notes dated (i) October 15, 1997 in the principal
amount of Fifty Thousand Dollars ($50,000), (ii) November 14, 1997 in the
principal amount of One Hundred Thousand Dollars ($100,000), (iii) November 26,
1997 in the principal amount of Fifty Thousand Dollars ($50,000) and (iv) April
21, 1998 in the principal amount of Two Hundred Thousand Dollars ($200,000)
(collectively, the "Old Notes"). The Old Notes shall be surrendered by Artesian
for cancellation at the Closing and Purchaser will execute a promissory note
payable to Artesian in the amount of Four Hundred Thousand Dollars ($400,000)
which will accrue interest at the rate of ten percent (10%) per annum and be
payable on the earlier to occur of (i) December 31, 1999 or (ii) the closing of
any financing of $15 million or more by the Purchaser (the "New Note"). The
Company's (i) Series A 8% Convertible Subordinated Promissory Notes due June 30,
2001 and (ii) Series B 15% Convertible Subordinated Promissory Notes due June
30, 2001, shall have a liquidation preference over the New Note.
. Subject to the provisions of Articles 7 and 8 hereof, the closing (the
"Closing") of the Merger will take place at Purchaser's offices two days after
receipt of approval from the Minnesota Public Utilities Commission or at such
other place, at such other time, or on such other date as the Company and the
Purchaser may agree. The date on which the Closing takes place is referred to as
the "Closing Date."
. At the Closing:
(a) The executed Plan of Merger (together with the Articles of
Merger) satisfying the requirements of Minnesota law shall be filed by
Acquisition Sub and the Company with the Secretary of State of Minnesota.
(b) Purchaser will hold in escrow 741 shares of Purchaser Common
Stock in accordance with Section 1.11 of this Agreement.
(c) Purchaser and Acquisition Sub shall deliver to the Company and
the Shareholders the following:
(i) the certificates and other documents and instruments
referred to in Article 8 hereof;
(ii) a true and complete copy of the Articles of Incorporation
of each of Purchaser and Acquisition Sub, including all amendments
thereto, as certified to by an appropriate governmental official;
(iii) a copy of the resolutions adopted by the Board of
Directors of each of Purchaser and Acquisition Sub authorizing the
execution and delivery of this Agreement and the consummation of the
Merger and other transactions
<PAGE>
contemplated hereby, as certified to by the Secretary of Purchaser
and Acquisition Sub, respectively;
(iv) stock options to purchase shares of the Purchaser Common
Stock to those individuals set forth on Exhibit C ;
(v) the New Note for delivery to Artesian; and
(vi) an opinion of counsel for Purchaser and Acquisition Sub
in substantially the form of Exhibit E attached hereto.
(d) The Company shall, and cause the Shareholders to deliver to
Purchaser the following:
(i) the certificates and other documents and instruments
referred to in Article 7 hereof;
(ii) a true and complete copy of the Articles of Incorporation
of the Company, including all amendments thereto, as certified to by
an appropriate governmental official, and a true and complete copy
of the By-Laws of the Company, as certified to by the Secretary of
the Company;
(iii) a true and complete copy of each material contract,
agreement, commitment or plan described on any Schedule hereto;
(iv) a copy of the resolutions adopted by the Board of
Directors of the Company authorizing the execution and delivery of
this Agreement and the Plan of Merger by the Company and the
consummation of the Merger and other transactions contemplated
hereby, as certified to by the Secretary of the Company;
(v) a copy of the resolutions adopted by the Shareholder of
the Company approving this Agreement and the Plan of Merger by the
Company and the consummation of the Merger and other transactions
contemplated hereby, as certified to by the Secretary of the
Company;
(vi) the resignations of the directors and officers of the
Company, effective as of the Closing Date;
(vii) an opinion of counsel for the Company and Shareholders
in substantially the form of Exhibit F attached hereto;
(viii) Noncompete Agreement from Artesian;
<PAGE>
(ix) Exchange Agreement from the Shareholders in substantially
the form of Exhibit G attached hereto;
(x) Cancellation of all stock options, warrants and other
rights to acquire the Company Capital Stock; and
(xi) such other documents as Purchaser may request to convey
title to all of the Company's assets.
.
(a) The Company will deliver to Purchaser and Acquisition Sub, the
audited financial statements of the Company for the fiscal year ended
December 31, 1997 and the unaudited financial statements for the period
ended April 30, 1998 (collectively, the Financial Statements"). The
balance sheet of the Company as of December 31, 1997 is hereinafter
referred to as the Company's "Balance Sheet" and December 31, 1997 is
hereinafter referred to as the "Balance Sheet Date."
(b) The Company shall deliver to Purchaser the Company's balance
sheet, income statement, statement of cash flows, accounts receivable and
accounts payable (aging), schedule of disputed charges, and the detail on
accrued expense accounts at June 30, 1998, by July 31, 1998.
(c) The Company shall prepare and deliver to Purchaser all of the
Schedules to this Agreement by the date of this Agreement, and shall from
time to time prior to Closing promptly amend, supplement and update the
Schedules as necessary.
(d) Purchaser has heretofore delivered to the Company the audited
financial statements of the Purchaser for the fiscal year ended June 30,
1997 and the unaudited financial statements for the period ended April 30,
1998 (the "Purchaser Financial Statements").
(e) Purchaser shall prepare and deliver to the Company the Schedules
necessary to be completed by the Company by the date of this Agreement,
and shall from time-to-time prior to Closing promptly amend, supplement
and update the Schedules as necessary.
(f) Company shall deliver to Purchaser a fully executed Release and
Termination Agreement with Sprint Communications Company L.P. ("Sprint")
in a form reasonably acceptable to the Purchaser which, among other
things, waives the Company's minimum commitment surcharges owed to Sprint.
(g) Company shall deliver to Purchaser the US West Report relating
to the traffic study on the Centron common blocks for the five central
offices of the Company,
<PAGE>
the results of which shall reflect a rating no worse than an average P.02
grade of service in the busy hour of the week for each central office. To
the extent that this grade is not met for any central office, the
Purchaser shall pay the installation costs reasonably required to meet a
P.02 grade and these installation costs (together with monthly costs for
the remaining contract terms for the Company's high call volume customers
for each central office which fails to meet a P.02 grade) will be deducted
from the Purchase Price on the basis of 3.7 shares of Purchaser Common
Stock for every $1,000 expended to make the upgrades.
(h) Company shall deliver to Purchaser agreements by the
Shareholders to be bound by the Stockholders Agreement dated July 1, 1996
by and among the Purchaser and its shareholders, subject to such
modifications as would be reasonably acceptable to counsel to Purchaser
and the Company.
. The Company and Purchaser agree to use all commercially reasonable efforts to
(a) promptly file, or cause to be promptly filed, with any United States agency
or any state or local governmental body or agency, all such notices,
applications or other documents as may be necessary to consummate the
transactions contemplated hereby; and (b) thereafter diligently pursue all
consents or approvals from any such governmental agencies or bodies as may be
necessary to consummate the transactions contemplated hereby.
. From the date hereof until the Closing Date, except as set forth on Schedule
4.1 or as otherwise required by this Agreement, the Company shall, unless
Purchaser shall otherwise agree in writing:
(a) carry on the business of the Company in the ordinary course;
(b) continue to insure the Company and its properties substantially
in accordance with its past practices;
(c) use reasonable efforts to preserve the Company's business
organization intact, keep available the Company's present management and
employees, and preserve the Company's present relationships with its
suppliers and customers and others with which it has business
relationships;
(d) not solicit, initiate or intentionally encourage the submission
of offers or proposals from any Person (other than Purchaser and
Acquisition Sub) for the acquisition of the stock or any significant
portion of the assets or business of the Company;
(e) not issue, sell or otherwise dispose of any of its shares of
capital stock or grant any options, warrants or other rights to acquire
any of its shares of capital stock;
(f) not declare or pay any cash or non-cash dividends on its capital
stock or any other cash or non-cash distributions in respect of its
capital stock;
<PAGE>
(g) pay payroll when due in the ordinary course or in accordance
with past practices;
(h) not extend or shorten the time for payment of the Company's
accounts receivable other than in accordance with past practices or in the
ordinary course;
(i) not (i) issue any debt securities or (ii) incur any indebtedness
for money borrowed whether long or short term other than trade payables
incurred in the ordinary course;
(j) not incur or agree to incur any obligations or liabilities
except current liabilities accrued in the ordinary course of business,
none of which materially adversely affect the Company's business or
assets;
(k) not sell, lease or otherwise dispose or agree to sell, lease or
otherwise dispose of any of its assets except sales of inventory to end
user customers at standard industry prices and terms, in the ordinary
course of business;
(l) not make any change in the rate of compensation, commission,
bonus or other remuneration payable or paid or agreed to be paid to any of
its employees;
(m) not make any write down or write up of the value of any of its
inventory; and
(n) not make any change in the Company's coupon program or policy
with customers other than in the ordinary course.
. The Company shall deliver to Purchaser such financial information that is
available to the Company which Purchaser shall reasonably request, reflecting
the results of operations of the Company after April 30, 1998. The Purchaser
shall deliver to the Company such financial information that is available to the
Purchaser which the Company shall reasonably request reflecting the results of
operations of the Purchaser after April 30, 1998.
. The Company shall deliver to Purchaser the audit of the Company's books and
records for the year ended December 31, 1997 as conducted by Arthur Andersen
LLP, the Company's independent accountants, within thirty (30) days after the
date of this Agreement.
. From the date of this Agreement until the Effective Time, the Company will
give Purchaser and its respective officers, employees, counsel, advisors and
representatives reasonable access, during normal business hours, to the offices
and other facilities and to the books and records of the Company and will
furnish Purchaser to the extent available with such financial and operating data
and such other information with respect to the business and operations of the
Company as Purchaser may from time to time reasonably request.
<PAGE>
. Subject to the terms and conditions herein provided and to applicable legal
requirements, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, and to assist and cooperate with the other parties hereto in doing, as
promptly as practicable, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
. Purchaser and the Company shall promptly notify each other of (a) the
occurrence or non-occurrence of any fact or event which would be reasonably
likely (i) to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time or (ii) to cause any material covenant, condition
or agreement under this Agreement not to be complied with or satisfied in all
material respects and (b) any failure of the Company or Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder in any material respect; provided,
however, that no such notification shall affect the representations or
warranties of any party or the conditions to the obligations of any party
hereunder.
. The Company shall not directly or indirectly, encourage, solicit, participate
in or initiate discussions or negotiations with, or provide any information to,
any corporation, partnership, person or other entity or group (other than
Purchaser, any of its affiliates or representatives) concerning any proposal or
offer to acquire all or a substantial part of the business or properties of the
Company or any capital stock of the Company, whether by merger, tender offer,
exchange offer, sale of assets or similar transaction involving the Company.
. The Company shall not disclose to any other potential buyer that the Purchaser
is acquiring the Company or the price or terms thereof without the prior written
consent of the Purchaser.
. The Company shall promptly submit this Agreement and the transactions
contemplated hereby for the approval of the Shareholders as soon as practicable
and shall use its best efforts to obtain shareholder approval of this Agreement
and the transactions contemplated hereby.
. Purchaser and Acquisition Sub will use their best efforts to assist in the
termination of certain personal guarantees of Artesian and Frank B. Bennett
("Bennett") dated December 13, 1996, January 16, 1997 and October 14, 1997 and
in effect on the date of this Agreement. To the extent such personal guarantees
are not terminated, Purchaser and Acquisition Sub will indemnify Artesian and
Bennett to the extent of such guarantees.
. The Purchaser will pay accrued bonuses due and owing to those persons
identified on Schedule 4.11 in the amounts indicated thereon on the earlier to
occur of (i) December 15, 1998, or (ii) the closing of any financing of $15
million or more by the Company.
. The Company shall secure agreements from a majority of the holders of Common
Stock, Series A Preferred Stock and Series B Preferred Stock to vote the Company
Capital Stock in favor of the Merger by causing Artesian, and any of (i) RWJ
Company, (ii) J.M. Hixon Partners, or (iii)
<PAGE>
Minnesota Management Partners I Investment to execute and deliver to the
Purchaser Agreements to Facilitate Merger in the Form of Exhibit H attached
hereto.
. Purchaser and the Company shall hold in confidence all information as required
and in accordance with the Non-disclosure Agreement dated May 7, 1998 between
Purchaser and the Company.
. The Purchaser and the Company will use their good faith efforts to effect the
tax treatment set forth in Recital 1C above.
. The Company shall have made the adjustments identified on Schedule 4.15 to its
financial statements.
The Company and the Shareholders jointly and severally warrant and
represent to and covenant with Purchaser as follows:
. The Company is a corporation, duly incorporated, validly existing and in good
standing under the laws of Minnesota. The Company has the corporate power and
holds all rights, privileges, franchises, immunities, licenses, permits,
authorizations and approvals (governmental or otherwise) necessary to own and
operate its properties and to conduct its business as presently conducted, the
failure of which to hold would have a material adverse effect on the financial
condition or operations of the Company.
. The Company is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the nature or location of the
Company's business or properties requires such qualification, except such
jurisdictions in which the failure so to qualify is not likely to have a
material adverse effect on the financial condition or operations of the Company.
Schedule 5.2 sets forth all jurisdictions in which the Company is qualified to
do business as a foreign corporation.
. Except as set forth on Schedule 5.3, the Company does not own, and on the
Closing Date will not own, any securities or any other direct or indirect
interest in any person or entity.
.
(a) The total number of shares of capital stock and the par value
thereof which the Company is authorized to issue, the number of such
shares which are issued and outstanding, and the number of treasury shares
are set forth on Schedule 5.4. All of the issued and outstanding shares of
the Company's Common Stock are now, and will on the Closing Date, be owned
by the Shareholders and will be transferred to the Purchaser free and
clear of all mortgages, pledges, liens, security interests, restrictions,
adverse claims or charges or third party rights of any kind.
<PAGE>
(b) Except as set forth on Schedule 5.4, there are no outstanding
options, conversion rights, warrants or other rights in existence to
acquire from the Company any of its shares of capital stock.
(c) The issued and outstanding shares of capital stock of the
Company as of the date hereof and as of the Closing Date have been and
will be duly and validly issued and are fully paid and nonassessable and
have not been issued in violation of, and are not subject to, any
preemptive rights, and, except as set forth on Schedule 5.4, there are no
voting trust agreements or other contracts, agreements or arrangements to
which either the Company or, to the Company's best knowledge, the
Shareholders is a party restricting voting or dividend rights or
transferability with respect to the outstanding shares of capital stock of
the Company.
. The Company has all right, power and authority required for it to enter into,
and, subject to the requisite approval of the Shareholders, to perform its
obligations under this Agreement and the Plan of Merger. Subject to Shareholder
approval, the Company has taken all corporate actions on its part necessary or
appropriate to execute, deliver and perform this Agreement and the Plan of
Merger and to consummate the Merger. This Agreement has been duly authorized,
executed and delivered by the Company and is binding upon and enforceable
against the Company in accordance with its terms and conditions; and, when
executed and delivered by the Company, the Plan of Merger will be duly
authorized, executed and delivered by the Company and will be binding upon, and
enforceable against, the Company in accordance with its terms and conditions.
. Except as set forth on Schedule 5.6, neither the execution or delivery by the
Company of this Agreement or the Plan of Merger, nor the performance by the
Company of its obligations hereunder or thereunder, does or will, after the
giving of notice, or the lapse of time, or otherwise:
(a) conflict with, result in a breach of, or constitute a default
under, (i) the Articles of Incorporation or By-Laws of the Company or (ii)
any federal, state or local law, statute, code, ordinance, rule or
regulation applicable to it, (iii) any federal, state or local court or
administrative order or process to which the Company is a party or is
bound, or (iv) any material contract, agreement, arrangement, commitment,
or plan to which the Company is a party, or under which the Company may be
obligated, or by which the Company or any of its material rights,
properties or assets may be subject or bound;
(b) result in the creation of any mortgage, pledge, lien, claim,
charge, encumbrance or assessment upon any of the material rights,
properties or assets of the Company; or
(c) terminate, amend or modify, or give any party the right to
terminate, amend, modify, abandon or refuse to perform or comply with, any
material contract, agreement, arrangement, commitment or plan to which the
Company is a party, or under
<PAGE>
which the Company may be obligated, or by which the Company or any of the
rights, properties or assets of the Company may be subject or bound.
. Except as set forth on Schedule 5.7, on the Balance Sheet Date, the Company
had, and on the date hereof has, and on the Closing Date will have, good and
marketable title to all the properties and assets reflected on the Balance
Sheet, subject to no mortgages, pledges, security interests, liens, encumbrances
or other charges of any kind, except (a) as to personal property sold or
otherwise disposed of after the Balance Sheet Date in the ordinary course of
business; (b) mechanics', carriers', workmens', repairmens' or other like liens
arising or incurred in the ordinary course of business; (c) liens for taxes,
assessments and other governmental charges which are not yet due and payable;
(d) other imperfections of title or encumbrances which do not materially impair
the use and operations of the Company's assets or properties to which they
relate in the operation of the Company's business as presently conducted, and
(e) the security interest of Artesian (which will be terminated on or before the
Closing Date).
. Schedule 5.8 contains a true and complete list and brief description of all
real property owned or leased by the Company, either as lessor or lessee.
. Except as set forth on Schedule 5.9 there are no actions, suits or proceedings
pending, threatened in writing against the Company, at law or in equity, before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Company would have a material adverse effect on the
financial condition or operations of the Company. Except as set forth on
Schedule 5.9 and Schedule 5.27, the Company is not operating under, or subject
to, any governmental order, writ, injunction or decree.
. The Company is not conducting its business or affairs in violation of any
applicable federal, state or local law, statute, ordinance, rule, permit or
regulation except (a) as set forth on Schedule 5.10 or (b) for violations which
individually or in the aggregate would not have a material adverse effect on the
financial condition or operations of the Company.
. Except as set forth on Schedule 5.11, there is no labor dispute, grievance,
strike or request for union representation affecting any of the Company's
employees generally pending, or threatened against the Company. The Company is
not a party to any collective bargaining agreement and no such contract is
currently being negotiated with the Company. No representation question exists
or has been raised respecting the employees of the Company, nor are there any
campaigns being conducted to solicit cards from the employees of the Company to
authorize representation by any labor organization.
. The Financial Statements attached hereto as Schedule 5.12 were prepared from
the Company's books and records in accordance with generally accepted accounting
principles, subject, in the case of the interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the audited
financial statements of the Company for the fiscal year ended December 31, 1997
consistently applied,
<PAGE>
and present fairly in all material respects the financial position, results of
operations and changes in cash flows of the Company at the dates and for the
periods indicated therein. The accounts receivable reflected in the Financial
Statements were generated in the ordinary course and are collectible, subject to
the reserves in the Financial Statements for doubtful accounts.
. Except as set forth on Schedule 5.13,
(a) on the Balance Sheet Date, to the best of its knowledge, the
Company did not have any material liability of a nature required to be
reflected on a balance sheet prepared in accordance with generally
accepted accounting principles, which was not disclosed, reflected or
reserved against in the Company's Balance Sheet; and
(b) except for liabilities which have been incurred in the ordinary
course of business, since the Company's Balance Sheet Date, to the best of
its knowledge, the Company has not incurred any material liability of any
nature which would be required to be reflected on a balance sheet prepared
in accordance with generally accepted accounting principles.
. Since the Balance Sheet Date, the Company has conducted its business in the
ordinary course, and, except as contemplated by this Agreement or as set forth
on Schedule 5.14, there has not been any:
(a) material adverse change in the financial condition or business
of the Company other than changes relating to general economic conditions
or developments affecting the Company's industry generally;
(b) sale, assignment, transfer, mortgage, pledge or lease of any
material amount of assets of the Company, except in the ordinary course of
business;
(c) declaration, payment or distribution in respect of, or purchase
or redemption of, any shares of the Company's capital stock;
(d) capital expenditures by the Company in excess of $5,000 for any
single item or $20,000 in the aggregate;
(e) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(f) loan by the Company to any Person or guaranty by the Company of
any loan, other than routine advances to employees in the ordinary course
of business;
(g) amendment of the Articles of Incorporation or By-Laws of the
Company; or
(h) agreement by the Company to do any of the foregoing.
<PAGE>
.
(a) All contracts and agreements which are material to the financial
condition or operations of the Company (collectively, "Contracts") are
described on Schedule 5.15, except for the following contracts and
agreements which are not required to be set forth on Schedule 5.15: (i)
normal purchase and sale commitments heretofore or hereafter entered into
in the ordinary course of business; (ii) any Contract that involves an
aggregate commitment by the Company of less than $10,000 per year; and
(iii) any Contract which is terminable by the Company by notice of not
more than 30 days for a cost of less than $10,000.
(b) Except as set forth on Schedule 5.15, each Contract listed on
Schedule 5.15 is in full force and effect. Except as set forth on Schedule
5.15, the Company has performed in all material respects all obligations
required to be performed by it to date under the Contracts and it is not
(with or without the lapse of time or the giving of notice, or both) in
breach or default thereunder.
.
(a) Schedule 5.16 sets forth all patents, trademarks, trade names,
service marks and copyrights (whether or not such trademarks, trade names,
service marks and copyrights are registered), and all pending applications
therefor, owned by the Company, or in which the Company has any interest,
which are material to the business of the Company.
(b) Except as set forth on Schedule 5.16, there is not any claimed
or actual infringement or misappropriation by the Company of any valid
patent, trademark, trade name, service mark or copyright which relates to
the business of the Company and which is owned by any third party, and
which will have a material adverse effect on the financial condition or
operations of the Company.
(c) There is no pending or threatened claim asserted in writing by
the Company against others for infringement or misappropriation of any
patent, trademark, trade name, service mark or copyright owned by the
Company.
(d) All applications to register patents, trademarks, trade names,
service marks or copyrights which have been filed by or on behalf of the
Company, and any resulting registrations are owned by the Company, free
and clear of any security interest, lien, encumbrance or any interest of
any nature of any third party.
. The Company has timely filed without extensions or will file all foreign,
federal, state and local tax returns and estimates for all years and periods
(and portions thereof) through the Closing Date for which any such returns,
reports or estimates were due or will be due and any and all amounts shown on
such returns and reports to be due and payable through the Closing
<PAGE>
Date have been or will be paid in full, and since the Balance Sheet Date, the
Company has not incurred any liability with respect to any taxes based on
income, gross revenues, gross receipts, purchases, sales, business, capital
stock or surplus, properties or assets of the Company except in the ordinary
course of business. The federal income tax returns of the Company have never
been examined by the Internal Revenue Service. Except as set forth on Schedule
5.17, there are no pending audits, investigations or examinations, by any
federal, state, local or foreign taxing authority of any payment, return or
report made or filed by the Company nor has there been any claim made against
the Company alleging a failure to pay or report any kind of tax which may be
assessed by any such taxing authority against the Company. Schedule 5.17 sets
forth the states in which the Company has made sales during the past three
years.
.
(a) For the purposes of this Section 5.18, the term "Employee Plan"
includes all pension, retirement, disability, medical, dental or other
health insurance plans, life insurance or other death benefit plans,
profit sharing, deferred compensation, stock option, bonus or other
incentive plans, vacation benefit plans, severance plans, or other
employee benefit plans or arrangements, including, without limitation, any
pension plan as defined in Section 3(2) of The Employee Retirement Income
Security Act of 1974 ("ERISA") and any welfare plan as defined in Section
3(1) of ERISA, whether or not funded, to which the Company is a party.
(b) There are no Employee Plans other than those set forth on
Schedule 5.18.
(c) Prior to the date hereof, the Company has delivered to Purchaser
a copy of each Employee Plan set forth on Schedule 5.18 .
(d) The Company does not maintain any "pension plans" as defined in
Section 3 (2) of ERISA other than those set forth on Schedule 5.18.
(e) Each Employee Plan, if any, and to the Company's best knowledge,
the administrators and fiduciaries of each Employee Plan and the Company
have complied, in all material respects, with all applicable requirements
of ERISA and of any other applicable law (including regulations and
rulings thereunder) governing each Employee Plan.
(f) The Company has no obligation. to contribute to a
"Multi-Employer Plan," as defined in Section 3(37) of ERISA.
(g) To the Company's best knowledge, no "reportable event" (as
defined in ERISA) has occurred with respect to any Employee Plan.
. The Company has in full force and effect all policies of insurance set forth
on Schedule 5.19; the Company will have in full force and effect on the Closing
Date such policies of insurance or policies of insurance of substantially the
same character and coverage as those set forth on
<PAGE>
Schedule 5.19; and the Company will notify Purchaser in writing of any changes
in such insurance coverage occurring prior to the Closing which would have a
material adverse effect on the financial condition or operations of the Company.
. Each of the Shareholders receiving shares of Purchaser's Common Stock in the
Merger shall agree not to dispose of any shares in a manner that would cause the
Merger to violate the continuity of Shareholder interest requirements set forth
in Treasury Regulation ss. 1.368-1. Each of the Shareholders receiving shares of
Purchaser's Common Stock in the Merger shall represent that such shares are
being purchased for his own account and for investment and without the intention
of reselling or redistributing the same; each such Shareholder shall further
acknowledge that the shares to be received in the Merger have not been
registered under the Securities Act of 1933 or relevant state securities laws
and are, therefore, restricted.
. Except as set forth in Schedule 5.21, all of the tangible personal property of
the Company is (i) in good operating condition and repair, ordinary wear and
tear excepted and (ii) maintained in accordance with sound maintenance
practices. The Company's assets are sufficient for the operation of its business
in the ordinary course and are suitable for the purpose for which they are being
used. The amount of the Company's inventory and supplies currently on hand (i)
is sufficient for the operation of the Company's business in the ordinary course
based on current levels of operation adjusted for any increased level of
operations anticipated by the Company; (ii) has been purchased in the ordinary
course of business; (iii) is consistent in quality and quantity with past
practices of the Company; and (iv) is not obsolete and is of a quality and
quantity usable and salable in the ordinary course of business within twelve
(12) months subsequent to the Closing. All property leased by the Company is in
the condition required of such property by the terms of the lease applicable
thereto during the term of the lease and upon the expiration thereof. Except as
set forth in Schedule 5.21, none of the Shareholders has any direct or indirect
interest in any right, property or asset used or required by the Company in the
conduct of its business.
. Except as disclosed in Schedule 5.22, since June 3, 1996, no stockholder,
director, officer or employee of the Company, nor any ancestor, sibling,
descendent or spouse (an "Affiliate") of any such person, or any trust,
partnership or corporation in which any of such persons or their Affiliates have
a material interest, has had: (i) except for passive investments, any interest
in any entity which has purchased, sold or furnished to the Company any goods or
services; (ii) a beneficial interest in any lease, contract, commitment or
understanding to which the Company is a party or by which it is bound or
affected; (iii) except for salary and bonuses in the ordinary course of business
consistent with past practices, any interest or claim against the Company or any
assets of the Company; or (iv) any interest in any assets used in the business
of the Company.
. Except as disclosed in Schedule 5.23, no claim for product liability has ever
been asserted against the Company and, to the Company's best knowledge, no event
has occurred which might give rise to the assertion of any such claim. To the
Company's best knowledge, there is no deficiency or inadequacy in the
manufacture, design or formulation of any of the Company's products which may
hereafter give rise to any such failure or result in any such claim.
<PAGE>
. To the Company's best knowledge, all products sold and services provided by
the Company (and the delivery thereof) have been in conformity with all
applicable contractual commitments and all express or implied warranties by the
Company and its suppliers. To the Company's best knowledge, no liability for any
warranty claims exist for the repair or replacement thereof or other damages in
connection with such services, sales or deliveries, except for any such claims
incurred in the ordinary course of business consistent in amount and character
with past experience of the Company. Copies of the standard terms and conditions
of sale, delivery or lease of the Company (including, without limitation, all
warranty provisions) are attached hereto as Schedule 5.24.
. Attached Schedule 5.25 lists:
(a) all employee handbooks and/or manuals relating to the employees
of the Company, true and correct copies of which have been delivered to
Purchaser; and
(b) all employees of the Company, together with their job
descriptions, rates of salary or wages, vacation benefits, and each bonus,
deferred compensation, stock option, incentive compensation, severance or
termination pay agreement or employment benefit applicable to each such
employee, whether formal or informal and whether legally binding or not.
.
(a) Neither the Company, or to the knowledge of the Company any
other user or owner of the Company's owned or leased real property (the
"Real Estate") has violated or been threatened with or received a notice,
directive, violation report or charge asserting any violation of the
Federal Solid Waste Disposal Act, the Federal Clean Air Act, the Federal
Clean Water Act, the Federal Resource Conservation Recovery Act of 1976
("RCRA"), the Federal Comprehensive Environmental Responsibility, Cleanup
and Liability Act of 1980 ("CERCLA"), the Toxic Substance Control Act of
1976, or any other Laws regulating or otherwise affecting or relating to
the environment ("Environmental Laws"), as the same may have been amended.
No action has been taken against the Company or, to the knowledge of the
Company, the Real Estate or any other user or owner of the Real Estate by
any federal, state or local department or agency concerning any
Environmental Laws. The Company is, and to the knowledge of the Company at
all times in the past has been, in compliance with all Environmental Laws.
To the knowledge of the Company, no asbestos, urea formaldehyde or
polychlorinated biphenyls or any other hazardous substances are present
in, on or under any of the Real Estate. No assets of the Company are
required to be upgraded, modified or replaced to be in compliance with
Environmental Laws.
(b) Neither the Company, nor to the knowledge of the Company, any
user or owner of the Real Estate has generated, stored, used, disposed of,
spilled, discharged or released any substance in any manner on the Real
Estate and the improvements thereon
<PAGE>
or on property adjacent to the Real Estate or performed an environmental
cleanup on the Real Estate or adjacent property which may form the basis
for any present or future claim against the Company based upon
Environmental Laws, or any demand or action seeking cleanup of any site,
location or body of water, surface or subsurface, under any Environmental
Laws, or otherwise, or which may subject the Company and/or Purchaser to
claims for damages.
(c) To the knowledge of the Company, no septic systems or wells
exist on, in or under any of the Real Estate. To the knowledge of the
Company, the Real Estate has never been used as a landfill, dump site or
any other use which involves the disposal of solid waste on the Real
Estate in a manner which may subject the Company to any claim for cleanup
or damages under Environmental Laws. To the knowledge of the Company, no
hazardous or toxic substances or waste, as defined under Environmental
Laws, are located at, on or under any of the Real Estate, or have been
used, generated, treated, stored, disposed of, handled or removed from any
of the Real Estate.
(d) To the knowledge of the Company, no above ground or underground
storage tanks have ever been located at, on or under any of the Real
Estate. To the knowledge of the Company, at no time prior to or during the
Company's use of the Real Estate have hazardous or toxic substances or
wastes, as defined under Environmental Laws, been spilled, discharged,
leaked, discarded, released or otherwise deposited on any of the Real
Estate. To the knowledge of Company, none of the Real Estate is
contaminated by hazardous or toxic substances or wastes, as defined under
Environmental Laws, originating from off-site sources.
(e) No environmental claims have been asserted or are threatened or
are anticipated to be asserted against the Company with respect to the
Real Estate, any of its assets and/or the operation of its business.
(f) For purposes of this Section 5.26, "knowledge of the Company"
shall mean actual knowledge without a duty to inquire.
. The Company is in compliance with and has all permits, registrations and
authorizations required by all applicable Laws in the operation of the Company's
business except where noncompliance would not have a material adverse effect on
the financial condition or operations of the Company. Attached hereto as
Schedule 5.27 is a true and complete list of all licenses, permits,
registrations and authorities issued or granted to the Company by local, state
or federal government authorities or agencies. The Company is not in breach or
violation of any applicable Law relating thereto and all such licenses,
registrations, permits and authorizations are current and effective except where
a breach or violation or the absence of such licenses, registrations, permits or
authorizations would not have a material adverse effect on the financial
condition or operations of the Company.
. Schedule 5.28 attached hereto sets forth, based upon the May 10, 1998 list of
the Company's monthly invoices, a list of the fifteen (15) largest customers of
the Company determined by
<PAGE>
dollar amount of goods and services purchased from the Company. Except as set
forth on Schedule 5.28, the Company and the Shareholders have received no notice
or indication, and have no reason to believe, that any customer, supplier or
third party to material contracts of the Company intends to cease doing business
or reduce in any material respect the business transacted with the Company or to
terminate or modify any agreements with the Company (whether as a result of
consummation of the transactions contemplated hereby or otherwise).
. Attached hereto as Schedule 5.29 is a true and complete list of the bank and
savings accounts, certificates of deposit and safe deposit boxes of the Company
and those persons authorized to sign thereon.
Schedule 5.30 sets forth the Company's customer coupon program. The Company's
customer coupon program has not been altered since the Company's inception.
There are no claims for brokerage commissions, finders fees or similar
compensation in connection with the transactions contemplated by this Agreement
based on any arrangement or agreement made by or on behalf of the Company. The
Company acknowledges that the Purchaser shall separately escrow 463 shares of
Purchaser Common Stock in connection with a potential breach of this
representation (in addition to the Escrowed Consideration). The foregoing escrow
shall terminate six months after the Closing.
. No warranty or representation by the Company contained in this Agreement or in
any writing to be furnished pursuant hereto contains or will contain any untrue
statement of fact or omits or will omit to state any material fact required to
make the warranties or representations herein or therein contained not
misleading. The Company has disclosed to Purchaser all material adverse facts
known to the Company relating to the Company, its assets or business.
Purchaser and Acquisition Sub warrant and represent to and covenant with
the Company and the Shareholders as follows:
. Purchaser and Acquisition Sub are corporations duly incorporated, validly
existing and in good standing under the laws of Minnesota. Each of Purchaser and
Acquisition Sub has the corporate power and holds all rights, privileges,
franchises, immunities, licenses, permits, authorizations and approvals
(governmental or otherwise) necessary to own and operate its properties and to
conduct its business as presently conducted, the failure of which to hold would
have a material adverse effect on the financial condition or operations of
either Purchaser or Acquisition Sub.
. The Purchaser is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the nature or location of the
Purchaser's business or properties requires such qualification, except such
jurisdictions in which the failure so to qualify is not likely to have a
material adverse effect on the financial condition or operations of the
Purchaser. Schedule 6.2 sets forth all jurisdictions in which the Purchaser is
qualified to do business as a foreign corporation.
<PAGE>
. Each of Purchaser and Acquisition Sub has all right, power and authority
required for it to enter into and perform its obligations under this Agreement
and, in the case of Acquisition Sub, the Plan of Merger. Each of Purchaser and
Acquisition Sub has taken all corporate actions on its part necessary or
appropriate to execute, deliver and perform this Agreement and, in the case of
Acquisition Sub, to consummate the Merger, and this Agreement has been duly
authorized, executed and delivered by each of Purchaser and Acquisition Sub and
is binding upon, and enforceable against each in accordance with its terms and
conditions; and, when executed and delivered by Acquisition Sub, the Plan of
Merger will be duly authorized, executed and delivered by Acquisition Sub and
will be binding upon, and enforceable against, Acquisition Sub in accordance
with its terms and conditions.
. Neither the execution and delivery of this Agreement by Purchaser or
Acquisition Sub, nor the execution or delivery of the Plan of Merger by
Acquisition Sub, nor the performance of their respective obligations hereunder
or under the Plan of Merger, does or will, after the giving of notice, or the
lapse of time, or otherwise:
(a) conflict with or constitute a default under the Articles of
Incorporation or By-Laws of Purchaser or Acquisition Sub: (a) conflict
with, result in a breach of, or constitute a default under, the Articles
of Incorporation or By-Laws of the Company, or (i) any federal, state or
local law, statute, code, ordinance, rule or regulation applicable to it,
(ii) any federal, state or local court or administrative order or process
to which the Company is a party or is bound, or (iii) any material
contract, agreement, note, debt instrument, security agreement, mortgage,
arrangement, commitment or plan to which Purchaser or Acquisition Sub is a
party, or under which Purchaser or Acquisition Sub may be obligated, or by
which Purchaser or Acquisition Sub or any of its material rights,
properties or assets may be subject or bound; or
(b) result in the creation of any mortgage, pledge, lien, claim,
charge, encumbrance or assessment upon any of the material rights,
properties or assets of the Purchaser.
. There are no actions, suits or proceedings pending, or to the knowledge of
Purchaser, threatened in writing against Purchaser or Acquisition Sub, at law or
in equity, before any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which if determined adversely to Purchaser, would have a material
adverse effect on the financial condition or operations of the Purchaser. Except
as set forth on Schedule 6.5, the Purchaser is not operating under or subject
to, any governmental order, writ, injunction or decree.
. The total number of shares of capital stock and the par value thereof which
the Purchaser is authorized to issue, the number of such shares which are issued
and outstanding, and the number of treasury shares are set forth on Schedule
6.6. Except for stock options, warrants or other rights to acquire 20,889 shares
of Purchaser Common Stock, there are no other outstanding options, conversion
rights, warrants or other rights to acquire from the Purchaser any shares of
Purchaser Common Stock. The shares of Purchaser Common Stock to be issued to the
<PAGE>
Shareholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. Except as set forth on Schedule 6.6, there are no voting trust
agreements or other contracts, agreements or arrangements to which either the
Purchaser or, to the best of its knowledge, its shareholders is a party
restricting voting or dividend rights or transferability with respect to the
outstanding shares of capital stock of the Purchaser.
. The Purchaser Financial Statements attached hereto as Schedule 6.7 were
prepared from the Purchaser's books and records in accordance with generally
accepted accounting principles, subject, in the case of the interim financial
statements, to normal recurring year-end adjustments (the effect of which will
not, individually or in the aggregate, be materially adverse) and the absence of
notes (that, if presented, would not differ materially from those included in
the audited financial statements of the Purchaser for the fiscal year ended June
30, 1997 consistently applied, and present fairly in all material respects the
financial position, results of operations and changes in cash flows of the
Purchaser at the dates and for the periods indicated therein.
. Except as set forth on Schedule 6.8,
(a) on April 30, 1998, to the best of its knowledge, Purchaser did
not have any material liability of a nature required to be reflected on a
balance sheet prepared in accordance with generally accepted accounting
principles, which was not disclosed, reflected or reserved against in the
Purchaser's balance sheet; and
(b) except for liabilities which have been incurred in the ordinary
course of business, since April 30, 1998, to the best of its knowledge,
the Purchaser has not incurred any material liability of any nature which
would be required to be reflected on a balance sheet prepared in
accordance with generally accepted accounting principles.
. No warranty or representation by the Purchaser contained in this Agreement or
in any writing to be furnished pursuant hereto contains or will contain any
untrue statement of fact or omits or will omit to state any material fact
required to make the warranties or representations herein or therein contained
not misleading. The Purchaser has disclosed to Company all material adverse
facts known to the Purchaser relating to the Purchaser, its assets or business.
The obligations of Purchaser and Acquisition Sub under this Agreement are
subject to the following conditions precedent:
. Neither Purchaser nor the Company shall have terminated this Agreement
pursuant to Section 9.1 hereof.
. The warranties and representations made by the Company herein and by the
Shareholders in the Exchange Agreements to Purchaser and Acquisition Sub shall
be true and correct in all material respects on and as of the Closing Date with
the same effect as if such warranties and representations had been made on and
as of the Closing Date, and the Company and the
<PAGE>
Shareholders shall have performed and complied in all material respects with all
agreements, covenants and conditions on their respective parts required to be
performed or complied with on or prior to the Closing Date; and at the Closing,
Purchaser and Acquisition Sub shall have received a certificate executed by the
Company and the Shareholders to the foregoing effect.
. No court or other governmental agency shall have issued an order which shall
be in effect on the Closing Date restraining or prohibiting the consummation of
the transactions contemplated hereby.
. All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in all material respects and in form and
substance to Purchaser and its counsel, and Purchaser shall have received copies
of such documents as Purchaser and its counsel may reasonably request in
connection with said transactions.
. The approval or consent of all United States agencies and all state and local
governmental bodies and agencies as may be necessary to consummate the
transactions contemplated hereunder shall have been received.
. All amendments or supplements to the Schedules hereto made by the Company
which are individually or in the aggregate material to the business, operations
or financial condition of the Company shall be acceptable to Purchaser and
Acquisition Sub.
. The directors and officers of the Company shall have resigned their positions
as such as of the Closing Date.
. In accordance with the Company's Articles of Incorporation and Bylaws and
Minnesota corporate law, the Company shall have duly approved the transactions
contemplated by this Agreement. The Company shall not have received notice of
dissenter's rights from more than (i) 3% of the holders of Common Stock, (ii) 5%
of the holders of Series A Preferred Stock and (iii) 2% of the holders of Series
B Preferred Stock.
. All Shareholders of the Company shall have executed Exchange Agreements for
the benefit of Purchaser representing, among other things, good title to the
Company Capital Stock owned by such Shareholder and acknowledging the securities
law restrictions applicable to the Purchaser Common Stock that they will
receive.
. Artesian shall have executed and delivered a Noncompete Agreement in the form
of Exhibit H attached hereto.
Except for the condition set forth in Section 7.5 hereof, Purchaser and
Acquisition Sub shall have the right to waive any of the foregoing conditions
precedent.
<PAGE>
The obligations of the Company and the Shareholders under this Agreement
are subject to the foregoing conditions precedent:
. Neither Purchaser nor the Company shall have terminated this Agreement
pursuant to Section 9.1 hereof.
. All warranties and representations made by Purchaser and Acquisition Sub
herein to the Company shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if such warranties and
representations had been made on and as of the Closing Date, and Purchaser and
Acquisition Sub shall have performed and complied in all material respects
(except for the payment obligations which shall be absolute) with all
agreements, covenants and conditions on their part required to be performed or
complied with on or prior to the Closing Date; and at the Closing, the Company
shall have received a certificate executed by the President or any Vice
President of each of Purchaser and Acquisition Sub to the foregoing effect.
. No court or other governmental Person shall have issued an order which shall
be in effect on the Closing Date restraining or prohibiting the consummation of
the transactions contemplated hereby.
. All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Agreement (including the approval of this
Agreement by the Board of Directors of Purchaser and Acquisition Sub) and all
documents incident thereto shall be reasonably satisfactory in all material
respects and in form and substance to the Company, the Shareholders and their
respective counsel, and the Company, the Shareholders and such counsel shall
have received copies of such documents as they and counsel may reasonably
request in connection with the transactions.
. The approval or consent of all United States agencies and all state and local
governmental bodies and agencies as may be necessary to consummate the
transactions contemplated hereunder shall have been received.
. The Shareholders of Acquisition Sub shall have duly approved the transactions
contemplated by this Agreement.
Except for the condition set forth in Sections 8.5 hereof, the Company and
the Shareholders shall have the right to waive any of the foregoing conditions
precedent.
. This Agreement may be terminated at any time prior to the Closing as follows,
and in no other manner:
(a) By mutual agreement of Purchaser and the Company (and the
Shareholders);
<PAGE>
(b) By Purchaser or the Company (and the Shareholders), if at or
before the Closing any condition set forth herein for the benefit of
Purchaser or the Company (and the Shareholders), respectively, shall not
have been timely met and cannot be met on or before the Closing Date and
has not been waived, provided that the terminating party has not defaulted
in any material respect in the performance of any of its obligations under
this Agreement;
(c) By Purchaser on the earlier of (i) the date of the Public
Utilities Commission makes a determination not to approve the transactions
contemplated by this Agreement, (ii) September 30, 1998, or (iii) such
later date as Purchaser may agree upon, provided that any such failure to
close is not due to any default in any material respect in the performance
of any obligation under this Agreement by the terminating party;
(d) By Purchaser, if any warranty or representation made herein for
the benefit of Purchaser or in any certificate, schedule, or documents
furnished to Purchaser pursuant to this Agreement is untrue in any
material respect or the Company or the Shareholders shall have defaulted
in any material respect in the performance of any material obligation
under this Agreement;
(e) By Company, if any warranty or representation made herein for
the benefit of Company or in any certificate, schedule, or documents
furnished to Company pursuant to this Agreement is untrue in any material
respect or the Purchaser or the Shareholders shall have defaulted in any
material respect in the performance of any material obligation under this
Agreement;
.
(a) In the event of any termination of this Agreement pursuant to
Section 9.1, this Agreement shall forthwith become void and have no
further effect, and there shall be no liability on the part of any party
hereto.
(b) Notwithstanding any other provision of this Agreement, no
termination of this Agreement shall release any party from liability for
any breach of its obligations hereunder or any misrepresentation or other
violation of the terms and conditions of this Agreement.
. The Company agrees to indemnify Purchaser and to hold it harmless from and
against any and all damages, losses, deficiencies, actions, demands, judgments,
costs and expenses (including, without limitation, attorneys' and accountants'
fees) (collectively, "Losses") of or against Purchaser or Acquisition Sub
resulting from:
(a) any misrepresentation or breach of any warranty or
representation of the Company or the Shareholders, or any of them, in this
Agreement or in any document,
<PAGE>
instrument or agreement executed and/or delivered pursuant to or in
connection with this Agreement by Shareholders;
(b) any breach or nonfulfillment of any agreement or covenant of the
Company or the Shareholders, or any of them, contained in this Agreement
or in any certificate, document or instrument executed and/or delivered
pursuant to or in connection with this Agreement by Shareholders;
(c) any assessments, claims or liabilities (including interest and
penalties) for federal, state or local income, sales, use, franchise or
other taxes relating to, imposed upon or assessed against the sales,
income, property or business of the Company for all periods prior to the
date of the Closing except as disclosed in the financial statements as of
the Closing Date; and
(d) third party claims (including fines and penalties sought to be
imposed or enforcement proceedings commenced by governmental agencies)
based upon, alleging or arising out of any act, omission or occurrence on
or before the Closing Date, including, without limitation, any claim for
nonperformance or breach of contract, and/or claims for personal injury or
for property damage, except as disclosed in the financial statements as of
the Closing Date or the Schedules attached hereto and delivered on the
date of this Agreement; provided however, Purchaser may not seek
indemnification under this Section 10.1(d) for any amounts that Purchaser
has actually received under any insurance policy; provided further,
Purchaser may in its sole discretion determine whether or not it will seek
insurance payments or coverage.
. Purchaser agrees to indemnify the Company and the Shareholders and to hold
them harmless from and against any and all Losses of or against the Company and
the Shareholders resulting from (a) any misrepresentation or breach of any
warranty or representation of Purchaser in this Agreement or in any document,
instrument or agreement executed and/or delivered by Purchaser pursuant to or in
connection with this Agreement; and (b) any breach or non-fulfillment of any
agreement or covenant contained in this Agreement or in any certificate,
document or instrument executed or delivered by Purchaser pursuant to or in
connection with this Agreement.
.
(a) If a party shall claim that it is entitled to be indemnified
pursuant to the terms of this Article, it (the "Claiming Party") shall so
notify the party or parties against which the claim is made (the
"Indemnifying Party") in writing of such claim within sixty (60) days
after the Claiming Party receives notice of any action, proceeding, demand
or assessment or otherwise has received notice of any claim of a third
party that may reasonably be expected to result in a claim for
indemnification by the Claiming Party against the Indemnifying Party;
provided, however, that failure to give such notification shall not affect
the indemnification provided hereunder except to the extent the
Indemnifying Party is actually prejudiced as a result of such failure.
Such notice shall specify the breach of representation, warranty or
agreement claimed by the Claiming
<PAGE>
Party and the Losses incurred by or imposed upon the Claiming Party on
account thereof. If such Losses are liquidated in amount, the notice shall
so state and such amount shall be deemed the amount of the claim of the
Claiming Party. If the amount is not liquidated, the notice shall so state
and in such event a claim shall be deemed asserted against the
Indemnifying Party on behalf of the Claiming Party, but no payment shall
be made on account thereof until the amount of such claim is liquidated
and the claim is finally determined.
(b) The following provisions shall apply to any claim of the
Claiming Party which is based upon (i) a suit, action or proceeding filed
or instituted by any third party, or (ii) any form of proceeding or
assessment instituted by any governmental entity:
(i) The Indemnifying Party shall, upon receipt of such written
notice and at its expense, actively and in good faith defend such
claim in its own name or, if necessary, in the name of the Claiming
Party; provided, however, that if the proceeding involves a matter
solely of concern to the Claiming Party in addition to the claim for
which indemnification under this Agreement is being sought, such
matter shall be within the sole responsibility of the Claiming Party
and its counsel. The Claiming Party will cooperate with and make
available to the Indemnifying Party such assistance and materials as
may be reasonably requested of it, and the Claiming Party shall have
the right, at its expense, to participate in the defense. The
Indemnifying Party shall have the right to settle and compromise
such claim only with the consent of the Claiming Party (which
consent shall not be unreasonably withheld).
(ii) If the Indemnifying Party notifies the Claiming Party
that it disputes any claim made by the Claiming Party and/or it
fails to defend such claim actively and in good faith, then the
Claiming Party shall have the right to conduct a defense against
such claim and shall have the right to settle and compromise such
claim upon three (3) days notice to, but without the consent of, the
Indemnifying Party. Once the amount of such claim is liquidated and
the claim is finally determined, the Claiming Party shall be
entitled to pursue each and every remedy available to it at law or
in equity to enforce the indemnification provisions of this
Agreement and, in the event it is determined, or the Indemnifying
Party agrees, that it is obligated to indemnify the Claiming Party
for such claim, the Indemnifying Party agrees to pay all costs,
expenses and fees, including, without limitation, all reasonable
attorneys' fees which may be incurred by the Claiming Party in
enforcing or attempting to enforce indemnification under this
Agreement, whether the same shall be enforced by suit or otherwise.
The prevailing party shall be entitled to recover all reasonable
costs in connection therewith.
<PAGE>
.
(a) If the Closing of the Merger occurs, (i) Purchaser and
Acquisition Sub shall pay $50,000 of the costs and expenses incurred by
the Company in connection with the negotiation, preparation and execution
of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby and (ii) any amounts in excess of $50,000
shall be paid by the Shareholders. To the extent the Company incurs any
costs or expenses with Arthur Andersen LLP after May 20, 1998 pertaining
to the Company's audit for the year ended December 31, 1997, such costs
and expenses shall be considered incurred by the Company as part of the
foregoing sentence. All costs and expenses incurred by the Purchaser and
the Acquisition Sub in connection with this Agreement shall be paid by the
Purchaser or the Acquisition Sub.
(b) If the Closing of the Merger does not occur, all costs and
expenses incurred in connection with the negotiation, preparation and
execution of this Agreement and the consummation of the Merger and the
other transactions contemplated hereby shall be paid by the party
incurring such costs or expenses.
. Except for attorneys and accountants for the respective parties, none of the
Company, the Shareholders, Purchaser or Acquisition Sub has retained any broker,
finder, investment banker or financial advisor in connection with this Agreement
or the Merger or any other transaction contemplated hereby.
. The warranties and representations of the Company contained in this Agreement
shall survive for a period of six (6) months following Effective Time of the
Merger.
. This Agreement (including all Schedules and the Exhibits hereto and any other
agreements executed and delivered herewith) contain the entire understanding of
the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes any and all prior agreements and
understandings between the parties with respect to such subject matter. No
waiver and no modification or amendment of any provision of this Agreement shall
be effective unless specifically made in writing and duly signed by the party to
be bound thereby.
. Prior to the Closing Date, all notices to third parties and all other
publicity relating to the transaction contemplated by this Agreement shall be
jointly planned, coordinated and agreed to by Purchaser and the Company. Prior
to the Closing Date, none of the parties hereto shall act unilaterally in this
regard without the prior written approval of the others, such approval not to be
unreasonably withheld.
. This Agreement may be executed in counterparts, each of which shall be deemed
an original but all of which, together, shall constitute one and the same
instrument.
. If any provision hereof shall be held invalid or unenforceable by any court of
competent jurisdiction or as a result of future legislative action, such holding
or action shall be strictly construed and shall not affect the validity or
effect of any other provision hereof.
<PAGE>
. This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. None of Purchaser,
Acquisition Sub nor the Company or any of the Shareholders may assign or
transfer any of its or his rights or obligations under this Agreement, except
with the prior written consent of the other parties.
. This Agreement is for the sole benefit of the parties hereto and nothing
herein expressed or implied shall give or be construed to give any Person other
than the parties hereto any legal or equitable rights hereunder, except as
otherwise set forth in Section 10.1 hereof.
.
(a) THE VALIDITY, INTERPRETATION AND EFFECT OF THIS AGREEMENT SHALL
BE GOVERNED EXCLUSIVELY BY THE LAWS OF THE STATE OF MINNESOTA, EXCLUDING
THE "CONFLICT OF LAWS" RULES OF THAT STATE.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF (i) THE FOURTH JUDICIAL DISTRICT COURT OF THE STATE OF
MINNESOTA, AND (ii) THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MINNESOTA, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY ACTION, SUIT OR PROCEEDING RELATING HERETO
EXCEPT IN SUCH COURTS). EACH OF THE PARTIES HERETO FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED
MAIL TO SUCH PARTY'S RESPECTIVE ADDRESS SET FORTH HEREIN SHALL BE
EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN
MINNESOTA WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO
JURISDICTION AS SET FORTH ABOVE IN THE IMMEDIATELY PRECEDING SENTENCE.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING
OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN (x) THE
FOURTH JUDICIAL CIRCUIT COURT OF THE STATE OF MINNESOTA OR (y) THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH ACTION, SUIT OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
. All notices or other communications required or permitted by this Agreement
shall be in writing and shall be deemed to have been duly received (a) if given
by facsimile, when transmitted and the appropriate telephonic confirmation
received if transmitted on a Business Day and during normal business hours of
the recipient, and otherwise on the next Business Day
<PAGE>
following transmission, (b) if given by certified or registered mail, return
receipt requested, postage prepaid, three Business Days after being deposited in
the U.S. mails and (c) if given by courier or other means, when received or
personally delivered, and addressed as follows:
To the Company or Shareholders: One Call Telecom, Inc.
706 Second Avenue South
Suite 1200
Minneapolis, MN 55402
Attention: Joseph Rubin
Phone: 612-204-3500
Fax: 612-677-7755
With a copy to: Artesian Capital Limited Partnership II
1700 Foshay Tower
821 Marquette Avenue South
Minneapolis, MN 55402
Attention: Frank B. Bennett
Phone: 612-334-5600
Fax: 612-334-5601
With a copy to: Joseph Alexander
Maslon Edelman Borman & Brand LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Phone: (612) 672-8200
Fax: (612) 672-8397
To Purchaser or Acquisition Sub: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, Minnesota 55402
Attention: Michael J. Karangelen
Phone: (612) 376-4400
Fax: (612) 376-4411
With a copy to: David L. Mitchell, Esq.
<PAGE>
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Ave.
Minneapolis, Minnesota 55402-2015
Phone: (612) 349-8282
Fax: (612) 339-4181
or to such other addresses as may be specified by any party hereto to the other
parties pursuant to notice given by such party in accordance with the provisions
of this Section 11.11.
. A disclosure contained in any item of any Schedule or in any section of this
Agreement shall constitute a disclosure for all relevant items of the Schedules
and all relevant sections of this Agreement.
. The failure of any party at any time or times to require the performance of
any provision hereof shall in no manner affect the right at a later time to
enforce the same. The waiver by any party of any condition, or the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
. The respective representations and warranties of Purchaser and the Company
contained herein or in any certificates or other documents delivered prior to or
at the Closing shall not be deemed waived or otherwise affected by any
investigation made by any party hereto. Each and every representation and
warranty contained herein shall be deemed to be conditions to the Merger and
shall survive for a period of six months following the Merger. This Section
11.14 shall have no effect upon any other obligation of the parties hereto,
whether to be performed before or after the Closing.
. After the Closing, the Purchaser shall use reasonable efforts to offer
employment to all of the Company's employees.
The parties hereto have duly executed this Agreement on the day and year
first above written.
ADVANCED TELECOMMUNICATIONS, INC. CADY COMMUNICATIONS, INC.
<PAGE>
By: /s/ Cliff Williams By: /s/ Cliff Williams
------------------------ ------------------------
Cliff D. Williams Cliff D. Williams
Chief Executive Officer Chief Executive Officer
ONE CALL TELECOM, INC.
By: /s/ Joseph Rubin
-------------------------------------
Joseph Rubin
President and Chief Executive Officer
EXHIBIT B
PLAN OF MERGER
This Plan of Merger (this "Plan of Merger"), dated as of July ___, 1998,
is by and between One Call Telecom, Inc., a Minnesota corporation (the
"Company"), and Cady Communications, Inc., a Minnesota corporation ("Acquisition
Sub").
RECITALS:
A. The Company has authorized capital stock of _____ shares of common
stock, with __ par value (the "Common Stock"), of which shares are outstanding
as of the date hereof.
B. Acquisition Sub is a wholly-owned subsidiary of Advanced
Telecommunications, Inc., a Minnesota corporation ("Purchaser").
C. The Company, Acquisition Sub and Purchaser have entered into an
Agreement dated as of June __, 1998 (the "Merger Agreement") containing certain
warranties, representations, covenants, and agreements in connection with the
transactions contemplated therein and herein.
D. The Company, Acquisition Sub and Purchaser desire to have the Company
merge with and into Acquisition Sub pursuant to the terms and conditions set
forth in this Plan of Merger.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
contained herein, the parties hereto agree that the Company and Acquisition Sub
shall be merged and that the terms and conditions of such merger and the mode of
carrying the same into effect shall be as follows:
<PAGE>
1. Merger.
1.1 Merger. Pursuant to the applicable laws of Minnesota, the
Company shall merge with and into Acquisition Sub, and Acquisition Sub
shall be the surviving corporation after the merger and shall continue to
exist as a corporation created and governed by the laws of Minnesota.
1.2 Surviving Corporation. At the Effective Time of the Merger (as
hereinafter defined):
A. The separate existence of the Company shall cease
(Acquisition Sub and the Company are sometimes collectively referred
to herein as the "Constituent Corporations" and Acquisition Sub
after the Merger is sometimes referred to herein as the "Surviving
Corporation").
B. The By-Laws of Acquisition Sub in effect immediately prior
to the Effective Time of the Merger shall be the By-laws of the
Surviving Corporation until altered, amended or repealed in
accordance with the Articles of Incorporation of the Surviving
corporation and applicable law.
C. The initial directors and officers of the surviving
corporation shall be as follows:
DIRECTORS OFFICE
--------- ------
Cliff D. Williams Chief Executive Officer and
Chairman of the Board
Michael Donahue Secretary and Treasurer
Michael Karangelen
D. The Merger shall, from and after the Effective Time of the
Merger, have all of the effects provided by applicable law.
1.3 Effectiveness of Merger.
A. If all of the conditions precedent to the obligations of
each of the Company and the Purchaser as set forth in the Merger
Agreement shall have been satisfied or, to the extent permitted,
waived, articles of merger executed by duly authorized officers of
each of the Company and Acquisition Sub, complying in all respects
with the Minnesota Business Corporation Act shall be filed with the
Secretary of State of Minnesota.
<PAGE>
B. The "Effective Time of the Merger" shall be the time when
the Plan of Merger and all other necessary documents (including, but
not limited to, articles of merger) and certificates with respect
thereto are accepted for filing by the Secretary of State of
Minnesota.
1.4 Shares of Constituent Corporations. The manner and basis of
exchanging the capital stock of the Company for cash and the Stock of
Purchaser upon the Effective Time of the merger shall be as follows:
Each share of Series A Preferred Stock of the Company ("Series A") and Series B
Preferred Stock of the Company ("Series B") (collectively, Series A and Series B
are hereinafter referred to as the "Company Preferred Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into the
right to receive that number of validly issued, fully paid and nonassessable
shares of Purchaser Common Stock reflected in the Agreement (the "Merger
Consideration"), pro rata based upon the liquidation preference of each share of
Company Preferred Stock as set forth in the Company's Certificate of Designation
for Series A and Series B filed with the Minnesota Secretary of State on
December 20, 1996 and December 10, 1997, respectively (the "Liquidation
Preference"). The shares of common stock of the Company (the "Company Common
Stock") will receive no shares of Purchaser Common Stock since it is the
Company's belief that the Liquidation Preference exceeds the value of the Merger
Consideration. At the Effective Time, all shares of Company Capital Stock issued
and outstanding shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
evidencing any such shares shall thereafter represent the right to receive the
Merger Consideration. The holders of certificates previously evidencing shares
of Company Capital Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to shares of Company Capital Stock.
Certificates previously evidencing shares of Company Preferred Stock shall be
exchanged for certificates evidencing whole shares of Purchaser Common Stock
issued in consideration therefor in accordance with the procedures of this
Section. Certificates previously evidencing shares of Company Common Stock shall
be transferred to the Purchaser for no consideration. No fractional shares of
Purchaser Common Stock shall be issued, and, in lieu thereof, a cash payment
shall be made.
2. Termination.
2.1 Termination. This Plan of Merger may be terminated at any time
prior to the Effective Time of the Merger by the Company or Acquisition
Sub, by written notice to the other party hereto if either such party has
terminated the Merger Agreement in accordance with its terms.
2.2 Effects of Termination.
A. Subject to Sections 2.2.B, in the event of any termination
of this Plan of Merger pursuant to Section 2.1, this Plan of Merger
shall forthwith
<PAGE>
become void and have no further effect, and there shall be no
liability on the part of any party hereto.
B. Notwithstanding any other provision of this Plan of Merger
(including Section 2.2.A), no termination of this Plan of Merger
shall release any party from liability for any knowing and
intentional breach of its obligations hereunder.
3. Further Assurances. In case at any time after the Effective Time of the
Merger any further action is reasonably necessary or desirable to carry out the
purposes of this Plan of Merger or to vest Purchaser with full title to all
properties, assets, rights, approvals, immunities and franchises of either of
the Constituent Corporations, the Company and Acquisition Sub and their
respective officers and directors shall take all such reasonably necessary
action.
4. Amendment. At any time prior to the Effective Time of the Merger, this
Plan of Merger may be amended by the parties hereto by an agreement in writing
authorized by their respective Boards of Directors.
IN WITNESS WHEREOF, the parties have duly executed this Plan of Merger as
of the date first above written.
CADY COMMUNICATIONS, INC.
By: Cliff D. Williams
-----------------------------
Chief Executive Officer
ONE CALL TELECOM, INC.
By: Joseph Rubin
-----------------------------
President
EXHIBIT C
STOCK OPTIONS
EXHIBIT E
OPINION OF COUNSEL OF PURCHASER
<PAGE>
EXHIBIT F
OPINION OF COUNSEL OF COMPANY
SCHEDULE 6.2
Foreign Qualification
Purchaser is a Minnesota corporation and registered and in good standing
in the States of Washington, Oregon and Colorado. Through its wholly-owned
subsidiary corporations, American Telephone Technology, Inc. and ATI
Acquisition, Inc. d/b/a Electrotel, maintains fixed offices in the States of
Colorado, Washington and Oregon.
SCHEDULE 6.5
Litigation
NONE
SCHEDULE 6.6
Capital Stock
1. Purchaser's authorized capital consists of the following:
Issued and
a. Preferred: Authorized Outstanding
---------- -----------
500,000 93,916
b. Common:
- Class A 250,000 11,205*
<PAGE>
- Class B 250,000 6,783
*Purchaser has issued and there remain outstanding subordinated
promissory notes convertible into 69,954 shares of Class A common
stock.
2. Transfer of shares is restricted by the Stockholders Agreement dated July
1, 1996, as amended, among Purchaser and all of Purchaser's shareholders.
SCHEDULE 6.8
Undisclosed Balance Sheet Liabilities
Line of credit of up to $5,000,000 under that certain Loan Agreement dated
as of June 17, 1998 among Purchaser, its wholly-owned subsidiaries, and Imperial
Bank.
<PAGE>
Exhibit 2.1.4
AGREEMENT AND PLAN
OF
MERGER
BY AND AMONG
ADVANCED TELECOMMUNICATIONS, INC.
FISHNET ACQUISITION CORP.
AND
FISHNET.COM, INC.
AND
STEVEN S. SOLBRACK, STEVEN M. HOLLAND, STEVEN G. KOLAR
DECEMBER 23, 1999
TABLE OF CONTENTS
SectionPage
EXHIBITS AND SCHEDULES
ExhibitsPage
SchedulesPage
AGREEMENT AND
PLAN OF MERGER
This Agreement is made as of December 23, 1999, by and among Advanced
Telecommunications, Inc., a Delaware corporation ("Purchaser"), Fishnet
Acquisition Corp., a Minnesota corporation ("Acquisition Sub"), Fishnet.Com,
Inc., a Minnesota corporation (the
<PAGE>
"Company"), and Steven S. Solbrack, Steven M. Holland and Steven G. Kolar
(collectively, the "Key Shareholders").
RECITALS
A. The issued and outstanding capital stock of the Company as of the date
of this Agreement is reflected on Exhibit A ("Company Capital Stock") as held by
those shareholders listed on Exhibit A (collectively, the "Shareholders").
B. Acquisition Sub is an indirect, wholly-owned subsidiary of Purchaser.
C. The Key Shareholders own approximately 78% of the issued and
outstanding Company Capital Stock.
D. As a condition and inducement to Purchaser and Acquisition Sub entering
into this Agreement, concurrently with the execution and delivery of this
Agreement, the Key Shareholders have entered into an Agreement to Facilitate
Merger with the Purchaser.
E. Purchaser, Acquisition Sub, the Company and the Key Shareholders desire
to have the Company merge with and into Acquisition Sub pursuant to a
transaction in which the separate existence of the Company will cease and
Acquisition Sub shall continue as the surviving corporation. Each share of
Company Capital Stock will be exchanged for 1.756 shares of Purchaser's common
stock and the parties intend that the transaction qualify as a partially tax
free reorganization under Section 368(a) of the Internal Revenue Code of 1986
(the "Code").
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, Purchaser, Acquisition Sub, the Company
and the Key Shareholders hereby agree as follows:
. Upon the terms and subject to the conditions of this Agreement, at the
Effective Time in accordance with the Minnesota Business Corporation Act
("MBCA"), Acquisition Sub shall be merged with and into the Company in
accordance with this Agreement (the "Merger"). The Acquisition Sub shall be the
surviving corporation in the Merger as a wholly-owned subsidiary of Purchaser
(Acquisition Sub is hereinafter sometimes referred to as the "Surviving
Corporation"). The parties shall prepare, execute or file an appropriate
certificate of merger (the "Plan of Merger") substantially in the form of
Exhibit B attached hereto to comply with the requirements of the MBCA and the
separate existence of the Company shall thereupon cease.
. The Merger shall have the effects set forth in Section 302A.641 of the MBCA.
. The Merger shall become effective at the time of the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota in accordance with
the applicable provisions of the MBCA, or at such later time as may be specified
in the Articles of Merger. The Articles of Merger shall be filed as soon as
practicable after all of the conditions set forth in this Agreement
<PAGE>
have been satisfied or waived by the party or parties entitled to the benefit of
the same. The time when the Merger shall become effective is herein referred to
as the "Effective Time". .
(a) The aggregate purchase price for Company Common Stock is
$5,490,000 payable as follows:
(i) Cash $2,075,000
(ii) Purchaser Common Stock $3,415,000
(569,166 shares)
(b) The cash portion of the consideration payable by Purchaser to
the Shareholders pursuant to Section 1.4(a) shall be paid in immediately
available funds or by wire transfer on the Closing Date to a bank account
designated by the Shareholders in the respective amounts set forth on
Exhibit C.
(c) The Purchaser Common Stock portion of the consideration payable
by Purchaser to the Shareholders pursuant to Section 1.4(a) shall be
delivered to the Shareholders on the Closing Date in the respective
amounts set forth on Exhibit C.
. In addition to the purchase price set forth in Section 1.4 hereof, cash not
exceeding $1,340,000 (the "Earnout Proceeds"), shall be paid by Purchaser to the
Shareholders as provided herein if the Business Revenues (as defined below)
achieve certain specified levels of gross revenues. The Earnout Proceeds shall
carry an interest rate of six percent (6%) per annum (1.5% per quarter).
(Purchaser's obligation to pay all or a portion of the Earnout Proceeds to
Shareholders is hereinafter referred to as the "Earnout"). The Earnout will be
based on the Business Revenues over the twelve-month period ending on December
31, 2000 (the "Earnout Period").
(a) To the extent the Business Revenues achieve the quarterly
thresholds set forth below, one hundred percent (100%) of the Earnout
Proceeds ($335,000 per quarter) will be paid to the Shareholders:
Quarter
Ending..................................Revenues
------------------------------------------------
March 31, 2000..........................$700,000
June 30, 2000...........................$789,000
September 30, 2000......................$878,000
December 31, 2000.......................$967,000
--------
........................................$3,334,000
----------------------------------------
(b) To the extent the Business Revenues achieve the quarterly
thresholds set forth below, fifty percent (50%) of the Earnout Proceeds
($167,500 per quarter) will be paid to the Shareholders:
<PAGE>
Quarter
Ending..................................Revenues
------------------------------------------------
March 31, 2000..........................$570,000
June 30, 2000...........................$640,000
September 30, 2000......................$710,000
December 31, 2000.......................$780,000
--------
........................................$2,700,000
----------------------------------------
(c) If the Business Revenues fail to achieve the quarterly or annual
thresholds set forth in Section 1.5(b), the Shareholders will not receive
any Earnout Proceeds for that period.
(d) If the Business Revenues are between $2,700,000 and $3,334,000
during the Earnout Period, as measured quarterly, the Shareholders shall
receive a pro rata portion of the Earnout.
For example, if the Business Revenue is $715,000 in the
quarter ending March 31, 2000 and $700,000 in the quarter
ending June 30, 2000, the Shareholders shall receive Earnout
Proceeds of an aggregate of $335,000 for the Earnout for the
first quarter. The aggregate Business Revenues for the year to
date will be $1,415,000 and the Shareholders shall receive a
pro rata portion of the Earnout Proceeds for the second
quarter of $246,146.94 {[($1,415,000-$1,210,000) /
($1,489,000-$1,210,000)] x $335,000}.
(e) The Earnout will be measured and paid quarterly, however, the
failure to achieve all or any part of the Earnout for any quarterly period
may be recovered in subsequent quarters (up to the quarterly maximums of
$335,000) or at year end (up to a maximum of $1,340,000) if the total
year-to-date amount or annual amount is achieved, regardless of separate
quarterly performance.
For example, if the Business Revenue is $640,000 in the
quarter ending March 31, 2000 and $860,000 in the quarter
ending June 30, 2000, the Shareholders shall receive Earnout
Proceeds of an aggregate of $257,700 for the Earnout for the
first quarter. The aggregate Business Revenues for the year to
date will be $1,500,000 and the Shareholders shall receive
Earnout Proceeds for the second quarter of $412,300.
(f) For purposes of this Section 1.5, "Business Revenues" includes
all revenues received by the Purchaser from data or internet services from
the Company and all of Purchaser's sales channels (including revenues
through agents and resellers). Revenue from acquisitions which the
Purchaser may make in the Company's industry subsequent to the Closing
shall not be included in this definition; provided, however, the Company
shall receive credit for the growth in revenue from such acquisitions.
Non-recurring revenue in excess of 35% of total Business Revenue will be
excluded from
<PAGE>
the calculation of Business Revenue. If the gross profit for the Business
Revenue is less than 45%, the quarterly and annual thresholds set forth in
Section 1.5(a) shall be increased by $25,000 and $100,000, respectively,
for every 1% decrease in gross profit less than 45%.
For example, if the Business Revenue is $715,000 in the
quarter ending March 31, 2000 and the gross profit for the
Business Revenue is 42%, the first quarter threshold shall be
revised to $775,000. The Shareholders shall receive Earnout
Proceeds of $236,951.19 {[($715,000-$570,000) /
($775,000-$570,000)] x $335,000}.
For purposes of the calculation of gross profit in this Section,
depreciation and NOC/Collocation rent will be included in the cost of
sales, but labor and office leasing costs will be excluded. Further,
during the Earnout Period, capital expenditures used to calculate
depreciation for purposes of gross profit shall not exceed $400,000.
(g) The Earnout Proceeds, and interest thereon at six percent (6%)
per annum (1.5% per quarter), will be payable to the Shareholders in cash
within thirty (30) days after the end of each quarter.
. At the Effective Time, by virtue of the Merger and as set forth in this
Section, subject to the other provisions of this Article 1, each share of
Company Capital Stock issued and outstanding immediately prior to the Effective
Time shall be converted into the right to receive 1.756 validly issued, fully
paid and nonassessable shares of Common Stock of Purchaser ("Purchaser Common
Stock") (the "Merger Consideration").
At the Effective Time, all shares of Company Capital Stock issued and
outstanding shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each certificate previously evidencing
any such shares shall thereafter represent the right to receive the Merger
Consideration. The holders of certificates previously evidencing shares of
Company Capital Stock outstanding immediately prior to the Effective Time shall
cease to have any rights with respect to shares of Company Capital Stock.
Certificates previously evidencing shares of Company Capital Stock shall be
exchanged for certificates evidencing whole shares of Purchaser Common Stock
issued in consideration therefor in accordance with the procedures of this
Section.
At the Effective Time, each outstanding share of the Company Capital Stock
shall automatically be converted into a share of Common Stock of the Surviving
Corporation and such shares shall continue to be owned by Purchaser
. Following surrender at the Closing of a Shareholder's stock certificate
representing shares of Company Capital Stock, there shall be paid to the holder
of such certificates promptly the cash and the Purchaser Common Stock set forth
in Section 1.4(a).
. All shares of Purchaser Common Stock issued and cash paid upon conversion of
the shares of Company Capital Stock in accordance with the terms hereof shall be
deemed to have been issued or paid in full satisfaction of all rights pertaining
to such shares of Company Capital Stock.
<PAGE>
. No certificates or scrip evidencing fractional shares of Purchaser Common
Stock shall be issued upon the surrender for exchange of certificates, and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Purchaser. In lieu of any such fractional shares,
each holder of Company Capital Stock upon surrender of a certificate for
exchange, shall be paid an amount in cash (without interest), rounded to the
nearest cent.
. At the Effective Time, the Company will use its best efforts to ensure that
each issued and outstanding stock option, warrant, right or other agreement to
purchase or sell any capital stock of the Company granted by the Company shall
be cancelled by the holder and the Company. In consideration for the
cancellation of such options, at the Closing, the Purchaser shall grant options
to purchase shares of Purchaser Common Stock at an exercise price of $2.50 per
share to certain employees as indicated on Exhibit D. At the Effective Time, the
holders of options granted by the Company shall cease to have any rights with
respect to shares of Company Capital Stock and will only have rights with
respect to Purchaser Common Stock as set forth in this Section. The Company
shall take such actions as are necessary to ensure that from and after the date
hereof the Company shall not grant any rights to purchase any capital stock of
the Company.
1.11 Dissenting Shares. Notwithstanding any other provisions of this
Agreement to the contrary, shares of Company Common Stock that are outstanding
immediately prior to the Effective Time and which are held by stockholders who
shall have not voted in favor of the Merger or consented thereto in writing and
who shall have demanded properly in writing appraisal for such shares in
accordance with MBCA ss. 302A.471 (collectively, the "Dissenting Shares") shall
not be converted into or represent the right to receive the Merger
Consideration. Such stockholders shall be entitled to receive from the Company
payment of the appraised value of such shares of Company Common Stock held by
them in accordance with the provisions of such MBCA ss. 302A.471, except that
all Dissenting Shares held by stockholders who shall have failed to perfect or
who effectively shall have withdrawn or lost their rights to appraisal of such
shares of Company Common Stock under such MBCA ss. 302A.471 shall thereupon be
deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, the
Merger Consideration, upon surrender, in the manner provided in this Agreement,
of the certificate or certificates that formerly evidenced such shares of
Company Common Stock. The Company shall give Purchaser prompt notice of any
demands for appraisals received by the Company.
. Certificates representing Purchaser Common Stock and cash amounts withheld
from the Earnout Proceeds for the fourth quarter of the Earnout Period, in the
amounts and from the individuals set forth on Exhibit E (the "Escrowed
Consideration"), shall be held in escrow by the Purchaser. The Purchaser shall
hold the Escrowed Consideration for twelve months following the Closing Date for
possible claims by Purchaser relating to breaches of warranties by the Company
and the Key Shareholders contained in this Agreement.
. Subject to the provisions of Articles 7 and 8 hereof, the closing (the
"Closing") of the Merger will take place at Purchaser's offices on January 7,
2000 or at such other place, at such other
<PAGE>
time, or on such other date as the Company and the Purchaser may agree. The date
on which the Closing takes place is referred to as the "Closing Date."
. At the Closing:
(a) The executed Plan of Merger (together with the Articles of
Merger) satisfying the requirements of Minnesota law shall be filed by
Acquisition Sub and the Company with the Secretary of State of Minnesota.
(b) At Closing, Purchaser will withhold 8,500 shares of Purchaser
Common Stock pursuant to Section 1.12.
(c) Purchaser and Acquisition Sub shall deliver to the Company the
following:
(i) the certificates and other documents and instruments
referred to in Article 8 hereof;
(ii) a true and complete copy of the Articles of Incorporation
of each of Purchaser and Acquisition Sub, including all amendments
thereto, as certified to by an appropriate governmental official;
(iii) a copy of the resolutions adopted by the Board of
Directors of each of Purchaser and Acquisition Sub authorizing the
execution and delivery of this Agreement and the consummation of the
Merger and other transactions contemplated hereby, as certified to
by the Secretary of Purchaser and Acquisition Sub, respectively;
(iv) stock options to purchase shares of the Purchaser Common
Stock to those individuals set forth on Exhibit D ;
(v) incentive stock options to purchase shares of the
Purchaser Common Stock to those individuals set forth on Exhibit
D-1;
(vi) an opinion of counsel for Purchaser and Acquisition Sub
in substantially the form of Exhibit F attached hereto;
(vii) payment of expenses pursuant to Section 11.1(a). Without
limiting the foregoing, Purchaser shall pay legal counsel to the
Company, Parsinen, Kaplan, Levy, Rosberg, Gotlieb P.A. $42,000;
provided that sufficient documentation for such legal expenses is
presented at Closing.
(d) The Company and the Key Shareholders shall deliver to Purchaser
the following:
<PAGE>
(i) the certificates and other documents and instruments
referred to in Article 7 hereof;
(ii) A true and complete copy of the Articles of Incorporation
of the Company, including all amendments thereto, as certified to by
an appropriate governmental official, and a true and complete copy
of the By-Laws of the Company, as certified to by the Secretary of
the Company;
(iii) A true and complete copy of each material contract,
agreement, commitment or plan described on any Schedule hereto;
(iv) A copy of the resolutions adopted by the Board of
Directors of the Company authorizing the execution and delivery of
this Agreement and the Plan of Merger by the Company and the
consummation of the Merger and other transactions contemplated
hereby, as certified to by the Secretary of the Company;
(v) The resignations of the directors and officers of the
Company, effective as of the Closing Date;
(vi) an opinion of counsel for the Company and Key
Shareholders in substantially the form of Exhibit G attached hereto;
(vii) Employment and Noncompetition Agreements with Steven S.
Solbrack, Steven M. Holland and Steven G. Kolar;
(viii) Noncompetition Agreements with Greg Kenfield and Jason
Malacko;
(ix) Agreement to Facilitate Merger with Steven S. Solbrack,
Steven M. Holland and Steven G. Kolar;
(x) Such other documents as Purchaser may request to convey
title to all of the Company's assets.
.
(a) The Company has heretofore delivered to Purchaser and
Acquisition Sub, the reviewed financial statements of the Company for the
fiscal year ended December 31, 1998 and the interim financial statements
for the period ended October 31, 1999 (collectively, the Financial
Statements"). The balance sheet of the Company as of December 31, 1998 is
hereinafter referred to as the "Balance Sheet" and December 31, 1998 is
hereinafter referred to as the " Balance Sheet Date."
<PAGE>
(b) The Company and the Shareholders shall prepare and deliver to
Purchaser all of the Schedules to this Agreement by December 23, 1999, and
shall from time to time prior to Closing promptly amend, supplement and
update the Schedules as necessary.
. The Company and Purchaser agree to use all commercially reasonable efforts to
(a) promptly file, or cause to be promptly filed, with any United States agency
or any state or local governmental body or agency, all such notices,
applications or other documents as may be necessary to consummate the
transactions contemplated hereby; and (b) thereafter diligently pursue all
consents or approvals from any such governmental agencies or bodies as may be
necessary to consummate the transactions contemplated hereby.
. From the date hereof until the Closing Date, except as set forth on Schedule
4.1 or as otherwise required by this Agreement, the Company shall, unless
Purchaser shall otherwise agree in writing:
(a) carry on the business of the Company in the ordinary course;
(b) continue to insure the Company and its properties substantially
in accordance with its past practices;
(c) use reasonable efforts to preserve the Company's business
organization intact, keep available the Company's present management and
employees, and preserve the Company's present relationships with its
suppliers and customers and others with which it has business
relationships;
(d) not amend or propose to amend the Company's Articles of
Incorporation or Bylaws;
(e) not issue, sell or otherwise dispose of any of its shares of
capital stock or grant any options, warrants or other rights to acquire
any of its shares of capital stock;
(f) not declare or pay any cash or non-cash dividends on its capital
stock or any other cash or non-cash distributions in respect of its
capital stock;
(g) pay all trade accounts and other accounts payable of the Company
when due in the ordinary course or in accordance with past practices
(provided that such practices are and have been reasonably acceptable to
the Company's creditors in the past);
(h) not extend or shorten the time for payment of the Company's
accounts receivable other than in accordance with past practices or in the
ordinary course;
(i) not (i) issue any debt securities or (ii) incur any indebtedness
for money borrowed whether long or short term other than trade payables
incurred in the ordinary course provided, however, the Company may draw
upon its existing line of credit with
<PAGE>
Norwest Bank Minnesota, so long as the Company provides Purchaser with
written notice of the borrowings on a weekly basis;
(j) not incur or agree to incur any obligations or liabilities
except current liabilities accrued in the ordinary course of business,
none of which materially adversely affect the Company's business or
assets;
(k) not sell, lease or otherwise dispose or agree to sell, lease or
otherwise dispose of any of its assets except sales of inventory to end
user customers at standard industry prices and terms, in the ordinary
course of business;
(l) not make any change in the rate of compensation, commission,
bonus or other remuneration payable or paid or agreed to be paid to any of
its employees; and
(m) make any write down or write up of the value of any of its
inventory.
. The Company shall deliver to Purchaser such financial information that is
available to the Company which Purchaser shall reasonably request, reflecting
the results of operations of the Company after October 31, 1999.
. From the date of this Agreement until the Effective Time, the Company will
give Purchaser and its respective officers, employees, counsel, advisors and
representatives reasonable access, during normal business hours, to the offices
and other facilities and to the books and records of the Company and will
furnish Purchaser to the extent available with such financial and operating data
and such other information with respect to the business and operations of the
Company as Purchaser may from time to time reasonably request.
. Subject to the terms and conditions herein provided and to applicable legal
requirements, each of the parties hereto agrees to use its reasonable best
efforts to take, or cause to be taken, all action, and to do, or cause to be
done, and to assist and cooperate with the other parties hereto in doing, as
promptly as practicable, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement.
. Purchaser and the Company shall promptly notify each other of (a) the
occurrence or non-occurrence of any fact or event which would be reasonably
likely (i) to cause any representation or warranty contained in this Agreement
to be untrue or inaccurate in any material respect at any time from the date
hereof to the Effective Time or (ii) to cause any material covenant, condition
or agreement under this Agreement not to be complied with or satisfied in all
material respects and (b) any failure of the Company or Purchaser, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder in any material respect; provided,
however, that no such notification shall affect the representations or
warranties of any party or the conditions to the obligations of any party
hereunder.
. The Company shall not directly or indirectly, encourage, solicit, participate
in or initiate discussions or negotiations with, or provide any information to,
any corporation, partnership,
<PAGE>
person or other entity or group (other than Purchaser, any of its affiliates or
representatives) concerning any proposal or offer to acquire all or a
substantial part of the business or properties of the Company or any capital
stock of the Company, whether by merger, tender offer, exchange offer, sale of
assets or similar transaction involving the Company.
. The Company shall not disclose to any other potential buyer that the Purchaser
is acquiring the Company or the price or terms thereof without the prior written
consent of the Purchaser.
. The Company shall promptly submit this Agreement and the transactions
contemplated hereby for the approval of the Shareholders as soon as practicable
and shall use its best efforts to obtain shareholder approval of this Agreement
and the transactions contemplated hereby.
Except where otherwise indicated, the Company and the Key Shareholders
jointly and severally warrant and represent to and covenant with Purchaser as
follows:
. The Company is a corporation, duly incorporated, validly existing and in good
standing under Minnesota law. The Company has the corporate power and holds all
rights, privileges, franchises, immunities, licenses, permits, authorizations
and approvals (governmental or otherwise) necessary to own and operate its
assets and to conduct its business as presently conducted, except where the
failure of which to hold would not have a material adverse effect on the
financial condition or operations of the Company.
. The Company is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature or location of the
Company's business or properties requires such qualification, except such
jurisdictions in which the failure so to qualify is not likely to have a
material adverse effect on the financial condition or operations of the Company.
Schedule 5.2 sets forth all jurisdictions in which the Company is qualified to
do business as a foreign corporation.
. Except as set forth on Schedule 5.3, the Company does not own, and on the
Closing Date will not own, any securities or any other direct or indirect
interest in any person or entity.
.
(a) The total number of shares of capital stock and the par value
thereof which the Company is authorized to issue, the number of such
shares which are issued and outstanding, and the number of treasury shares
are set forth on Schedule 5.4. All of the issued and outstanding shares of
the Company's Common Stock held by the Key Shareholders are now, and will
on the Closing Date, be owned by the Key Shareholders and will be
transferred to the Purchaser free and clear of all mortgages, pledges,
liens, security interests, restrictions, adverse claims or charges or
third party rights of any kind.
(b) Except as set forth on Schedule 5.4, there are no outstanding
options, conversion rights, warrants or other rights in existence to
acquire from the Company any of its shares of capital stock.
<PAGE>
(c) The issued and outstanding shares of capital stock of the
Company as of the date hereof and as of the Closing Date have been and
will be duly and validly issued and are fully paid and nonassessable and
have not been issued in violation of, and are not subject to, any
preemptive rights, and, except as set forth on Schedule 5.4, there are no
voting trust agreements or other contracts, agreements or arrangements to
which either the Company or, to the Company's knowledge, the Shareholders
is a party restricting voting or dividend rights or transferability with
respect to the outstanding shares of capital stock of the Company.
. The Company has all right, power and authority required for it to enter into,
and, subject to the requisite approval of the Shareholders, to perform its
obligations under this Agreement and the Plan of Merger; the Company has taken
all corporate actions on its part necessary or appropriate to execute, deliver
and perform this Agreement and the Plan of Merger and to consummate the Merger,
and this Agreement has been duly authorized, executed and delivered by the
Company and is binding upon and enforceable against the Company in accordance
with its terms and conditions, and, when executed and delivered by the Company,
the Plan of Merger will be duly authorized, executed and delivered by the
Company and will be binding upon, and enforceable against, the Company in
accordance with its terms and conditions, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally, and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a court of law or equity).
. Except as set forth on Schedule 5.6, neither the execution or delivery by the
Company of this Agreement or the Plan of Merger, nor the performance by the
Company of its obligations hereunder or thereunder, does or will, after the
giving of notice, or the lapse of time, or otherwise:
(a) conflict with, result in a breach of, or constitute a default
under, the Articles of Incorporation or By-Laws of the Company or (i) any
federal, state or local law, statute, code, ordinance, rule or regulation
applicable to it, (ii) any federal, state or local court or administrative
order or process to which the Company is a party or is bound, or (iii) any
material contract, agreement, arrangement, commitment, or plan to which
the Company is a party, or under which the Company may be obligated, or by
which the Company or any of its material rights, properties or assets may
be subject or bound;
(b) result in the creation of any mortgage, pledge, lien, claim,
charge, encumbrance or assessment upon any of the material rights,
properties or assets of the Company; or
(c) terminate, amend or modify, or give any party the right to
terminate, amend, modify, abandon or refuse to perform or comply with, any
material contract, agreement, arrangement, commitment or plan to which the
Company is a party, or under which the Company may be obligated, or by
which the Company or any of the rights, properties or assets of the
Company may be subject or bound.
<PAGE>
. Except as set forth on Schedule 5.7, on the Balance Sheet Date, the Company
had, and on the date hereof has, and on the Closing Date will have, good and
marketable title to all the properties and assets reflected on the Balance
Sheet, subject to no mortgages, pledges, security interests, liens, encumbrances
or other charges of any kind, except (a) as to personal property sold or
otherwise disposed of after the Balance Sheet Date in the ordinary course of
business; (b) mechanics', carriers', workmen's, repairmen's or other like liens
arising or incurred in the ordinary course of business; (d) liens for taxes,
assessments and other governmental charges which are not yet due and payable;
and (d) other imperfections of title or encumbrances which do not materially
impair the use and operations of the Company's assets or properties to which
they relate in the operation of the Company's business as presently conducted.
. Schedule 5.8 contains a true and complete list and brief description of all
real property owned or leased by the Company, either as lessor or lessee.
. Except as set forth on Schedule 5.9 there are no actions, suits or proceedings
pending, threatened in writing against the Company, at law or in equity, before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to the Company would have a material adverse effect on the
financial condition or operations of the Company. Except as set forth on
Schedule 5.2, the Company is not operating under, or subject to, any
governmental order, writ, injunction or decree.
. The Company is not conducting its business or affairs in violation of any
applicable federal, state or local law, statute, ordinance, rule, permit or
regulation except (a) as set forth on Schedule 5.10 or (b) for violations which
individually or in the aggregate would not have a material adverse effect on the
financial condition or operations of the Company.
. Except as set forth on Schedule 5.11, there is no labor dispute, grievance,
strike or request for union representation affecting any of the Company's
employees generally pending, or, to our knowledge, threatened against the
Company. The Company is not a party to any collective bargaining agreement and
no such contract is currently being negotiated with the Company. No
representation question exists or, to the knowledge of the Company, has been
raised respecting the employees of the Company, nor are there any campaigns
being conducted to solicit cards from the employees of the Company to authorize
representation by any labor organization.
. The Financial Statements were prepared from the Company's books and records
and believed to be in accordance with generally accepted accounting principles,
consistently applied, and present fairly in all material respects the financial
position, results of operations and changes in cash flows of the Company at the
dates and for the periods indicated therein. The accounts receivable reflected
in the Financial Statements were generated in the ordinary course and are
believed to be collectible, subject to the reserves in the Financial Statements
for doubtful accounts.
. Except as set forth on Schedule 5.13,
<PAGE>
(a) on the Balance Sheet Date, the Company did not have any material
liability of a nature required to be reflected on a balance sheet prepared
in accordance with generally accepted accounting principles, which was not
disclosed, reflected or reserved against in the Balance Sheet; and
(b) except for liabilities which have been incurred in the ordinary
course of business, since the Balance Sheet Date, the Company has not
incurred any material liability of any nature which would be required to
be reflected on a balance sheet prepared in accordance with generally
accepted accounting principles.
. Since the Balance Sheet Date, the Company has conducted its business in the
ordinary course, and, except as contemplated by this Agreement or as set forth
on Schedule 5.14, there has not been any:
(a) material adverse change in the financial condition or business
of the Company other than changes relating to general economic conditions
or developments affecting the Company's industry generally;
(b) sale, assignment, transfer, mortgage, pledge or lease of any
material amount of assets of the Company, except in the ordinary course of
business;
(c) declaration, payment or distribution in respect of, or purchase
or redemption of, any shares of the Company's capital stock;
(d) capital expenditures by the Company in excess of $25,000 for any
single item or $100,000 in the aggregate;
(e) damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
the Company;
(f) loan by the Company to any Person or guaranty by the Company of
any loan, other than routine advances to employees in the ordinary course
of business;
(g) amendment of the Articles of Incorporation or By-Laws of the
Company; or
(h) agreement by the Company to do any of the foregoing.
.
(a) All contracts and agreements which are material to the financial
condition or operations of the Company (collectively, "Contracts") are
described on Schedule 5.15, except for the following contracts and
agreements which are not required to be set forth on Schedule 5.15: (i)
normal purchase and sale commitments heretofore or hereafter entered into
in the ordinary course of business; (ii) any Contract that involves an
aggregate commitment by the Company of less than $10,000; and (iii) any
Contract
<PAGE>
which is terminable by the Company by notice of not more than 30 days for
a cost of less than $10,000.
(b) Each Contract listed on Schedule 5.15 is in full force and
effect. The Company has performed in all material respects all obligations
required to be performed by it to date under the Contracts and it is not
(with or without the lapse of time or the giving of notice, or both) in
breach or default thereunder.
.
(a) Schedule 5.16 sets forth all patents, trade names, service
marks, copyrights and web domain names (the "Intellectual Property")
(whether or not the Intellectual Property is registered), and all pending
applications therefor, owned by the Company, or in which the Company has
any interest, which are material to the business of the Company.
(b) Except as set forth on Schedule 5.16, there is not any claimed
or actual infringement or misappropriation by the Company of any
Intellectual Property which relates to the business of the Company and
which is owned by any third party, and which will have a material adverse
effect on the financial condition or operations of the Company.
(c) Except as set forth on Schedule 5.16, there is no pending or
threatened claim asserted in writing by the Company against others for
infringement or misappropriation of any Intellectual Property owned by the
Company.
(d) Except as set forth on Schedule 5.16, all applications to
register Intellectual Property which have been filed by or on behalf of
the Company, and any resulting registrations are owned by the Company,
free and clear of any security interest, lien, encumbrance or any interest
of any nature of any third party.
. The Company has timely filed without extensions or will file all foreign,
federal, state and local tax returns and estimates for all years and periods
(and portions thereof) through the Closing Date for which any such returns,
reports or estimates were due or will be due and any and all amounts shown on
such returns and reports to be due and payable through the Closing Date have
been or will be paid in full, and since the Balance Sheet Date, the Company has
not incurred any liability with respect to any taxes based on income, gross
revenues, gross receipts, purchases, sales, business, capital stock or surplus,
properties or assets of the Company except in the ordinary course of business.
The federal income tax returns of the Company have never been examined by the
Internal Revenue Service. Except as set forth on Schedule 5.17, there are no
pending audits, investigations or examinations, by any federal, state, local or
foreign taxing authority of any payment, return or report made or filed by the
Company nor has there been any claim made against the Company alleging a failure
to pay or report any kind of tax which may be assessed by any such taxing
authority against the Company. Schedule 5.17 sets forth the states in which the
Company has made sales during the past three years.
<PAGE>
.
(a) For the purposes of this Section 5.18, the term "Employee Plan"
includes all pension, retirement, disability, medical, dental or other
health insurance plans, life insurance or other death benefit plans,
profit sharing, deferred compensation, stock option, bonus or other
incentive plans, vacation benefit plans, severance plans, or other
employee benefit plans or arrangements, including, without limitation, any
pension plan as defined in Section 3(2) of The Employee Retirement Income
Security Act of 1974 ("ERISA") and any welfare plan as defined in Section
3(1) of ERISA, whether or not funded, to which the Company is a party.
(b) There are no Employee Plans other than those set forth on
Schedule 5.18.
(c) Prior to the date hereof, the Company has delivered to Purchaser
a copy of each Employee Plan set forth on Schedule 5.18 .
(d) The Company does not maintain any "pension plans" as defined in
Section 3 (2) of ERISA other than those set forth on Schedule 5.18.
(e) Each Employee Plan, if any, and the administrators and
fiduciaries of each Employee Plan and the Company have complied to their
knowledge, in all material respects, with all applicable requirements of
ERISA and of any other applicable law (including regulations and rulings
thereunder) governing each Employee Plan.
(f) The Company has no obligation. to contribute to a
"Multi-Employer Plan," as defined in Section 3(37) of ERISA.
(g) No "reportable event" (as defined in ERISA) has occurred with
respect to any Employee Plan.
. The Company has in full force and effect all policies of insurance set forth
on Schedule 5.19; the Company will have in full force and effect on the Closing
Date such policies of insurance or policies of insurance of substantially the
same character and coverage as those set forth on Schedule 5.19; and the Company
will notify Purchaser in writing of any changes in such insurance coverage
occurring prior to the Closing which would have a material adverse effect on the
financial condition or operations of the Company.
. Each of the Key Shareholders receiving shares of Purchaser's Common Stock in
the Merger agrees not to dispose of any shares in a manner that would cause the
Merger to violate the continuity of shareholder interest requirements set forth
in Treasury Regulation ss. 1.368-1. Each of the Key Shareholders receiving
shares of Purchaser's Common Stock in the Merger represents that such shares are
being purchased for his own account and for investment and without the intention
of reselling or redistributing the same; each such Key Shareholder further
acknowledges that the shares to be received in the Merger have not been
registered under the Securities Act of 1933 or relevant state securities laws
and are, therefore, restricted.
<PAGE>
. Except as set forth in Schedule 5.21, all of the tangible personal property of
the Company is (i) in good operating condition and repair, ordinary wear and
tear excepted and (ii) maintained in accordance with sound maintenance
practices. The Company's assets are sufficient for the operation of its business
in the ordinary course and are suitable for the purpose for which they are being
used. The amount of the Company's inventory and supplies currently on hand (i)
is sufficient for the operation of the Company's business in the ordinary course
based on current levels of operation adjusted for any increased level of
operations anticipated by the Company; (ii) has been purchased in the ordinary
course of business; (iii) is consistent in quality and quantity with past
practices of the Company; and (iv) is not obsolete and is of a quality and
quantity usable and salable in the ordinary course of business within twelve
(12) months subsequent to the Closing. All property leased by the Company is in
the condition required of such property by the terms of the lease applicable
thereto during the term of the lease and upon the expiration thereof. None of
the Shareholders has any direct or indirect interest in any right, property or
asset used or required by the Company in the conduct of its business.
. Except as disclosed in Schedule 5.22, since July 8, 1996, no stockholder,
director, officer or employee of the Company, nor any ancestor, sibling,
descendent or spouse (an "Affiliate") of any such person, or any trust,
partnership or corporation in which any of such persons or their Affiliates have
a material interest, has had: (i) except for passive investments, any interest
in any entity which has purchased, sold or furnished to the Company any goods or
services; (ii) a beneficial interest in any lease, contract, commitment or
understanding to which the Company is a party or by which it is bound or
affected; (iii) except for salary and bonuses in the ordinary course of business
consistent with past practices, any interest or claim against the Company or any
assets of the Company; or (iv) any interest in any assets used in the business
of the Company.
. All products sold and services provided by the Company (and the delivery
thereof) have been, to the Company's knowledge, in conformity with all
applicable contractual commitments and all express or implied warranties by the
Company and its suppliers. To the Company's knowledge, no liability for any
warranty claims exist for the repair or replacement thereof or other damages in
connection with such services, sales or deliveries, except for any such claims
incurred in the ordinary course of business consistent in amount and character
with past experience of the Company. Copies of the standard terms and conditions
of sale, delivery or lease of the Company (including, without limitation, all
warranty provisions) are attached hereto as Schedule 5.23.
. Attached Schedule 5.24 lists:
(a) all employee handbooks and/or manuals relating to the employees
of the Company, true and correct copies of which have been delivered to
Purchaser; and
(b) all employees of the Company, together with their job
descriptions, rates of salary or wages, vacation benefits, and each bonus,
deferred compensation, stock option, incentive compensation, severance or
termination pay agreement or employment benefit applicable to each such
employee, whether formal or informal and whether legally binding or not.
<PAGE>
. To the Company's knowledge:
(a) Neither the Company, any Shareholder or any other user or owner
of the Company's owned or leased real property (the "Real Estate") has
violated or been threatened with or received a notice, directive,
violation report or charge asserting any violation of the Federal Solid
Waste Disposal Act, the Federal Clean Air Act, the Federal Clean Water
Act, the Federal Resource Conservation Recovery Act of 1976 ("RCRA"), the
Federal Comprehensive Environmental Responsibility, Cleanup and Liability
Act of 1980 ("CERCLA"), the Toxic Substance Control Act of 1976, or any
other Laws regulating or otherwise affecting or relating to the
environment ("Environmental Laws"), as the same may have been amended. No
action has been taken against the Real Estate, any Key Shareholder, the
Company or any other user or owner of the Real Estate by any federal,
state or local department or agency concerning any Environmental Laws. The
Real Estate and the Company are, and at all times in the past have been,
in compliance with all Environmental Laws. No asbestos, urea formaldehyde
or polychlorinated biphenyls or any other hazardous substances are present
in, on or under any of the Real Estate. No assets of the Company are
required to be upgraded, modified or replaced to be in compliance with
Environmental Laws.
(b) Neither the Company, any Key Shareholder nor any user or owner
of the Real Estate has generated, stored, used, disposed of, spilled,
discharged or released any substance in any manner on the Real Estate and
the improvements thereon or on property adjacent to the Real Estate or
performed an environmental cleanup on the Real Estate or adjacent property
which may form the basis for any present or future claim against the
Company based upon Environmental Laws, or any demand or action seeking
cleanup of any site, location or body of water, surface or subsurface,
under any Environmental Laws, or otherwise, or which may subject the
Company and/or Purchaser to claims for damages.
(c) No septic systems or wells exist on, in or under any of the Real
Estate. The Real Estate has never been used as a landfill, dump site or
any other use which involves the disposal of solid waste on the Real
Estate in a manner which may subject the Company to any claim for cleanup
or damages under Environmental Laws. No hazardous or toxic substances or
waste, as defined under Environmental Laws, are located at, on or under
any of the Real Estate, or have been used, generated, treated, stored,
disposed of, handled or removed from any of the Real Estate.
(d) No above ground or underground storage tanks have ever been
located at, on or under any of the Real Estate. At no time prior to or
during the Company's use of the Real Estate have hazardous or toxic
substances or wastes, as defined under Environmental Laws, been spilled,
discharged, leaked, discarded, released or otherwise deposited on any of
the Real Estate. None of the Real Estate is contaminated by hazardous or
toxic substances or wastes, as defined under Environmental Laws,
originating from off-site sources.
<PAGE>
(e) No environmental claims have been asserted or are threatened or
are anticipated to be asserted against the Company with respect to the
Real Estate, any of its assets and/or the operation of its business.
. The Company is in compliance with and has all permits, registrations and
authorizations required by all applicable Laws in the material operation of the
Company's business. Attached hereto as Schedule 5.26 is a true and complete list
of all licenses, permits, registrations and authorities issued or granted to the
Company by local, state or federal government authorities or agencies. To the
knowledge of the Company, the Company is not in breach or violation of any
applicable Law relating thereto and all such licenses, registrations, permits
and authorities are current and effective.
. Schedule 5.27 attached hereto sets forth, with respect to the last fiscal year
of the Company, a list of the ten (10) largest customers of the Company
determined by dollar amount of goods purchased from, or services provided by,
the Company. The Company and the Key Shareholders have received no notice or
indication, and have no reason to believe, that any customer, supplier or third
party to material contracts of the Company intends to cease doing business or
reduce in any material respect the business transacted with the Company or to
terminate or modify any agreements with the Company (whether as a result of
consummation of the transactions contemplated hereby or otherwise).
. Attached hereto as Schedule 5.28 is (i) a true and complete list of the bank
and savings accounts, certificates of deposit and safe deposit boxes of the
Company and those persons authorized to sign thereon, and (ii) true and correct
copies of all corporate borrowing, depository and transfer resolutions and those
persons entitled to act thereunder.
. To the knowledge of the Company, all items, products, software, components and
systems used in the operation of the business of the Company, which incorporate
the processing of dates or date-related data (including, but not limited to,
representing, calculating, comparing and sequencing), including, but not limited
to, computer systems, infrastructure items, software applications, hardware and
related equipment and utilities ("Components"), developed, in whole or part, by
the Company are currently Y2K-compliant, except as set forth in Schedule 5.29.
The Company has used commercially reasonable efforts to obtain (i) commitments
that all its vendors are or will be Y2K-compliant, and (ii) enforceable
agreements with each such vendor setting forth details of plans and schedules to
achieve Y2K-compliance and agreed-upon penalties for failure to achieve full
compliance pursuant to such schedules. "Y2K-compliant" shall mean able to
provide specific dates and calculate spans of dates, and to record, store,
process and provide true and accurate dates and calculations for dates and spans
of dates within and between the twentieth and twenty-first centuries prior to,
including and following January 1, 2000, including by: (i) correctly processing
day and date calculations; (ii) recognizing January 1, 2001 as a valid date;
(iii) recognizing the year 2000 as a leap year having 366 days, and correctly
processing February 29, 2000 as a valid leap year date; (iv) employing only
four-digit year representations in software, components and systems owned or
operated in connection with the Company; and (v) incorporating interface
programs sufficient to translate accurately to four-digit format (without any
burden of interpretation) any two-digit year representations included in
software, components or systems, including but not limited to external
databases, data warehouses,
<PAGE>
software systems and user interfaces that send data to or receive data from
software, components or systems used in the Company's business.
. No warranty or representation by the Key Shareholders contained in this
Agreement or in any writing to be furnished pursuant hereto contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact required to make the warranties or representations herein or
therein contained not misleading. The Company and the Key Shareholders have
disclosed to Buyer all material adverse facts known to the Company or the Key
Shareholders relating to the Company, its assets or business.
. "Knowledge of the Company" shall mean, with respect to a particular fact or
other matter, that (i) any individual who is a director or executive officer of
the Company is actually aware of such fact or other matter or (ii) any such
individual in the satisfaction of his duties as a director or executive officer
of the Company would be reasonably expected to discover or otherwise to be or to
become aware of such fact or other matter in the course of conducting the
operations and business of the Company.
Except where otherwise indicated, Purchaser and Acquisition Sub warrant
and represent to and covenant with the Company and the Shareholders as follows:
. Purchaser and Acquisition Sub are corporations duly incorporated, validly
existing and in good standing under the laws of Delaware and Minnesota,
respectively. Each of Purchaser and Acquisition Sub has the corporate power and
holds all rights, privileges, franchises, immunities, licenses, permits,
authorizations and approvals (governmental or otherwise) necessary to own and
operate its properties and to conduct its business as presently conducted,
except where the failure of which to hold would not have a material adverse
effect on the financial condition or operations of either Purchaser or
Acquisition Sub.
. Each of Purchaser and Acquisition Sub has all right, power and authority
required for it to enter into and perform its obligations under this Agreement
and, in the case of Acquisition Sub, the Plan of Merger. Upon approval of this
Agreement by the Boards of Directors of Purchaser and Acquisition Sub, each of
Purchaser and Acquisition Sub will have taken all corporate actions on its part
necessary or appropriate to execute, deliver and perform this Agreement and, in
the case of Acquisition Sub, to consummate the Merger, and this Agreement will
have been duly authorized, executed and delivered by each of Purchaser and
Acquisition Sub and will be binding upon, and enforceable against it in
accordance with its terms and conditions; and, when executed and delivered by
Acquisition Sub, the Plan of Merger will be duly authorized, executed and
delivered by Acquisition Sub and will be binding upon, and enforceable against,
Acquisition Sub in accordance with its terms and conditions.
. The execution and delivery of this Agreement by Purchaser and Acquisition Sub,
and the execution and delivery of the Plan of Merger by Acquisition Sub, and the
performance of their respective obligations hereunder and under the Plan of
Merger, will not conflict with or constitute a default under the Articles of
Incorporation or By-Laws of Purchaser or Acquisition Sub or to the knowledge of
Purchaser or Acquisition Sub, any material contract, agreement, note,
<PAGE>
debt instrument, security agreement, mortgage, arrangement, commitment or plan
to which Purchaser or Acquisition Sub is a party, or under which Purchaser or
Acquisition Sub may be obligated, or by which Purchaser or Acquisition Sub or
any of its material rights, properties or assets may be subject or bound.
. There are no actions, suits or proceedings pending, or to the knowledge of
Purchaser, threatened in writing against Purchaser, at law or in equity, before
any federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, which if
determined adversely to Purchaser, would have a material adverse effect on the
ability of Purchaser to perform its obligations hereunder.
.
(a) The total number of shares of capital stock and the par value
thereof which the Purchaser is authorized to issue, the number of such
shares which are issued and outstanding, and the number of treasury shares
are set forth on Schedule 6.5.
(b) Except as set forth on Schedule 6.5, there are no outstanding
options, conversion rights, warrants or other rights in existence to
acquire from the Company any of its shares of capital stock.
(c) The shares of the Purchaser Common Stock to be issued to the
Shareholders of the Company in the Merger will be at the Effective Time
duly and validly issued, fully paid and nonassessable and have not been
issued in violation of, and are not subject to, any preemptive rights,
and, except as set forth on Schedule 6.5, there are no voting trust
agreements or other contracts, agreements or arrangements to which either
the Purchaser or, to the knowledge of the Purchaser, the Shareholders is a
party restricting voting or dividend rights or transferability with
respect to the outstanding shares of capital stock of the Company.
. The Purchaser is not conducting its business or affairs in violation of any
applicable federal, state or local law, statute, ordinance, rule, permit or
regulation except for violations which individually or in the aggregate would
not have a material adverse effect on the financial condition or operations of
the Purchaser.
. The Financial Statements were prepared from the Purchaser's books and records
in accordance with generally accepted accounting principles, consistently
applied, and present fairly in all material respects the financial position,
results of operations and changes in cash flows of the Purchaser at the dates
and for the periods indicated therein.
. Except as set forth on Schedule 6.8,
(a) on the Balance Sheet Date, the Purchaser did not have any
material liability of a nature required to be reflected on a balance sheet
prepared in accordance with generally accepted accounting principles,
which was not disclosed, reflected or reserved against in the Balance
Sheet; and
<PAGE>
(b) except for liabilities which have been incurred in the ordinary
course of business, since the Balance Sheet Date, the Purchaser has not
incurred any material liability of any nature which would be required to
be reflected on a balance sheet prepared in accordance with generally
accepted accounting principles.
. The Purchaser has timely filed without extensions or will file all foreign,
federal, state and local tax returns and estimates for all years and periods
(and portions thereof) through the Closing Date for which any such returns,
reports or estimates were due or will be due. The federal income tax returns of
the Purchaser have never been examined by the Internal Revenue Service. Except
as set forth on Schedule 6.9, there are no pending audits, investigations or
examinations, by any federal, state, local or foreign taxing authority of any
payment, return or report made or filed by the Purchaser nor has there been any
claim made against the Purchaser alleging a failure to pay or report any kind of
tax which may be assessed by any such taxing authority against the Purchaser.
. The Purchaser is in compliance with and has all permits, registrations and
authorizations required by all applicable Laws in the operation of the
Purchaser's business. To the knowledge of the Purchaser, the Purchaser is not in
breach or violation of any applicable Law relating thereto and all such
licenses, registrations, permits and authorities are current and effective.
. No warranty or representation by the Purchaser contained in this Agreement or
in any writing to be furnished pursuant hereto contains or will contain any
untrue statement of fact or omits or will omit to state any material fact
required to make the warranties or representations herein or therein contained
not misleading. The Purchaser has disclosed to the Company all material adverse
facts known to the Purchaser relating to the Purchaser, its assets or business.
The obligations of Purchaser and Acquisition Sub under this Agreement are
subject to the following conditions precedent:
. Neither Purchaser nor the Company shall have terminated this Agreement
pursuant to Section 9.1 hereof.
. The warranties and representations made herein by the Company and the Key
Shareholders to Purchaser and Acquisition Sub shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if such
warranties and representations had been made on and as of the Closing Date, and
the Company and the Key Shareholders shall have performed and complied in all
material respects with all agreements, covenants and conditions on their
respective parts required to be performed or complied with on or prior to the
Closing Date; and at the Closing, Purchaser and Acquisition Sub shall have
received a certificate executed by the Company and the Key Shareholders to the
foregoing effect.
. No court or other governmental Person shall have issued an order which shall
be in effect on the Closing Date restraining or prohibiting the consummation of
the transactions contemplated hereby.
<PAGE>
. All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in all material respects and in form and
substance to Purchaser and its counsel, and Purchaser shall have received copies
of such documents as Purchaser and its counsel may reasonably request in
connection with said transactions.
. The approval or consent of all United States agencies and all state and local
governmental bodies and agencies as may be necessary to consummate the
transactions contemplated hereunder shall have been received.
. All amendments or supplements to the Schedules hereto made by the Company
which are individually or in the aggregate material to the business, operations
or financial condition of the Company shall be acceptable to Purchaser and
Acquisition Sub.
. The directors and officers of the Company shall have resigned their positions
as such as of the Closing Date.
7.8 Ancillary Documents. All documents or instruments set forth in Section
2.2(d) shall be delivered to Purchaser.
. In accordance with the Company's Articles of Incorporation and Minnesota
Corporate law, the Company shall have only approved the transactions
contemplated by this Agreement. The Company shall not have received notice of
dissenters' rights from more than ten percent (10%), by interest, of the
Shareholders.
. The Purchaser must receive the approval of this Agreement by Purchaser's Board
of Directors.
. All Shareholders of the Company shall have executed Exchange Agreements for
the benefit of Purchaser representing, among other things, good title to the
Company Capital Stock owned by such Shareholder and acknowledging the securities
law restrictions applicable to the Purchaser Common Stock that they will
receive.
. All Shareholders of the Company shall have executed that certain Stockholders
Agreement of the Purchaser dated as of September 30, 1999.
Except for the condition set forth in Section 7.5 hereof, Purchaser and
Acquisition Sub shall have the right to waive any of the foregoing conditions
precedent.
The obligations of the Company under this Agreement are subject to the
foregoing conditions precedent:
. Neither Purchaser nor the Company shall have terminated this Agreement
pursuant to Section 9.1 hereof.
<PAGE>
. All warranties and representations made by Purchaser and Acquisition Sub
herein to the Company shall be true and correct in all material respects on and
as of the Closing Date with the same effect as if such warranties and
representations had been made on and as of the Closing Date, and Purchaser and
Acquisition Sub shall have performed and complied in all material respects
(except for the payment obligations which shall be absolute) with all
agreements, covenants and conditions on their part required to be performed or
complied with on or prior to the Closing Date; and at the Closing, the Company
shall have received a certificate executed by the President or any Vice
President of each of Purchaser and Acquisition Sub to the foregoing effect.
. No court or other governmental Person shall have issued an order which shall
be in effect on the Closing Date restraining or prohibiting the consummation of
the transactions contemplated hereby.
. All proceedings to be taken in connection with the consummation of the
transactions contemplated by this Agreement and all documents incident thereto
shall be reasonably satisfactory in all material respects and in form and
substance to the Company and its counsel, and the Company and its counsel shall
have received copies of such documents as the Company and its counsel may
reasonably request in connection with the transactions.
. The approval or consent of all United States agencies and all state and local
governmental bodies and agencies as may be necessary to consummate the
transactions contemplated hereunder shall have been received.
8.6 Ancillary Documents. All documents or instruments set forth in Section
2.2(c) shall be delivered to the Company.
Except for the condition set forth in Sections 8.5 hereof, the Company
shall have the right to waive any of the foregoing conditions precedent.
. This Agreement may be terminated at any time prior to the Closing as follows,
and in no other manner:
(a) By mutual agreement of Purchaser and the Company;
(b) By Purchaser or the Company, if at or before the Closing any
condition set forth herein for the benefit of Purchaser or the Company,
respectively, shall not have been timely met and cannot be met on or
before the Closing Date and has not been waived, provided that the
terminating party has not defaulted in any material respect in the
performance of any of its obligations under this Agreement;
(c) By Purchaser or the Company, if the Closing of the transactions
contemplated by this Agreement shall not have occurred on or before
February 28, 2000, unless additional time is needed to obtain approval by
the Minnesota Public Utilities Commission (but not to extend beyond June
30, 2000), or such later date as may have been agreed upon in writing by
the parties hereto, provided that any such failure to close
<PAGE>
is not due to any default in any material in the performance of any
obligation under this Agreement by the terminating party;
(d) By Purchaser or the Company, if any warranty or representation
made herein for the benefit of Purchaser or the Company or in any
certificate, schedule, or documents furnished to Purchaser or the Company
pursuant to this Agreement is untrue in any material respect or the
Purchaser, the Company or the Key Shareholders shall have defaulted in any
material respect in the performance of any material obligation under this
Agreement.
.
(a) Subject to Section 11.1(b), in the event of any termination of
this Agreement pursuant to Section 9.1, this Agreement shall forthwith
become void and have no further effect, and there shall be no liability on
the part of any party hereto.
(b) Notwithstanding any other provision of this Agreement, no
termination of this Agreement shall release any party from liability for
any breach of its obligations hereunder or any misrepresentation or other
violation of the terms and conditions of this Agreement.
. The Company and the Key Shareholders jointly and severally (but as to the Key
Shareholders, it shall be joint but not several), and the Shareholders other
than the Key Shareholders pursuant to Section 4(g) of the Exchange Agreement,
agree to indemnify Purchaser and to hold it harmless from and against any and
all damages, losses, deficiencies, actions, demands, judgments, costs and
expenses (including, without limitation, attorneys' and accountants' fees)
(collectively, "Losses") of or against Purchaser or Acquisition Sub resulting
from:
(a) any misrepresentation or breach of any warranty or
representation of the Company or the Key Shareholders, or any of them, in
this Agreement or in any document, instrument or agreement executed and/or
delivered pursuant to or in connection with this Agreement by the Key
Shareholders;
(b) any breach or nonfulfillment of any agreement or covenant of the
Company or the Key Shareholders, or any of them, contained in this
Agreement or in any certificate, document or instrument executed and/or
delivered pursuant to or in connection with this Agreement by the Key
Shareholders;
(c) any assessments, claims or liabilities (including interest and
penalties) for federal, state or local income, sales, use, franchise or
other taxes relating to, imposed upon or assessed against the sales,
income, property or business of the Company for all periods prior to the
Closing Date, except for any federal, state or local tax liabilities which
are identified as such and fully reflected as a current liability on the
Balance Sheet; and
<PAGE>
(d) third party claims (including fines and penalties sought to be
imposed or enforcement proceedings commenced by governmental agencies)
based upon, alleging or arising out of any act, omission or occurrence on
or before the Closing Date, including, without limitation, any claim for
nonperformance or breach of contract, any claim for worker's compensation
or unemployment compensation, and/or claims for personal injury or for
property damage.
. Purchaser agrees to indemnify the Company and the Shareholders and to hold
them harmless from and against any and all Losses of or against the Company and
the Shareholders resulting from (a) any misrepresentation or breach of any
warranty or representation of Purchaser in this Agreement or in any document,
instrument or agreement executed and/or delivered by Purchaser pursuant to or in
connection with this Agreement; and (b) any non-fulfillment of any agreement or
covenant contained in this Agreement or in any certificate, document or
instrument executed or delivered by Purchaser pursuant to or in connection with
this Agreement and (c) for all costs and expenses of operating the Company (or
its successors in interest) following the Closing.
.
(a) If a party shall claim that it is entitled to be indemnified
pursuant to the terms of this Article, it (the "Claiming Party") shall so
notify the party or parties against which the claim is made (the
"Indemnifying Party") in writing of such claim within sixty (60) days
after the Claiming Party receives notice of any action, proceeding, demand
or assessment or otherwise has received notice of any claim of a third
party that may reasonably be expected to result in a claim for
indemnification by the Claiming Party against the Indemnifying Party;
provided, however, that failure to give such notification shall not affect
the indemnification provided hereunder except to the extent the
Indemnifying Party is actually prejudiced as a result of such failure.
Such notice shall specify the breach of representation, warranty or
agreement claimed by the Claiming Party and the Losses incurred by or
imposed upon the Claiming Party on account thereof. If such Losses are
liquidated in amount, the notice shall so state and such amount shall be
deemed the amount of the claim of the Claiming Party. If the amount is not
liquidated, the notice shall so state and in such event a claim shall be
deemed asserted against the Indemnifying Party on behalf of the Claiming
Party, but no payment shall be made on account thereof until the amount of
such claim is liquidated and the claim is finally determined.
(b) The following provisions shall apply to any claim of the
Claiming Party which is based upon (i) a suit, action or proceeding filed
or instituted by any third party, or (ii) any form of proceeding or
assessment instituted by any governmental entity:
(i) The Indemnifying Party shall, upon receipt of such written
notice and at its expense, actively and in good faith defend such
claim in its own name or, if necessary, in the name of the Claiming
Party; provided, however, that if the proceeding involves a matter
solely of concern to the Claiming Party in addition to the claim for
which indemnification under this Agreement is being sought, such
matter shall be within the sole responsibility of the Claiming Party
and its
<PAGE>
counsel. The Claiming Party will cooperate with and make available
to the Indemnifying Party such assistance and materials as may be
reasonably requested of it, and the Claiming Party shall have the
right, at its expense, to participate in the defense. The
Indemnifying Party shall have the right to settle and compromise
such claim only with the consent of the Claiming Party (which
consent shall not be unreasonably withheld).
(ii) If the Indemnifying Party notifies the Claiming Party
that it disputes any claim made by the Claiming Party and/or it
fails to defend such claim actively and in good faith, then the
Claiming Party shall have the right to conduct a defense against
such claim and shall have the right to settle and compromise such
claim upon three (3) days notice to, but without the consent of, the
Indemnifying Party. Once the amount of such claim is liquidated and
the claim is finally determined, the Claiming Party shall be
entitled to pursue each and every remedy available to it at law or
in equity to enforce the indemnification provisions of this
Agreement and, in the event it is determined, or the Indemnifying
Party agrees, that it is obligated to indemnify the Claiming Party
for such claim, the Indemnifying Party agrees to pay all costs,
expenses and fees, including, without limitation, all reasonable
attorneys' fees which may be incurred by the Claiming Party in
enforcing or attempting to enforce indemnification under this
Agreement, whether the same shall be enforced by suit or otherwise.
.
(a) Notwithstanding anything in this Section 10 to the contrary,
Purchaser, on the one hand and the Company and the Key Shareholders on the
other hand, shall not be liable under the indemnification provisions of
this Section 10 in any instance until such time as the aggregate liability
under this Section 10 exceeds $25,000 (in which event the indemnifying
parties shall be liable for all of such amounts). Claims for
indemnification under this Section 10 shall be limited to the sum of (i)
the aggregate purchase price under Section 1.4 plus (ii) the Earnout
Proceeds under Section 1.5 less (iii) the cash amounts payable to
Shareholders under (i) and (ii) above other than the Key Shareholders.
(b) In connection with satisfying any claims for Losses under this
Section 10, the Purchaser shall (i) first seek indemnification from the
Purchaser Common Stock issued under Section 1.4 (from the Shareholders on
a pro rata basis) and (ii) second seek indemnification from cash amounts
paid to the Shareholders under Sections 1.4 and 1.5; subject to the
limitation set forth in Section 10.4(a) above. For purposes of this
Section 10.4(b), the Purchaser Common Stock is valued at $6.00 per share.
(c) If Purchaser notifies the Key Shareholders of any claims under
this Section 10 during the Earnout Period, the Purchaser may escrow such
portion of the Earnout Proceeds reasonably equivalent to the amount of the
Loss with a third party mutually acceptable to the Key Shareholders and
the Purchaser. Thereafter, any such
<PAGE>
claim for indemnification shall follow the procedures relative to
indemnification set forth in Section 10.3.
. Nothing herein is intended to restrict the right of the Company to assert a
statute of limitations defense to third party claim made pursuant to this
Section 10.
.
(a) If the Closing of the Merger occurs, (i) Purchaser and
Acquisition Sub shall pay $52,000 of the costs and expenses incurred by
the Company in connection with the negotiation, preparation and execution
of this Agreement and the consummation of the Merger and the other
transactions contemplated hereby and (ii) any amounts in excess of $52,000
shall be paid by the Shareholders. All costs and expenses incurred by the
Purchaser and the Acquisition Sub in connection with this Agreement shall
be paid by the Purchaser or the Acquisition Sub.
(b) If the Closing of the Merger does not occur, all reasonable
out-of-pocket costs and expenses incurred in connection with the
negotiation, preparation and execution of this Agreement and the
consummation of the Merger and the other transactions contemplated hereby
shall be paid by Purchaser. All costs and expenses incurred by the
Purchaser and the Acquisition Sub in connection with this Agreement shall
be paid by the Purchaser or the Acquisition Sub.
. Except for attorneys and accountants for the respective parties, none of the
Company, the Shareholders, Purchaser or Acquisition Sub has retained any broker,
finder, investment banker or financial advisor in connection with this Agreement
or the Merger or any other transaction contemplated hereby.
. The warranties and representations of the Company contained in this Agreement
shall survive for a period of twelve (12) months following the Effective Time of
the Merger; provided however, the representations and warranties of the Company
in Sections 5.1, 5.5 and 5.6 shall survive without limitation.
. This Agreement (including all Schedules and the Exhibits hereto and any other
agreements executed and delivered herewith) contain the entire understanding of
the parties hereto with respect to the subject matter contained herein and
therein. This Agreement supersedes any and all prior agreements and
understandings between the parties with respect to such subject matter. No
waiver and no modification or amendment of any provision of this Agreement shall
be effective unless specifically made in writing and duly signed by the party to
be bound thereby.
. Prior to the Closing Date, all notices to third parties and all other
publicity relating to the transaction contemplated by this Agreement shall be
jointly planned, coordinated and agreed to by Purchaser and the Company. Prior
to the Closing Date, none of the parties hereto shall act unilaterally in this
regard without the prior written approval of the others, such approval not to be
unreasonably withheld.
<PAGE>
. This Agreement may be executed in counterparts, each of which shall be deemed
an original but all of which, together, shall constitute one and the same
instrument.
. If any provision hereof shall be held invalid or unenforceable by any court of
competent jurisdiction or as a result of future legislative action, such holding
or action shall be strictly construed and shall not affect the validity or
effect of any other provision hereof.
. This Agreement shall be binding upon and inure to the benefit of the
successors and permitted assigns of the parties hereto. None of Purchaser,
Acquisition Sub nor the Company or any of the Shareholders may assign or
transfer any of its or his rights or obligations under this Agreement, except
with the prior written consent of the other parties.
. This Agreement is for the sole benefit of the parties hereto and nothing
herein expressed or implied shall give or be construed to give any Person other
than the parties hereto any legal or equitable rights hereunder, except as
otherwise set forth in Section 10.1 hereof.
.
(a) THE VALIDITY, INTERPRETATION AND EFFECT OF THIS AGREEMENT SHALL
BE GOVERNED EXCLUSIVELY BY THE LAWS OF THE STATE OF MINNESOTA, EXCLUDING
THE "CONFLICT OF LAWS" RULES OF MINNESOTA.
(b) EACH OF THE PARTIES HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF (i) THE FOURTH JUDICIAL DISTRICT COURT OF THE STATE OF
MINNESOTA, AND (ii) THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF
MINNESOTA, FOR THE PURPOSES OF ANY SUIT, ACTION OR OTHER PROCEEDING
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY (AND
AGREES NOT TO COMMENCE ANY ACTION, SUIT OR PROCEEDING RELATING HERETO
EXCEPT IN SUCH COURTS). EACH OF THE PARTIES HERETO FURTHER AGREES THAT
SERVICE OF ANY PROCESS, SUMMONS, NOTICE OR DOCUMENT BY U.S. REGISTERED
MAIL TO SUCH PARTY'S RESPECTIVE ADDRESS SET FORTH HEREIN SHALL BE
EFFECTIVE SERVICE OF PROCESS FOR ANY ACTION, SUIT OR PROCEEDING IN
MINNESOTA WITH RESPECT TO ANY MATTERS TO WHICH IT HAS SUBMITTED TO
JURISDICTION AS SET FORTH ABOVE IN THE IMMEDIATELY PRECEDING SENTENCE.
EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
OBJECTION TO THE LAYING OF VENUE OF ANY ACTION, SUIT OR PROCEEDING ARISING
OUT OF THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN (x) THE
FOURTH JUDICIAL CIRCUIT COURT OF THE STATE OF MINNESOTA OR (y) THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF MINNESOTA, AND HEREBY FURTHER
IRREVOCABLY AND UNCONDITIONALLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN
ANY SUCH COURT THAT ANY SUCH
<PAGE>
ACTION, SUIT OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
. All notices or other communications required or permitted by this Agreement
shall be in writing and shall be deemed to have been duly received (a) if given
by facsimile, when transmitted and the appropriate telephonic confirmation
received if transmitted on a Business Day and during normal business hours of
the recipient, and otherwise on the next Business Day following transmission,
(b) if given by certified or registered mail, return receipt requested, postage
prepaid, three Business Days after being deposited in the U.S. mails and (c) if
given by courier or other means, when received or personally delivered, and
addressed as follows:
To the Company or Shareholders: Fishnet.Com, Inc.
625 Marquette Avenue South
Suite 167
Minneapolis, Minnesota 55402
Attention: Stephen S. Solbrack
Phone: (612) 338-3474
Fax: (612) 338-8733
With a copy to: Adam M. Soffer, Esq.
Parsinen, Kaplan, Levy,
Rosberg, Gotlieb P.A.
100 South Fifth Street, Suite 1100
Minneapolis, MN 55402
Phone: (612) 333-2111
Fax: (612) 333-6798
To Purchaser or Acquisition Sub: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, Minnesota 55402
Attention: Cliff D. Williams
Phone: (612) 376-4400
Fax: (612) 376-4411
With a copy to: Kevin L. Crudden, Esq.
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Ave.
Minneapolis, Minnesota 55402-2015
Phone: (612) 349-8475
Fax: (612) 339-4181
or to such other addresses as may be specified by any party hereto to the other
parties pursuant to notice given by such party in accordance with the provisions
of this Section 11.11.
<PAGE>
. A disclosure contained in any item of any Schedule or in any section of this
Agreement shall constitute a disclosure for all relevant items of the Schedules
and all relevant sections of this Agreement.
. The failure of any party at any time or times to require the performance of
any provision hereof shall in no manner affect the right at a later time to
enforce the same. The waiver by any party of any condition, or the breach of any
provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances shall
be deemed to be or construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
* * * * * *
The parties hereto have duly executed this Agreement on the day and year
first above written.
ADVANCED TELECOMMUNICATIONS, INC. FISHNET ACQUISITION CORP.
By: By:
Cliff D. Williams Cliff D. Williams
Chief Executive Officer Chief Executive Officer
By: By:
Richard A. Smith Richard A. Smith
Chief Financial Officer Chief Financial Officer
FISHNET.COM, INC.
By:
Steven M. Holland
Chief Executive Officer
By:
Steven S. Solbrack
<PAGE>
Chief Financial Officer
EXHIBIT A
FISHNET.COM, INC.
LIST OF SHAREHOLDERS
SHAREHOLDERS
- -----------------------------------
- -----------------------------------
- -----------------------------------
- -----------------------------------
EXHIBIT D
Stock
Individual Options
-------------------------------------------------
Jason Malacko 1,000
Chris Bauer 250
Karen Conavatti 250
<PAGE>
EXHIBIT D-1
Stock
Individual Options
-------------------------------------------------
Steven Holland 45,000
Steven Solbrack 45,000
Steven Kolar 45,000
Greg Kenfield 20,000
Jason Malacko 20,000
Chris Bauer 8,000
Todd Miller 8,000
Jason Tims 5,000
<PAGE>
Exhibit 3.1.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
ADVANCED TELECOMMUNICATIONS, INC.
Advanced Telecommunications, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
1. The name of the Corporation is Advanced Telecommunications, Inc.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on September 20, 1999. The
Amended and Restated Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on September 30, 1999, and is in effect on the
date of the filing of this Second Amended and Restated Certificate of
Incorporation (the "Charter").
3. This Charter was duly adopted in accordance with the provisions of
Sections 242, 245, and 228 of the General Corporation Law of the State of
Delaware by resolution of the Board of Directors of the Corporation and the
written consent of the Corporation's stockholders, with written notice being
provided to all stockholders in accordance with Section 228(d). This Charter
restates, integrates, amends, and supersedes the provisions of the Certificate
of Incorporation of the Corporation.
4. The text of the Certificate of Incorporation is hereby restated to read
in its entirety as follows:
ARTICLE I
Name
The name of the Corporation is Advanced Telecommunications, Inc.
ARTICLE II
Period of Existence
The period of existence of the Corporation shall be perpetual.
ARTICLE III
Purposes
The purpose or purposes of the Corporation are to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware, and to have and exercise all the
powers conferred by the laws of the State of Delaware upon corporations formed
under the General Corporation Law of the State of Delaware.
<PAGE>
ARTICLE IV
Authorized Shares
1. Classes of Stock. The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the Corporation is authorized to issue is
75,000,000 shares.
2. Common Stock. The Common Stock shall consist of 45,000,000 shares, each
with a par value of $0.01. The rights, preferences, privileges, and restrictions
granted to and imposed on the Common Stock are as set forth below in Article VI.
3. Preferred Stock. The Preferred Stock shall consist of 30,000,000
shares, each with a par value of $0.01. The Preferred Stock authorized by this
Charter may be issued from time to time in one or more series. The first series
of Preferred Stock shall be designated "Series A Preferred Stock" and shall
consist of 6,041,940 shares. The second series of Preferred Stock shall be
designated "Series B1 Preferred Stock" and shall consist of 1,349,506 shares.
The third series of Preferred Stock shall be designated "Series B2 Preferred
Stock" and shall consist of 1,552,154 shares. The fourth series of Preferred
Stock shall be designated "Series B3 Preferred Stock" and shall consist of
1,296,704 shares. The fifth series of Preferred Stock shall be designated
"Series B4 Preferred Stock" and shall consist of 294,254 shares. The Series B1
Preferred Stock, Series B2 Preferred Stock, Series B3 Preferred Stock and Series
B4 Preferred Stock are sometimes referred to herein collectively as the "Series
B Preferred Stock." The sixth series of Preferred Stock shall be designated
"Series C Preferred Stock" and shall consist of 15,156,000 shares. The seventh
series of Preferred Stock shall be designated "Series C1 Preferred Stock" and
shall consist of 1,689,262 shares. The rights, preferences, privileges, and
restrictions granted to and imposed on the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series C1 Preferred Stock are as
set forth below in Article V.
4. Additional Classes and Series of Stock. In addition to, and not by way
of limitation of, the powers granted to boards of directors by Section 151 of
the Delaware General Corporation Law, the board of directors of the Corporation
(the "Board of Directors") shall have the power and authority to fix by
resolution any designation, class, series, voting power, preference, right,
qualification, limitation, restriction, dividend, time and price of redemption,
and conversion right with respect to any stock of the corporation. Upon adoption
of such resolution, a statement shall be filed with the Secretary of State in
compliance with the Delaware General Corporation Law, before the issuance of any
shares for which the resolution creates rights or preferences not set forth in
this Charter; provided, however, where the stockholders have received notice of
the creation of shares with rights or preferences not set forth in this Charter
before the issuance of the shares, the statement may be filed any time within
one year after the issuance of the shares. Subject to compliance with applicable
protective voting rights that have been or may be granted to the Preferred Stock
in this Charter (the "Protective Provisions"), but notwithstanding any other
rights of the Preferred Stock or any series thereof, the rights, privileges,
preferences and restrictions of any such additional series or class may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to liquidation and acquisition preferences, redemption
and/or approval of matters by vote
-2-
<PAGE>
or written consent), or senior to any of those of any present or future class or
series of Preferred Stock or Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors is also authorized to increase or
decrease the number of shares of any series (other than the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series C1
Preferred Stock), prior or subsequent to the issue of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
Terms of Preferred Stock
The Preferred Stock shall have the following rights, preferences, powers,
privileges and restrictions, qualifications and limitations.
1. Original Purchase Price; Original Issue Date; Rank.
(a) The issuance price of the Series A Preferred Stock shall be
$1.4583 per share (the "Series A Original Purchase Price"). The issuance price
of the Series B1 Preferred Stock shall be $1.8207 per share (the "Series B1
Original Purchase Price"). The issuance price of the Series B2 Preferred Stock
shall be $2.0318 per share (the "Series B2 Original Purchase Price"). The
issuance price of the Series B3 Preferred Stock shall be $2.0822 per share (the
"Series B3 Original Purchase Price"). The issuance price of the Series B4
Preferred Stock shall be $5.00 per share (the "Series B4 Original Purchase
Price"). The issuance price of the Series C Preferred Stock shall be $5.00 per
share (the "Series C Original Purchase Price"). The issuance price of the Series
C1 Preferred Stock shall be $6.00 per share (the "Series C1 Original Purchase
Price"). The Series A Original Purchase Price, the Series B1 Original Purchase
Price, the Series B2 Original Purchase Price, the Series B3 Original Purchase
Price, the Series B4 Original Purchase Price, the Series C Original Purchase
Price and the Series C1 Original Purchase Price , are sometimes referred to, as
applicable, as the "Original Purchase Price".
(b) The date on which the first share of Series A Preferred Stock
was issued shall hereinafter be referred to as the "Series A Original Issue
Date." The date on which the first share of Series B Preferred Stock was issued
shall hereinafter be referred to as the "Series B Original Issue Date." The date
on which the first share of Series C Preferred Stock was issued shall
hereinafter be referred to as the "Series C Original Issue Date." The date on
which the first share of Series C1 Preferred Stock was issued shall hereinafter
be referred as the "Series C1 Original Issue Date." The Series A Original Issue
Date, the Series B Original Issue Date, the Series C Original Issue Date, and
the Series C1 Original Issue Date are sometimes referred to, as applicable, as
the "Original Issue Date."
(c) The Series A Preferred Stock shall rank senior to the Common
Stock and any other capital stock of the Corporation ranking junior to the
Series A Preferred Stock as to dividends and upon liquidation, dissolution or
winding up. The Series B1 Preferred Stock, Series B2 Preferred Stock, Series B3
Preferred Stock and Series B4 Preferred Stock shall rank
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pari passu with each other, and senior to the Common Stock, the Series A
Preferred Stock, and any other capital stock of the Corporation ranking junior
to the Series B Preferred Stock as to dividends and upon liquidation,
dissolution or winding up. The Series C Preferred Stock and the Series C1
Preferred Stock shall rank pari passu with each other and rank senior to the
Common Stock, the Series A Preferred Stock, the Series B Preferred Stock, and
any other capital stock of the Corporation ranking junior to the Series C
Preferred Stock and Series C1 Preferred Stock as to dividends and upon
liquidation, dissolution or winding up.
2. Dividends.
(a) The holders of shares of the Series C1 Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors:
(i) annual dividends at the rate per annum of $0.48 per share
of the Series C1 Preferred Stock as adjusted for stock splits, stock dividends,
recapitalizations, reclassifications and similar events which affect the number
of outstanding shares of the Series C1 Preferred Stock (any such event whether
providing such adjustment to the Series C1 Preferred Stock or other series or
classes of capital stock of the Corporation, an "Adjustment"), which dividends
will be cumulative and accrue if not declared by the Board of Directors;
(ii) if a dividend or other distribution is declared or
distributed on the Common Stock of the Corporation, dividends or distributions
in an amount at least equal to the amount that would have been paid on the
Common Stock into which the Series C1 Preferred Stock is then convertible if all
such Common Stock had been issued upon conversion and had been outstanding on
the record date for such dividend or distribution on Common Stock (or, if no
record is taken, the date as of which the record holders entitled to such
dividend or distribution are determined) and therefor entitled to such dividends
or distributions; and
(iii) such other dividends or distributions when and as
declared by the Board of Directors of the Corporation, acting in its sole
discretion.
(b) The holders of shares of the Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors:
(i) annual dividends at the rate per annum of $0.40 per share
of the Series C Preferred Stock (subject to Adjustment), which dividends will be
cumulative and accrue if not declared by the Board of Directors;
(ii) if a dividend or other distribution is declared or
distributed on the Common Stock of the Corporation, dividends or distributions
in an amount at least equal to the amount that would have been paid on the
Common Stock into which the Series C Preferred Stock is then convertible if all
such Common Stock had been issued upon conversion and had been outstanding on
the record date for such dividend or distribution on Common Stock (or, if no
record is taken, the date as of which the record holders entitled to such
dividend or distribution are determined) and therefor entitled to such dividends
or distributions; and
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(iii) such other dividends or distributions when and as
declared by the Board of Directors of the Corporation, acting in its sole
discretion.
(c) The holders of shares of Series B Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors:
(i) annual dividends at the rates per annum of $0.1457,
$0.1625, $0.1666 and $0.40 per share of the Series B1 Preferred Stock, Series B2
Preferred Stock, Series B3 Preferred Stock and Series B4 Preferred Stock,
respectively (each subject to Adjustment), which dividends will be cumulative
and accrue if not declared by the Board of Directors;
(ii) if a dividend or other distribution is declared or
distributed on the Common Stock of the Corporation, dividends or distributions
in an amount at least equal to the amount that would have been paid on the
Common Stock into which the Series B Preferred Stock is then convertible if all
such Common Stock had been issued upon conversion and had been outstanding on
the record date for such dividend or distribution on Common Stock (or, if no
record is taken, the date as of which the record holders entitled to such
dividend or distribution are determined) and therefor entitled to such dividends
or distributions; and
(iii) such other dividends or distributions when and as
declared by the Board of Directors of the Corporation, acting in its sole
discretion.
(d) The holders of shares of Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when and if
declared by the Board of Directors:
(i) annual dividends at the rate per annum of $0.1167 per
share of the Series A Preferred Stock, subject to Adjustment, which dividends
will be cumulative and accrue if not declared by the Board of Directors;
(ii) if a dividend or other distribution is declared or
distributed on the Common Stock of the Corporation, dividends or distributions
in an amount at least equal to the amount that would have been paid on the
Common Stock into which the Series A Preferred Stock is then convertible if all
such Common Stock had been issued upon conversion and had been outstanding on
the record date for such dividend or distribution on Common Stock (or, if no
record is taken, the date as of which the record holders entitled to such
dividend or distribution are determined) and therefor entitled to such dividends
or distributions; and
(iii) such other dividends or distributions when and as
declared by the Board of Directors of the Corporation, acting in its sole
discretion.
(e) The holders of the Series C1 Preferred Stock and the Series C
Preferred Stock shall be entitled to be paid, in full, the dividends and
distributions declared or accrued (regardless of whether payable) or payable in
accordance with clauses (a)(i) and (a)(ii) above, prior to the payment of any
dividends or distributions in respect of Common Stock of the Corporation, the
Series A Preferred Stock, or Series B Preferred Stock, or in respect of any
other series of Preferred Stock of the Corporation whose right to payment of
dividends or distributions is junior to the Series C1 Preferred Stock and the
Series C Preferred Stock. The holders of the Series B Preferred Stock shall be
entitled to be paid, in full, the dividends and distributions declared or
accrued (regardless of whether payable) or payable in accordance with clauses
(b)(i) and (b)(ii) above, prior to the payment of any dividends or distributions
in respect of Common Stock of the Corporation, the Series A Preferred Stock, or
in respect of any other series of Preferred Stock of the Corporation whose right
to payment of dividends or distributions
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is junior to the Series B Preferred Stock. The holders of the Series A Preferred
Stock shall be entitled to be paid, in full, the dividends and distributions
declared or accrued (regardless of whether payable) or payable in accordance
with clauses (c)(i) and (c)(ii) above, prior to the payment of any dividends or
distributions in respect of Common Stock of the Corporation, or in respect of
any other series of Preferred Stock of the Corporation whose right to payment of
dividends or distributions is junior to the Series A Preferred Stock.
3. Liquidation, Dissolution or Winding Up.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation (a "Liquidation"), the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings (the
"Corporate Assets") shall be distributed as follows:
(i) First, before any distribution of assets shall be made to
the holders of Common Stock, the Series A Preferred Stock or Series B Preferred
Stock, the holder of each share of Series C1 Preferred Stock and Series C
Preferred Stock then outstanding shall be entitled to be paid out of the
Corporate Assets an amount per share equal to the Series C1 Original Purchase
Price and the Series C Original Purchase Price, respectively, (both subject to
Adjustment) plus all dividends (including cumulative dividends) accrued but
unpaid on such share up to the date of distribution of the assets of the
Corporation (the "Series C/C1 Liquidation Preference"). If upon the occurrence
of a Liquidation, the Corporate Assets shall be insufficient to pay the holders
of shares of Series C1 Preferred Stock and Series C Preferred Stock the Series
C/C1 Liquidation Preference, the holders of shares of Series C1 Preferred Stock
and Series C Preferred Stock and any class or series of stock ranking in
liquidation on parity with the shares of Series C1 Preferred Stock and Series C
Preferred Stock shall share ratably in the distribution of the entire remaining
Corporate Assets in proportion to the respective amounts that would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(ii) Second, after distribution of assets shall be made to the
holders of Series C Preferred Stock and Series C1 Preferred Stock but before any
distribution of assets shall be made to the holders of Common Stock or Series A
Preferred Stock, the holder of each share of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the Corporate Assets an amount
per share equal to the applicable Series B Original Purchase Price (subject to
Adjustment) plus all dividends (including cumulative dividends) accrued but
unpaid on such share up to the date of distribution of the assets of the
Corporation (the "Series B Liquidation Preference"). If upon the occurrence of a
Liquidation, the Corporate Assets shall be sufficient to pay to the holders of
Series C1 Preferred Stock and Series C Preferred Stock the Series C/C1
Liquidation Preference but shall be insufficient to pay the holders of shares of
Series B Preferred
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<PAGE>
Stock the Series B Liquidation Preference, the holders of shares of Series B
Preferred Stock and any class or series of stock ranking in liquidation on
parity with the shares of Series B Preferred Stock shall share ratably in the
distribution of the entire remaining Corporate Assets in proportion to the
respective amounts that would otherwise be payable in respect of the shares held
by them upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(iii) Third, after distribution of assets shall be made to the
holders of Series C1 Preferred Stock, Series C Preferred Stock and Series B
Preferred Stock but before any distribution of assets shall be made to the
holders of Common Stock, the holder of each share of Series A Preferred Stock
then outstanding shall be entitled to be paid out of the Corporate Assets an
amount per share equal to the Series A Original Purchase Price (subject to
Adjustment) plus all dividends (including cumulative dividends) accrued but
unpaid on such share up to the date of distribution of the assets of the
Corporation (the "Series A Liquidation Preference" and together with the Series
C/C1 Liquidation Preference and the Series B Liquidation Preference, the
"Liquidation Preference"). If upon the occurrence of a Liquidation, the
Corporate Assets shall be sufficient to pay to the holders of Series C1
Preferred Stock and Series C Preferred Stock the Series C/C1 Liquidation
Preference and to the holders of Series B Preferred Stock the Series B
Liquidation Preference, but shall be insufficient to pay the holders of shares
of Series A Preferred Stock the Series A Liquidation Preference, the holders of
shares of Series A Preferred Stock and any class or series of stock ranking in
liquidation on parity with the shares of Series A Preferred Stock shall share
ratably in the distribution of the entire remaining Corporate Assets in
proportion to the respective amounts that would otherwise be payable in respect
of the shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(iv) Fourth, after the distribution of the Liquidation
Preference, the remaining Corporate Assets shall be distributed among the
holders of Common Stock on a pro rata basis.
(b) Notwithstanding anything to the contrary contained in the
foregoing subsection 3(a) above, in lieu of receiving any distributions as
described in subsection 3(a) above, the holders of shares of Preferred Stock
shall share with the holders of the Common Stock on an as-if-converted basis if
such holder of Preferred Stock would receive an amount greater than the
applicable Liquidation Preference when sharing with the holders of the Common
Stock on an as-if-converted basis.
(c) The sale of all or substantially all the assets of the
Corporation, or the merger, consolidation or reorganization of the Corporation
into or with another corporation or other similar transaction or series of
related transactions in which the stockholders of the Corporation immediately
prior to such merger, consolidation or reorganization (i) hold less than 50% of
the outstanding voting securities of the surviving corporation following the
merger, consolidation or reorganization or (ii) hold less than 50% of the
outstanding voting securities an affiliated entity of the surviving corporation
(if such securities of an affiliated entity are issued to the stockholders of
the Company in such transaction), shall be deemed to be a Liquidation for
purposes of this Section 3 unless (A) the holders of a majority of the then
outstanding shares of
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Series C1 Preferred Stock and Series C Preferred Stock, acting together as a
single class, elect otherwise with regard to the Series C1 Preferred Stock and
Series C Preferred Stock by giving written notice thereof to the Corporation at
least three days before the effective date of such event, (B) the holders of a
majority of the then outstanding shares of Series B Preferred Stock, acting
together as a single class, elect otherwise with regard to the Series B
Preferred Stock by giving written notice thereof to the Corporation at least
three days before the effective date of such event, and (C) the holders of a
majority of the then outstanding shares of Series A Preferred Stock, acting
together as a single class, elect otherwise with regard to the Series A
Preferred Stock by giving written notice thereof to the Corporation at least
three days before the effective date of such event. The amount deemed
distributed for purposes of determining the Liquidation Preference for the
holders of shares of Preferred Stock upon any such transaction deemed to be a
Liquidation shall be the cash or the value of the property, rights or securities
distributed to such holders by the acquiring person, firm or other entity. The
value of such property, rights or other securities shall be determined in good
faith by the Board of Directors of the Corporation.
(d) Written notice of such Liquidation, stating a payment date, the
Liquidation Preference and the place where said Liquidation Preference shall be
payable, shall be delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex, not less than 20 days
prior to the payment date stated therein, to the holders of record of the
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation.
4. Voting.
(a) Each holder of outstanding shares of Preferred Stock shall be
entitled to the number of votes equal to the number of whole shares of Common
Stock into which the shares of Preferred Stock held of record by such holder are
convertible (as adjusted from time to time pursuant to Section 5 of this Article
V), at each meeting of stockholders of the Corporation (and written actions of
stockholders in lieu of meetings) with respect to any and all matters presented
to the stockholders of the Corporation for their action or consideration. Except
as provided by law and by the provisions of subsection 4(b) of this Article V,
the holders of shares of Preferred Stock shall vote together with the holders of
Common Stock as a single class.
(b) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series C1 Preferred Stock and Series C Preferred Stock, given in
writing or by vote at a meeting, consenting or voting, as the case may be,
together as a single class:
(i) authorize or issue any other class or series of stock on
parity with or senior to the Series C1 Preferred Stock and the Series C
Preferred Stock or take other actions materially affecting the rights, powers or
privileges of the Series C1 Preferred Stock and the C Preferred Stock;
(ii) amend, alter or repeal any provision of the By-Laws of
the Corporation; or
(iii) declare or pay any dividends on, or make any other
distribution in respect of, or repurchase or acquire any shares of its capital
stock.
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<PAGE>
Any such actions taken without the required consent or affirmative vote of the
holders of the Series C1 Preferred Stock and the Series C Preferred Stock shall
be void ab initio.
(c) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series C1 Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series C1 Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
the Series C1 Preferred Stock.
Any such actions taken without the required consent or affirmative vote of the
holders of the Series C1 Preferred Stock shall be void ab initio.
(d) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series C Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series C Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
the Series C Preferred Stock.
Any such actions taken without the required consent or affirmative vote of the
holders of the Series C Preferred Stock shall be void ab initio.
(e) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series B Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series B Preferred Stock in a manner that affects, in the same
way, all of the shares of Series B1 Preferred Stock, Series B2 Preferred Stock,
Series B3 Preferred Stock and Series B4 Preferred Stock;
(ii) increase or decrease the authorized number of shares of
the Series B Preferred Stock; or
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(iii) authorize or issue any other class or series of stock on
parity with or senior to the Series B Preferred Stock and junior to the Series C
Preferred Stock.
(f) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series B1 Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series B1 Preferred Stock, in a manner that adversely affects
the Series B1 Preferred Stock differently from the manner in which it affects
the other series of Series B Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
the Series B1 Preferred Stock.
(g) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series B2 Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series B2 Preferred Stock, in a manner that adversely affects
the Series B2 Preferred Stock differently from the manner in which it affects
the other series of Series B Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
the Series B2 Preferred Stock.
(h) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series B3 Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series B3 Preferred Stock, in a manner that adversely affects
the Series B3 Preferred Stock differently from the manner in which it affects
the other series of Series B Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
the Series B3 Preferred Stock.
(i) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series B4 Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
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(i) amend, alter or repeal the rights, preferences or
privileges of the Series B4 Preferred Stock, in a manner that adversely affects
the Series B4 Preferred Stock differently from the manner in which it affects
the other series of Series B Preferred Stock; or
(ii) increase or decrease the authorized number of shares of
the Series B4 Preferred Stock.
(j) The Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of a majority of the then outstanding
shares of Series A Preferred Stock, given in writing or by vote at a meeting,
consenting or voting, as the case may be, separately as a class:
(i) amend, alter or repeal the rights, preferences or
privileges of the Series A Preferred Stock;
(ii) increase or decrease the authorized number of shares of
the Series A Preferred Stock; or
(iii) authorize or issue any other class or series of stock on
parity with or senior to the Series A Preferred Stock, and junior to the Series
B Preferred Stock.
5. Optional Conversion. The holders of shares of Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, at the option of the holder thereof, at any time and from time to
time, into such number of fully paid and nonassessable shares of Common Stock as
is determined by dividing the applicable Original Purchase Price for such series
of Preferred Stock by the applicable Conversion Price (as defined below) in
effect at the time of conversion. The conversion price at which shares of Common
Stock shall be deliverable upon conversion of Preferred Stock without payment of
additional consideration by the holder thereof (the "Conversion Price") shall
initially be the applicable Original Purchase Price for such series of Preferred
Stock. Such initial Conversion Price, and the rate at which shares of Preferred
Stock may be converted into shares of Common Stock, shall be subject to
adjustment as provided below. In the event of a Liquidation of the Corporation,
the Conversion Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts distributable on
Liquidation to the holders of shares of Preferred Stock (so long as the notice
required by Section 3(d) hereof has been given).
(b) Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of the shares of Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Whether or not a holder would otherwise be entitled
to a fractional share shall be determined on the basis of the total number of
shares of Preferred Stock the holder is at the time converting into shares of
Common Stock and the number of shares of Common Stock issuable upon such
aggregate conversion.
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(c) Mechanics of Conversion.
(i) In order for a holder of shares of Preferred Stock to
convert shares of Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates evidencing the ownership of such
shares of Preferred Stock at the office of the transfer agent for the shares of
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Preferred
Stock represented by such certificate or certificates. Such notice shall state
such holder's name or the names of the nominees in which such holder wishes the
certificate or certificates for shares of Common Stock to be issued. If required
by the Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by a written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or his
or its attorney-in-fact duly authorized in writing. The date of receipt of such
certificates and notice by the transfer agent (or by the Corporation if the
Corporation serves as its own transfer agent) shall be the conversion date (the
"Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver at such office to such holder of shares of
Preferred Stock, or to his or its nominees, a certificate or certificates for
the number of shares of Common Stock to which such holder shall be entitled,
together with cash in lieu of any fraction of a share. Such conversion shall be
deemed to have been made immediately prior to the close of business on the
Conversion Date, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.
Other than as set forth in Section 6 below, if the conversion is in connection
with an underwritten offer of securities registered pursuant to the Securities
Act, the conversion may, at the option of any holder tendering shares of
Preferred Stock for conversion, be conditioned upon the closing of the sale of
securities pursuant to such offering, in which event the person entitled to
receive the Common Stock issuable upon such conversion of the shares of
Preferred Stock shall not be deemed to have converted such shares of Preferred
Stock until immediately prior to the closing of such sale of securities.
(ii) The Corporation shall, at all times when any shares of
Preferred Stock shall be outstanding, reserve and keep available out of its
authorized but unissued stock, for the purpose of effecting the conversion of
the shares of Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding shares of Preferred Stock. Before taking any action that
would cause an adjustment reducing the applicable Conversion Price below the
then par value of the shares of Common Stock issuable upon conversion of the
shares of Preferred Stock, the Corporation will take any corporate action which
may, in the opinion of its counsel, be necessary in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock at such adjusted Conversion Price. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of Preferred Stock, in addition to
such other remedies as shall be available to the holder of such shares of
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
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<PAGE>
(iii) Upon any such conversion, no adjustment to the
applicable Conversion Price shall be made for any accrued and unpaid dividends
(whether or not declared) on the shares of Preferred Stock surrendered for
conversion or on the Common Stock delivered upon conversion, nor shall any
payment be made for any accrued and unpaid (but not declared) dividends on the
shares of Preferred Stock surrendered for conversion or on the Common Stock
delivered upon conversion. Any declared and unpaid dividends on the shares of
Preferred Stock surrendered for conversion shall be paid upon such conversion.
(iv) All shares of Preferred Stock that shall have been
surrendered for conversion as herein provided shall no longer be deemed to be
outstanding and all rights with respect to such shares, including the rights, if
any, to receive notices and to vote, shall immediately cease and terminate on
the Conversion Date, except only the right of the holders thereof to receive
shares of Common Stock in exchange therefor. Any shares of Preferred Stock so
converted shall be retired and canceled and shall not be reissued, and the
Corporation may from time to time take such appropriate action as may be
necessary to eliminate the authorized Preferred Stock or reduce the authorized
number thereof as may be appropriate accordingly.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this subsection 5(d),
the following definitions shall apply:
(A) "Option" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities (as defined below) or restricted stock, excluding options granted to
or shares of restricted stock acquired by employees, directors or consultants of
the Corporation pursuant to an option plan or other compensation arrangement
adopted by the Board of Directors to acquire up to 4,400,000 shares of Common
Stock (subject to Adjustment) and any shares of Common Stock issued upon
exercise of such options (such excluded options and shares, the "Reserved Option
Shares").
(B) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock.
(C) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subsection 5(d)(iii) below,
deemed to be issued) by the Corporation after the Series C1 Original Issue Date,
other than:
(I) shares of Common Stock issued or issuable upon conversion of shares of
Preferred Stock;
(II) shares of Common Stock issued or issuable as a dividend or
distribution on Preferred Stock (in accordance with the provisions hereof);
(III) the Reserved Option Shares;
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(IV) up to 52,543 shares of capital stock of the Corporation (subject to
Adjustment) issued or issuable pursuant to the terms of the Agreement and Plan
of Merger, dated as of June 22, 1998, by and among the Corporation, Cady
Communications, Inc. and One Call Telecom, Inc.;
(V) up to 47,393 shares of capital stock of the Corporation (subject to
Adjustment) issued or issuable pursuant to the terms of the Agreement and Plan
of Merger, dated as of July 14, 1998, by and among the Corporation, American
Telephone Technology, Inc., Tele-Contracting Specialists, Inc., Michael Lopata
and William Whitney;
(VI) warrants or shares of Common Stock issued or issuable pursuant to the
terms of the Stock Purchase Warrant Agreement, dated as of July 19, 1999, by and
among the Corporation and General Electric Capital Corporation;
(VII) shares of Common Stock issued or issuable pursuant to the terms of
the Stock Purchase Warrant Agreement, dated as of April 12, 1999, by and among
the Company and Imperial Bank;
(VIII) other Options or shares of capital stock of the Corporation, which
shall be excluded from this definition of Additional Shares of Common Stock only
upon the written consent of the holders of at least 50% of the Series C1
Preferred Stock and the Series C Preferred Stock, voting together as a single
class (following a written notice to the holders of Series C1 Preferred Stock
and Series C Preferred Stock requesting such exclusion, which notice shall
include the type of security to be issued, the number of shares of the security
to be issued, and the consideration received by the Corporation for the
security);
(IX) shares of Series C Preferred Stock or Series C1 Preferred Stock
issued or issuable pursuant to that certain Series C Preferred Stock Purchase
Agreement, dated within 30 days of the filing of this Charter, by and among the
Company and the Series C Investors (as defined therein); or
(X) shares of capital stock issued or issuable by reason of an Adjustment.
(ii) No Adjustment of Conversion Price. No adjustment in the
number of shares of Common Stock into which the shares of Preferred Stock are
convertible shall be made, by adjustment in the applicable Conversion Price
thereof pursuant to subsection 5(d)(iv) hereof, unless the consideration per
share (determined pursuant to subsection 5(d)(v)) for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
applicable Conversion Price in effect on the date of, and immediately prior to,
the issue of such Additional Shares.
(iii) Issue of Options and Convertible Securities Deemed Issue
of Additional Shares of Common Stock. If the Corporation at any time or from
time to time after the Series C1 Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares of Common Stock (as
set
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<PAGE>
forth in the instrument relating thereto without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities and, upon the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall forthwith be
increased to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued, and the Common Stock issuable thereunder shall no longer be deemed
to be outstanding; and
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities, provided that no readjustment pursuant to this clause
(B) shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common Stock. In the event the Corporation shall issue
Additional Shares of Common Stock without consideration or for a Net
Consideration Per Share less than the applicable Conversion Price in effect on
the date of and immediately prior to such issuance, then and in such event, the
applicable Conversion Price shall be reduced, concurrently with such issuance,
to a price (calculated to the nearest hundredth of a cent) computed using the
following formula:
Adjusted Conversion Price = CP x Q1 + (NP / CP)
--------------
Q2
Where: Q1 = the number of outstanding shares of Common Stock outstanding
immediately prior to the issuance of the Additional Shares of
Common Stock;
Q2 = the number of outstanding shares of Common Stock outstanding
immediately after the issuance of the Additional Shares of Common
Stock;
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<PAGE>
NP = the net proceeds received by the Corporation as consideration for
the issuance of such Additional Shares of Common Stock; and
CP = the Conversion Price in effect immediately prior to the issuance
of the Additional Shares of Common Stock.
For the purpose of this subsection 5(d)(iv), (I) all shares of Common Stock
issuable upon conversion of shares of Preferred Stock outstanding immediately
prior to such issue shall be deemed to be outstanding, and (II) immediately
after any Additional Shares of Common Stock are deemed issued pursuant to
subsection 5(d)(iii), such Additional Shares of Common Stock shall be deemed to
be outstanding.
(v) Determination of Consideration. For purposes of this
Subsection 5(d), the "Net Consideration Per Share" shall mean the per share
consideration received by the Corporation for the issue of any Additional Shares
of Common Stock and shall be computed as follows:
(A) Cash and Property: Such consideration shall:
(I) insofar as it consists of cash, be computed at the aggregate of cash
received by the Corporation, excluding amounts paid or payable for accrued
interest or accrued dividends;
(II) insofar as it consists of property other than cash, be computed at
the fair market value thereof at the time of such issue, as determined in good
faith by the Board of Directors; and
(III) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (I) and (II) above, as determined in
good faith by the Board of Directors.
(B) Options and Convertible Securities. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Subsection 5(d)(iii),
relating to Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
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<PAGE>
(y) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(vi) Adjustment for Combinations or Consolidation of Common
Stock. If, at any time after the applicable Original Issue Date the number of
shares of Common Stock outstanding are decreased by a combination of the
outstanding shares of Common Stock, then following the record date fixed for
such combination (or the date of such combination, if no record date is fixed),
the applicable Conversion Price shall be increased so that the number of shares
of Common Stock issuable on conversion of each share of Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares of Common Stock.
(vii) Adjustment for Stock Dividends, Splits, Etc. If the
Corporation shall at any time after the applicable Original Issue Date fix a
record date for the subdivision, split-up or stock dividend of shares of Common
Stock, then, following the record date fixed for the determination of holders of
shares of Common Stock entitled to receive such subdivision, split-up or
dividend (or the date of such subdivision, split-up or dividend, if no record
date is fixed), the applicable Conversion Price shall be appropriately decreased
so that the number of shares of Common Stock issuable on conversion of each
share of Preferred Stock shall be increased in proportion to such increase in
outstanding shares; provided, however, that the applicable Conversion Price
shall not be decreased at such time if the amount of such reduction would be an
amount less than $0.01, but any such amount shall be carried forward and
reduction with respect thereto made at the time of and together with any
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $0.01 or more.
(viii) Adjustment for Merger or Reorganization, etc. In case
of any consolidation, recapitalization or merger of the Corporation with or into
another corporation or the sale of all or substantially all of the assets of the
Corporation to another corporation (other than a subdivision or combination
provided for elsewhere in this Section 5 and other than a consolidation, merger
or sale which is treated as a Liquidation pursuant to Section 3), each share of
Preferred Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
shares of Preferred Stock would have been entitled upon such consolidation,
merger or sale; and, in such case, appropriate adjustment (as determined in good
faith by the Board of Directors) shall be made in the application of the
provisions in this Section 5 set forth with respect to the rights and interest
thereafter of the holders of the shares of Preferred Stock, to the end that the
provisions set forth in this Section 5 (including provisions with respect to
changes in and other adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other property thereafter deliverable upon the conversion of the shares of
Preferred Stock.
(e) No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the
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<PAGE>
observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the shares of Preferred Stock against
impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of each applicable Conversion Price pursuant to this
Section 5, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of shares of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a similar certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price then in effect, and (iii) the number of
shares of Common Stock and the amount, if any, of other property which then
would be received upon the conversion of the shares of Preferred Stock.
(g) Notice of Record Date. In the event:
(i) that the Corporation takes a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or any other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right;
(ii) that the Corporation subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation into or with another corporation, or
of the sale of all or substantially all of the assets of the Corporation; or
(iv) of the involuntary or voluntary dissolution, liquidation
or winding up of the Corporation;
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Preferred Stock, and shall cause to be
mailed to the holders of the Preferred Stock at their last addresses as shown on
the records of the Corporation or such transfer agent, at least ten days prior
to the record date specified in (A) below or twenty days before the date
specified in (B) below, a notice stating
(A) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
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<PAGE>
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
consolidation, merger, sale, dissolution or winding up.
6. Automatic Conversion.
(a) In the event a registration statement under the Securities Act
covering the offer and sale of Common Stock for the account of the Corporation
is declared effective in which the gross proceeds to the Corporation are at
least $30,000,000 (a "Qualified Public Offering"), then effective upon the
closing of the sale of such shares of Common Stock by the Corporation pursuant
to such Qualified Public Offering, all outstanding shares of Preferred Stock
shall automatically convert to shares of Common Stock in the manner provided in
Section 5 herein, at the then effective Conversion Price (subject to
Adjustment).
(b) Upon the consent of the holders of a majority or more of the
issued and outstanding shares of Series C Preferred Stock and Series C1
Preferred, voting together as a single class, all outstanding shares of series
of Series C Preferred Stock and Series C1 Preferred Stock shall automatically
convert to shares of Common Stock in the manner provided in Section 5 herein, at
the then effective Conversion Price (subject to Adjustment). Upon the consent of
the holders of a majority or more of the issued and outstanding shares of Series
B Preferred Stock, all outstanding shares of series of Series B Preferred Stock
shall automatically convert to shares of Common Stock in the manner provided in
Section 5 herein, at the then effective Conversion Price (subject to
Adjustment). Upon the consent of the holders of a majority or more of the issued
and outstanding shares of Series A Preferred Stock, all outstanding shares of
series of Series A Preferred Stock shall automatically convert to shares of
Common Stock in the manner provided in Section 5 herein, at the then effective
Conversion Price (subject to Adjustment).
(c) In the case of an automatic conversion pursuant to this Section
6, the outstanding shares of Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, that the Corporation shall not be obligated to issue
to any holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing such shares of Preferred Stock
are delivered either to the Corporation or any transfer agent of the
Corporation.
(d) All certificates evidencing shares of Preferred Stock which are
required to be surrendered for conversion in accordance with the provisions
hereof shall, from and after the date such certificates are so required to be
surrendered, be deemed to have been retired and canceled and the shares of
Preferred Stock represented thereby converted into Common Stock for all
purposes, notwithstanding the failure of the holder or holders thereof to
surrender such certificates on or prior to such date. The Corporation may
thereafter take such appropriate action as may be necessary to reduce the
authorized Preferred Stock accordingly.
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<PAGE>
ARTICLE VI
Terms of Common Stock
The rights, preferences, powers, privileges and restrictions,
qualifications and limitations of the Common Stock shall be as set forth in this
Article VI.
1. Dividends. Subject to the provisions of Section 2 of Article V, the
holders of Common Stock shall be entitled to receive, when, as and if declared
by the Board of Directors, from funds legally available for the payment of
dividends, such dividends as may be declared from time to time or at any time by
the Board of Directors.
2. Voting Rights. The holders of Common Stock shall be entitled to one
vote for each share held on any matter submitted to a vote of the stockholders
of the Corporation.
ARTICLE VII
Preemptive Rights
Except as may otherwise be specifically agreed in writing between the
Corporation and a stockholder, no stockholder of this Corporation shall have any
preferential, preemptive or other rights of subscription to any shares of any
class or series of stock of this Corporation allotted or sold or to be allotted
or sold, whether now or hereafter authorized, or to any obligations or
securities convertible into any class or series of capital stock of this
Corporation.
ARTICLE VIII
Registered Office and Agent
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle, Delaware 19801. The name of the Corporation's
registered agent at such address is The Corporation Trust Company.
ARTICLE IX
Directors
The number of directors constituting the Board of Directors of the
Corporation shall be fixed by or in the manner provided by the By-Laws of the
Corporation. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors shall have power to adopt, and to alter, amend
or repeal the By-Laws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend, alter or repeal
By-Laws made by the Board of Directors.
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<PAGE>
ARTICLE X
Stockholder Voting
1. No Cumulative Voting. No stockholder of this Corporation shall be
entitled to any cumulative voting rights.
2. Voting Generally. The stockholders of the Corporation shall take action
by the affirmative vote of the holders of a majority of the shares present and
entitled to vote, except where a larger proportion is required by law, this
Charter or a stockholder control agreement.
ARTICLE XI
Indemnification
This Corporation shall, to the maximum extent permitted from time to time
under the law of the State of Delaware, indemnify and upon request shall advance
expenses to any person who is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit, proceeding or claim,
whether civil, criminal, administrative or investigative, by reason of the fact
that such person is or was or has agreed to be a director or officer of this
Corporation or while a director or officer is or was serving at the request of
this Corporation as a director, officer, partner, trustee, employee or agent of
any corporation, partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, against expenses
(including attorney's fees and expenses), judgments, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of such action, suit, proceeding or claim;
provided, however, that the foregoing shall not require this Corporation to
indemnify or advance expenses to any person in connection with any action, suit,
proceeding, claim or counterclaim initiated by or on behalf of such person. Such
indemnification shall not be exclusive of other indemnification rights arising
under any by-law, agreement, vote of directors or stockholders or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person. Any person seeking indemnification under this Article XI shall be deemed
to have met the standard of conduct required for such indemnification unless the
contrary shall be established. Any repeal or modification of the foregoing
provisions of this Article XI shall not adversely affect any right or protection
of a director or officer of this Corporation with respect to any acts or
omissions of such director or officer occurring prior to such repeal or
modification.
ARTICLE XII
Director Liability
No director of the Corporation shall be personally liable to the
Corporation or to any Stockholder for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not limit the liability
of a director (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which
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involve intentional misconduct or a knowing violation of law, (iii) pursuant to
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived an improper personal benefit.
If the General Corporation Law of Delaware or any other statute of the
State of Delaware hereafter is amended to authorize the further elimination or
limitation of the liability of directors of the Corporation, then the liability
of a director of the Corporation shall be limited to the fullest extent
permitted by the statutes of the State of Delaware, as so amended, and such
elimination or limitation of liability shall be in addition to, and not in lieu
of, the limitation on the liability of a director provided by the foregoing
provisions of this Article XII.
Any repeal or amendment of this Article XII shall be prospective only and
shall not adversely affect any limitation on the liability of a director of the
Corporation existing at the time of such repeal or amendment.
ARTICLE XIII
Directors
The name and addresses of the persons who shall serve as the directors
until the first annual meeting of stockholders, or until their successors are
duly elected and qualified, are:
Director: Address:
(1) Cliff D. Williams c/o Advanced Telecommunications, Inc.
(Acting Chairman) 730 Second Ave. So., Suite 1200
Minneapolis, MN 55402
(2) E. Theodore Stolberg Stolberg, Meehan & Scano, Inc.
370 - 17th St., Suite 4240
Denver, CO 80202
(3) Marvin Moses 2942 Chestnut Run Drive
Bloomfield Hills, MI 48302
(4) Peter Van Genderen Stolberg, Meehan & Scano, Inc.
370 - 17th St., Suite 4240
Denver, CO 80202
(5) Mike Krupka c/o Advanced Telecommunications, Inc.
730 Second Ave. So., Suite 1200
Minneapolis, MN 55402
(6) Mark Nunnelly c/o Advanced Telecommunications, Inc.
730 Second Ave. So., Suite 1200
Minneapolis, MN 55402
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ARTICLE XIV
Incorporator
The name and mailing address of the sole incorporator is Marisa C.
Terrenzi, c/oPiper Marbury Rudnick & Wolfe LLP, 1200 Nineteenth Street, NW,
Washington, DC 20036.
ARTICLE V
Miscellaneous
1. The election of directors need not be by ballot unless the By-Laws
shall so require.
2. The books of this Corporation may (subject to any statutory
requirements) be kept outside the State of Delaware as may be designated by the
Board of Directors or in the By-Laws of this Corporation.
3. If at any time this Corporation shall have a class of stock registered
pursuant to the provisions of the Securities Exchange Act of 1934, for so long
as such class is so registered, any action by the stockholders of such class
must be taken at an annual or special meeting of stockholders and may not be
taken by written consent.
4. This Corporation shall not be governed by Section 203 of the General
Corporation Law of the State of Delaware.
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IN WITNESS WHEREOF, the Chief Executive Officer of the Corporation has
executed this Amended and Restated Certificate of Incorporation of Advanced
Telecommunications, Inc. on December ____, 1999.
ADVANCED TELECOMMUNICATIONS, INC.
By:
------------------------------------
Clifford D. Williams,
Chief Executive Officer
ATTEST:
By:
-----------------------------
David L. Mitchell, Secretary
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Exhibit 3.1.2
EXHIBIT B
CERTIFICATE OF AMENDMENT
TO
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
ADVANCED TELECOMMUNICATIONS, INC.
ADVANCED TELECOMMUNICATIONS, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: In accordance with Section 141(f) of the Delaware General
Corporation Law, the Board of Directors of the Corporation adopted resolutions
pursuant to Section 242 of the General Corporation Law of the State of Delaware,
setting forth amendments to the Second Amended and Restated Certificate of
Incorporation of the Corporation (the "Certificate") and declared said
amendments to be advisable. The stockholders of the Corporation duly approved
the proposed amendments in accordance with Section 242 of the General
Corporation Law of the State of Delaware by written consent in lieu of a
meeting, dated April __, 2000 pursuant to and in accordance with Section 228 of
the General Corporation Law of the State of Delaware. The resolutions setting
forth the amendments are as follows:
RESOLVED: That the first paragraph of Article I of the Second
Amended and Restated Certificate of Incorporation be and hereby is deleted in
its entirety and replaced as follows:
"ARTICLE I
NAME
The name of the Corporation is Eschelon Telecom, Inc."
SECOND: This amendment to the Restated Certificate of Incorporation
shall be effective as of the date set forth below.
<PAGE>
EXHIBIT B
IN WITNESS WHEREOF, Advanced Telecommunications, Inc. has caused this
Certificate to be signed by Clifford D. Williams, its Chief Executive Officer
this __ day of April, 2000.
ADVANCED TELECOMMUNICATIONS, INC.
By:
-------------------------------
Clifford D. Williams
Chief Executive Officer
ATTEST:
- -----------------------------
David L. Mitchell, Secretary
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<PAGE>
Exhibit 3.1.4
BY-LAWS
OF
Advanced Telecommunications, Inc.
(A DELAWARE CORPORATION)
Dated as of September 21, 1999
<PAGE>
BY-LAWS
TABLE OF CONTENTS
ARTICLE 1 - STOCKHOLDERS
Section 1.1 Place of Meetings
Section 1.2 Annual Meeting
Section 1.3 Special Meetings
Section 1.4 Notice of Meetings
Section 1.5 Voting List
Section 1.6 Quorum
Section 1.7 Adjournments
Section 1.8 Voting and Proxies
Section 1.9 Action at Meeting
Section 1.10 Action without Meeting
ARTICLE 2 - DIRECTORS
Section 2.1 General Powers
Section 2.2 Number and Classes
Section 2.3 Term of Office, Election and Qualification
Section 2.4 Enlargement of the Board
Section 2.5 Vacancies
Section 2.6 Resignation
Section 2.7 Regular Meetings
Section 2.8 Special Meetings
Section 2.9 Notice of Special Meetings
Section 2.10 Meetings by Telephone Conference Calls
Section 2.11 Quorum
Section 2.12 Action at Meeting
Section 2.13 Action by Consent
Section 2.14 Removal
Section 2.15 Committees
Section 2.16 Compensation of Directors
ARTICLE 3 - OFFICERS
Section 3.1 Enumeration
Section 3.2 Election
Section 3.3 Qualification
Section 3.4 Tenure
Section 3.5 Resignation and Removal
Section 3.6 Vacancies
<PAGE>
Section 3.7 Chairman of the Board and Vice-Chairman of the Board
Section 3.8 President
Section 3.9 Vice Presidents
Section 3.10 Secretary and Assistant Secretaries
Section 3.11 Chief Financial Officer, Treasurer and Assistant Treasurers
Section 3.12 Salaries
ARTICLE 4 - CAPITAL STOCK
Section 4.1 Issuance of Stock
Section 4.2 Certificates of Stock
Section 4.3 Transfers
Section 4.4 Lost, Stolen or Destroyed Certificates
Section 4.5 Record Date
ARTICLE 5 - INDEMNIFICATION
Section 5.1 Indemnification in Actions, Suits or Proceedings Other Than
Those by or in the Right of Corporation
Section 5.2 Indemnification in Actions, Suits or Proceedings by or in the
Right of the Corporation
Section 5.3 Authorization of Indemnification
Section 5.4 Advancement of Expenses
ARTICLE 6 - GENERAL PROVISIONS
Section 6.1 Fiscal Year
Section 6.2 Corporate Seal
Section 6.3 Waiver of Notice
Section 6.4 Voting of Securities
Section 6.5 Evidence of Authority
Section 6.6 Certificate of Incorporation
Section 6.7 Transactions with Interested Parties
Section 6.8 Severability
Section 6.9 Pronouns
ARTICLE 7 - AMENDMENTS
Section 7.1 By the Board of Directors
Section 7.2 By the Stockholders
iii
<PAGE>
BY-LAWS
OF
ADVANCED TELECOMMUNICATIONS, INC.
ARTICLE 1 - STOCKHOLDERS
1.1 Place of Meeting. All meetings of stockholders shall be held at such
place within or without the State of Delaware as may be designated from time to
time by the Board of Directors or the President or, if not so designated, at the
registered office of the Corporation.
1.2 Annual Meeting. The annual meeting of stockholders for the election of
directors and for the transaction of such other business as may properly be
brought before the meeting shall be held at such date, time and place as may be
fixed by the Board of Directors or the President. If this date shall fall upon a
legal holiday at the place of the meeting, then such meeting shall be held on
the next succeeding business day at the same hour. If no annual meeting is held
in accordance with the foregoing provisions, the Board of Directors shall cause
the meeting to be held as soon thereafter as convenient. If no annual meeting is
held in accordance with the foregoing provisions, a special meeting may be held
in lieu of the annual meeting, and any action taken at that special meeting
shall have the same effect as if it had been taken at the annual meeting, and in
such case all references in these By-Laws to the annual meeting of the
stockholders shall be deemed to refer to such special meeting.
1.3 Special Meetings. Special meetings of the shareholders may be called
for any purpose or purposes at any time by: (i) the Chief Executive Officer;
(ii) the President; (iii) the Chief Financial Officer; (iv) the Treasurer; (v)
two or more directors; or (vi) a shareholder or shareholders holding ten percent
or more of the voting power of all shares entitled to vote.
A special meeting called by the Chief Executive Officer, the President,
the Chief Financial Officer, the Treasurer or two or more directors shall be
held on the date and at the time and place fixed by the Chief Executive Officer,
President or the Board of Directors.
A shareholder or shareholders holding ten percent or more of the voting
power of all shares entitled to vote may demand a special meeting of
shareholders by written notice of demand given to the Chief Executive Officer,
President, Chief Financial Officer or Treasurer of the Corporation and
containing the purposes of the meeting. Within 30 days after receipt of the
demand by one of those officers, the Board of Directors shall cause a special
meeting of shareholders to be called and held on notice no later than 90 days
after receipt of the demand, all at the expense of the Corporation. If the Board
of Directors fails to cause a special meeting to be called and held as required
by this Section 1.3, the shareholder or shareholders making the demand may call
the meeting by giving notice as required by Section 1.4 below, all at the
expense of the Corporation.
<PAGE>
1.4 Notice of Meetings. Except as otherwise provided by law, written
notice of each meeting of stockholders, whether annual or special, shall be
given not less than ten nor more than 60 days before the date of the meeting to
each stockholder entitled to vote at such meeting. The notices of all meetings
shall state the place, date and hour of the meeting. The notice of a special
meeting shall state, in addition, the purpose or purposes for which the meeting
is called. If mailed, notice is given when deposited in the United States mail,
postage prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. The notice of any meeting of stockholders may be
delivered via facsimile transmission, telegram or telex. If such notice is
delivered via facsimile transmission, telegram or telex, notice shall be deemed
given at the time such transmission is sent.
1.5 Voting List. The officer who has charge of the stock ledger of the
Corporation shall prepare, 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, at a place within the city 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 of the meeting, and may be inspected by any
stockholder who is present.
1.6 Quorum. Except as otherwise provided by law, the Certificate of
Incorporation or these By-Laws, the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting, present in person or represented by proxy, shall constitute a
quorum for the transaction of business.
1.7 Adjournments. Any meeting of stockholders may be adjourned to any
other time and to any other place at which a meeting of stockholders may be held
under these By-Laws by the stockholders present or represented at the meeting
and entitled to vote, although less than a quorum, or, if no stockholder is
present, by any officer entitled to preside at or to act as Secretary of such
meeting. It shall not be necessary to notify any stockholder of any adjournment
of less than 30 days if the time and place of the adjourned meeting are
announced at the meeting at which adjournment is taken, unless after the
adjournment a new record date is fixed for the adjourned meeting. At the
adjourned meeting, the Corporation may transact any business which might have
been transacted at the original meeting.
1.8 Voting and Proxies. Each stockholder shall have one vote for each
share of stock entitled to vote held of record by such stockholder and a
proportionate vote for each fractional share so held, unless otherwise provided
in the Certificate of Incorporation. Each stockholder of record entitled to vote
at a meeting of stockholders, or to express consent or dissent to corporate
action in writing without a meeting, may vote or express such consent or dissent
in person or may authorize another person or persons to vote or act for him by
written proxy executed by the stockholder or his authorized agent and delivered
to the Secretary of the Corporation. No such
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proxy shall be voted or acted upon after three years from the date of its
execution, unless the proxy expressly provides for a longer period.
1.9 Action at Meeting. When a quorum is present at any meeting, the
holders of a majority of the stock present or represented and voting on a matter
(or if there are two or more classes of stock entitled to vote as separate
classes, then in the case of each such class, the holders of a majority of the
stock of that class present or represented and voting on a matter) shall decide
any matter to be voted upon by the stockholders at such meeting, except when a
different vote is required by express provision of law, the Certificate of
Incorporation or these By-Laws. Any election by stockholders shall be determined
by a plurality of the votes cast by the stockholders entitled to vote at the
election.
1.10 Action without Meeting. Any action required to be taken at any annual
or special meeting of stockholders, or any action that may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders in interest of greater than
50% of the shares of outstanding stock, unless the Certificate of Incorporation
requires a higher percentage for any such action.
ARTICLE 2 - DIRECTORS
2.1 General Powers. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors, who may exercise all
of the powers of the Corporation except as otherwise provided by law, the
Certificate of Incorporation or these By-Laws. In the event of a vacancy in the
Board of Directors, the remaining directors, except as otherwise provided by
law, may exercise the powers of the full Board until the vacancy is filled.
2.2 Number and Classes. Unless otherwise stated in the Certificate of
Incorporation, the number of directors which shall constitute the whole Board of
Directors shall initially be five (5). The number of directors may not be less
than one (1) or exceed seven (7) as determined at any time and from time to time
either by the stockholders pursuant to Section 2.4 below or by a majority of the
directors then in office.
2.3 Tenure, Election and Qualification. The directors shall be elected at
the annual meeting of stockholders by such stockholders as have the right to
vote on such election. At each annual meeting of stockholders, directors elected
to succeed those whose terms are expiring shall be elected for a term of office
expiring at the annual meeting of stockholders held in the one year following
their election and until their respective successors are elected and qualified,
or until such director's earlier death, resignation or removal. Directors need
not be stockholders of the Corporation.
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2.4 Enlargement or Reduction of the Board. Subject to Section 2.2 above,
the number of directors may be increased or reduced at any time and from time to
time by affirmative vote of the holder or holders of a majority of the shares of
the Corporation's Common Stock and Preferred Stock (if any), voting together as
a class.
2.5 Vacancies. Unless and until filled by the stockholders, any vacancy in
the Board of Directors, however occurring, including a vacancy resulting from an
enlargement of the Board, may be filled by vote of a majority of the directors
then in office, although less than a quorum, or by a sole remaining director. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, and a director chosen to fill a position resulting
from an increase in the number of directors shall hold office until the next
annual meeting of stockholders and until his successor is elected and qualified,
or until his earlier death, resignation or removal.
2.6 Resignation. Any director may resign by delivering his written
resignation to the Corporation at its principal office or to the President or
Secretary. Such resignation shall be effective upon receipt unless it is
specified to be effective at some other time or upon the happening of some other
event.
2.7 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, either within or without the State
of Delaware, as shall be determined from time to time by the Board of Directors;
provided that any director who is absent when such a determination is made shall
be given notice of the determination. A regular meeting of the Board of
Directors may be held without notice immediately after and at the same place as
the annual meeting of stockholders.
2.8 Special Meetings. Special meetings of the Board of Directors may be
held at any time and place, within or without the State of Delaware, designated
in a call by any single member of the Board of Directors or by the President of
the Corporation or the holder or holders of a majority of the shares of the
Corporation's Common Stock and Preferred Stock (if any), voting together as a
class.
2.9 Notice of Special Meetings. Notice of any special meeting of directors
shall be given to each director by the Secretary or by the officer or one of the
directors calling the meeting. Notice shall be duly given to each director (i)
by giving notice to such director in person or by telephone at least 48 hours in
advance of the meeting, (ii) by sending a facsimile, telegram or telex, or
delivering written notice by hand, to his last known business or home address at
least 48 hours in advance of the meeting, or (iii) by delivering written notice
to his last known business or home address at least 72 hours in advance of the
meeting by a nationally recognized overnight service (receipt requested). A
notice or waiver of notice of a meeting of the Board of Directors need not
specify the purposes of the meeting.
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2.10 Meetings by Telephone Conference Calls. Directors or any members of
any committee designated by the directors may participate in a meeting of the
Board of Directors or such 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 by such means shall constitute
presence in person at such meeting.
2.11 Quorum. A majority of the total number of the whole Board of
Directors shall constitute a quorum at all meetings of the Board of Directors.
In the event one or more of the directors shall be disqualified to vote at any
meeting, then the required quorum shall be reduced by one for each such director
so disqualified; provided, however, that in no case shall less than one-third
(1/3) of the number so fixed constitute a quorum. In the absence of a quorum at
any such meeting, a majority of the directors present may adjourn the meeting
from time to time without further notice other than announcement at the meeting,
until a quorum shall be present.
2.12 Action at Meeting. At any meeting of the Board of Directors at which
a quorum is present, the vote of a majority of those present shall be sufficient
to take any action, unless a different vote is specified by law, the Certificate
of Incorporation or these By-Laws.
2.13 Action by Consent. Any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee of the Board of
Directors may be taken without a meeting, if all members of the Board or
committee, as the case may be, consent to the action in writing, and the written
consents are filed with the minutes of proceedings of the Board or committee.
2.14 Removal. Any one or more or all of the directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors, except that the directors elected by the
holders of a particular class or series of stock may be removed without cause
only by vote of the holders of a majority of the outstanding shares of such
class or series.
2.15 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the directors of the Corporation. The Board 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. In
the absence or disqualification of a member of a committee, the member or
members of the committee present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Any such committee, to the extent
provided in the resolution of the Board of Directors and subject to the
provisions of the General Corporation Law of the State of Delaware, 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. Each
such committee shall keep minutes and make such reports as
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the Board of Directors may from time to time request. Except as the Board of
Directors may otherwise determine, any committee may make rules for the conduct
of its business, but unless otherwise provided by the directors or in such
rules, its business shall be conducted as nearly as possible in the same manner
as is provided in these By-Laws for the Board of Directors.
2.16 Compensation of Directors. Directors may be paid such compensation
for their services, as the Boards of Directors of the Corporation may from time
to time determine; and Directors shall be reimbursed for expenses (including
travel expenses) incurred to attend meetings. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation for such service.
ARTICLE 3 - OFFICERS
3.1 Enumeration. The officers of the Corporation shall consist of a Chief
Executive Officer, President, Secretary, Chief Financial Officer, Treasurer and
such other officers with such other titles as the Board of Directors shall
determine, including a Chairman of the Board, Vice-Chairman of the Board, and
one or more Vice Presidents, Assistant Treasurers, and Assistant Secretaries.
The Board of Directors may appoint such other officers as it may deem
appropriate.
3.2 Election. The Chief Executive Officer, President, Chief Financial
Officer, Treasurer and Secretary shall be elected annually by the Board of
Directors at its first meeting following the annual meeting of stockholders.
Other officers may be appointed by the Board of Directors at such meeting or at
any other meeting.
3.3 Qualification. No officer need be a stockholder. Any two or more
offices may be held by the same person.
3.4 Tenure. Except as otherwise provided by law, by the Certificate of
Incorporation or by these By-Laws, each officer shall hold office until his
successor is elected and qualified, unless a different term is specified in the
vote choosing or appointing him, or until his earlier death, resignation or
removal.
3.5 Resignation and Removal. Any officer may resign by delivering his
written resignation to the Corporation at its principal office or to the
President or Secretary. Such resignation shall be effective upon receipt unless
it is specified to be effective at some other time or upon the happening of some
other event.
Any officer appointed by Board of Directors may be removed at any
time, with or without cause, by vote of a majority of the entire number of
directors then in office.
Except as the Board of Directors may otherwise determine, no officer
who resigns or is removed shall have any right to any compensation as an officer
for any period following his
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resignation or removal, or any right to damages on account of such removal,
whether his compensation be by the month or by the year or otherwise, unless
such compensation is expressly provided in a duly authorized written agreement
with the Corporation.
3.6 Vacancies. The Board of Directors may fill any vacancy occurring in
any office for any reason and may, in its discretion, leave unfilled for such
period as it may determine any offices other than those of President, Treasurer
and Secretary. Each such successor shall hold office for the unexpired term of
his predecessor and until his successor is elected and qualified, or until his
earlier death, resignation or removal.
3.7 Chairman of the Board and Vice-Chairman of the Board. The Board of
Directors shall appoint a Chairman of the Board who shall perform such duties
and possess such powers as are assigned to him by the Board of Directors. Unless
the Board of Directors otherwise directs, the Chairman of the Board shall be the
Chief Executive Officer. He shall preside at all meetings of the stockholders,
and all meetings of the Board of Directors and shall be responsible for the
strategic management and planning of the business of the Corporation. If the
Board of Directors appoints a Vice-Chairman of the Board, he shall, in the
absence or disability of the Chairman of the Board, perform the duties and
exercise the powers of the Chairman of the Board and shall perform such other
duties and possess such other powers as may from time to time be vested in him
by the Board of Directors.
3.8 President. Unless the Board of Directors otherwise determines, the
President shall be the Chief Operating Officer of the Corporation. The President
shall, subject to the direction of the Board of Directors, have general charge
and supervision of the business of the Corporation. The President shall perform
such duties and shall have such powers as the Board of Directors may from time
to time prescribe.
3.9 Vice Presidents. Any Vice President shall perform such duties and
possess such powers as the Board of Directors or the President may from time to
time prescribe. The Board of Directors may assign to any Vice President the
title of Executive Vice President, Senior Vice President or any other title
selected by the Board of Directors.
3.10 Secretary and Assistant Secretaries. The Secretary shall perform such
duties and shall have such powers as the Board of Directors or the President may
from time to time prescribe. In addition, the Secretary shall perform such
duties and have such powers as are incident to the office of the secretary,
including without limitation the duty and power to give notices of all meetings
of stockholders and special meetings of the Board of Directors, to attend all
meetings of stockholders and the Board of Directors and keep a record of the
proceedings, to maintain a stock ledger and prepare lists of stockholders and
their addresses as required, to be custodian of corporate records and the
corporate seal and to affix and attest to the same on documents.
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Any Assistant Secretary shall perform such duties and possess such
powers as the Board of Directors, the President or the Secretary may from time
to time prescribe. In the event of the absence, inability or refusal to act of
the Secretary, the Assistant Secretary, (or if there shall be more than one, the
Assistant Secretaries in the order determined by the Board of Directors) shall
perform the duties and exercise the powers of the Secretary.
In the absence of the Secretary or any Assistant Secretary at any
meeting of stockholders or directors, the person presiding at the meeting shall
designate a temporary secretary to keep a record of the meeting.
3.11 Chief Financial Officer, Treasurer and Assistant Treasurers. The
Chief Financial Officer shall perform such duties and shall have such powers as
may from time to time be assigned to him by the Board of Directors or the Chief
Executive Officer and shall be responsible for the strategic management and
planning of the Corporation's finances. In addition, the Chief Financial Officer
shall perform such duties and have such powers as are incident to the office of
chief financial officer, including without limitation the duty and power to keep
and be responsible for all funds and securities of the Corporation, to deposit
funds of the Corporation in depositories selected in accordance with these
By-Laws, to disburse such funds as ordered by the Board of Directors, to make
proper accounts of such funds, and to render as required by the Board of
Directors statements of all such transactions and of the financial condition of
the Corporation.
The Treasurer (who also may be the Chief Financial Officer) shall perform
such duties and shall have such powers as may from time to time be assigned to
him by the Board of Directors, Chief Executive Officer or Chief Financial
Officer and shall be responsible for the day-to-day management of the
Corporation's finances. The Assistant Treasurers shall perform such duties and
possess such powers as the Board of Directors, the Chief Executive Officer,
Chief Financial Officer or the Treasurer may from time to time prescribe.
In the event of the absence, inability, or refusal to act of the Chief
Financial Officer, the Treasurer, (or if there shall be any Assistant
Treasurers, the Assistant Treasurers in the order determined by the Board of
Directors), shall perform the duties and exercise the powers of the Chief
Financial Officer.
3.12 Salaries. Officers of the Corporation shall be entitled to such
salaries, compensation or reimbursement as shall be fixed or allowed from time
to time by the Board of Directors.
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ARTICLE 4 - CAPITAL STOCK
4.1 Issuance of Stock. Unless otherwise voted by the stockholders and
subject to the provisions of the Certificate of Incorporation, the whole or any
part of any unissued balance of the authorized capital stock of the Corporation
or the whole or any part of any unissued balance of the authorized capital stock
of the Corporation held in its treasury may be issued, sold, transferred or
otherwise disposed of by vote of the Board of Directors in such manner, for such
consideration and on such terms as the Board of Directors may determine.
4.2 Certificates of Stock. Every holder of stock of the Corporation shall
be entitled to have a certificate, in such form as may be prescribed by law and
by the Board of Directors, certifying the number and class of shares owned by
him in the Corporation. Each such certificate shall be signed by, or in the name
of the Corporation by, the Chairman or Vice-Chairman, if any, of the Board of
Directors, or the President or a Vice President, and the Chief Financial Officer
or the Treasurer, or the Secretary or an Assistant Secretary of the Corporation.
Any or all of the signatures on the certificate may be a facsimile.
Each certificate for shares of stock which are subject to any
restriction on transfer pursuant to the Certificate of Incorporation, the
By-Laws, applicable securities laws or any agreement among any number of
shareholders or among such holders and the Corporation shall have conspicuously
noted on the face or back of the certificate either the full text of the
restriction or a statement of the existence of such restriction.
4.3 Transfers. Except as otherwise established by rules and regulations
adopted by the Board of Directors, and subject to applicable law, shares of
stock may be transferred on the books of the Corporation by the surrender to the
Corporation or its transfer agent of the certificate representing such shares
properly endorsed or accompanied by a written assignment or power of attorney
properly executed, and with such proof of authority or the authenticity of
signature as the Corporation or its transfer agent may reasonably require.
Except as may be otherwise required by law, by the Certificate of Incorporation
or by these By-Laws, the Corporation shall be entitled to treat the record
holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
to such stock, regardless of any transfer, pledge or other disposition of such
stock until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these By-Laws.
4.4 Lost, Stolen or Destroyed Certificates. The Corporation may issue a
new certificate of stock in place of any previously issued certificate alleged
to have been lost, stolen, or destroyed, upon such terms and conditions as the
Board of Directors may prescribe, including the presentation of reasonable
evidence of such loss, theft or destruction and the giving of such indemnity as
the Board of Directors may require for the protection of the Corporation or any
transfer agent or registrar.
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4.5 Record Date. The Board of Directors may fix in advance a date as a
record date for the determination of the stockholders entitled to notice of or
to vote at any meeting of stockholders or to express consent (or dissent) to
corporate action in writing without a meeting, or entitled to receive payment of
any dividend or other distribution or allotment of any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action. Such record date shall not be more than 60 nor less than ten days before
the date of such meeting, nor more than 60 days prior to any other action to
which such record date relates.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day before the day on which notice is given,
or, if notice is waived, at the close of business on the day before the day on
which the meeting is held. The record date for determining stockholders entitled
to express consent to corporate action in writing without a meeting, when no
prior action by the Board of Directors is necessary, shall be the day on which
the first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
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 5 - INDEMNIFICATION
5.1 Indemnification in Actions, Suits or Proceedings Other Than Those by
or in the Right of the Corporation. (a) The Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (whether civil,
criminal, administrative or investigative) by reason of the fact that such
person 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, partnership, joint venture, trust, employee benefit plan or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding, if such person acted in good
faith and in a manner which such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that such
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which such person reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had reasonable cause to believe that such
conduct was unlawful.
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(b) The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding, if such person acted in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which such
person reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such conduct was unlawful.
5.2 Indemnification in Actions, Suits or Proceedings by or in the Right of
the Corporation. (a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that such person is or was
a director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director of officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner which such person reasonably
believed to be in or not opposed to the best interest of the Corporation. No
such indemnification shall be made in respect of any claim, issue or matter as
to which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such court
shall deem proper.
(b) The Corporation may indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was an
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as an employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner which such person reasonably believed to be
in or not opposed to the best interests of the Corporation. No such
indemnification shall be made in respect of any claim, issue or matter as to
which such person
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shall have been adjudged to be liable to the Corporation unless and only to the
extent that the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which such court shall deem proper.
5.3 Authorization of Indemnification. Any indemnification under this
Article 5 shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because such person or persons
have met the applicable standard of conduct set forth in Sections 5.1 and 5.2
hereof. Such determination shall be made (i) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (iii) by the stockholders.
5.4 Advancement of Expenses. The Corporation shall, if so requested by an
officer or director, advance expenses (including attorneys' fees) incurred by a
director or officer in advance of the final disposition of such action, suit or
proceeding upon the receipt of an undertaking by or on behalf of the director of
officer to repay such amount if it shall ultimately be determined that such
director or officer is not entitled to indemnification.
The Corporation may advance expenses (including attorneys' fees)
incurred by an employee or agent in advance of the final disposition of such
action, suit or proceeding upon such terms and conditions, if any, as the Board
of Directors deems appropriate.
ARTICLE 6 - GENERAL PROVISIONS
6.1 Fiscal Year. The fiscal year of the Corporation shall be the twelve
months ending on December 31 of each calendar year.
6.2 Corporate Seal. The corporate seal shall be in such form as shall be
approved by the Board of Directors.
6.3 Waiver of Notice. Whenever any notice whatsoever is required to be
given by law, by the Certificate of Incorporation or by these By-Laws, a waiver
of such notice either in writing signed by the person entitled to such notice or
such person's duly authorized attorney, or by telegraph, cable or any other
available method, whether before, at or after the time stated in such waiver, or
the appearance of such person or persons at such meeting in person or by proxy,
shall be deemed equivalent to such notice.
6.4 Voting of Securities. Except as the directors may otherwise designate,
the President or Chief Financial Officer may waive notice of, and act as, or
appoint any person or persons to act as, proxy or attorney-in-fact for this
Corporation (with or without power of
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substitution) at, any meeting of stockholders or shareholders of any other
corporation or organization, the securities of which may be held by this
Corporation.
6.5 Evidence of Authority. A certificate by the Secretary, or an Assistant
Secretary, or a temporary Secretary as to any action taken by the stockholders,
directors, a committee or any officer or representative of the Corporation shall
as to all persons who rely on the certificate in good faith be conclusive
evidence of such action.
6.6 Certificate of Incorporation. All references in these By-Laws to the
Certificate of Incorporation shall be deemed to refer to the Certificate of
Incorporation of the Corporation, as amended and in effect from time to time.
6.7 Transactions with Interested Parties. All contracts or transactions
between the Corporation and one or more of the directors or officers, or between
the Corporation and any other corporation, partnership, association, or other
organization in which one or more of the directors or officers are directors or
officers, or have a financial interest, shall be approved by a majority of the
outside directors of the Corporation, if the Corporation has such outside
directors, before the Corporation shall be permitted to perform its obligations
under such contracts or transactions.
Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
6.8 Severability. Any determination that any provision of these By-Laws is
for any reason inapplicable, illegal or ineffective shall not affect or
invalidate any other provision of these By-Laws.
6.9 Pronouns. All pronouns used in these By-Laws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
ARTICLE 7 - AMENDMENTS
7.1 By the Board of Directors. These By-Laws may be altered, amended or
repealed or new By-Laws may be adopted by the affirmative vote of a majority of
the directors present at any regular or special meeting of the Board of
Directors at which a quorum is present.
7.2 By the Stockholders. These By-Laws may be altered, amended or repealed
or new By-Laws may be adopted at any regular meeting of stockholders, or at any
special meeting of stockholders, provided notice of such alteration, amendment,
repeal or adoption of new By-Laws shall have been stated in the notice of such
special meeting, and shall be approved by an
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affirmative vote of the holder or holders of a majority of the shares of the
Corporation's Common Stock and Preferred Stock (if any), voting together as a
class.
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Exhibit 3.1.5
FIRST AMENDMENT
TO
BY-LAWS
OF
ADVANCED TELELCOMMUNICATIONS, INC.
(A DELAWARE CORPORATION)
THIS FIRST AMENDMENT TO BY-LAWS OF ADVANCED TELECOMMUNICATIONS, INC. (the
"Corporation"), is made as of September ___, 1999 (the "Amendment").
RECITALS:
A. WHEREAS, the Corporation currently has in effect By-Laws dated as of
September 21, 1999 (the "By-Laws").
B. WHEREAS, pursuant to the authority set forth in Article VIII of the
Certificate of Incorporation of the Corporation, the Board of Directors of the
Corporation has determined it to be in the best interests of the Corporation to
amend the By-Laws as set forth below.
NOW, THEREFORE, the By-Laws are hereby amended as follows:
1. Section 2.12 of the By-Laws is deleted in its entirety and replaced by
the following:
"2.12 Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, the vote of a majority of those present shall be
sufficient to take any action, unless a different vote is specified by law, the
Certificate of Incorporation or these By-Laws. In the event of a tie vote by the
Board of Directors, (a) if the number of members of the Board of Directors is
six, the Chief Executive Officer shall abstain from voting, and (b) if the
number of members of the Board of Directors is any other even number, the Board
of Directors shall determine a tie breaking mechanism that is reasonably
acceptable to a majority of the members nominated by the Majority Bain Investors
and the Majority Stolberg Investors, as those terms are defined in the Amended
and Restated Stockholders Agreement, dated as of September ___, 1999, by and
among the Corporation and the Stockholders (as defined therein)."
2. Section 2.15 of the By-Laws is deleted in its entirety and replaced by
the following:
"2.15 Committees.
(a) The Board of Directors may, by resolution passed by a majority
of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. Each of
the Majority Bain Investors and the
<PAGE>
Majority Stolberg Investors, shall have the right to appoint one member to each
committee of the Board of Directors including without limitation the
compensation committee, audit committee, and executive committee. 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. In the absence or disqualification of a member of a committee,
the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(b) Any such committee, to the extent provided in the resolution of
the Board of Directors and subject to the provisions of the General Corporation
Law of the State of Delaware, 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. Each such committee shall keep
minutes and make such reports as the Board of Directors may from time to time
request. Except as the Board of Directors may otherwise determine, any committee
may make rules for the conduct of its business, but unless otherwise provided by
the directors or in such rules, its business shall be conducted as nearly as
possible in the same manner as is provided in these By-Laws for the Board of
Directors."
3. The By-Laws, as amended by this Amendment, shall remain in full force
and effect.
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Exhibit 10.1.1
Execution Copy
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This Amended and Restated Stockholders Agreement (the "Agreement") is made
as of September 30, 1999 by and among:
(i) Advanced Telecommunications, Inc., a Delaware corporation (the
"Company");
(ii) Stolberg Partners, L.P. and Stolberg, Meehan & Scano II, L.P. (the
"Stolberg Investors");
(iii) Bain Capital Fund VI, L.P. ("Bain") and the other Persons who are
listed on the signature page as Bain Investors who purchase shares
of the Company's Series C Preferred Stock, par value $0.01 per share
(the "Series C Preferred") (together with Bain, the "Bain
Investors", and the Bain Investors together with Stolberg, Meehan &
Scano II, L.P. (in its capacity as a purchaser and holder of shares
of Series C Preferred), the "Series C Investors") and
(iv) the individuals identified on the signature pages and Schedule I
hereof as "Minority Stockholders," such other Persons who from time
to time become party hereto by executing a counterpart signature
page hereof and are designated by the Board and included on Schedule
I as "Minority Stockholders," and such other Persons who were
designated as "Minority Stockholders" under the Initial Stockholders
Agreement (as defined below) and who are identified on Schedule I,
whether or not such Persons have executed a counterpart signature
page hereof (the "Minority Stockholders" and together with the
Stolberg Investors and the Series C Investors, the "Stockholders").
Recitals
1. On or about the date hereof, the Series C Investors have purchased or
will purchase shares of the Series C Preferred pursuant to a Series C Preferred
Stock Purchase Agreement dated September 30, 1999 between the Company and the
Series C Investors (the "Purchase Agreement").
2. Upon the Closing (as defined below), the Company's Common Stock, par
value $0.01 per share (the "Common Stock"), the Company's Series A Preferred
Stock, par value $0.01 per share (the "Series A Preferred"), the Company's
Series B1 Preferred Stock, par value $0.01 per share, the Company's Series B2
Preferred Stock, par value $0.01 per share, the Company's Series B3 Preferred
Stock, par value $0.01 per share, and the Company's Series B4 Preferred Stock,
par value $0.01 per share (collectively, the "Series B Preferred"
<PAGE>
and together with the Series A Preferred and the Series C Preferred, the
"Preferred Stock"), the Series C Preferred and all Options and Convertible
Securities are held as set forth on Schedule II hereto.
3. The parties believe that it is in the best interests of the Company and
the Stockholders to set forth their agreements on certain matters.
4. This Agreement amends and restates in its entirety the Stockholders
Agreement dated as of July 1, 1996 by and among the Company, the Stolberg
Investors and the Minority Stockholders, as amended and in effect on the date
hereof (the "Initial Stockholders Agreement").
Agreement
Therefore, the parties hereto hereby agree as follows:
1. EFFECTIVENESS; DEFINITIONS.
1.1. Closing. This Agreement shall become effective upon consummation of
the initial closing (the "Closing") under the Purchase Agreement.
1.2. Definitions. Certain terms are used in this Agreement as specifically
defined herein. These definitions are set forth or referred to in Section 12
hereof.
2. VOTING AGREEMENT.
2.1. Election of Directors. Each holder of Shares hereby agrees to cast
all votes to which such holder is entitled in respect of the Shares, whether at
any annual or special meeting, by written consent or otherwise, (a) to fix the
number of members of the board of directors of the Company (the "Board") at
seven or such higher number as may be specified from time to time by the Board
with the consent of the Majority Series C Investors, and (b) to elect as
directors of the Company such individuals, if any, as shall have been nominated
as follows:
(i) two members of the Board as shall have been nominated by the
Majority Stolberg Investors;
(ii) two members of the Board as shall have been nominated by the
Majority Bain Investors;
(iii) one member of the Board who shall be the Chief Executive
Officer of the Company; and
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(iv) the balance who shall have been nominated by the Board with the
consent of the Majority Series C Investors; provide, however, that it is
understood that Marvin Moses shall be deemed to have been nominated and
approved as a member of the Board as of the Closing.
If the ownership percentage of the Bain Investors increases pursuant to
Section 1.2 of the Purchase Agreement, the Majority Bain Investors shall be
entitled from time to time to nominate an additional director or directors in
order to maintain the Bain Investors' representation on the Board at
approximately the same percentage as the ownership percentage of the Bain
Investors.
2.2. Boards and Board Committees. The Majority Bain Investors and the
Majority Stolberg Investors shall each have the right to appoint one member to
each committee of the Board including without limitation the compensation, audit
and executive committees. Upon the request of either the Majority Bain Investors
or the Majority Stolberg Investors, the Company shall cause the boards of
directors and committees of the boards of directors of the significant
subsidiaries of the Company (as reasonably defined by the Majority Bain
Investors or the Majority Stolberg Investors, as applicable, in such request to
the Company) to mirror the Board and committees of the Board of the Company.
2.3. Major Transactions. The charter or bylaws of each subsidiary of the
Company shall at all times include a provision that the subsidiary will not
undertake a Major Transaction unless such Major Transaction has first been
approved by the Board of the Company.
2.4. Board Voting. The bylaws of the Company and each of its Subsidiaries
shall contain a provision that in the event of a tie vote by the board of
directors of such entity, (a) if the number of members of the Board is six, the
Chief Executive Officer shall abstain from voting, and (b) if the number of
members of the Board is any other even number, the Board shall determine a tie
breaking mechanism that is reasonably acceptable to a majority of the members
nominated by the Majority Bain Investors and the Majority Stolberg Investors.
2.5. Transactions with Stolberg or Bain Affiliates. The Company will not
enter into, or permit any of its subsidiaries to enter into, any transaction or
agreement with any Affiliate of the Stolberg Investors or the Bain Investors
without the prior approval of the Board.
2.6. Initial Public Offering. The Company shall not file a registration
statement in connection with an initial public offering of securities of the
Company pursuant to the Securities Act other than a Qualified Public Offering
without the prior consent of the Majority Series C Investors.
2.7. Personnel Matters. The Company shall not approve the hiring or
election of, promotion to, or demotion, firing or removal of any member of the
Senior Management of the
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Company or the Board (except as specifically set forth in Section 2.1) without
the prior consent of the Majority Series C Investors.
2.8. Certain Transactions. Each holder of Shares agrees to cast all votes
to which such holder is entitled in respect of the Shares, whether at any annual
or special meeting, by written consent or otherwise, in the same proportion as
Series C Shares are voted by the Majority Series C Investors to approve any
sale, recapitalization, merger, consolidation, reorganization or any other
transaction or series of transactions involving the Company or its subsidiaries
(or all or any portion of their respective assets) in connection with, or in
furtherance of, the exercise by the Majority Series C Investors of their rights
under Sections 3.2 and 3.6, the exercise by the Majority Stolberg Investors of
their rights under Section 3.3 and the exercise by the Majority Series C
Investors and the Majority Stolberg Investors, acting together, of their rights
under Section 3.4.
2.9. Grant of Proxy. Each holder of Shares other than the Series C
Investors and the Stolberg Investors hereby grants to the Company an irrevocable
proxy to vote its Shares in accordance with its agreements contained in this
Section 2, which proxy shall be valid and remain in effect until the provisions
of this Section 2 expire pursuant to Section 2.9.
2.10. The Company. The Company agrees not to give effect to any action by
any holder of Shares or any other Person which is in contravention of this
Section 2.
2.11. Period. The foregoing provisions of this Section 2 shall expire on
the earliest of (i) a Qualified Public Offering and (ii) the last date permitted
by law.
3. "TAG ALONG" AND "DRAG ALONG" RIGHTS.
3.1. Tag Along. No holder of Stolberg Shares or Series C Shares (each such
holder, a "Prospective Selling Investor") shall Transfer for value (a "Sale")
any such Shares to a Prospective Buyer except in compliance with this Section
3.1. Any attempted Transfer of Shares not in compliance with this Section 3
shall be null and void, and the Company shall not in any way give effect to any
such impermissible Transfer.
3.1.1. Notice. A written notice (the "Tag Along Notice") shall be
furnished by the Prospective Selling Investor to each other holder of
Shares (each, a "Tag Along Holder") at least ten business days prior to
such Transfer. The Tag Along Notice shall include:
(a) The material terms of the proposed Sale insofar as it
relates to the sale of Shares, including the number of Shares to be
purchased from the Prospective Selling Investor, the percentage of
the total number of Shares originally issued to the Prospective
Selling Investor which such number of Shares constitutes (the "Tag
Along Sale Percentage"), the maximum and
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<PAGE>
minimum per share purchase price and the name and address of the
Prospective Buyer; and
(b) An invitation to each Tag Along Holder to make an offer to
include in the proposed Sale to the Prospective Buyer an additional
number of Shares (not in any event to exceed the Tag Along Sale
Percentage of the total number of Shares held by such Tag Along
Holder) owned by such Tag Along Holder, on the same terms and
conditions subject to Section 3.5.4 in the case of Options, with
respect to each Share Sold, as the Prospective Selling Investor
shall Sell its Shares.
3.1.2. Exercise. Within ten business days after the effectiveness of
the Tag Along Notice, each Tag Along Holder desiring to make an offer to
include Shares in the proposed Sale (each a "Participating Seller" and,
together with the Prospective Selling Investor, collectively, the "Tag
Along Sellers") shall send a written offer (the "Tag Along Offer") to the
Prospective Selling Investor specifying the number of Shares (not in any
event to exceed the Tag Along Sale Percentage of the total number of
Shares held by such Participating Seller) which such Participating Seller
desires to have included in the proposed Sale. Each Tag Along Holder who
does not accept the Prospective Selling Investor's invitation to make an
offer to include Shares in the proposed Sale shall be deemed to have
waived all of its rights with respect to such Sale, and the Tag Along
Sellers shall thereafter be free to Sell to the Prospective Buyer, at a
per share price no greater than the maximum per share price set forth in
the Tag Along Notice and on other principal terms which are not materially
more favorable to the Tag Along Sellers than those set forth in the Tag
Along Notice, without any further obligation to such non-accepting Tag
Along Holder.
3.1.3. Irrevocable Offer. The offer of each Participating Seller
contained in its Tag Along Offer shall be irrevocable, and, to the extent
such offer is accepted, such Participating Seller shall be bound and
obligated to Sell in the proposed Sale on the same terms and conditions,
with respect to each Share Sold (subject to Section 3.5.4 in the case of
Options), as the Prospective Selling Investor, up to such number of Shares
as such Participating Seller shall have specified in its Tag Along Offer;
provided, however, that if the principal terms of the proposed Sale change
with the result that the per share price shall be less than the minimum
per share price set forth in the Tag Along Notice or the other principal
terms shall be materially less favorable to the Tag Along Sellers than
those set forth in the Tag Along Notice, each Participating Seller shall
be permitted to withdraw the offer contained in its Tag Along Offer and
shall be released from its obligations thereunder.
3.1.4. Reduction of Shares Sold. The Prospective Selling Investor
shall attempt to obtain the inclusion in the proposed Sale of the entire
number of Shares which the Tag Along Sellers requested to have included in
the Sale (as evidenced in the case of
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the Prospective Selling Investor by the Tag Along Notice and in the case
of each Participating Seller by such Participating Seller's Tag Along
Offer). In the event the Prospective Selling Investor shall be unable to
obtain the inclusion of such entire number of Shares in the proposed Sale,
the number of Shares to be sold in the proposed Sale shall be allocated
among the Tag Along Sellers in proportion, as nearly as practicable, to
the respective number of Shares which each Tag Along Seller requested to
be included in the proposed Sale.
3.1.5. Additional Compliance. If (a) prior to consummation, the
terms of the proposed Sale shall change with the result that the per share
price to be paid in such proposed Sale shall be greater than the maximum
per share price set forth in the Tag Along Notice or the other principal
terms of such proposed Sale shall be materially more favorable to the Tag
Along Sellers than those set forth in the Tag Along Notice, the Tag Along
Notice shall be null and void, and it shall be necessary for a separate
Tag Along Notice to be furnished, and the terms and provisions of this
Section 3.1 separately complied with, in order to consummate such proposed
Sale pursuant to this Section 3.1; provided, however, that in the case of
such a separate Tag Along Notice, the applicable period to which reference
is made in Sections 3.1.1 and 3.1.2 shall be five business days and (b)
the Prospective Selling Investor has not completed the proposed Sale by
the end of the 180th day following the date of the effectiveness of the
Tag Along Notice, each Participating Seller shall be released from its
obligations under its Tag Along Offer, the Tag Along Notice shall be null
and void, and it shall be necessary for a separate Tag Along Notice to be
furnished, and the terms and provisions of this Section 3.1 separately
complied with, in order to consummate such proposed Sale pursuant to this
Section 3.1, unless the failure to complete such proposed Sale resulted
from any failure by any Participating Seller to comply with the terms of
this Section 3.1.
3.1.6. Excluded Transactions. Notwithstanding the foregoing, (a)
holders of Stolberg Shares or Series C Shares shall not be obligated to
comply with the foregoing provisions of this Section 3.1 and (b) no other
holder of Shares shall have any right of participation pursuant to the
terms of this Section 3.1, or otherwise, in each case, with respect to any
Transfer of Shares:
(i) subject to the provisions of Section 9.1, by a holder of
Stolberg Shares or Series C Shares to its partners or
Affiliates;
(ii) to the Company or its subsidiaries;
(iii) subject to the provisions of Section 7.4.4, in a Public
Offering or, after the closing of the Initial Public
Offering, pursuant to Rule 144; or
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(iv) in accordance with the exercise by the Series C
Investors, the Stolberg Investors, or the Stolberg
Investors and the Bain Investors of their "drag along"
rights pursuant to Section 3.2, 3.3 or 3.4 of this
Agreement.
3.2. Series C Investors Drag Along. Each holder of Shares hereby agrees,
if requested by the Majority Series C Investors at any time following the third
anniversary of the date of the Closing hereunder, to Sell a specified percentage
(the "Drag Along Sale Percentage") of such Shares, directly or indirectly, to a
Prospective Buyer in the manner and on the terms set forth in this Section 3.2
in connection with the Sale by one or more holders of Series C Shares (each such
holder, a "Prospective Selling Investor") of the Drag Along Sale Percentage of
the total number of Series C Shares held by all holders of Series C Shares to
the Prospective Buyer.
3.2.1. Exercise. If the Majority Series C Investors elect to
exercise their rights under this Section 3.2, the Prospective Selling
Investors shall furnish a written notice (the "Drag Along Notice") to each
other holder of Shares and to the Company. The Drag Along Notice shall set
forth the material terms of the proposed Sale insofar as it relates to the
sale of Shares including the number of Shares to be acquired from the
Prospective Selling Investors, the Drag Along Sale Percentage, the per
share consideration to be received in the proposed Sale and the name,
address and any Affiliate relationship to the Series C Investors of the
Prospective Buyer. If the Prospective Selling Investors consummate the
proposed Sale to which reference is made in the Drag Along Notice, each
other holder of Shares (each a "Participating Seller", and, together with
the Prospective Selling Investors, collectively, the "Drag Along Sellers")
shall be bound and obligated to Sell the Drag Along Sale Percentage of its
Shares in the proposed Sale on the same terms and conditions, with respect
to each Share Sold (subject to Section 3.5.4 in the case of Options), as
the Prospective Selling Investors shall Sell each Series C Share in the
Sale (subject to Section 3.5.4 in the case of Options). If at the end of
the 180th day following the date of the effectiveness of the Drag Along
Notice the Prospective Selling Investors have not completed the proposed
Sale, each Participating Seller shall be released from its obligation
under the Drag Along Notice, the Drag Along Notice shall be null and void,
and it shall be necessary for a separate Drag Along Notice to be furnished
and the terms and provisions of this Section 3.2 separately complied with,
in order to consummate such proposed Sale pursuant to this Section 3.2.
3.2.2. Appraisal Process. In the case of a proposed Sale pursuant to
Section 3.2 to a Prospective Buyer which is an Affiliate of a Series C
Investor, such proposed Sale shall not be effected pursuant to the
provisions of Section 3.2 unless the Appraisal Process is followed.
3.3. Stolberg Investors Drag Along. Each holder of Shares hereby agrees,
if requested by the Majority Stolberg Investors on or after April 1, 2004 and if
at the time of such request
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the Stolberg Investors own at least 33 1/3% of the Equivalent Shares, to Sell a
specified percentage (the "Drag Along Sale Percentage") of such Shares, directly
or indirectly, to a Prospective Buyer in the manner and on the terms set forth
in this Section 3.3 in connection with the Sale by one or more holders of
Stolberg Shares (each such holder of Stolberg Shares, a "Prospective Selling
Investor") of the Drag Along Sale Percentage of the total number of Shares held
by all holders of Stolberg Shares to the Prospective Buyer.
3.3.1. Exercise. If the Majority Stolberg Investors elect to
exercise their rights under this Section 3.3, the Prospective Selling
Investors shall furnish a written notice (the "Drag Along Notice") to each
other holder of Shares and to the Company. The Drag Along Notice shall set
forth the material terms of the proposed Sale insofar as it relates to the
sale of Shares including the number of Shares to be acquired from the
Prospective Selling Investors, the Drag Along Sale Percentage, the per
share consideration to be received in the proposed Sale and the name,
address and any Affiliate relationship to the Stolberg Investors of the
Prospective Buyer. If the Prospective Selling Investors consummate the
proposed Sale to which reference is made in the Drag Along Notice, each
other holder of Shares (each a "Participating Seller", and, together with
the Prospective Selling Investors, collectively, the "Drag Along Sellers")
shall be bound and obligated to Sell the Drag Along Sale Percentage of its
Shares in the proposed Sale on the same terms and conditions, with respect
to each Share Sold (subject to Section 3.5.4 in the case of Options), as
the Prospective Selling Investors shall Sell each Share in the Sale
(subject to Section 3.5.4 in the case of Options). If at the end of the
180th day following the date of the effectiveness of the Drag Along Notice
the Prospective Selling Investors have not completed the proposed Sale,
each Participating Seller shall be released from its obligation under the
Drag Along Notice, the Drag Along Notice shall be null and void, and it
shall be necessary for a separate Drag Along Notice to be furnished and
the terms and provisions of this Section 3.3 separately complied with, in
order to consummate such proposed Sale pursuant to this Section 3.3.
3.3.2. Appraisal Process. In the case of a proposed Sale pursuant to
Section 3.3 to a Prospective Buyer which is an Affiliate of a Stolberg
Investor, such proposed Sale shall not be effected pursuant to the
provisions of Section 3.3 unless the Appraisal Process is followed.
3.4. Stolberg Investors and Bain Investors Drag Along. If (i) the Majority
Stolberg Investors or their Affiliates and (ii) the Majority Bain Investors,
acting together, either with or without any other holders of Shares (each such
holder, together with such Majority Stolberg Investors and such Majority Bain
Investors, a "Prospective Selling Investor"), propose to Transfer a specified
percentage (the "Drag Alone Sale Percentage") of the total number of Shares held
by such Prospective Selling Investors to a Prospective Buyer, then each holder
of Shares hereby agrees, if requested by the Majority Stolberg Investors and the
Majority Bain Investors, to Sell the Drag Along Sale Percentage of such Shares,
directly or indirectly, to such
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Prospective Buyer in the manner and on the terms set forth in this Section 3.4
in connection with the Sale by the Prospective Selling Investors of the Drag
Along Sale Percentage of the total number of Shares held such Prospective
Selling Investors to the Prospective Buyer.
3.4.1. Exercise. If the Majority Stolberg Investors and the Majority
Bain Investors elect to exercise their rights under this Section 3.4, the
Prospective Selling Investors shall furnish a written notice (the "Drag
Along Notice") to each other holder of Shares. The Drag Along Notice shall
set forth the material terms of the proposed Sale insofar as it relates to
the sale of Shares including the number of Shares to be acquired from the
Prospective Selling Investors, the Drag Along Sale Percentage, the per
share consideration to be received in the proposed Sale and the name,
address and any Affiliate relationship to the Bain Investors or the
Stolberg Investors of the Prospective Buyer. If the Prospective Selling
Investors consummate the proposed Sale to which reference is made in the
Drag Along Notice, each other holder of Shares (each a "Participating
Seller", and, together with the Prospective Selling Investors,
collectively, the "Drag Along Sellers") shall be bound and obligated to
Sell the Drag Along Sale Percentage of its Shares in the proposed Sale on
the same terms and conditions, with respect to each Share Sold (subject to
Section 3.5.4 in the case of Options), as the Prospective Selling
Investors shall Sell their Shares in the Sale (subject to Section 3.5.4 in
the case of Options). If at the end of the 180th day following the date of
the effectiveness of the Drag Along Notice the Prospective Selling
Investors have not completed the proposed Sale, each Participating Seller
shall be released from its obligation under the Drag Along Notice, the
Drag Along Notice shall be null and void, and it shall be necessary for a
separate Drag Along Notice to be furnished and the terms and provisions of
this Section 3.4 separately complied with, in order to consummate such
proposed Sale pursuant to this Section 3.4.
3.4.2. Appraisal Process. In the case of a proposed Sale pursuant to
Section 3.4 to a Prospective Buyer which is an Affiliate of a Stolberg
Investor or a Bain Investor, such proposed Sale shall not be effected
pursuant to the provisions of Section 3.4 unless the Appraisal Process is
followed.
3.5. Miscellaneous. The following provisions shall be applied to any
prospective Sale to which Section 3.1, 3.2, 3.3 or 3.4 applies:
3.5.1. Certain Legal Requirements. In the event the consideration to
be paid in exchange for Shares in a proposed Sale pursuant to Section 3.1,
3.2, 3.3 or 3.4 includes any securities, and the receipt thereof by a
Participating Seller would require under applicable law (a) the
registration or qualification of such securities or of any person as a
broker or dealer or agent with respect to such securities or (b) the
provision to any Tag Along Seller or Drag Along Seller of any information
regarding such securities or the issuer thereof that would not be required
to be provided to the Prospective Selling Investors, and the Prospective
Selling Investors determine not to have the issuer
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register or qualify such securities or person or have the issuer provide
such information, as the case may be, then in lieu of the receipt of
securities in the proposed Sale, against surrender of the Shares (in
accordance with Section 3.5.6 hereof) which are to be Sold by such
Participating Seller to the Prospective Buyer in the proposed Sale, the
Prospective Selling Investors shall, contemporaneously with such Sale,
cause to be paid to the Participating Seller an amount in cash equal to
the Fair Market Value of such Shares as of the date of the issuance of
securities in exchange for Shares.
3.5.2. Further Assurances. Each Participating Seller, whether in its
capacity as a Participating Seller, stockholder, officer or director of
the Company, or otherwise, shall take or cause to be taken all such
actions as may be necessary or reasonably desirable in order expeditiously
to consummate each Sale pursuant to Section 3.1, 3.2, 3.3 or 3.4 and any
related transactions, including, without limitation, executing,
acknowledging and delivering consents, assignments, waivers and other
documents or instruments; furnishing information and copies of documents;
filing applications, reports, returns, filings and other documents or
instruments with governmental authorities; and otherwise cooperating with
the Prospective Selling Investors and the Prospective Buyer; provided,
however, that Participating Sellers shall be obligated to become liable in
respect of any representations, warranties, covenants, indemnities or
otherwise to the Prospective Buyer solely to the extent provided in the
immediately following sentence. Without limiting the generality of the
foregoing, each Participating Seller agrees to execute and deliver such
agreements as may be reasonably specified by the Prospective Selling
Investors, to which such Prospective Selling Investors will also be party,
including, without limitation, agreements to (a) make individual
representations, warranties, covenants and other agreements as to the
unencumbered title to its Shares and the power, authority and legal right
to Transfer such Shares and the absence of any Adverse Claim with respect
to such Shares and (b) be liable (whether by purchase price adjustment,
indemnity payments or otherwise) in respect of representations,
warranties, covenants and agreements in respect of the Company and its
subsidiaries; provided, however, that, except with respect to individual
representations, warranties, covenants, indemnities and other agreements
of Participating Sellers of the type described in clause (a) above, the
aggregate amount of such liability shall not exceed the lesser of (i) such
Participating Seller's pro rata portion of any such liability, to be
determined in accordance with such Participating Seller's portion of the
total number of Shares included in such Sale or (ii) the proceeds to such
Participating Seller in connection with such Sale.
3.5.3. Sale Process. The Prospective Selling Investors shall, in
their sole discretion, decide whether or not to pursue, consummate,
postpone or abandon any proposed Sale and the terms and conditions
thereof. No Prospective Selling Investor or any Affiliate of any
Prospective Selling Investor shall have any liability to any other holder
of Shares arising from, relating to or in connection with the pursuit,
consummation, postponement, abandonment or terms and conditions of any
proposed
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Sale except to the extent such Prospective Selling Investor shall have
failed to comply with the provisions of this Section 3.
3.5.4. Treatment of Options. If any Participating Seller shall Sell
Options in any Sale pursuant to Section 3.1, 3.2, 3.3 or 3.4, such
Participating Seller shall receive in exchange for such Options
consideration equal to the amount (if greater than zero) determined by
multiplying (a) the purchase price per share of Common Stock received by
the Prospective Selling Investors in such Sale less the exercise price per
share of such Option by (b) the number of shares of Common Stock issuable
upon exercise of such Option (to the extent exercisable at the time of
such Sale), subject to reduction for any tax or other amounts required to
be withheld under applicable law.
3.5.5. Expenses. All reasonable costs and expenses incurred by the
Prospective Selling Investors or the Company in connection with any
proposed Sale pursuant to this Section 3 (whether or not consummated),
including without limitation all attorneys fees and expenses, all
accounting fees and charges and all finders, brokerage or investment
banking fees, charges or commissions, shall be paid by the Company. The
reasonable fees and expenses of a single legal counsel representing any or
all of the other Tag Along Sellers or Drag Along Sellers in connection
with any proposed Sale pursuant to this Section 3 (whether or not
consummated) shall be paid by the Company. Any other costs and expenses
incurred by or on behalf of any or all of the other Tag Along Seller or
Drag Along Seller in connection with any proposed Sale pursuant to this
Section 3 (whether or not consummated) shall be borne by such Tag Along
Seller(s) or Drag Along Seller(s).
3.5.6. Closing. The closing of a Sale pursuant to Section 3.1, 3.2,
3.3 or 3.4 shall take place at such time and place as the Prospective
Selling Investors shall specify by notice to each Participating Seller. At
the closing of any Sale under this Section 3, each Participating Seller
shall deliver the certificates evidencing the Shares to be Sold by such
Participating Seller, duly endorsed, or with stock (or equivalent) powers
duly endorsed, for transfer with signature guaranteed, free and clear of
any liens or encumbrances, with any stock (or equivalent) transfer tax
stamps affixed, against delivery of the applicable consideration.
3.6. Initiation of Sale of Company or Subsidiaries. Any other provision of
this Agreement to the contrary notwithstanding, the Majority Series C Investors
shall have the right at any time following the fourth anniversary of the date of
the Closing hereunder to control the initiation of the sale of all or
substantially all of the assets of the Company or the merger of the Company with
another Person (a "Liquidity Event") and to control the timing and terms of any
Liquidity Event initiated by the Majority Series C Investors; provided, however,
that such Liquidity Event shall be subject, in the case of a sale of Shares, to
the applicable provisions of this Section 3.
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3.7. Period. The provisions of this Section 3 shall expire on the earlier
of (a) a Change of Control or (b) the closing of a Qualified Public Offering.
4. TRANSFER RIGHTS.
4.1. Transfer Restrictions. No holder of Minority Shares shall Transfer
any such Shares to any Person except in the manner and on the terms set forth in
this Section 4. Any attempted Transfer of Shares not permitted by this Section 4
shall be null and void, and the Company shall not in any way give effect to any
such impermissible Transfer.
4.1.1. Right of First Refusal. Except as may be permitted under
Section 4.2, or under any other provision of this Agreement, if a Minority
Stockholder or any of its Permitted Transferees shall at any time propose
to Transfer all or any portion of its Shares (a "Minority Sale"), or is to
be divested of its interest in all or a portion of its Shares though
seizure or sale by legal process or any Transfer through operation of law,
such Minority Stockholder or Permitted Transferee (the "Minority
Transferor") shall notify the Board and shall first offer such Shares for
sale in writing to the Company. Such written offer (the "Offer") shall
state the number and type of Shares to be Transferred, the name and
address of the proposed transferee, and the terms, conditions and third
party price of the proposed Transfer.
Upon receipt of such Offer, the Company (and if a right to purchase
is granted to the Stolberg Investors and the Bain Investors pursuant to
Section 4.1.2.2, the Stolberg Investors and the Bain Investors) shall have
the following rights and options:
4.1.1.1. In the case of a proposed Minority Sale, the Company
(and the Stolberg Investors and the Bain Investors, if applicable)
may purchase the Shares set forth in the Offer at the purchase price
and upon such terms and conditions as follows:
(a) The purchase price for the Shares offered for sale
will be the lesser of (x) the purchase price proposed by the
third party as described in the Offer, and (y) an amount equal
to 100% of the Contract Price (provided, however, that the
purchasing party may, at its option, elect to forego
determination of the Contract Price and set the purchase price
at the third party offer price); and
(b) If the purchase price is that proposed by the third
party, the terms of payment shall be as proposed by the third
party (except that if the purchasing party elects to pay the
lesser of the third party sale price or the Contract Price,
the "date of purchase" may be deferred until a date which will
be no later than 20 days after determination of the Contract
Price); and
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(c) If the purchase price is the Contract Price, the
terms of payment shall be the Contract Terms.
4.1.1.2. If the Minority Transferor is to be divested of its
interest in said Shares through seizure or sale by legal process or
by any Transfer through operation of law, including without
limitation, a Transfer in connection with a judgment lien or a
proceeding under the Bankruptcy Code, the purchase price of the
Shares shall be an amount equal to the Contract Price and the terms
of payment shall be the Contract Terms.
4.1.2. Acceptance of Offer.
4.1.2.1. The Company may, by majority vote of the Board,
accept the Offer as to all or any portion of the Shares proposed to
be Transferred, by giving written notice of such acceptance to the
Minority Transferor within 15 days after the making of the Offer.
4.1.2.2. In the event the Company does not exercise its option
to purchase all of the Shares being offered for sale, and the Board
by majority vote agrees that the Offer shall be extended to the
Stolberg Investors and the Bain Investors, the Board shall provide a
copy of the Offer to the Stolberg Investors and the Bain Investors,
and the Stolberg Investors and the Bain Investors may purchase the
Shares not being purchased by the Company in accordance with the
following procedure:
(a) The Stolberg Investors and the Bain Investors may
purchase all or any portion of the Shares not being purchased
by the Company by giving written notice of such acceptance to
the Minority Transferor, with a copy to the Company, within 15
days after the expiration of the Company's option. A Stolberg
Investor or a Bain Investor that timely submits a notice of
acceptance hereunder will be conclusively deemed to have
exercised its option to purchase its pro rata portion of the
Shares offered for sale hereunder or, if less, the number of
Shares specified by such Stolberg Investor or Bain Investor in
its notice of acceptance or, if any one or more of the other
Bain Investors or Stolberg Investors does not exercise its
option to purchase its entire pro rata portion of the Shares,
such greater number of Shares as specified by such Stolberg
Investor or Bain Investor in its notice of acceptance.
(b) The Shares which are available for purchase by the
Stolberg Investors and the Bain Investors hereunder will be
allocated among the Stolberg Investors and the Bain Investors
that have timely submitted notices of acceptance
proportionately, i.e., each such Stolberg Investor
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or Bain Investor shall be allocated that number of Shares
which is calculated by multiplying the total number of
available Shares by a fraction, the numerator of which is the
number of Shares owned by such Stolberg Investor or Bain
Investor and its Permitted Transferees, and the denominator of
which is the total number of Shares owned by all Stolberg
Investors and Bain Investors (and their Permitted Transferees)
that have timely submitted notices of acceptance hereunder
(or, if less, such Stolberg Investor or Bain Investor shall be
allocated the number of Shares specified by such Stolberg
Investor or Bain Investor in its notice of acceptance).
4.1.3. Disposition to Third Party. If the Offer is not accepted by
the Company and/or the Stolberg Investors or the Bain Investors (if
applicable) with respect to all of the Shares offered for sale, then none
of the acceptances under Section 4.1.2 shall be effective and the Minority
Transferor shall have the right to Transfer all (but not less than all) of
its Shares subject to the Offer to the third party designated in the
Offer, on the same terms, conditions and price specified in the Offer;
provided, however, that such Transfer is made within 30 days after the
last date on which an Offer may be accepted under Section 4.1.2 and
provided, further, that the transferee agrees in writing to be bound by
this Agreement (other than the provisions of Section 5 hereof) to the same
extent as if such transferee had originally been a Minority Stockholder
hereunder. In the event of a Transfer to such third party in accordance
with this Section 4.1.3, the Company, the Stolberg Investors and the Bain
Investors shall provide the Minority Transferor with such documents and
instruments as may be reasonably necessary to permit the Transfer free of
the right of first refusal options granted to the Company, the Stolberg
Investors and the Bain Investors as set forth in this Section 4.1.
4.1.4. Failure of Sale. If neither the Company, the Stolberg
Investors, the Bain Investors nor the third party purchases all of the
Shares offered for sale within the periods provided in Sections 4.1.2 and
4.1.3, such Shares shall continue to be subject to the restrictions of
this Agreement.
4.1.5. Remedy for Violation. Upon any voluntary Transfer of Shares
by a Minority Stockholder or any of its Permitted Transferees in violation
of any of the provisions of this Agreement, the Company, the Stolberg
Investors and the Bain Investors shall have, in addition to such other
remedies and damages as may be available to them under applicable law, the
right and option to purchase all or any of such Shares from the holder or
holders thereof at a price equal to 90% of the price that would otherwise
have been applicable if the Minority Stockholder had complied with the
terms hereof and the terms of payment shall be the Contract Terms. Such
option shall be exercisable in the manner and in accordance with the
procedures set forth in Sections 4.1.1 through 4.1.3, provided that, for
purposes of applying such procedures,
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the date of discovery of such violation shall be deemed to be the date on which
the Offer is made.
4.1.6. Sale Involving Non-Cash Consideration. In the case of a
Minority Sale in which the prospective purchaser's terms include
consideration other than cash or deferred payments, the Offer by the
Minority Transferor shall set forth as the proposed third party sale price
an equivalent value cash price; provided, however, that the Board may in
good faith dispute the equivalent value cash price set forth in the Offer
by providing a notice in writing ("Notice of Dispute") to the Minority
Transferor within five days of the giving of the Offer. In the event of
such dispute, a determination of the equivalent value cash price shall be
made as soon as practicable after delivery of the Offer by an Appraiser
mutually agreeable to the Minority Transferor and the Board. If the
Minority Transferor and the Board are unable to select an Appraiser by
mutual agreement within five days following the date the Notice of Dispute
is provided, the Board and the Minority Transferor shall each select an
Appraiser, and the two Appraisers so selected shall select the Appraiser
who shall determine the equivalent value cash price for purposes hereof.
The Minority Transferor shall bear one-half of the cost of any appraisal
required hereunder and the Company shall bear the balance of the cost of
such appraisal. The equivalent value cash price determined by the
Appraiser finally selected hereunder shall be binding and conclusive on
the parties, and the Offer shall be deemed to have been made as of the
date such determination of the equivalent value cash price is final.
4.2. Transfers of Minority Shares. Notwithstanding anything to the
contrary in Section 4.1, any holder of Minority Shares may Transfer any or all
of the Minority Shares held by such holder as set forth below:
4.2.1. Company. Any holder of Minority Shares may, at any time
during his lifetime, voluntarily Transfer any or all of such Minority
Shares, with the Board's prior written approval, to the Company or any
subsidiary of the Company.
4.2.2. Bain Investors and Stolberg Investors. Any holder of Minority
Shares may Transfer any or all of such Minority Shares to the Bain
Investors and the Stolberg Investors, provided that (a) such Minority
Shares to be Transferred are offered to both the Bain Investors and the
Stolberg Investors and (b) if both the Bain Investors and the Stolberg
Investors agree to accept such Minority Shares, then such Minority Shares
shall be allocated between the Bain Investors and the Stolberg Investors
in proportion to the number of Shares then held by the Bain Investors and
the Stolberg Investors.
4.2.3. Members of Immediate Family. Subject to the provisions of
Section 9, with the prior written approval of the Board which shall not be
unreasonably withheld, any holder of Minority Shares may Transfer any or
all of such Minority Shares to a Member of the Immediate Family of such
holder.
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4.2.4. Partners; Affiliates. Subject to the provisions of Section 9,
with the prior written approval of the Board which shall not be
unreasonably withheld, any holder of Minority Shares that is not a natural
person may Transfer any or all of such Minority Shares to a partner or
Affiliate of such holder.
4.2.5. Calls. Any holder of Minority Shares may Transfer any or all
of such Minority Shares in accordance with the provisions, terms and
conditions of Section 5 hereof.
4.2.6. Tag Alongs, Drag Alongs, etc. Any holder of Minority Shares
may Transfer any or all of such Minority Shares in accordance with the
provisions, terms and conditions of Section 3 hereof.
4.2.7. Public. Subject to the provisions of Section 7.4.4, any
holder of Minority Shares may Transfer any or all of such Minority Shares
in a Public Offering or, after the closing of an Initial Public Offering,
pursuant to Rule 144.
Any attempted Transfer of Minority Shares not in compliance with this Section 4
shall be null and void, and the Company shall not in any way give effect to any
such impermissible Transfer.
4.3. Period. The foregoing provisions of this Section 4 shall expire upon
the earlier of (a) a Change of Control and (b) the closing of a Qualified Public
Offering.
5. PURCHASES OF MINORITY SHARES.
5.1. Purchases Upon Termination of Employment. In the event the employment
of a Minority Stockholder with the Company terminates for any reason whatsoever,
whether such termination is voluntary or involuntary and whether it is with or
without Cause, the following shall apply:
5.1.1. In the event the employment of the Minority Stockholder is
terminated by the Company by reason of Disability or terminates by reason
of death, the Company shall purchase all Shares owned by the Minority
Stockholder and his Permitted Transferees, and such holders shall sell all
such Shares to the Company, at a price equal to the Contract Price and on
the Contract Terms.
5.1.2. In the event the Minority Stockholder voluntarily terminates
his employment with the Company, or the Company terminates his employment
other than by reason of Disability (and whether with or without Cause),
the Company shall have the right and option, exercisable by written notice
to the terminated Minority Stockholder at any time within four months
following the effective date of termination
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of employment, to purchase all (but not less than all except as set forth
in Section 5.2) Shares then owned by the terminated Minority Stockholder
and his Permitted Transferees at a price equal to (i) the Base Price
thereof, in the event of termination of employment with Cause, or (ii) the
Contract Price, in the event of termination of employment without Cause or
in the event of voluntary termination of employment. The terms of payment
shall be the Contract Terms. If the Company does not timely exercise its
option hereunder or cannot exercise any purchase under Section 5.1.1 or
5.1.2 as described in Section 5.2, the Stolberg Investors and the Bain
Investors shall have the right and option, exercisable by giving written
notice to the terminated Minority Stockholder within 30 days following
expiration of the Company's option hereunder, to purchase all Shares then
owned by the Minority Stockholder and his Permitted Transferees at the
same price and on the same terms of payment as would have been applicable
had the Company timely exercised its option to purchase such Shares. Such
Shares shall be allocated among the Stolberg Investors and the Bain
Investors so electing in the manner set forth in Section 4.1.2.
5.1.3. In the event the Minority Stockholder voluntarily terminates
his employment with the Company, or the Company terminates his employment,
the Minority Stockholder shall have the right and option, exercisable by
written notice to the Company at any time within four months following the
effective date of termination of employment, to require the Company to
purchase all (but not less than all) of the Shares then owned by the
terminated Minority Stockholder and his Permitted Transferees at a price
equal to (i) the Base Price thereof, in the event of termination of
employment with Cause, or (ii) the Contract Price, in the event of
termination of employment without Cause or in the event of voluntary
termination of employment. The terms of payment shall be the Contract
Terms.
5.1.4. In the event a Minority Stockholder disputes that his
employment has been terminated for Cause, such dispute shall be resolved
via arbitration conducted in accordance with the then current rules of the
American Arbitration Association ("AAA") Upon the filing of a notice for
demand for arbitration by a Minority Stockholder, the dispute shall be
referred to and decided by an arbitrator appointed by the AAA in
accordance with the then current rules of the AAA. Except as set forth
below, each party shall bear its own costs incurred in connection with the
arbitration proceeding. A party shall have the right to conduct and
enforce prehearing discovery in accordance with the then current Federal
Rules of Civil Procedure. Document discovery and other discovery shall be
under the control of and enforceable by the arbitrator and the arbitrator
shall permit and facilitate such discovery as it shall determine is
appropriate under the circumstances. If the arbitrator rules against the
Company, any sale and purchase of Shares owned by such terminated Minority
Stockholder and his Permitted Transferees pursuant to the provisions of
this Section 5 shall be at the Contract Price. In addition, if the
arbitrator determines that the Company did not have a reasonable basis for
concluding that the actions or inactions of
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the Minority Stockholder giving rise to his termination of employment
constituted a basis for Cause, the arbitrator shall so state and, in such
event, the Company shall be required to reimburse the Minority Stockholder
for all reasonable fees and expenses incurred in connection with such
arbitration hearing.
For purposes of this Section 5.1, Shares subject to purchase and sale
pursuant to the provisions of this Section 5.1 shall also include any and all
Shares which could be acquired by a Minority Stockholder pursuant to any
outstanding vested options and/or warrants held by such Minority Stockholder as
of the date of such purchase.
5.2. Inability to Purchase. Notwithstanding the provisions of this Section
5, if the Company is the purchaser and it shall not have authority to permit it
to lawfully, purchase all of the Shares which are subject to purchase under
Sections 5.1.1, 5.1.2 and 5.1.3 hereof, or if its Senior Lenders shall prohibit
the cash payment described in clause (b) of the definition of Contract Terms at
such time, then (i) the Company shall not be deemed to be in breach or violation
hereof as a result thereof, (ii) the Minority Stockholder shall not be required
to sell his Shares to the Company at that time, and (iii) the rights of the
Minority Stockholder and the Company to demand purchase and sale of Shares held
by such Minority Stockholder and his Permitted Transferees shall be deferred
until such time as the Company shall legally be able to purchase such Shares or
the Senior Lenders agree that such purchase may be made. The Company shall
promptly give notice to the Minority Stockholder once it is legally able to
purchase such Shares or the Senior Lenders agree to the cash payment (the
"Waiver of Deferral Notice") and the purchase and sale obligations set forth in
Section 5.1.1 and the four month period in which the Minority Stockholder and
the Company have the option to exercise put and call rights as described in this
Section 5 shall begin running from the date of such notice. In the event of any
Transfers of Shares held by the Minority Stockholder and/or his Permitted
Transferees in accordance with this Agreement prior to the Waiver of Deferral
Notice, the reinstated put and call options described herein shall not apply to
such Transferred Shares. Notwithstanding the foregoing, if the seller shall so
request, the Company shall purchase as many of the Shares involved as it legally
shall be able to purchase or as its Senior Lenders may permit it to purchase
with the corresponding cash payment on the date the purchase is otherwise to
close hereunder.
5.3. Employment with Subsidiary. For purposes of this Section 5, a
Minority Stockholder's employment with any subsidiary of the Company shall be
deemed to be employment with the Company. Any termination thereof shall be
deemed to be termination of such employment with the Company; provided, however,
that any termination of employment with Company or any subsidiary when such
employee is immediately employed by another subsidiary of the Company shall not
be deemed termination for purposes here.
5.4. Contingent Put Option. In the event the Internal Revenue Service
("IRS") determines that the transfer by any Cady Stockholder of its shares of
common stock of Cady Communications, Inc. ("CCI Stock") to the Company in
exchange for Preferred Stock of the
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Company does not satisfy the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended (the "Code"), for tax- free exchange treatment and,
therefore, determines that such Cady Stockholder must recognize gain upon the
exchange of CCI stock for Preferred Stock (the "Gain"), then the following
shall apply:
5.4.1. The Cady Stockholder shall have the right and option,
exercisable by written notice to the Company delivered within 30 days
after a final IRS determination, to require the Company to purchase that
number of Shares of the Company held by such Cady Stockholder as have an
aggregate Contract Price equal to the amount of federal and state capital
gains taxes required to be paid by the Cady Stockholder on the Gain. For
purposes hereof, an IRS determination shall be "final" if no right of
appeal exists or the time allowed for appeal has expired without the Cady
Stockholder appealing such determination. In the event of a sale and
purchase pursuant to this Section 5.4, the purchase price for the Shares
subject to the put option shall be the Contract Price and the terms of
payment shall be the Contract Terms except that no promissory note shall
be issued and the purchase price shall be paid in full in cash at the
closing of the purchase and sale of such Shares.
5.4.2. Notwithstanding the provisions of Section 5.4.1, if the
Company's Senior Lenders shall prohibit payment by the Company with
respect to the put option described herein, then the Company shall not be
required to purchase any Shares pursuant to this Section 5.4.
5.5. Period. The provisions of Section 5 (other than Section 5.4) shall
expire on the closing of a Qualified Public Offering.
6. PREEMPTIVE RIGHTS. The Company shall not issue or sell any shares of any of
its capital stock or any securities convertible into or exchangeable for any
shares of its capital stock, issue or grant any options or warrants for the
purchase of, or enter into any agreements providing for the issuance (contingent
or otherwise) of, any of its capital stock or any stock or securities
convertible into or exchangeable for any shares of its capital stock, in each
case, to any Person (each an "Issuance" of "Subject Securities"), except in
compliance with the provisions of this Section 6.
6.1. Right of Participation.
6.1.1. Offer. Not fewer than 15 days prior to the consummation of
the Issuance, a notice (the "Participation Notice") shall be furnished by
the Company to each of the Bain Investors, the Stolberg Investors,
Clifford D. Williams, Paul D. Cady, Daniel P. Cady, David G. Cady and Kim
Cady, Susan E. Rivera and Thomas Rivera, and Steve M. Simon (the
"Participation Offerees"). The Participation Notice shall include:
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(a) The principal terms of the proposed Issuance, including,
without limitation, the amount and kind of Subject Securities to be
included in the Issuance, the number of Equivalent Shares
represented by such Subject Securities (if applicable), the
percentage of the total number of Equivalent Shares outstanding as
of immediately prior to giving effect to such Issuance which the
number of Equivalent Shares held by such Participation Offeree
constitutes (the "Participation Portion"), the maximum and minimum
price (including, without limitation, if applicable, the maximum and
minimum Price Per Equivalent Share) per unit of the Subject
Securities, which maximum price shall be no greater than the lesser
of $1.00 or five percent above the minimum price, and the name and
address of the Person to whom the Subject Securities will be Issued
(the "Prospective Subscriber"); and
(b) An offer by the Company to Issue, at the option of each
Participation Offeree, to such Participation Offeree such portion of
the Subject Securities to be included in the Issuance as may be
requested by such Participation Offeree (not to exceed the
Participation Portion of the total amount of Subject Securities to
be included in the Issuance), on the same economic terms and
conditions, with respect to each unit of Subject Securities issued
to the Participation Offerees, as each of the Prospective
Subscribers shall be Issued units of Subject Securities.
6.1.2. Exercise.
6.1.2.1. General. Each Participation Offeree desiring to
accept the offer contained in the Participation Notice shall send a
written commitment to the Company within 15 days after the
effectiveness of the Participation Notice specifying the amount of
Subject Securities (not in any event to exceed its Participation
Portion of the total amount of Subject Securities to be included in
the Issuance) which such Participation Offeree desires to be issued
(each a "Participating Buyer"). Each Participation Offeree who has
not so accepted such offer shall be deemed to have waived all of its
rights with respect to the Issuance, and the Company shall
thereafter be free to Issue Subject Securities in the Issuance to
the Prospective Subscriber and any Participating Buyers, at a price
no less than the minimum price set forth in the Participation Notice
and on other principal terms not substantially more favorable to the
Prospective Subscriber than those set forth in the Participation
Notice, without any further obligation to such non-accepting
Participation Offerees. If, prior to consummation, the terms of such
proposed Issuance shall change with the result that the price shall
be less than the minimum price set forth in the Participation Notice
or the other principal terms shall be substantially more favorable
to the Prospective Subscriber than those set forth in the
Participation Notice, it shall be necessary for a separate
Participation Notice to be furnished, and the terms and
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provisions of this Section 6.1 separately complied with, in order to
consummate such Issuance pursuant to this Section 6.1.
6.1.2.2. Irrevocable Acceptance. The acceptance of each
Participating Buyer shall be irrevocable except as hereinafter
provided, and each such Participating Buyer shall be bound and
obligated to acquire in the Issuance on the same terms and
conditions, with respect to each unit of Subject Securities Issued,
as the Prospective Subscriber, such amount of Subject Securities as
such Participating Buyer shall have specified in such Participating
Buyer's written commitment.
6.1.2.3. Time Limitation. If at the end of the 180th day
following the date of the effectiveness of the Participation Notice
the Company has not completed the Issuance (for any reason other
than the failure by any Participating Buyer to pay the applicable
purchase price), each Participating Buyer shall be released from its
obligations under the written commitment, the Participation Notice
shall be null and void, and it shall be necessary for a separate
Participation Notice to be furnished, and the terms and provisions
of this Section 6.1 separately complied with, in order to consummate
such Issuance pursuant to this Section 6.1.
6.1.3. Other Securities. The Company may condition the participation
of the Participation Offerees in an Issuance upon the purchase by such
Participation Offerees of any securities (including, without limitation,
debt securities) other than Subject Securities ("Other Securities") in the
event that the participation of the Prospective Subscriber in such
Issuance is so conditioned. In such case, each Participating Buyer shall
acquire in the Issuance, together with the Subject Securities to be
acquired by it, Other Securities in the same proportion to the Subject
Securities to be acquired by it as the proportion of Other Securities to
Subject Securities being acquired by the Prospective Subscriber in the
Issuance, on the same terms and conditions, as to each unit of Subject
Securities and Other Securities issued to the Participating Buyers, as the
Prospective Subscriber shall be issued units of Subject Securities and
Other Securities.
6.1.4. Certain Legal Requirements. In the event that the
participation in the Issuance by a Participation Offeree as a
Participating Buyer would require under applicable law (i) the
registration or qualification of such securities or of any person as a
broker or dealer or agent with respect to such securities or (ii) the
provision to any participant in the Sale of any information regarding the
Company or the securities that would not be required to be provided to
Bain or either of the Stolberg Investors, then such holder of Shares shall
not have the right to participate in the Issuance. Without limiting the
generality of the foregoing, it is understood and agreed that the Company
shall not be under any obligation to effect a registration of such
securities under the Securities Act or similar state statutes.
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6.1.5. Further Assurances. Each Participation Offeree and each
Stockholder to whom the Shares held by such Participation Offeree were
originally issued, shall, whether in its capacity as a Participating
Buyer, Stockholder, officer or director of the Company, or otherwise, take
or cause to be taken all such reasonable actions as may be necessary or
reasonably desirable in order expeditiously to consummate each Issuance
pursuant to this Section 6.1 and any related transactions, including,
without limitation, executing, acknowledging and delivering consents,
assignments, waivers and other documents or instruments; filing
applications, reports, returns, filings and other documents or instruments
with governmental authorities; and otherwise cooperating with the Company
and the Prospective Subscriber. Without limiting the generality of the
foregoing, each such Participating Buyer and Stockholder agrees to execute
and deliver such subscription and other agreements specified by the
Company to which the Prospective Subscriber will be party.
6.1.6. Expenses. All reasonable costs and expenses incurred by the
Participation Offerees or the Company in connection with any proposed
Issuance of Subject Securities (whether or not consummated), including
without limitation all accounting fees and charges, all finders, brokerage
or investment banking fees, charges or commissions, and the reasonable
fees and expenses of a single legal counsel representing any or all of the
Participation Offerees in connection with any proposed Issuance of Subject
Securities (whether or not consummated) shall be paid by the Company.
6.1.7. Closing. The closing of an Issuance pursuant to Section 6.1
shall take place at such time and place as the Company shall specify by
notice to each Participating Buyer. At the closing of any Issuance under
this Section 6.1.7, each Participating Buyer shall be delivered the notes,
certificates or other instruments evidencing the Subject Securities (and,
if applicable, Other Securities) to be Issued to such Participating Buyer,
registered in the name of such Participating Buyer or its designated
nominee, free and clear of any liens or encumbrances, with any transfer
tax stamps affixed, against delivery by such Participating Buyer of the
applicable consideration.
6.2. Excluded Transactions. Notwithstanding the preceding provisions of
this Section 6, the preceding provisions of this Section 6 shall not restrict:
(a) Any Issuance of Common Stock upon the exercise or conversion of
any Common Stock, Options or Convertible Securities outstanding on the
date hereof or Issued after the date hereof in compliance with the
provisions of this Section 6;
(b) Any Issuance of Subject Securities in connection with the
acquisition by the Company or its subsidiaries of the business, assets or
stock of another entity;
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(c) Any Issuance of Subject Securities to employees, directors or
consultants of the Company or its subsidiaries;
(d) Any Issuance of Subject Securities in connection with the
placement of debt;
(e) Any Issuance of Common Stock in connection with a Public
Offering;
(f) The Issuance of Series C Shares to the Series C Investors at the
Closing and the Subsequent Closings (as defined in the Purchase
Agreement);
(g) The Issuance of Series B Preferred upon exchange of any of (i)
the Company's Series A 8% Convertible Subordinated Promissory Notes
currently convertible into shares of Common Stock at a per share price of
$1.8207, (ii) the Company's Series A 8% Convertible Subordinated
Promissory Notes currently convertible into shares of Common Stock at a
per share price of $2.0318, (iii) the Company's Series B 8% Convertible
Subordinated Notes currently convertible into shares of Common Stock at a
per share price of $2.0822 (collectively, all such notes, the "Notes"), or
(iv) any interest that has or will have accrued on such converted Notes;
(h) The Issuance of Subject Securities pursuant to the terms of the
Agreement and Plan of Merger, dated as of June 22, 1998, by and among the
Company, Cady Communications, Inc. and One Call Telecom, Inc.;
(i) The Issuance of warrants or Common Stock pursuant to the terms
of the Stock Purchase Warrant Agreement, dated as of July 19, 1999, by and
among the Company and General Electric Capital Corporation;
(j) The Issuance of Common Stock pursuant to the terms of the Stock
Purchase Warrant Agreement, dated as of April 12, 1999, by and among the
Company and Imperial Bank;
(k) The Issuance of Series A Preferred upon exchange of shares of
the Company's Class B Common Stock;
(l) The Issuance of Common Stock by reason of a dividend, stock
split, split-up or other distribution on Common Stock; or
(m) The Issuance of other Subject Securities upon the written
consent of the holders of 66 2/3% of the Shares held by the Participation
Offerees (following a written notice to such Participation Offerees
requesting such exclusion, which notice shall include the type of security
to be issued, the number of shares of the security to be issued, and the
consideration to be received by the Company for such security(ies)).
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6.3. Certain Provisions Applicable to Options. In the event that the
Issuance of Subject Securities shall result in any increase in the number of
shares of Common Stock issuable upon exercise of the Options, the number of
shares (or Equivalent Shares, if applicable) of Subject Securities (and Other
Securities, if applicable) which the holders of such Options shall be entitled
to purchase pursuant to Section 6.1, if any, shall be reduced, share for share,
by the amount of any such increase.
6.4. Period. The foregoing provisions of this Section 6 shall expire on
the earlier of (a) a Change of Control or (b) the closing of a Qualified Public
Offering.
7. REGISTRATION RIGHTS. The Company will perform and comply, and cause each of
its subsidiaries to perform and comply, with such of the following provisions as
are applicable to it. Each holder of Shares will perform and comply with such of
the following provisions as are applicable to such holder.
7.1. Demand Registration Rights for Bain Shares.
7.1.1. General. At any time after the earlier of (i) the second
anniversary of the date of the Closing, or (ii) 180 days after the closing
of the Initial Public Offering, one or more holders of Bain Shares
representing at least 25% of the total amount of Registrable Securities
into which the Bain Shares then outstanding are convertible ("Initiating
Bain Investors"), by notice to the Company specifying the intended method
or methods of disposition, may request that the Company effect the
registration under the Securities Act for a Public Offering of at least
25% of the then outstanding Registrable Bain Securities or of Registrable
Securities having an aggregate offering price of at least $5,000,000
(based upon the then current public market price or Fair Market Value of
such Registrable Securities) (for purposes of this Agreement, "Registrable
Bain Securities" shall mean Registrable Securities into which the Bain
Shares are convertible). At any time after the Company becomes eligible to
file a registration statement on Form S-3 (or any successor form relating
to secondary offerings), holders of Bain Shares will have the right to
require the Company to effect a registration on Form S-3 (or such
successor form), of Registrable Securities having an aggregate offering
price in each registration on Form S-3 in excess of $500,000 (based on the
current public market price at the time the registration is requested).
The Company will then use its best efforts to effect the registration
under the Securities Act of the Registrable Securities which the Company
has been requested to register by such Initiating Bain Investors together
with all other Registrable Securities which the Company has been requested
to register pursuant to Section 7.3 by notice delivered to the Company
within 20 days after the Company has given the notice required by Section
7.3.1 (which request shall specify the intended method of disposition of
such Registrable Securities), all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid)
of the Registrable Securities which the Company has been so requested to
register.
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7.1.2. Number of Registrations; Form. The Company shall be required
to effect only two registrations on Form S-1 (or any successor form) and
an unlimited number of registrations on Form S-3 (or any successor form)
pursuant to Section 7.1; provided, however, that the Company shall not be
required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after
the effective date of any other registration statement of the Company;
provided further; that the Company shall not be required to effect more
than two registrations pursuant to Section 7.1 in any 12-month period.
7.1.3. Company Delay. If at the time of any request to register
Registrable Securities pursuant to this Section 7.1, the Company is
engaged or has fixed plans to engage within 30 days of the time of the
request in a registered public offering as to which the holders of Bain
Shares may include Registrable Securities pursuant to Section 7.3 or is
engaged in any other activity which, in the good faith determination of
the Board, would be adversely affected by the requested registration to
the material detriment of the Company, then the Company may at its option
direct that such request be delayed for a period not in excess of 90 days
from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a
request to be exercised by the Company not more than once in any two year
period.
7.1.4. Effective Demands. Except as provided in Section 7.1.5, no
registrations of Registrable Securities which shall not have become and
remained effective in accordance with the provisions of this Section 7,
and no registrations of Registrable Securities pursuant to which the
Initiating Bain Investors and all other holders of Registrable Bain
Securities joining therein are not able to include at least 90% of the
Registrable Securities which they desired to include, shall be included in
the calculation of numbers of registrations contemplated by this Section
7.1.
7.1.5. Payment of Expenses. The Company shall pay all reasonable
costs and expenses incurred by the holders of Bain Shares, including the
reasonable fees and expenses of a single legal counsel representing any or
all of the Initiating Bain Investors, in connection with each registration
of Registrable Securities requested pursuant to this Section 7.1, other
than underwriting discount and commission, if any, and applicable transfer
taxes, if any; provided, however, that if a registration under this
Section 7.1 is withdrawn at the request of the Initiating Bain Investors
(other than as a result of information concerning the business or
financial condition of the Company which is made known to the Initiating
Bain Investors after the date on which such registration was requested and
other than as a result of a significant deterioration of the financial
markets) and if the Initiating Bain Investors elect not to have such
registration counted as a registration requested under this Section 7.1,
the Initiating Bain Investors
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shall pay the registration expenses of such registration pro rata in
accordance with the number of their Registrable Securities included in
such registration.
7.1.6. Additional Procedures. In the case of a registration pursuant
to Section 7.1 hereof, whenever the holders of at least a majority of the
Registrable Bain Securities to be included in the proposed registration
statement in question (the "Majority Participating Investors") shall
request that such registration shall be effected pursuant to an
underwritten offering, the Company shall include such information in the
written notices to holders of Registrable Securities referred to in
Section 7.3. In such event, the right of any holder of Registrable
Securities to have securities owned by such holder included in such
registration pursuant to Section 7.1 shall be conditioned upon such
holder's participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed upon by the Majority Participating Investors and such
holder). If requested by such underwriters, the Company together with the
holders of Registrable Securities proposing to distribute their securities
through such underwriting will enter into an underwriting agreement with
such underwriters for such offering containing such representations and
warranties by the Company and such holders and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
customary indemnity and contribution provisions (subject, in each case, to
the limitations on such liabilities set forth in this Agreement).
7.2. Demand Registration Rights for Stolberg Shares.
7.2.1. General. At any time after the earlier of (i) 180 days after
the closing of the Initial Public Offering or (ii) subject to the
provisions of Section 7.2.7, the third anniversary of the date of the
Closing, one or more holders of Stolberg Shares representing at least 25%
of the total amount of Registrable Securities into which the Stolberg
Shares then outstanding are convertible ("Initiating Stolberg Investors"),
by notice to the Company specifying the intended method or methods of
disposition, may request that the Company effect the registration under
the Securities Act for a Public Offering of at least 25% of the then
outstanding Registrable Stolberg Securities or of Registrable Securities
having an aggregate offering price of at least $5,000,000 (based upon the
then current public market price or Fair Market Value of such Registrable
Securities) (for purposes of this Agreement, "Registrable Stolberg
Securities" shall mean Registrable Securities into which the Stolberg
Shares are convertible). At any time after the Company becomes eligible to
file a registration statement on Form S-3 (or any successor form relating
to secondary offerings), holders of Stolberg Shares will have the right to
require the Company to effect a registration on Form S-3 (or such
successor form), of Registrable Securities having an aggregate offering
price in each registration on Form S-3 in excess of $500,000 (based on the
current public market price at the time the registration is requested).
The Company will then use its best
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efforts to effect the registration under the Securities Act of the
Registrable Securities which the Company has been requested to register by
such Initiating Stolberg Investors together with all other Registrable
Securities which the Company has been requested to register pursuant to
Section 7.3 by notice delivered to the Company within 20 days after the
Company has given the notice required by Section 7.3.1 (which request
shall specify the intended method of disposition of such Registrable
Securities), all to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the
Registrable Securities which the Company has been so requested to
register.
7.2.2. Number of Registrations; Form. The Company shall be required
to effect only two registrations on Form S-1 (or any successor form) and
an unlimited number of registrations on Form S-3 (or any successor form)
pursuant to Section 7.2; provided, however, that the Company shall not be
required to effect any registration (other than on Form S-3 or any
successor form relating to secondary offerings) within six months after
the effective date of any other registration statement of the Company;
provided further; that the Company shall not be required to effect more
than two registrations pursuant to Section 7.2 in any 12-month period.
7.2.3. Company Delay. If at the time of any request to register
Registrable Securities pursuant to this Section 7.2, the Company is
engaged or has fixed plans to engage within 30 days of the time of the
request in a registered public offering as to which the holders of
Stolberg Shares may include Registrable Securities pursuant to Section 7.3
or is engaged in any other activity which, in the good faith determination
of the Board, would be adversely affected by the requested registration to
the material detriment of the Company, then the Company may at its option
direct that such request be delayed for a period not in excess of 90 days
from the effective date of such offering or the date of commencement of
such other material activity, as the case may be, such right to delay a
request to be exercised by the Company not more than once in any two year
period.
7.2.4. Effective Demands. No registrations of Registrable Securities
which shall not have become and remained effective in accordance with the
provisions of this Section 7, and no registrations of Registrable
Securities pursuant to which the Initiating Stolberg Investors and all
other holders of Registrable Stolberg Securities joining therein are not
able to include at least 90% of the Registrable Securities which they
desired to include, shall be included in the calculation of numbers of
registrations contemplated by this Section 7.2.
7.2.5. Payment of Expenses. The Company shall pay all reasonable
costs and expenses incurred by the holders of Stolberg Shares, including
the reasonable fees and expenses of a single legal counsel representing
any or all of the Initiating Stolberg Investors, in connection with each
registration of Registrable Securities requested
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pursuant to this Section 7.2, other than underwriting discount and
commission, if any, and applicable transfer taxes, if any; provided,
however, that if a registration under this Section 7.2 is withdrawn at the
request of the Initiating Stolberg Investors (other than as a result of
information concerning the business or financial condition of the Company
which is made known to the Initiating Stolberg Investors after the date on
which such registration was requested and other than as a result of a
significant deterioration of the financial markets) and if the Initiating
Stolberg Investors elect not to have such registration counted as a
registration requested under this Section 7.2, the Initiating Stolberg
Investors shall pay the registration expenses of such registration pro
rata in accordance with the number of their Registrable Securities
included in such registration.
7.2.6. Additional Procedures. In the case of a registration pursuant
to Section 7.2 hereof, whenever the holders of at least a majority of the
Registrable Stolberg Securities to be included in the proposed
registration statement in question (the "Majority Participating
Investors") shall request that such registration shall be effected
pursuant to an underwritten offering, the Company shall include such
information in the written notices to holders of Registrable Securities
referred to in Section 7.3. In such event, the right of any holder of
Registrable Securities to have securities owned by such holder included in
such registration pursuant to Section 7.2 shall be conditioned upon such
holder's participation in such underwriting and the inclusion of such
holder's Registrable Securities in the underwriting (unless otherwise
mutually agreed upon by the Majority Participating Investors and such
holder). If requested by such underwriters, the Company together with the
holders of Registrable Securities proposing to distribute their securities
through such underwriting will enter into an underwriting agreement with
such underwriters for such offering containing such representations and
warranties by the Company and such holders and such other terms and
provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation,
customary indemnity and contribution provisions (subject, in each case, to
the limitations on such liabilities set forth in this Agreement).
7.2.7. IRR Threshold. In the case of a registration pursuant to
Section 7.2.1 in connection with the Initial Public Offering, the Company
shall not effect such registration unless the Estimated Net Offering Price
Per Share (as defined below) for such offering is equal to or greater than
the Target Net Offering Price Per Share. The "Estimated Net Offering Price
Per Share" shall mean the average of the highest and lowest net offering
prices per share in the range of estimated net offering prices per share
determined by the underwriter retained in connection with such offering,
which underwriter shall be selected by the Initiating Stolberg Investors
with the consent of the Board and the Majority Bain Investors.
Notwithstanding anything to the contrary in this Section 7.2, in the event
that the final net offering price per share determined by the underwriter
immediately prior to the effective date of such offering is less than 95%
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of the Target Net Offering Price Per Share, then the Company shall, upon
the request of the Majority Bain Investors, cause such offering to be
terminated.
7.3. Piggyback Registration Rights.
7.3.1. Piggyback Registration.
7.3.1.1. General. Each time the Company proposes to register
any shares of Common Stock under the Securities Act on a form which
would permit registration of Registrable Securities for sale to the
public, for its own account and/or for the account of one or more
Bain Investors or Stolberg Investors (pursuant to Section 7.1 or 7.2
or otherwise) for sale in a Public Offering, the Company will give
notice to all holders of Registrable Securities of its intention to
do so. Any such holder may, by written response delivered to the
Company within 20 days after the effectiveness of such notice,
request that all or a specified part of the Registrable Securities
held by such holder be included in such registration. The Company
thereupon will use its reasonable efforts to cause to be included in
such registration under the Securities Act all shares of Common
Stock which the Company has been so requested to register by such
holders, to the extent required to permit the disposition (in
accordance with the methods to be used by the Company or other
holders of shares of Common Stock in such Public Offering) of the
Registrable Securities to be so registered. No registration of
Registrable Securities effected under this Section 7.3 shall relieve
the Company of any of its obligations to effect registrations of
Registrable Securities pursuant to Section 7.1 or 7.2 hereof.
7.3.1.2. Excluded Transactions. The Company shall not be
obligated to effect any registration of Registrable Securities under
this Section 7.3 incidental to the registration of any of its
securities in connection with:
(a) Any Public Offering relating to employee benefit
plans or dividend reinvestment plans;
(b) Any Public Offering relating to the acquisition or
merger after the date hereof by the Company or any of its
subsidiaries of or with any other businesses; or
(c) The Initial Public Offering except as to (i)
Registrable Securities requested to be included in such
offering by one or more of the Bain Investors and the Stolberg
Investors and (ii) securities requested to be included in such
offering pursuant to registration rights that exist on the
date of this Agreement.
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7.3.2. Payment of Expenses. The Company shall pay all reasonable
expenses of a single legal counsel representing any and all holders of
Registrable Securities incurred in connection with each registration of
Registrable Securities requested pursuant to this Section 7.3; provided,
however, that if the Company is paying the expenses of counsel to the
Initiating Bain Investors pursuant to Section 7.1.5 or counsel to the
Initiating Stolberg Investors pursuant to Section 7.2.5, the Company shall
not be required to pay expenses for any additional legal counsel to the
holders of Registrable Securities.
7.3.3. Additional Procedures. Holders of Shares participating in any
Public Offering pursuant to this Section 7.3 shall take all such actions
and execute all such documents and instruments that are reasonably
requested by the Company to effect the sale of their Shares in such Public
Offering, including, without limitation, being parties to the underwriting
agreement entered into by the Company and any other selling shareholders
in connection therewith and being liable in respect of the representations
and warranties by, and the other agreements (including without limitation
customary selling stockholder representations, warranties,
indemnifications and "lock-up" agreements) for the benefit of the
underwriters; provided, however, that (a) with respect to individual
representations, warranties, indemnities and agreements of sellers of
Shares in such Public Offering, the aggregate amount of such liability
shall not exceed such holder's net proceeds from such offering and (b) to
the extent selling stockholders give further representations, warranties
and indemnities, then with respect to all other representations,
warranties and indemnities of sellers of shares in such Public Offering,
the aggregate amount of such liability shall not exceed the lesser of (i)
such holder's pro rata portion of any such liability, in accordance with
such holder's portion of the total number of Shares included in the
offering or (ii) such holder's net proceeds from such offering.
7.4. Certain Other Provisions.
7.4.1. Underwriter's Cutback. In connection with any registration of
shares, the underwriter may determine that marketing factors (including,
without limitation, an adverse effect on the per share offering price)
require a limitation of the number of shares to be underwritten.
Notwithstanding any contrary provision of this Section 7 and subject to
the terms of this Section 7.4.1, the underwriter may limit the number of
shares which would otherwise be included in such registration by excluding
any or all Registrable Securities from such registration (it being
understood that the number of shares which the Company seeks to have
registered in such registration shall not be subject to exclusion, in
whole or in part, under this Section 7.4.1). Upon receipt of notice from
the underwriter of the need to reduce the number of shares to be included
in the registration, the Company shall advise all holders of the Company's
securities that would otherwise be registered and underwritten pursuant
hereto, and the number of shares of such securities, including Registrable
Securities, that may be included in the
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registration shall be allocated in the following manner, unless the
underwriter shall determine that marketing factors require a different
allocation: shares, other than Registrable Securities, requested to be
included in such registration by shareholders shall be excluded unless the
right to register such shares exists on the date of this Agreement or
unless the Company has, with the consent of the Majority Series C
Investors, granted registration rights which are to be treated on an equal
basis with Registrable Securities for the purpose of the exercise of the
underwriter cutback; and, if a limitation on the number of shares is still
required, the number of Registrable Securities and other shares of Common
Stock that may be included in such registration shall be allocated among
holders thereof in proportion, as nearly as practicable, to the respective
amounts of Common Stock which each shareholder requested be registered in
such registration. For purposes of any underwriter cutback, all Common
Stock held by any holder of Registrable Securities which is a partnership
or corporation shall also include any Common Stock held by the partners,
retired partners, shareholders or affiliated entities of such holder, or
the estates and family members of any such partners and retired partners
and any trusts for the benefit of any of the foregoing persons, and such
holder and other persons shall be deemed to be a single selling holder,
and any pro rata reduction with respect to such selling holder shall be
based upon the aggregate amount of Common Stock owned by all entities and
individuals included in such selling holder, as defined in this sentence.
No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
If any holder of Registrable Securities disapproves of the terms of the
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the underwriter. The Registrable Securities so withdrawn shall
also be withdrawn from registration.
7.4.2. Other Actions. If and in each case when the Company is
required to use its reasonable best efforts to effect a registration of
any Registrable Securities as provided in this Section 7, the Company
shall take appropriate and customary actions in furtherance thereof,
including, without limitation: (a) promptly preparing and filing with the
Commission a registration statement with respect to such Registrable
Securities and using reasonable efforts to cause such registration
statement to become effective; (b) preparing and filing with the
Commission such amendments and supplements to such registration statement
as may be required to comply with the Securities Act and to keep such
registration statement effective for a period not to exceed 180 days from
the date of effectiveness or such earlier time as the Registrable
Securities covered by such registration statement shall have been disposed
of in accordance with the intended method of distribution therefor or the
expiration of the time when a prospectus relating to such registration is
required to be delivered under the Securities Act; (c) furnishing to the
holders of Registrable Securities such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities
owned by them; (d) notifying each holder of Registrable Securities covered
by such registration statement at any time when
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a prospectus relating thereto is required to be delivered under the
Securities Act 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 majority of the holders of Registrable
Securities, preparing a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading; (e) in
the event of an underwritten public offering, entering into and performing
its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering; provided,
however, that each holder of Registrable Securities participating in such
underwriting shall also enter into and perform its obligations under such
an agreement; (f) using its reasonable best efforts to furnish, on the
date that such Registrable Securities are delivered to the underwriters
for sale, if such securities are being sold through underwriters, (i) an
opinion, dated as of such date, of the counsel representing the Company
for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering and
(ii) a letter, dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is customarily
given by independent certified public accountants to underwriters in an
underwritten public offering; (g) using its reasonable best efforts to
register or qualify such Registrable Securities under the state securities
or "blue sky" laws of such jurisdictions as the holders of Registrable
Securities shall reasonably request; provided, however, that the Company
shall not be obligated to file any general consent to service of process
or to qualify as a foreign corporation in any jurisdiction in which it is
not so qualified or to subject itself to taxation in respect of doing
business in any jurisdiction in which it would not otherwise be so
subject; (h) causing all Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASD automated
quotation system and, if listed on the NASD automated quotation system,
using its reasonable best efforts to secure designation of all Registrable
Securities covered by such registration statement as a NASDAQ "national
market system security" within the meaning of Rule 11Aa2-1 of the
Commission or, failing that, securing NASDAQ authorization for such
Registrable Securities and, without limiting the generality of the
foregoing, arranging for at least two market makers to register as such
with respect to such Registrable Securities with the NASD; (i) making
available for inspection by any seller of Registrable Bain Securities or
Registrable Stolberg Securities, any underwriter participating in any
disposition pursuant to such registration statement and any attorney,
accountant or other agent retained by any such seller or underwriter, all
financial and other records, pertinent corporate documents and properties
of the Company, and causing the Company's officers, directors, employees
and independent accountants to supply all information
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reasonably requested by any such seller, underwriter, attorney, accountant
or agent in connection with such registration statement, in each case
subject to the requirement that recipients execute appropriate
confidentiality agreements; and (j) otherwise cooperating reasonably with,
and take such customary actions as may reasonably be requested by the
holders of Registrable Securities in connection with, such registration.
7.4.3. Selection of Underwriters and Counsel. The underwriters to be
retained in connection with any Public Offering shall be selected by the
Board with the joint consent of the Majority Stolberg Investors and the
Majority Bain Investors which in each case shall not be unreasonably
withheld or, in the case of an offering following a request therefor under
Section 7.1.1, the Initiating Bain Investors with the consent of the Board
which shall not be unreasonably withheld or, in the case of an offering
following a request therefor under Section 7.2.1, except as set forth in
Section 7.2.7, the Initiating Stolberg Investors with the consent of the
Board which shall not be unreasonably withheld. The legal counsel to be
retained in connection with any Public Offering shall be selected by the
Board or, in the case of an offering following a request therefor under
Section 7.1.1, the Initiating Bain Investors or, in the case of an
offering following a request therefor under Section 7.2.1, the Initiating
Stolberg Investors.
7.4.4. Lock-Up. Without the prior written consent of the
underwriters managing any Public Offering, for a period beginning seven
days immediately preceding and ending on the 180th day following the
effective date of the registration statement used in connection with such
offering, no holder of Shares (whether or not a selling shareholder
pursuant to such registration statement) shall (a) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase, lend, or otherwise Transfer, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for such Common Stock or (b) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of Common Stock, whether any such
transaction described in clause (a) or (b) above is to be settled by
delivery of such Common Stock or such other securities, in cash or
otherwise; provided, however, that the foregoing restrictions shall not
apply to (i) transactions relating to shares of Common Stock or other
securities acquired in open market transactions after the completion of
the Initial Public Offering, (ii) Transfers to a Permitted Transferee of
such holder in accordance with the terms of this Agreement or (iii)
conversions of shares of Common Stock into other classes of Common Stock
without change of holder.
7.5. Indemnification and Contribution.
7.5.1. Indemnities of the Company. In the event of any registration
of any Registrable Securities or other debt or equity securities of the
Company or any of its subsidiaries under the Securities Act pursuant to
this Section 7 or otherwise, and in
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connection with any registration statement or any other disclosure
document produced by or on behalf of the Company or any of its
subsidiaries including, without limitation, reports required and other
documents filed under the Exchange Act, and other documents pursuant to
which any debt or equity securities of the Company or any of its
subsidiaries are sold (whether or not for the account of the Company or
its subsidiaries), the Company will, and hereby does, and will cause each
of its subsidiaries, jointly and severally, to indemnify and hold harmless
each seller of Registrable Securities, any Person who is or might be
deemed to be a controlling Person of the Company or any of its
subsidiaries within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act, their respective direct and indirect
partners, advisory board members, directors, officers, trustees, members
and shareholders, and each other Person, if any, who controls any such
seller or any such holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (each such person being
referred to herein as a "Covered Person"), against any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof),
joint or several, to which such Covered Person may be or become subject
under the Securities Act, the Exchange Act, any other securities or other
law of any jurisdiction, the common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon (i) any untrue statement
or alleged untrue statement of any material fact contained or incorporated
by reference in any registration statement under the Securities Act, any
preliminary prospectus or final prospectus included therein, or any
related summary prospectus, or any amendment or supplement thereto, or any
document incorporated by reference therein, or any other such disclosure
document (including without limitation reports and other documents filed
under the Exchange Act and any document incorporated by reference therein)
or other document or report, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading or (iii) any violation or
alleged violation by the Company or any of its subsidiaries of any
federal, state, foreign or common law rule or regulation applicable to the
Company or any of its subsidiaries and relating to action or inaction in
connection with any such registration, disclosure document or other
document or report, and will reimburse such Covered Person for any legal
or any other expenses incurred by it in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that neither the Company nor any of its subsidiaries
shall be liable to any Covered Person in any such case to the extent that
any such loss, claim, damage, liability, action or proceeding arises out
of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, any such
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, incorporated document or other such disclosure document or
other document or report, in reliance upon and in conformity with written
information furnished to the Company or to any of its subsidiaries through
an instrument duly executed by such Covered Person specifically stating
that it is for use in the preparation
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thereof or specifically furnished for use in the preparation thereof. The
indemnities of the Company and of its subsidiaries contained in this
Section 7.5.1 shall remain in full force and effect regardless of any
investigation made by or on behalf of such Covered Person and shall
survive any transfer of securities.
7.5.2. Indemnities to the Company. In the event of any registration
of any Registrable Securities under the Securities Act pursuant to this
Section 7, each seller of Registrable Securities, severally and not
jointly, shall indemnify and hold harmless the Company and any of its
subsidiaries, each director of the Company or any of its subsidiaries,
each officer of the Company or any of its subsidiaries who shall sign such
registration statement and each other Person (other than such seller), if
any, who controls the Company and any of its subsidiaries within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act and each other prospective seller of such securities with respect to
any statement in or omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus included
therein, or any amendment or supplement thereto, or any other disclosure
document (including, without limitation, reports and other documents filed
under the Exchange Act or any document incorporated therein) or other
document or report, if such statement or omission was made in reliance
upon and in conformity with written information furnished to the Company
or any of its subsidiaries through an instrument executed by such seller
specifically stating that it is for use in the preparation or specifically
furnished for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement, incorporated document or other document or report. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company, any of its subsidiaries
or any such director, officer or controlling Person and shall survive any
transfer of securities.
7.5.3. Contribution. If the indemnification provided for in Section
7.5.1 or 7.5.2 hereof is unavailable to a party that would have been
entitled to indemnification pursuant to the foregoing provisions of this
Section 7.5 (an "Indemnitee") in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such Indemnitee, contribute to
the amount paid or payable by such Indemnitee as a result of such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative
fault of such indemnifying party on the one hand and such Indemnitee on
the other in connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by such indemnifying party or such
Indemnitee and the parties' relative intent,
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knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties agree that it would not be just or
equitable if contribution pursuant to this Section 7.5.3 were determined
by pro rata allocation or by any other method of allocation which does not
take account of the equitable considerations referred to in the preceding
sentence. The amount paid or payable by a contributing party as a result
of the losses, claims, damages or liabilities (or actions or proceedings
in respect thereof) referred to above in this Section 7.5.3 shall include
any legal or other expenses reasonably incurred by such Indemnitee in
connection with investigating or defending any such action or claim. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
7.5.4. Limitation on Liability of Holders of Registrable Securities.
The liability of each holder of Registrable Securities in respect of any
indemnification or contribution obligation of such holder arising under
this Section 7.5 shall not in any event exceed an amount equal to the net
proceeds to such holder (after deduction of all underwriters' discounts
and commissions) from the disposition of the Registrable Securities
disposed of by such holder pursuant to such registration.
7.6. Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Majority Series C Investors, enter into any agreement with any holder or
prospective holder of any securities of the Company relating to registration
rights unless such agreement includes: (a) to the extent the agreement would
allow such holder or prospective holder to include such securities in any
registration filed under Section 7.1, 7.2 or 7.3 hereof, a provision that such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of its securities will not
reduce the amount of the Registrable Securities of the Bain Investors or
Stolberg Investors which would otherwise be included; and (b) no provision which
would allow such holder or prospective holder to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of the dates or events set forth in Section 7.1.1 or 7.2.1.
8. REVALUATION OF SHARE PRICES
8.1. Look-Back by Company, etc,. Notwithstanding anything contained in
this Agreement to the contrary, if (i) Shares are purchased pursuant to Section
4.1 or 5.1 from a Minority Stockholder or its Permitted Transferees (the
"Subject Minority Shares") and such Minority Stockholder is or was ever an
employee of the Company or any of its subsidiaries (or related to such employee
or director), (ii) the purchaser of the Subject Minority Shares was the Company,
any of the Stolberg Investors or any of the Bain Investors, and (iii) the
purchase price paid for the Subject Minority Shares exceeded $100,000, then the
Stolberg Investors, the Bain Investors and/or the Company will have the option
(the "Look-Back Option"), exercisable
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by written notice to such Minority Stockholder at any time within the one year
period following the notice of exercise of an option to sell or purchase the
Subject Minority Shares pursuant to Section 4.1 or 5.1 (the date of notice of
exercise of the Look-Back Option is referred to herein as the "Look-Back Date"),
to require that the Contract Price of the Subject Minority Shares be
redetermined as of the Look-Back Date (the "Look-Back Valuation") by the same
Appraiser who determined the Contract Price of the Subject Minority Shares (or
if no Appraiser was used, such Appraiser shall be chosen in the manner described
in the definition of Contract Price in Section 13.2). The fees and expenses of
such Appraiser shall be borne by the purchaser. If the Look-Back Option is
exercised, the following shall apply:
8.1.1. If the Look-Back Valuation is an amount which is less than
90% of the purchase price paid by the Stolberg Investors, the Bain
Investors and/or the Company for the Subject Minority Shares, the purchase
price paid to such Minority Stockholder and/or any of his Permitted
Transferees will be reduced to an amount equal to the Look-Back Valuation.
Any such reduction in the purchase price for the Subject Minority Shares
shall be deducted in equal installments over the remaining term of any
promissory note issued in connection with the purchase of the Subject
Minority Shares and, if no such promissory note was issued and remains
outstanding, such reduction shall be due and payable immediately by the
Minority Stockholder and/or his Permitted Transferees to the purchaser in
cash. Any amounts not paid by the Minority Stockholder and/or his
Permitted Transferees when due shall either (i) bear interest at a fixed
rate per annum from the due date to the date of payment at the lesser of
12% or the Prime Rate in effect as of the due date or (ii) at the option
of the Stolberg Investors, the Bain Investors and/or the Company, as
applicable, be paid by surrendering a number of Shares with a value based
on the Look-Back Valuation equal to the amount due from the Minority
Stockholders and/or his Permitted Transferees.
8.1.2. If the Look-Back Valuation equals or exceeds 90% of the
purchase price paid to such Minority Stockholder and/or his Permitted
Transferees for the Subject Minority Shares, the purchase price for the
Subject Minority Shares will not be changed and, in addition, the interest
rate on any outstanding promissory note issued to the Minority Stockholder
and/or his Permitted Transferees in connection with the purchase of such
Subject Minority Shares will be increased by 100 basis points effective as
of the Look-Back Date.
8.2 Look-Back by Minority Stockholder. Notwithstanding anything contained
in this Agreement to the contrary, if (i) Shares are purchased from any Minority
Stockholder and/or his Permitted Transferees pursuant to Section 5.1.1 or 5.1.2
(such Shares purchased pursuant to Section 5.1.1 or 5.1.2 (specifically
excluding, however, any shares of Stock purchased upon termination of such
Minority Stockholder's employment for Cause) are referred to herein as the
"Employee Stock"), and (ii) there is a Sale of the Company within the one year
period following the date of notice of exercise of such option to purchase, such
Minority Stockholder shall have the right and option, exercisable by written
notice to the
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purchaser of the Employee Stock within 15 days after notice of such Sale has
been provided to the Minority Stockholder, to require that the Contract Price
for the Employee Stock be redetermined as of the date of Sale based on the
consideration received in the Sale and determined as if the Employee Stock were
issued and outstanding on the date of Sale. At the time notice of the Sale is
provided to the Minority Stockholder, the Minority Stockholder shall also be
advised of the terms, conditions and price received in connection with the Sale.
The Minority Stockholder shall have the right to review those portions of the
Sale documentation relating to the determination, payment and any adjustment of
the consideration paid in connection with such Sale; provided, however, that
such Minority Stockholder shall first agree to treat all such information as
confidential information and shall sign such confidentiality agreement as may be
reasonably requested with respect thereto. If the consideration in the Sale is
for other than cash and the parties cannot agree on the redetermined Contract
Price, such redetermined Contract Price shall be determined by the same
Appraiser who originally determined the Contract Price (or, if no Appraiser was
used, such Appraiser shall be chosen in the manner described in the definition
of Contract Price in Section 13.2). In the event the redetermined Contract price
for the Employee Stock is higher than the price paid to such Minority
Stockholder and/or his Permitted Transferees for the Employee Stock, then the
excess shall be paid to such Minority Stockholder and/or his Permitted
Transferees on the same terms and conditions as the remaining Stockholders of
the Company receive amounts payable to them in connection with the Sale. The
cost of any re-appraisal shall be borne by the Minority Stockholder.
8.3. Re-evaluation Upon Initial Public Offering Notwithstanding anything
in this Agreement to the contrary, if (i) Employee Stock is purchased, and (ii)
there is an Initial Public Offering of the Company within the one year period
following the date of notice of exercise of the option to purchase such Employee
Stock, the Company shall give written notice of the proposed Initial Public
Offering to such Minority Stockholder not less than 30 days prior to the
proposed effective date of such Initial Public Offering. Upon receipt of such
notice, such Minority Stockholder and/or his Permitted Transferees shall each
have the right and option, exercisable by written notice delivered to the
Company and the purchaser of the Employee Stock within 15 days after receipt of
notice of the proposed Initial Public Offering, to rescind the sale of the
Employee Stock. If the Minority Stockholder and its Permitted Transferees so
elect to rescind the sale of the Employee Stock, and contingent upon the
effectiveness of the Initial Public Offering, the Minority Stockholder and his
Permitted Transferees shall remit to the purchaser of the Employee Stock all
consideration received for such Employee Stock and, upon receipt of such funds,
the Minority Stockholder and/or his Permitted Transferees shall receive a return
of the Employee Stock. Notwithstanding the foregoing, if a Minority Stockholder
or its Permitted Transferee elects to rescind a sale of Employee Stock to a Bain
Investor or a Stolberg Investor pursuant to this Section 8.3 and (i) such
recision would give rise to taxable income and (ii) the Bain Investor or
Stolberg Investor who is required to rescind the sale of Employee Stock so
notifies the Minority Stockholder (or Permitted Transferee) electing to exercise
the right of recision prior to the time of such recision, which notice shall set
forth the Make-Whole Amount (as defined below), the Minority
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Stockholder (or Permitted Transferee) in question shall have the option either
(a) of electing to rescind the notice of recision or (b) proceeding with the
recision so long as prior to such recision the Minority Stockholder (or
Permitted Transferee) in question pays to the Bain Investor or Stolberg Investor
in question an amount (the "Make-Whole Amount") which after deducting all taxes
payable as a result of the receipt thereof would equal the taxes on the taxable
income referred to above (both such taxes to be calculated at the maximum
marginal rate applicable to individuals).
9. CERTAIN ISSUANCES AND TRANSFERS, ETC. Notwithstanding any other provision of
this Agreement, (a) Shares Transferred in a Public Offering or, after the
Initial Public Offering, pursuant to Rule 144 shall be conclusively deemed
thereafter not to be Series C Shares, Bain Shares, Stolberg Shares or Minority
Shares, as applicable, under this Agreement and not to be subject to any of the
provisions hereof or entitled to the benefit of any of the provisions hereof,
and (b) any Shares Transferred or acquired other than as contemplated in clause
(a) shall upon such Transfer or acquisition continue to be deemed for all
purposes hereof to be Series C Shares, Bain Shares, Stolberg Shares or Minority
Shares, as applicable, under this Agreement and no such Transfer shall be
effective unless the transferee of such Shares has delivered to the Company a
written acknowledgment and agreement in form and substance reasonably
satisfactory to the Company that such Shares to be received by such transferee
shall remain Series C Shares, Bain Shares, Stolberg Shares or Minority Shares
hereunder, as the case may be, and shall continue to be subject to all of the
provisions of this Agreement and that such transferee shall be bound by and a
party to this Agreement as the holder of Series C Shares, Bain Shares, Stolberg
Shares or Minority Shares, as the case may be, hereunder.
10. REMEDIES.
10.1. Generally. The Company and each holder of Shares shall have all
remedies available at law, in equity or otherwise in the event of any breach or
violation of this Agreement or any default hereunder by the Company or any
holder of Shares. The parties acknowledge and agree that in the event of any
breach of this Agreement, in addition to any other remedies which may be
available, each of the parties hereto shall be entitled to specific performance
of the obligations of the other parties hereto and, in addition, to such other
equitable remedies (including, without limitation, preliminary or temporary
injunctive relief) as may be appropriate in the circumstances.
10.2. Deposit. Without limiting the generality of Section 10.1, if any
holder of Shares fails to deliver to the purchaser thereof the certificate or
certificates evidencing Shares to be Sold pursuant to Section 3 or 5 hereof,
such purchaser may, at its option, in addition to all other remedies it may
have, deposit the purchase price (including any promissory note constituting all
or any portion thereof) for such Shares with any national bank or trust company
having combined capital, surplus and undivided profits in excess of One Hundred
Million Dollars ($100,000,000) (the "Escrow Agent") and the Company shall cancel
on its books the
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certificate or certificates representing such Shares and thereupon all of such
holder's rights in and to such Shares shall terminate. Thereafter, upon delivery
to such purchaser by such holder of the certificate or certificates evidencing
such Shares (duly endorsed, or with stock powers duly endorsed, for transfer,
with signature guaranteed, free and clear of any liens or encumbrances, and with
any stock transfer tax stamps affixed), such purchaser shall instruct the Escrow
Agent to deliver the purchase price (without any interest from the date of the
closing to the date of such delivery, any such interest to accrue to such
purchaser) to such holder.
11. LEGENDS.
11.1. Restrictive Legend. Each certificate representing Shares shall have
the following legend endorsed conspicuously thereupon:
The voting of the shares of stock represented by this certificate,
and the sale, encumbrance or other disposition thereof, are subject to the
provisions of a Stockholders Agreement to which the issuer and certain of
its stockholders are party, a copy of which may be inspected at the
principal office of the issuer or obtained from the issuer without charge.
Any person who acquires Shares which are not subject to all or part of the
terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such Shares.
11.2. 1933 Act Legends. Each certificate representing Shares shall have
the following legend endorsed conspicuously thereupon:
The securities represented by this certificate were issued in a
private placement, without registration under the Securities Act of 1933,
as amended (the "Act"), and may not be sold, assigned, pledged or
otherwise transferred in the absence of an effective registration under
the Act covering the transfer or an opinion of counsel, satisfactory to
the issuer, that registration under the Act is not required.
11.3. Stop Transfer Instruction. The Company will instruct any transfer
agent not to register the Transfer of any Shares until the conditions specified
in the foregoing legends are satisfied.
11.4. Termination of 1933 Act Legend. The requirement imposed by Section
11.2 hereof shall cease and terminate as to any particular Shares (a) when, in
the opinion of Ropes & Gray, or other counsel reasonably acceptable to the
Company, such legend is no longer required in order to assure compliance by the
Company with the Securities Act or (b) when such Shares have been effectively
registered under the Securities Act or transferred pursuant to
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Rule 144. Wherever (x) such requirement shall cease and terminate as to any
Shares or (y) such Shares shall be transferable under paragraph (k) of Rule 144,
the holder thereof shall be entitled to receive from the Company, without
expense, new certificates not bearing the legend set forth in Section 11.2
hereof.
12. AMENDMENT, TERMINATION, ETC.
12.1. Oral Modifications. This Agreement may not be orally amended,
modified, extended or terminated, nor shall any oral waiver of any of its terms
be effective.
12.2. Written Modifications. This Agreement may be amended, modified,
extended or terminated, and the provisions hereof may be waived, only by an
agreement in writing signed by the Company and the Majority Stockholders;
provided, however, that:
12.2.1. the consent of the Majority Series C Investors shall be
required for any amendment, modification, extension, termination or waiver
which has a material adverse effect on the rights of the holders of Series
C Shares as such under this Agreement;
12.2.2. the consent of the Majority Stolberg Investors shall be
required for any amendment, modification, extension, termination or waiver
which has a material adverse effect on the rights of the holders of
Stolberg Shares as such under this Agreement;
12.2.3. the consent of the holders of a majority of the Minority
Shares then outstanding shall be required for (i) any amendment,
modification, extension, termination or waiver of Section 3.1 which would
eliminate the rights of the holders of Minority Shares to participate in a
Sale under Section 3.1 or any amendment, modification, extension,
termination or waiver of Section 3.1 which would disproportionately
materially adversely affect the rights of the holders of Minority Shares
vis-a-vis the rights of the holders of Shares other than Minority Shares,
(ii) any amendment, modification, extension, termination or waiver of
Section 7.3 which would eliminate the rights of the holders of Minority
Shares to participate in a registration under Section 7.3 or any
amendment, modification, extension, termination or waiver of Section 7.3
which would disproportionately materially adversely affect the rights of
the holders of Minority Shares vis-a-vis the rights of the holders of
Shares other than Minority Shares, (iii) any amendment, modification,
extension, termination or waiver of Section 3.2.2, 3.3.2 or 3.4.2 which
would disproportionately materially adversely affect the rights of the
holders of Minority Shares vis-a-vis the rights of the holders of Shares
other than Minority Shares, and (iv) any amendment, modification,
extension, termination or waiver of Section 4.2, 5 or 8;
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12.2.4. the consent of the holders of a majority of the Shares held
by the Cady Stockholders shall be required for any amendment,
modification, extension, termination or waiver of Section 5.4; and
12.2.5. the consent of the holders of a majority of the Shares held
by the Participation Offerees shall be required for any amendment,
modification, extension, termination or waiver of Section 6.
Each such amendment, modification, extension, termination and waiver shall
be binding upon each party hereto and each holder of Shares subject hereto. In
addition, each party hereto and each holder of Shares subject hereto may waive
any right hereunder by an instrument in writing signed by such party or holder.
12.3. Termination. No termination under this Agreement shall relieve any
Person of liability for breach prior to termination.
13. DEFINITIONS. For purposes of this Agreement:
13.1. Certain Matters of Construction. In addition to the definitions
referred to or set forth below in this Section 13:
(a) The words "hereof", "herein", "hereunder" and words of similar
import shall refer to this Agreement as a whole and not to any particular
Section or provision of this Agreement, and reference to a particular
Section of this Agreement shall include all subsections thereof;
(b) Definitions shall be equally applicable to both nouns and verbs
and the singular and plural forms of the terms defined; and
(c) The masculine, feminine and neuter genders shall each include
the other.
13.2. Definitions. The following terms shall have the following meanings:
"AAA" shall have the meaning set forth in Section 5.1.4.
"Adverse Claim" shall have the meaning set forth in Section 8-302 of
the applicable Uniform Commercial Code.
"Affiliate" shall mean, with respect to any specified Person, (a)
any other Person which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control
with, such specified Person (for the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling,"
"controlled by" and "under common control with"), as used with respect
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to any Person, means the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement
or otherwise) and (b) each Person of which such specified Person or an
Affiliate (as defined in clause (a) above) thereof shall, directly or
indirectly, beneficially own at least five percent of the outstanding
capital stock or other evidence of beneficial interest at such time. With
respect to any natural Person, "Affiliate" shall also include without
limitation any Member of the Immediate Family of such natural Person.
"Affiliated Fund" shall mean each corporation, trust, limited
liability company, general or limited partnership or other entity under
common control with any Bain Investor or Stolberg Investor, as the case
may be.
"Agreement" shall have the meaning set forth in the Preamble.
"Appraisal Process" shall mean the following process: within three
business days after the effectiveness of the Drag Along Notice, the
Participating Sellers shall, by majority vote, select a representative
(the "Representative") to meet with the Prospective Selling Investors. If
no such representative has been selected within such three business day
period, then the Company shall serve as the Representative. The
Prospective Selling Investors shall meet with the Representative to
discuss the per share price to be paid in the proposed Sale as set forth
in the Drag Along Notice. If the Representative agrees to the per share
price set forth in the Drag Along Notice, then the Prospective Selling
Investors may effect the proposed Sale pursuant to Section 3.2, 3.3 or
3.4, as applicable. If the Representative does not agree to the per share
price set forth in the Drag Along Notice within three business days after
the first meeting between the Prospective Selling Investors and the
Representative, then the Representative and the Prospective Selling
Investors shall each select an Appraiser within three business days and
the two Appraisers shall each make an independent appraisal as to the per
share fair value of the Shares to be sold in the proposed Sale. If the
average of the two per share fair values determined by the Appraisers is
less than or equal to the per share price as set forth in the Drag Along
Notice, then the Prospective Selling Investors may effect the proposed
Sale pursuant to Section 3.2, 3.3 or 3.4, as applicable, at the per share
price set forth in the Drag Along Notice. If the average of the two per
share fair values determined by the Appraisers is greater than the per
share price as set forth in the Drag Along Notice, then the Prospective
Selling Investors may either effect the proposed Sale pursuant to Section
3.2, 3.3 or 3.4, as applicable, at such average per share fair value or
request that a third appraiser be selected, in which case the Prospective
Selling Investors and the Representative shall attempt to agree on a third
Appraiser. If, within three business days, the Prospective Selling
Investors and the Representative cannot agree on a third Appraiser, then
the two Appraisers selected by each of the Prospective Selling Investors
and the Representative shall select a third Appraiser who shall make an
independent appraisal as to the per share fair value of the
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Shares to be sold in the proposed Sale. An average shall be taken of the
two out of three per share fair values determined by the Appraisers that
are closest together, or, if the three per share fair values are
equidistant from one another, an average shall be taken of all three per
share fair values. If such average is less than or equal to the per share
price as set forth in the Drag Along Notice, then the Prospective Selling
Investors may effect the proposed Sale pursuant to Section 3.2, 3.3 or
3.4, as applicable, at such average per share fair value. If such average
is greater than the per share price as set forth in the Drag Along Notice,
then the Prospective Selling Investors may either effect the proposed Sale
pursuant to Section 3.2, 3.3 or 3.4, as applicable, at such average per
share fair value or elect not to proceed with the proposed Sale pursuant
to Section 3.2, 3.3 or 3.4, as applicable. The costs and expenses of each
of the Appraisers will be borne by the Company.
"Appraiser" shall mean an independent business appraiser or
investment banker of recognized standing with knowledge and experience
related to the industry in which the Company operates.
"Bain" shall have the meaning set forth in the Preamble.
"Bain Investors" shall have the meaning set forth in the Preamble.
"Bain Shares" shall mean (a) all shares of Common Stock originally
issued to, or issued with respect to shares originally issued to, or held
by, the Bain Investors, whenever issued, including, without limitation,
all shares of Common Stock issued pursuant to the exercise of any Options
and all shares of Common Stock issued upon conversion of any shares of
Preferred Stock, (b) all shares of Preferred Stock originally issued to,
or issued with respect to shares originally issued to, or held by, the
Bain Investors, whenever issued (treating such shares of Preferred Stock
as a number of Shares equal to the number of Equivalent Shares represented
by such shares of Preferred Stock for all purposes of this Agreement
except as otherwise specifically set forth herein), and (c) all Options
originally granted or issued to the Bain Investors (treating such Options
as a number of Shares equal to the number of Equivalent Shares represented
by such Options for all purposes of this Agreement except as otherwise
specifically set forth herein).
"Bankruptcy Code" shall mean 11 U.S.C. ss.101 et seq., or any
successor provisions thereto.
"Base Price" of any Share, as of any date, shall mean an amount
equal to the lesser of (i) the Contract Price of such Share as of such
date, or (ii) the amount originally paid to the Company for such Share by
the original holder upon issuance thereof, increased from the date of
issuance through the date in question at a non-compounded per annum rate
of six percent.
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"Board" shall have the meaning set forth in Section 2.1.
"Cady Stockholder" shall mean Paul D. Cady, Daniel P. Cady, David G.
Cady and Kim Cady, Susan E. Rivera and Thomas Rivera, and Steven M. Simon.
"Cause" shall be deemed to exist if a Minority Stockholder: (i)
violates any federal, state or local law or commits any act of dishonesty
involving the Company or any of its subsidiaries if such violation or act
(x) causes material damages to the Company or any of its subsidiaries, or
(y) in the reasonable judgment of the Board, would materially and
adversely affect the Minority Stockholder's ability to perform his duties
for the Company or any of its subsidiaries; (ii) solicits or contacts
customers of the Company or any of its subsidiaries, becomes employed by a
competitor of the Company or any of its subsidiaries or actively and
knowingly assists in the establishment or operation of any competitive
business in violation of any agreement with the Company or any of its
subsidiaries concerning noncompetition; (iii) breaches any agreement with
the Company or any of its subsidiary concerning noncompetition in a manner
other than as described in the foregoing clause (ii) and fails to
discontinue the offending conduct within ten days following receipt of
notice thereof; (iv) knowingly or intentionally breaches any
confidentiality agreement with the Company or any of its subsidiaries; (v)
unintentionally breaches any confidentiality agreement with the Company or
any of its subsidiaries and continues to engage in behavior in violation
of such confidentiality agreement following receipt of notice of such
breach; (v) commits an act of willful misconduct in the course of his
employment with the Company or any of its subsidiaries that causes
material damage to the Company or any of its Subsidiaries; (vi) commits
any act of gross negligence in the course of his employment or breaches in
any material respect any of the terms of his employment with the Company
or any of its subsidiaries if the Minority Stockholder fails to
discontinue the offending conduct within ten days following receipt of
notice thereof and such act of gross negligence or breach has caused
material damage to the Company or any of its subsidiaries. Nothing
contained in this definition or this Agreement shall be deemed to affect
the right of the Company or any of its Subsidiaries to discipline or
discharge a Minority Stockholder and this Cause definition shall be used
solely for purposes of determining the price to be paid for Shares held by
a Minority Stockholder upon termination of his employment which are
purchased in accordance with the terms of this Agreement.
"CCI Stock" shall have the meaning set forth in Section 5.4.
"Change of Control" shall mean any change in the ownership of the
capital stock of the Company if, immediately after giving effect thereto,
the Stolberg Investors, the Bain Investors and the Minority Stockholders
and their Affiliates shall own less than ten percent of the Equivalent
Shares.
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"Closing" shall have the meaning set forth in Section 1.1.
"Code" shall have the meaning set forth in Section 5.4.
"Commission" shall mean the Securities and Exchange Commission.
"Common Stock" shall have the meaning set forth in the recitals.
"Company" shall have the meaning set forth in the Preamble.
"Contract Price," as of any date, of any Share subject to purchase
hereunder, shall mean the aggregate price at which a purchaser and seller
would buy and sell such Share on such date and shall be determined as
follows:
(a) The seller and the purchaser(s) will attempt to agree on the
Contract Price. For those purchaser(s) with whom the seller is able to
agree on the Contract Price, the amount so agreed will be the Contract
Price.
(b) If the seller and any purchaser(s) are unable to agree on the
Contract Price for such Shares, the Contract Price shall be determined by
an Appraiser mutually acceptable to the seller and such purchaser(s). If
the parties cannot agree on an Appraiser, the purchaser(s) and the seller
shall each select an Appraiser and the two Appraisers so selected shall
select the Appraiser who shall determine the Contract Price and the
determination of such Appraiser shall be binding and conclusive on such
parties for purposes hereof. In appraising the Shares subject to purchase,
the Appraiser shall utilize a valuation method based upon the market
values of publicly-held companies which are comparable to the Company. The
Appraiser shall apply such discount as the Appraiser deems appropriate
(but not to exceed 27.5%) for lack of marketability but shall not apply
any discount for minority interests. The seller shall bear one-half of the
costs and expenses of such Appraiser or, if less, an amount equal to ten
percent of the aggregate Contract Price (as determined by such Appraiser)
for all Shares available for purchase from the seller and the purchaser(s)
shall bear the balance of the costs and expenses of such Appraiser.
(c) The Contract Price of the Shares subject to repurchase hereunder
shall be determined as of (i) the date an Offer is made in the event of a
purchase under Section 4.1, or (ii) the date of notice of exercise of an
option to purchase or sell such Shares (as the case may be) in the event
of a purchase pursuant to Section 5; provided, however, that in the event
a purchase or sale option is deferred in accordance with Section 5.2, the
date of determination shall be the date of notice of exercise of an option
on or after the Waiver of Deferral Notice is delivered.
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"Contract Terms" with respect to Shares purchased pursuant hereto
shall mean the following terms of payment:
(a) The purchaser will be required to pay the purchase price for
such Shares in cash or other immediately available funds as of the date of
purchase if the aggregate purchase price for such Shares is $100,000 or
less and, if the Company is the purchaser, such cash payment is permitted
by the Company's Senior Lenders.
(b) If the purchase price for such Shares exceeds $100,000 or the
Company is the purchaser and is prohibited by its Senior Lenders from
making such cash payment, the purchaser will pay the purchase price for
such Shares by delivering to the seller on the date of purchase cash or
other immediately available funds in an amount equal to the greater of
$75,000 or ten percent of the purchase price and the balance of the
purchase price shall be paid by purchaser's delivery to the seller on the
date of purchase of a promissory note with terms as follows:
(i) The remaining purchase price will be payable in 12 equal
consecutive quarterly installments commencing 90 days after the date
of purchase;
(ii) Interest will accrue on the principal balance outstanding
from time to time at a fixed rate per annum equal to the lesser of
(i) the Prime Rate in effect as of the date of purchase, or (ii) 12%
and will be payable together with each installment of principal; and
(iii) The promissory note will be subordinated to the
Company's Senior Lenders on such terms as may be requested by such
Senior Lenders.
(c) The "date of purchase" shall be such date as the seller and the
purchaser(s) shall agree but in no event shall such date of purchase be
more than 20 days after the date of notification of the final
determination of the Contract Price (or, if applicable, the Base Price) of
the Shares being sold.
(d) On the date of purchase, the seller shall deliver to the
purchaser(s) certificates evidencing ownership of the Shares being sold
properly endorsed or with properly executed stock powers, free and clear
of all liens, claims, restrictions and encumbrances other than this
Agreement.
"Convertible Securities" shall mean any evidence of indebtedness,
shares of stock (other than Common Stock) or other securities (other than
Options) which are directly or indirectly convertible into or exchangeable
or exercisable for shares of Common Stock.
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"Cost" shall mean, for any security, the price paid to the issuer
for such security.
"Covered Person" shall have the meaning set forth in Section 7.5.1.
"Disability" shall mean the inability of a Minority Stockholder to
perform his regular duties for the Company or any of its subsidiaries on a
full-time basis as a result of a physical or mental illness or condition,
regardless of the nature or cause thereof, which continues for a period in
excess of 180 consecutive days or 210 days in any consecutive 12 month
period.
"Drag Along Notice" shall have the meaning set forth in Sections
3.2.1, 3.3.1 and 3.4.1.
"Drag Along Sale Percentage" shall have the meaning set forth in
Sections 3.2, 3.3 and 3.4.
"Drag Along Sellers" shall have the meaning set forth in Sections
3.2.1, 3.3.1 and 3.4.1.
"Employee Stock" shall have the meaning set forth in Section 8.2.
"Equivalent Shares" shall mean as to any outstanding shares of
Common Stock, such number of shares of Common Stock, and as to any
outstanding Options or Convertible Securities, the maximum number of
shares of Common Stock for which or into which such Options or Convertible
Securities may at the time be exercised or converted.
"Escrow Agent" shall have the meaning set forth in Section 10.2.
"Estimated Net Offering Price Per Share" shall have the meaning set
forth in Section 7.2.7.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as in
effect from time to time.
"Fair Market Value" shall mean, as of any date, as to any share of
Common Stock, the Board's good faith determination of the fair value of
such share as of the applicable reference date.
"Gain" shall have the meaning set forth in Section 5.4.
"Indemnitee" shall have the meaning set forth in Section 7.5.3.
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"Initial Public Offering" means the initial Public Offering
registered on Form S-1 (or any successor form under the Securities Act).
"Initial Stockholders Agreement" shall have the meaning set forth in
the Recitals.
"Initiating Bain Investors" shall have the meaning set forth in
Section 7.1.1.
"Initiating Stolberg Investors" shall have the meaning set forth in
Section 7.2.1.
"IRS" shall have the meaning set forth in Section 5.4.
"Issuance" shall have the meaning set forth in Section 6.
"Joining Parties" shall have the meaning set forth in Section 14.7.
"Liquidity Event" shall have the meaning set forth in Section 3.6.
"Look-Back Date" shall have the meaning set forth in Section 8.1.
"Look-Back Option" shall have the meaning set forth in Section 8.1.
"Look-Back Valuation" shall have the meaning set forth in Section
8.1.
"Majority Bain Investors" shall mean, as of any date, Bain Investors
holding a majority of the outstanding Series C Shares held by all Bain
Investors.
"Majority Series C Investors" shall mean, as of any date, the
holders of a majority of the Series C Shares outstanding on such date.
"Majority Participating Investors" shall have the meaning set forth
in Sections 7.1.6 and 7.2.6.
"Majority Stockholders" shall mean, as of any date, the holders of a
majority of the Shares outstanding on such date.
"Majority Stolberg Investors" shall mean, as of any date, Stolberg
Investors holding a majority of the outstanding Stolberg Shares held by
all Stolberg Investors.
"Major Transaction" shall mean, with respect to any entity, (a)
merger or consolidation, whether or not such entity is the surviving
entity (other than a merger effected solely for the reincorporation of
such entity), (b) disposition of properties (whether effected by merger,
sale of assets, lease, equity exchange or otherwise), other
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than in any transaction or series of related transactions involving less
than $100,000, (c) acquisition of or lease of properties (whether effected
by merger, purchase of assets, lease, equity exchange or otherwise), other
than in any transaction or series of related transactions involving less
than $100,000, and (d) borrowing of money (whether in the public or
private markets), obtaining of credit (other than trade credit in the
ordinary course of business), issuance of notes, debentures or securities,
or the refinancing thereof, except to the extent that the aggregate
principal amount of indebtedness of the type described in this clause (d)
at any time outstanding and not approved according to the procedures
described in Section 2.3 hereof does not exceed $100,000.
"Make Whole Amount" shall have the meaning set forth in Section 8.3.
"Members of the Immediate Family" shall mean, with respect to any
individual, each spouse or child or other descendants of such individual,
each trust created for the primary benefit of one or more of the
aforementioned Persons and their spouses and each custodian or guardian of
any property of one or more of the aforementioned Persons in its capacity
as such custodian or guardian.
"Minority Shares" shall mean (a) all shares of Common Stock
originally issued to, or issued with respect to shares originally issued
to, or held by, a Minority Stockholder, whenever issued, including,
without limitation, all shares of Common Stock issued pursuant to the
exercise of any Options and all shares of Common Stock issued upon
conversion of any shares of Preferred Stock, (b) all shares of Preferred
Stock originally issued to, or issued with respect to shares originally
issued to, or held by, a Minority Stockholder, whenever issued (treating
such shares of Preferred Stock as a number of Shares equal to the number
of Equivalent Shares represented by such shares of Preferred Stock for all
purposes of this Agreement except as otherwise specifically set forth
herein), and (c) all Options originally granted or issued to a Minority
Stockholder (treating such Options as a number of Shares equal to the
number of Equivalent Shares represented by such Options for all purposes
of this Agreement except as otherwise specifically set forth herein).
"Minority Sale" shall have the meaning set forth in Section 4.1.1.
"Minority Stockholders" shall have the meaning set forth in the
Preamble.
"Minority Transferor" shall have the meaning set forth in Section
4.1.1.
"Notes" shall have the meaning set forth in Section 6.2.
"Notice of Dispute" shall have the meaning set forth in Section
4.1.6.
"Offer" shall have the meaning set forth in Section 4.1.1.
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"Options" shall mean any options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible
Securities.
"Other Securities" shall have the meaning set forth in Section
6.1.3.
"Participating Buyer" shall have the meaning set forth in Section
6.1.2.
"Participating Seller" shall have the meaning set forth in Sections
3.1.2, 3.2.1, 3.3.1 and 3.4.1.
"Participation Notice" shall have the meaning set forth in Section
6.1.1.
"Participation Offerees" shall have the meaning set forth in Section
6.1.1.
"Participation Portion" shall have the meaning set forth in Section
6.1.1.
"Permitted Transferee" shall mean (a) as to each Series C Share, a
Transferee of such Series C Share resulting from a Transfer to an
Affiliated Fund, partner or Affiliate of a holder of Series C Shares, (b)
as to each Stolberg Share, a Transferee of such Stolberg Share an
Affiliated Fund, partner or Affiliate of a holder of Stolberg Shares, and
(c) as to each Minority Share, a Transferee of such Minority Share in
compliance with Sections 4.2.3, 4.2.4 and 4.2.5.
"Person" shall mean any individual, partnership, corporation,
company, association, trust, joint venture, unincorporated organization,
entity or division, or any government, governmental department or agency
or political subdivision thereof.
"Preferred Stock" shall have the meaning set forth in the Recitals.
"Price Per Equivalent Share" shall mean the Board's good faith
determination of the price per Equivalent Share of any Convertible
Securities or Options which are the subject of an Issuance pursuant to
Section 8 hereof.
"Prime Rate" shall mean the rate per annum published in the Wall
Street Journal (or any comparable successor publication) as the Prime Rate
(i.e., the base rate on corporate loans posted by at least 75% of the
nation's 30 largest banks).
"Prospectus Buyer" shall mean any Person.
"Prospective Selling Investor" shall have the meaning set forth in
Sections 3.1, 3.2, 3.3 and 3.4.
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"Prospective Selling Stockholder" shall have the meaning set forth
in Section 4.1.1.
"Prospective Subscriber" shall have the meaning set forth in Section
6.1.1.
"Public Offering" shall mean a public offering and sale of Common
Stock for cash pursuant to an effective registration statement under the
Securities Act.
"Purchase Agreement" shall have the meaning set forth in the
Recitals.
"Qualified Public Offering" shall mean a Public Offering, other than
any Public Offering or sale pursuant to a registration statement on Form
S-8 or comparable form, in which the aggregate price to the public of all
such common stock sold in such offering shall exceed $30,000,000.
"Registrable Bain Securities" shall have the meaning set forth in
Section 7.1.1.
"Registrable Securities" shall mean (a) all shares of Common Stock,
(b) all shares of Common Stock issuable upon exercise of any Option or
Convertible Security and (c) all shares of Common Stock directly or
indirectly issued or issuable with respect to the securities referred to
in clauses (a) or (b) above by way of stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, in each case constituting Shares.
As to any particular Registrable Securities, such shares shall cease to be
Registrable Securities when (v) such shares shall have been Transferred
pursuant to Section 3.1 (other than Section 3.1.6(i), (ii), (iii) or
(iv)), 3.2, 3.3 or 3.4 hereof, (w) a registration statement with respect
to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement, (x) such securities shall
have been Transferred pursuant to Rule 144, (y) subject to the provisions
of Section 12 hereof, such securities shall have been otherwise
transferred, new certificates for them not bearing a legend restricting
further transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration of them under the
Securities Act and such securities may be distributed without volume
limitation or other restrictions on transfer under Rule 144 (including
without application of paragraphs (c), (e) (f) and (h) of Rule 144) or (z)
such securities shall have ceased to be outstanding.
"Registrable Stolberg Securities" shall have the meaning set forth
in Section 7.2.1.
"Representative" shall have the meaning set forth in the definition
of "Appraisal Process" in this Section 13.2.
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"Rule 144" shall mean Rule 144 under the Securities Act (or any
successor Rule).
"Rule 145 Transaction" shall mean a registration on Form S-4
pursuant to Rule 145 of the Securities Act (or any successor Form or
provision, as applicable).
"Sale" shall have the meaning set forth in Section 3.1. The terms
"Sell" and "Sold" shall reference the sale of Shares pursuant to a "Sale."
"Securities Act" shall mean the Securities Act of 1933, as in effect
from time to time.
"Senior Lenders" shall mean any financial institution providing
credit or financing to the Company whether in the form of term loans,
revolving lines of credit, letters of credit, industrial revenue bonds or
otherwise; provided, however, that "Senior Lenders" shall not include the
Stolberg Investors.
"Senior Management" shall mean the Chief Executive Officer, Chief
Financial Officer or Chief Operating Officer.
"Series A Preferred" shall have the meaning set forth in the
Recitals.
"Series B Preferred" shall have the meaning set forth in the
Recitals.
"Series C Investors" shall have the meaning set forth in the
Preamble.
"Series C Preferred" shall have the meaning set forth in the
Preamble.
"Series C Shares" shall mean (a) all shares of Series C Preferred
originally issued to, or issued with respect to shares originally issued
to, or held by, the Series C Investors, whenever issued (treating such
shares of Series C Preferred as a number of Shares equal to the number of
Equivalent Shares represented by such shares of Series C Preferred for all
purposes of this Agreement except as otherwise specifically set forth
herein) and (b) all shares of Common Stock issued upon conversion of any
shares of Series C Preferred originally issued to, or held by, the Series
C Investors.
"Shares" shall mean all Series C Shares, Stolberg Shares, and
Minority Shares.
"Stockholders" shall have the meaning set forth in the Preamble.
"Stolberg Investors" shall have the meaning set forth in the
Preamble.
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"Stolberg Shares" shall mean (a) all shares of Common Stock
originally issued to, or issued with respect to shares originally issued
to, or held by, the Stolberg Investors, whenever issued, including,
without limitation, all shares of Common Stock issued pursuant to the
exercise of any Options and all shares of Common Stock issued upon
conversion of any shares of Preferred Stock, (b) all shares of Preferred
Stock originally issued to, or issued with respect to shares originally
issued to, or held by, the Stolberg Investors, whenever issued (treating
such shares of Preferred Stock as a number of Shares equal to the number
of Equivalent Shares represented by such shares of Preferred Stock for all
purposes of this Agreement except as otherwise specifically set forth
herein), and (c) all Options originally granted or issued to the Stolberg
Investors (treating such Options as a number of Shares equal to the number
of Equivalent Shares represented by such Options for all purposes of this
Agreement except as otherwise specifically set forth herein), in each case
excluding, for all purposes of this Agreement other than the provisions of
Section 7.2, all Series C Shares originally issued to, or issued with
respect to shares originally issued to, or held by, the Stolberg
Investors.
"Subject Minority Shares" shall have the meaning set forth in
Section 8.1.
"Subject Securities" shall have the meaning set forth in Section 6.
"Tag Along Holder" shall have the meaning set forth in Section
3.1.1.
"Tag Along Notice" shall have the meaning set forth in Section
3.1.1.
"Tag Along Offer" shall have the meaning set forth in Section 3.1.2.
"Tag Along Sale Percentage" shall have the meaning set forth in
Section 3.1.1.
"Tag Along Sellers" shall have the meaning set forth in Section
3.1.2.
"Target Net Offering Price Per Share" shall mean, with respect to
any public offering of shares of Common Stock, the net offering price per
share which would result in proceeds to the Bain Investors, if the Bain
Investors were to sell one share of Registrable Bain Securities at such
net offering price per share, equal to $5.00 per share (as adjusted for
stock splits, stock dividends and the like) plus an amount sufficient to
generate an internal rate of return thereon of 50% per annum compounded
quarterly.
"Transfer" shall mean any sale, pledge, assignment, encumbrance or
other transfer or disposition of any Shares to any other Person, whether
directly, indirectly, voluntarily, involuntarily, by operation of law,
pursuant to judicial process or otherwise.
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"Waiver of Deferral Notice" shall have the meaning set forth in
Section 5.2.
14. MISCELLANEOUS.
14.1. Authority; Effect. Each party hereto represents and warrants to and
agrees with each other party that the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized on behalf of such party and do not violate any agreement or other
instrument applicable to such party or by which its assets are bound. This
Agreement does not, and shall not be construed to, give rise to the creation of
a partnership among any of the parties hereto, or to constitute any of such
parties members of a joint venture or other association.
14.2. Notices. Any notices and other communications required or permitted
in this Agreement shall be effective if in writing and (a) delivered personally
or (b) sent (i) by Federal Express, DHL or UPS or (ii) by registered or
certified mail, postage prepaid, in each case, addressed as follows:
If to the Company, to it:
Advanced Telecommunications, Inc.
730 2nd Avenue South
Suite 1200
Minneapolis, MN 55402
Attention: Chief Executive Officer
with a copy to:
Piper & Marbury
1200 Nineteen St., N.W.
Washington, DC 20036-2430
Attention: Edwin M. Martin, Esq.
and with a copy to:
Robins, Kaplan, Miller & Ciresi L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, MN 55402-2015
Attention: David L. Mitchell, Esq.
If to the Bain Investors, to them:
c/o Bain Capital, Inc.
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Two Copley Place, 7th Floor
Boston, Massachusetts 02116
Attention: Michael A. Krupka
with a copy to:
Ropes & Gray
One International Place
Boston, Massachusetts 02110
Attention: Philip J. Smith, Esq.
If to the Stolberg Investors, to them:
c/o Stolberg Partners, L.P.
370 17th Street
Suite 4240
Denver, CO 80202
Attention: Peter Van Genderen
with a copy to:
Holland & Hart
555 Seventeenth Street, Suite 3200
P.O. Box 8749
Denver, CO 80201
Attention: Betty Arkell, Esq.
If to a Minority Stockholder, to it at the address set forth in the
stock record book of the Company.
Notice to the holder of record of any shares of capital stock shall be
deemed to be notice to the holder of such shares for all purposes hereof.
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date received, if personally delivered,
(b) two business days after being sent by Federal Express, DHL or UPS and (c)
three business days after deposit with the U.S. Postal Service, if sent by
registered or certified mail. Each of the parties hereto shall be entitled to
specify a different address by giving notice as aforesaid to each of the other
parties hereto.
14.3. Binding Effect, etc. Except for restrictions on Transfer of Shares
set forth in other agreements, plans or other documents, this Agreement
constitutes the entire agreement of the parties with respect to its subject
matter, supersedes all prior or contemporaneous oral or
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<PAGE>
written agreements or discussions with respect to such subject matter, and shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, representatives, successors and assigns.
14.4. Descriptive Headings. The descriptive headings of this Agreement are
for convenience of reference only, are not to be considered a part hereof and
shall not be construed to define or limit any of the terms or provisions hereof.
14.5. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one instrument.
14.6. Severability. In the event that any provision hereof would, under
applicable law, be invalid or unenforceable in any respect, such provision shall
be construed by modifying or limiting it so as to be valid and enforceable to
the maximum extent compatible with, and possible under, applicable law. The
provisions hereof are severable, and in the event any provision hereof should be
held invalid or unenforceable in any respect, it shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
14.7. Joinder. The parties hereto intend that (a) transferees of shares
hereunder, (b) holders of securities of the Company that are not parties hereto
and (c) future holders of securities of the Company (collectively, the "Joining
Parties") may become parties to this Agreement. The parties agree that the
Joining Parties may become parties hereto by executing a joinder agreement and
upon execution of such joinder agreement shall be entitled to rights and subject
to obligations applicable to such Joining Parties hereunder.
14.8. Consent to Amendment and Restatement. By executing this Agreement,
each party hereto consents to this amendment and restatement of the Initial
Stockholders Agreement pursuant to the terms of Section 16.1 of the Initial
Stockholders Agreement.
14.9. Supersession of Prior Registration Rights Agreement. By executing
this Agreement, each party hereto agrees that this Agreement supersedes the
Registration Rights Agreement dated as of February 7, 1997, as amended, by and
among the Company, the Stolberg Investors and the Holders (as defined therein).
15. GOVERNING LAW, ETC.
15.1. Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Delaware without
giving effect to any choice or conflict of laws provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
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<PAGE>
15.2. Consent to Jurisdiction. Each party to this Agreement, by its
execution hereof, (a) hereby irrevocably submits to the exclusive jurisdiction
of the state courts of the State of Delaware sitting in the County of Wilmington
or the United States District Court for the District of Delaware for the purpose
of any action, claim, cause of action or suit (in contract, tort or otherwise),
inquiry, proceeding or investigation arising out of or based upon this Agreement
or relating to the subject matter hereof, (b) hereby waives to the extent not
prohibited by applicable law, and agrees not to assert, and agrees not to allow
any of its subsidiaries to assert, by way of motion, as a defense or otherwise,
in any such action, any claim that it is not subject personally to the
jurisdiction of the above-named courts, that its property is exempt or immune
from attachment or execution, that any such proceeding brought in one of the
above-named courts is improper, or that this Agreement or the subject matter
hereof or thereof may not be enforced in or by such court and (c) hereby agrees
not to commence or maintain any action, claim, cause of action or suit (in
contract, tort or otherwise), inquiry, proceeding or investigation arising out
of or based upon this Agreement or relating to the subject matter hereof or
thereof other than before one of the above-named courts nor to make any motion
or take any other action seeking or intending to cause the transfer or removal
of any such action, claim, cause of action or suit (in contract, tort or
otherwise), inquiry, proceeding or investigation to any court other than one of
the above-named courts whether on the grounds of inconvenient forum or
otherwise. Notwithstanding the foregoing, to the extent that any party hereto is
or becomes a party in any litigation in connection with which it may assert
indemnification rights set forth in this agreement, the court in which such
litigation is being heard shall be deemed to be included in clause (a) above.
Each party hereto hereby consents to service of process in any such proceeding
in any manner permitted by Delaware law, and agrees that service of process by
registered or certified mail, return receipt requested, at its address specified
pursuant to Section 14.2 hereof is reasonably calculated to give actual notice.
15.3. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW
WHICH CANNOT BE WAIVED, EACH PARTY HERETO HEREBY WAIVES AND COVENANTS THAT IT
WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE) ANY RIGHT TO
TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE OR ACTION, CLAIM, CAUSE OF
ACTION OR SUIT (IN CONTRACT, TORT OR OTHERWISE), INQUIRY, PROCEEDING OR
INVESTIGATION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE TRANSACTIONS
CONTEMPLATED HEREBY, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING.
EACH PARTY HERETO ACKNOWLEDGES THAT IT HAS BEEN INFORMED BY THE OTHER PARTIES
HERETO THAT THIS SECTION 15.3 CONSTITUTES A MATERIAL INDUCEMENT UPON WHICH THEY
ARE RELYING AND WILL RELY IN ENTERING INTO THIS AGREEMENT. ANY PARTY HERETO MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION 15.3 WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF EACH SUCH PARTY TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.
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15.4. Exercise of Rights and Remedies. No delay of or omission in the
exercise of any right, power or remedy accruing to any party as a result of any
breach or default by any other party under this Agreement shall impair any such
right, power or remedy, nor shall it be construed as a waiver of or acquiescence
in any such breach or default, or of any similar breach or default occurring
later; nor shall any such delay, omission nor waiver of any single breach or
default be deemed a waiver of any other breach or default occurring before or
after that waiver.
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IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Clifford D. Williams
-------------------------------------
Clifford D. Williams,
Chief Executive Officer
BAIN INVESTORS: BAIN CAPITAL FUND VI, L.P.
By: Bain Capital Partners VI, L.P.,
its general partner
By: Bain Capital Investors VI, Inc.,
its general partner
By:______________________________________
Name:
Title: Managing Director
BCIP ASSOCIATES II
BCIP TRUST ASSOCIATES II
BCIP ASSOCIATES II-B
BCIP TRUST ASSOCIATES II-B
BCIP ASSOCIATES II-C
By: Bain Capital, Inc.,
their Managing Partner
PEP INVESTMENTS PTY LTD.
By: Bain Capital, Inc.,
its attorney-in-fact
By:______________________________________
Name:
Title: Managing Director
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-1
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has duly executed this
Agreement (or caused this Agreement to be executed on its behalf by its officer
or representative thereunto duly authorized) under seal as of the date first
above written.
THE COMPANY: ADVANCED TELECOMMUNICATIONS, INC.
By: _____________________________________
Clifford D. Williams,
Chief Executive Officer
BAIN INVESTORS: BAIN CAPITAL FUND VI, L.P.
By: Bain Capital Partners VI, L.P.,
its general partner
By: Bain Capital Investors VI, Inc.,
its general partner
By: /s/ Michael A. Krupka
-------------------------------------
Name: Michael A. Krupka
Title: Managing Director
BCIP ASSOCIATES II
BCIP TRUST ASSOCIATES II
BCIP ASSOCIATES II-B
BCIP TRUST ASSOCIATES II-B
BCIP ASSOCIATES II-C
By: Bain Capital, Inc.,
their Managing Partner
PEP INVESTMENTS PTY LTD.
By: Bain Capital, Inc.,
its attorney-in-fact
By: /s/ Michael A. Krupka
-------------------------------------
Name: Michael A. Krupka
Title: Managing Director
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-1
<PAGE>
RGIP, LLC
By: /s/ R. Bradford Malt
-------------------------------------
Name: R. Bradford Malt
Title: Managing Member
STOLBERG INVESTORS:
STOLBERG PARTNERS, L.P.,
By: SGMS, L.P., General Partner
By: Stolberg Meehan & Scano, Inc.
General Partner
By: _____________________________________
Name:
Title:
STOLBERG MEEHAN & SCANO II, L.P.
a Delaware limited partnership
By: Stolberg Meehan & Scano LLC,
General Partner
By: _____________________________________
Name:
Title:
THE MINORITY STOCKHOLDERS:
STOLBERG PARTNERS, L.P.,
as Nominee for Gary E. Snyder, 780
Partners, Larry Walker, Lawrence
Freeborg, Peter Van Genderen, and
Nottingham & Spirk Design, Inc.
By: SGMS, L.P., General Partner
By: Stolberg Meehan & Scano, Inc.
General Partner
By: _____________________________________
Name:
Title:
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-2
<PAGE>
RGIP, LLC
By: _____________________________________
Name:
Title:
STOLBERG INVESTORS:
STOLBERG PARTNERS, L.P.,
By: SGMS, L.P., General Partner
By: Stolberg Meehan & Scano, Inc.
General Partner
By: /s/ E. Theodore Stolberg
-------------------------------------
Name: E. Theodore Stolberg
Title: Partner
STOLBERG MEEHAN & SCANO II, L.P.
a Delaware limited partnership
By: Stolberg Meehan & Scano LLC,
General Partner
By: /s/ Peter Van Genderen
-------------------------------------
Name: Peter Van Genderen
Title: Partner
THE MINORITY STOCKHOLDERS:
STOLBERG PARTNERS, L.P.,
as Nominee for Gary E. Snyder, 780
Partners, Larry Walker, Lawrence
Freeborg, Peter Van Genderen, and
Nottingham & Spirk Design, Inc.
By: SGMS, L.P., General Partner
By: Stolberg Meehan & Scano, Inc.
General Partner
By: /s/ [ILLEGIBLE]
-------------------------------------
Name:
Title:
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-2
<PAGE>
ARTESIAN CAPITAL LIMITED PARTNERSHIP II
By: Artesian Management, Inc
-------------------------------------
Its: General Partner
By: Frank B. Bennett
Its: President
ARTESIAN MANAGEMENT, INC.
By: /s/ Frank B. Bennett
-------------------------------------
Name: Frank B. Bennett
Title: President
RWJ Co.
By: _____________________________________
Name:
Title:
MOSES FAMILY LIMITED PARTNERSHIP
By: _____________________________________
Name:
Title:
_________________________________________
Marvin Moses
_________________________________________
Peter Fyhrie
J M HIXON PARTNERS LLC
By: _____________________________________
Name:
Title:
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-3
<PAGE>
ARTESIAN CAPITAL LIMITED PARTNERSHIP II
By: _____________________________________
Name:
Title:
ARTESIAN MANAGEMENT, INC.
By: _____________________________________
Name:
Title:
RWJ Co.
By: /s/ James O. Pohlad
-------------------------------------
Name: JAMES O. POHLAD
Title: AGENT PARTNER
MOSES FAMILY LIMITED PARTNERSHIP
By: _____________________________________
Name:
Title:
_________________________________________
Marvin Moses
_________________________________________
Peter Fyhrie
J M HIXON PARTNERS LLC
By: _____________________________________
Name:
Title:
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-3
<PAGE>
ARTESIAN CAPITAL LIMITED PARTNERSHIP II
By: _____________________________________
Name:
Title:
ARTESIAN MANAGEMENT, INC.
By: _____________________________________
Name:
Title:
RWJ Co.
By: _____________________________________
Name:
Title:
MOSES FAMILY LIMITED PARTNERSHIP
By: /s/ Marvin C. Moses
-------------------------------------
Name: MARVIN C. MOSES
Title: MANAGING MEMBER OF CHESTNUT
SPRINGS, L.L.C., GENERAL PARTNER
/s/ Marvin C. Moses
-----------------------------------------
Marvin Moses
_________________________________________
Peter Fyhrie
J M HIXON PARTNERS LLC
By: _____________________________________
Name:
Title:
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-3
<PAGE>
ARTESIAN CAPITAL LIMITED PARTNERSHIP II
By: _____________________________________
Name:
Title:
ARTESIAN MANAGEMENT, INC.
By: _____________________________________
Name:
Title:
RWJ Co.
By: _____________________________________
Name:
Title:
MOSES FAMILY LIMITED PARTNERSHIP
By: _____________________________________
Name:
Title:
_________________________________________
Marvin Moses
/s/ Peter Fyhrie
-----------------------------------------
Peter Fyhrie
J M HIXON PARTNERS LLC
By: _____________________________________
Name:
Title:
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-3
<PAGE>
ARTESIAN CAPITAL LIMITED PARTNERSHIP II
By: _____________________________________
Name:
Title:
ARTESIAN MANAGEMENT, INC.
By: _____________________________________
Name:
Title:
RWJ Co.
By: _____________________________________
Name:
Title:
MOSES FAMILY LIMITED PARTNERSHIP
By: _____________________________________
Name:
Title:
_________________________________________
Marvin Moses
_________________________________________
Peter Fyhrie
J M HIXON PARTNERS LLC
By: /s/ Benson K. Whitney
-------------------------------------
Name: Benson K. Whitney
Title: Managing Member
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-3
<PAGE>
MINNESOTA MANAGEMENT PARTNERS I
By: /s/ Jack L. Hauser
-------------------------------------
Name: JACK L. HAUSER
Title: EXECUTIVE DIRECTOR
SIT INVESTMENT ASSOCIATES, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Joseph Rubin & Marguerite Rubin,
as Joint Tenants
_________________________________________
Joseph Rubin
_________________________________________
John R. Dennis & Maryanne Dennis,
as Joint Tenants
_________________________________________
John R. Dennis
_________________________________________
Winslow W. Bennett & Adele W. Bennett,
Joint Tenants
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-4
<PAGE>
MINNESOTA MANAGEMENT PARTNERS I
By: _____________________________________
Name:
Title:
SIT INVESTMENT ASSOCIATES, INC.
By: /s/ Carla J. Rose
-------------------------------------
Name: Carla J. Rose
Title: V.P. Administration & Deputy
Controller
_________________________________________
Joseph Rubin & Marguerite Rubin,
as Joint Tenants
_________________________________________
Joseph Rubin
_________________________________________
John R. Dennis & Maryanne Dennis,
as Joint Tenants
_________________________________________
John R. Dennis
_________________________________________
Winslow W. Bennett & Adele W. Bennett,
Joint Tenants
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-4
<PAGE>
MINNESOTA MANAGEMENT PARTNERS I
By: _____________________________________
Name:
Title:
SIT INVESTMENT ASSOCIATES, INC.
By: _____________________________________
Name:
Title:
/s/ Joseph Rubin Marguerite A. Rubin
-----------------------------------------
Joseph Rubin & Marguerite Rubin,
as Joint Tenants
/s/ Joseph Rubin
-----------------------------------------
Joseph Rubin
_________________________________________
John R. Dennis & Maryanne Dennis,
as Joint Tenants
_________________________________________
John R. Dennis
_________________________________________
Winslow W. Bennett & Adele W. Bennett,
Joint Tenants
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-4
<PAGE>
MINNESOTA MANAGEMENT PARTNERS I
By: _____________________________________
Name:
Title:
SIT INVESTMENT ASSOCIATES, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Joseph Rubin & Marguerite Rubin,
as Joint Tenants
_________________________________________
Joseph Rubin
/s/ John R. Dennis Maryanne Dennis
-----------------------------------------
John R. Dennis & Maryanne Dennis,
as Joint Tenants
/s/ John R. Dennis
-----------------------------------------
John R. Dennis
_________________________________________
Winslow W. Bennett & Adele W. Bennett,
Joint Tenants
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-4
<PAGE>
MINNESOTA MANAGEMENT PARTNERS I
By: _____________________________________
Name:
Title:
SIT INVESTMENT ASSOCIATES, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Joseph Rubin & Marguerite Rubin,
as Joint Tenants
_________________________________________
Joseph Rubin
_________________________________________
John R. Dennis & Maryanne Dennis,
as Joint Tenants
_________________________________________
John R. Dennis
/s/ Winslow W. Bennett & Adele W. Bennett
[ILLEGIBLE]
-----------------------------------------
Winslow W. Bennett & Adele W. Bennett,
Joint Tenants
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-4
<PAGE>
/s/ Winslow W. Bennett
-----------------------------------------
Winslow W. Bennett
/s/ Adele W. Bennett
/s/ Winslow W. Bennett ATTY
-----------------------------------------
Adele W. Bennett
_________________________________________
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
_________________________________________
Sara G. Mullins
_________________________________________
Timothy I. Maudlin
_________________________________________
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
_________________________________________
Winslow W. Bennett
_________________________________________
Adele W. Bennett
/s/ Kathleen Brown Zerwas
/s/ James Zerwas
-----------------------------------------
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
_________________________________________
Sara G. Mullins
_________________________________________
Timothy I. Maudlin
_________________________________________
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
_________________________________________
Winslow W. Bennett
_________________________________________
Adele W. Bennett
_________________________________________
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: /s/ Bayview Capital Group, Inc.
Name: R. Jeffrey [ILLEGIBLE]
Title: CEO
_________________________________________
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
_________________________________________
Sara G. Mullins
_________________________________________
Timothy I. Maudlin
_________________________________________
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
_________________________________________
Winslow W. Bennett
_________________________________________
Adele W. Bennett
_________________________________________
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: _____________________________________
Name:
Title:
/s/ Ronald W. Mullins
-----------------------------------------
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
_________________________________________
Sara G. Mullins
_________________________________________
Timothy I. Maudlin
_________________________________________
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
_________________________________________
Winslow W. Bennett
_________________________________________
Adele W. Bennett
_________________________________________
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: _____________________________________
Name:
Title:
/s/ Sara G. Mullins
-----------------------------------------
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
/s/ Sara G. Mullins
-----------------------------------------
Sara G. Mullins
_________________________________________
Timothy I. Maudlin
_________________________________________
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
_________________________________________
Winslow W. Bennett
_________________________________________
Adele W. Bennett
_________________________________________
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
_________________________________________
Sara G. Mullins
/s/ Timothy I. Maudlin
-----------------------------------------
Timothy I. Maudlin
_________________________________________
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
_________________________________________
Winslow W. Bennett
_________________________________________
Adele W. Bennett
_________________________________________
Kathleen Brown Zerwas &
James Zerwas, as Joint Tenants
BAYVIEW CAPITAL GROUP, INC.
By: _____________________________________
Name:
Title:
_________________________________________
Ronald W. Mullins & Sara G. Mullins,
as Joint Tenants
_________________________________________
Sara G. Mullins
_________________________________________
Timothy I. Maudlin
/s/ Richard E. Struthers
-----------------------------------------
Richard E. Struthers
(Signature pages to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.)
S-5
<PAGE>
GHYSELINCK & ASSOCIATES LLC
By: /s/ Sara Ghyselinck Mullins
----------------------------------
Name: Sara Ghyselinck Mullins
Title: Partner
MULLINS LIVING TRUST
By:
----------------------------------
Name:
Title:
-------------------------------------
George T. Holden
-------------------------------------
Joseph Alexander
-------------------------------------
Thomas W. Burton & Georgia L. Burton,
as Joint Tenants
BURTON REAL ESTATE ADVISORS, INC.
By:
----------------------------------
Name:
Title:
-------------------------------------
Clifford D. Williams
S-6
<PAGE>
GHYSELINCK & ASSOCIATES LLC
By:
----------------------------------
Name:
Title:
MULLINS LIVING TRUST
By: /s/ Ronald W. Mullins
----------------------------------
Name: Ronald W. Mullins
Title:
-------------------------------------
George T. Holden
-------------------------------------
Joseph Alexander
-------------------------------------
Thomas W. Burton & Georgia L. Burton,
as Joint Tenants
BURTON REAL ESTATE ADVISORS, INC.
By:
----------------------------------
Name:
Title:
-------------------------------------
Clifford D. Williams
S-6
<PAGE>
GHYSELINCK & ASSOCIATES LLC
By:
----------------------------------
Name:
Title:
MULLINS LIVING TRUST
By:
----------------------------------
Name:
Title:
/s/ George T. Holden
-------------------------------------
George T. Holden
-------------------------------------
Joseph Alexander
-------------------------------------
Thomas W. Burton & Georgia L. Burton,
as Joint Tenants
BURTON REAL ESTATE ADVISORS, INC.
By:
----------------------------------
Name:
Title:
-------------------------------------
Clifford D. Williams
S-6
<PAGE>
GHYSELINCK & ASSOCIATES LLC
By:
----------------------------------
Name:
Title:
MULLINS LIVING TRUST
By:
----------------------------------
Name:
Title:
-------------------------------------
George T. Holden
/s/ Joseph Alexander
-------------------------------------
Joseph Alexander
-------------------------------------
Thomas W. Burton & Georgia L. Burton,
as Joint Tenants
BURTON REAL ESTATE ADVISORS, INC.
By:
----------------------------------
Name:
Title:
-------------------------------------
Clifford D. Williams
S-6
<PAGE>
GHYSELINCK & ASSOCIATES LLC
By:
----------------------------------
Name:
Title:
MULLINS LIVING TRUST
By:
----------------------------------
Name:
Title:
-------------------------------------
George T. Holden
-------------------------------------
Joseph Alexander
/s/ Thomas W. Burton /s/ Georgia L. Burton
-------------------------------------
Thomas W. Burton & Georgia L. Burton,
as Joint Tenants
BURTON REAL ESTATE ADVISORS, INC.
By: /s/ Thomas W. Burton
----------------------------------
Name: Thomas W. Burton
Title: CEO
-------------------------------------
Clifford D. Williams
S-6
<PAGE>
GHYSELINCK & ASSOCIATES LLC
By:
----------------------------------
Name:
Title:
MULLINS LIVING TRUST
By:
----------------------------------
Name:
Title:
-------------------------------------
George T. Holden
-------------------------------------
Joseph Alexander
-------------------------------------
Thomas W. Burton & Georgia L. Burton,
as Joint Tenants
BURTON REAL ESTATE ADVISORS, INC.
By:
----------------------------------
Name:
Title:
/s/ Clifford D. Williams
-------------------------------------
Clifford D. Williams
S-6
<PAGE>
Myrna L. Williams, as custodian for
Scott Frasier Williams under the
Minnesota Uniform Transfers to Minors
Act
/s/ Myrna L. Williams
-------------------------------------
Myrna L. Williams
Myrna L. Williams, as custodian for
Regan Rea-Anna Williams under the
Minnesota Uniform Transfers to Minors
Act
/s/ Myrna L. Williams
-------------------------------------
Myrna L. Williams
/s/ Scott Frasier Williams
-------------------------------------
Scott Frasier Williams
/s/ Regan Rea-Anna Williams
-------------------------------------
Regan Rea-Anna Williams
-------------------------------------
Paul D. Cady
-------------------------------------
Sheldon Allen
-------------------------------------
Michael D. Lopata
-------------------------------------
Satish C. Tiwari
S-7
<PAGE>
Myrna L. Williams, as custodian for
Scott Frasier Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
Myrna L. Williams, as custodian for
Regan Rea-Anna Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
-------------------------------------
Scott Frasier Williams
-------------------------------------
Regan Rea-Anna Williams
/s/ Paul D. Cady
-------------------------------------
Paul D. Cady
-------------------------------------
Sheldon Allen
-------------------------------------
Michael D. Lopata
-------------------------------------
Satish C. Tiwari
S-7
<PAGE>
Myrna L. Williams, as custodian for
Scott Frasier Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
Myrna L. Williams, as custodian for
Regan Rea-Anna Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
-------------------------------------
Scott Frasier Williams
-------------------------------------
Regan Rea-Anna Williams
-------------------------------------
Paul D. Cady
/s/ Sheldon Allen
-------------------------------------
Sheldon Allen
-------------------------------------
Michael D. Lopata
-------------------------------------
Satish C. Tiwari
S-7
<PAGE>
Myrna L. Williams, as custodian for
Scott Frasier Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
Myrna L. Williams, as custodian for
Regan Rea-Anna Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
-------------------------------------
Scott Frasier Williams
-------------------------------------
Regan Rea-Anna Williams
-------------------------------------
Paul D. Cady
-------------------------------------
Sheldon Allen
/s/ Michael D. Lopata
-------------------------------------
Michael D. Lopata
-------------------------------------
Satish C. Tiwari
S-7
<PAGE>
Myrna L. Williams, as custodian for
Scott Frasier Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
Myrna L. Williams, as custodian for
Regan Rea-Anna Williams under the
Minnesota Uniform Transfers to Minors
Act
-------------------------------------
Myrna L. Williams
-------------------------------------
Scott Frasier Williams
-------------------------------------
Regan Rea-Anna Williams
-------------------------------------
Paul D. Cady
-------------------------------------
Sheldon Allen
-------------------------------------
Michael D. Lopata
/s/ Satish C. Tiwari
-------------------------------------
Satish C. Tiwari
S-7
<PAGE>
/s/ William E. Shanley, Jr.
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
/s/ Daniel P. Cady /s/ Jane Maland Cady
-------------------------------------
Daniel P. Cady & Jane Maland Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
/s/ Steven M. Simon
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
/s/ Robert Pickens
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
/s/ Carol Braun-Wolfram
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
/s/ William S. Whitney
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
/s/ Scott Bussey
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
/s/ Susan E. Rivera /s/ Thomas J. Rivera
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
-------------------------------------
James Lawrence
S-8
<PAGE>
-------------------------------------
William E. Shanley, Jr.
-------------------------------------
Daniel P. Cady & Jane Cady,
as Joint Tenants
-------------------------------------
Steven M. Simon
-------------------------------------
Robert Pickens
-------------------------------------
Carol Braun-Wolfram
-------------------------------------
William S. Whitney
-------------------------------------
Scott Bussey
-------------------------------------
Susan E. Rivera & Thomas J. Rivera,
as Joint Tenants
/s/ James Lawrence
-------------------------------------
James Lawrence
S-8
<PAGE>
/s/ Michael A. Donahue
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
/s/ David Patterson
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
/s/ Bob Pentico
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
/s/ Arlin Goldberg 9/17/99
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
/s/ David G. Cady /s/ Kim S. Cady
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
/s/ Laurie Goldman
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
/s/ Stephen Cady /s/ Robin Cady
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
/s/ Diane M. Petroff
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
/s/ John M. Monson
-------------------------------------
John M. Monson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
-------------------------------------
Michael A. Donahue
-------------------------------------
David Patterson
-------------------------------------
Bob Pentico
-------------------------------------
Arlin Goldberg
-------------------------------------
David G. Cady & Kim S. Cady,
as Joint Tenants
-------------------------------------
Laurie Goldman
-------------------------------------
Stephen Cady & Robin Cady,
as Joint Tenants
-------------------------------------
Diane M. Petroff
-------------------------------------
John M. Monson
/s/ Gary R. Nelson
-------------------------------------
Gary R. Nelson
S-9
<PAGE>
/s/ Toni T. Albani
-------------------------------------
Toni T. Albani
-------------------------------------
Greg W. Griffiths
-------------------------------------
Richard W. Smith
S-10
<PAGE>
-------------------------------------
Toni T. Albani
/s/ Greg W. Griffiths
-------------------------------------
Greg W. Griffiths
-------------------------------------
Richard W. Smith
S-10
<PAGE>
-------------------------------------
Toni T. Albani
/s/ Greg W. Griffiths
-------------------------------------
Greg W. Griffiths
/s/ Richard W. Smith 9/29/99
-------------------------------------
Richard W. Smith
S-10
<PAGE>
BAIN INVESTORS (continued): SANKATY HIGH YIELD ASSET PARTNERS, L.P.
By: /s/ Jonathan S. Lavine
----------------------------------
Name: Jonathan S. Lavine
Title: Managing Director
S-11
<PAGE>
THE MINORITY STOCKHOLDERS (continued):
BANCBOSTON ROBERTSON STEPHENS INC.
By: /s/ Dana Welch
----------------------------------
Name: Dana Welch
Title: Chief Administrative Officer
BAYVIEW 99 I, L.P.
By: Bayview 99 GP, LLC,
its General Partner
By: /s/ Dana Welch
----------------------------------
Name: Dana Welch
Title: Chief Administrative Officer
BAYVIEW 99 II, L.P.
By: Bayview 99 GP, LLC,
its General Partner
By: /s/ Dana Welch
----------------------------------
Name: Dana Welch
Title: Chief Administrative Officer
-------------------------------------
Clark Callander
-------------------------------------
Richard Innenberg
S-12
<PAGE>
THE MINORITY STOCKHOLDERS (continued):
BANCBOSTON ROBERTSON STEPHENS INC.
By:
----------------------------------
Name:
Title:
BAYVIEW 99 I, L.P.
By: Bayview 99 GP, LLC,
its General Partner
By:
----------------------------------
Name:
Title:
BAYVIEW 99 II, L.P.
By: Bayview 99 GP, LLC,
its General Partner
By:
----------------------------------
Name:
Title:
/s/ Clark Callander
-------------------------------------
Clark Callander
/s/ Richard Innenberg
-------------------------------------
Richard Innenberg
S-12
<PAGE>
SCHEDULE I
MINORITY STOCKHOLDERS
Stolberg Partners, L.P.,
as Nominee for Gary E. Snyder, 780 Partners, Larry Walker, Lawrence Freeborg,
Peter Van Genderen and Nottingham & Spirk Design, Inc.
Artesian Capital Limited Partnership II
Artesian Management, Inc.
RWJ Co.
Moses Family Limited Partnership
Marvin Moses
Peter Fyhrie
J M Hixon Partners LLC
Minnesota Management Partners I
SIT Investment Associates, Inc.
Joseph Rubin & Marguerite Rubin, as Joint Tenants
Joseph Rubin
John R. Dennis & Maryanne Dennis, as Joint Tenants
John R. Dennis
Winslow W. Bennett & Adele W. Bennett, as Joint Tenants
Kathleen Brown Zerwas & James Zerwas, as Joint Tenants
Bayview Capital Group, Inc.
Ronald W. Mullins & Sara G. Mullins, as Joint Tenants
Sara G. Mullins
Timothy I. Maudlin
Richard E. Struthers
Ghyselinck & Associates LLC
Mullins Living Trust
George T. Holden
Joseph Alexander
Thomas W. Burton & Georgia L. Burton, as Joint Tenants
Burton Real Estate Advisors, Inc.
Clifford D. Williams
{Schedule I to Amended and Restated
Stockholder Agreement to Advanced Telecommunications, Inc.}
I-13
<PAGE>
Myrna L. Williams, as custodian for Scott Frasier Williams under the Minnesota
Uniform Transfers to Minors Act
Myrna L. Williams, as custodian for Regan Rea-Anna Williams under the Minnesota
Uniform Transfers to Minors Act
Scott Frasier Williams
Regan Rea-Anna Williams
Paul D. Cady
Sheldon Allen
Michael D. Lopata
Satish C. Tiwari
William E. Shanley, Jr.
Daniel P. Cady & Jane Maland Cady, as Joint Tenants
Steven M. Simon
Robert Pickens
Carol Braun-Wolfram
William S. Whitney
Scott Bussey
Susan E. Rivera & Thomas J. Rivera, as Joint Tenants
James Lawrence
Michael A. Donahue
David Patterson
Bob Pentico
Arlin Goldberg
David G. Cady & Kim S. Cady, as Joint Tenants
Laurie Goldman
Stephen Cady & Robin Cady, as Joint Tenants
Diane M. Petroff
John M. Monson
Gary R. Nelson
Toni T. Albani
Greg W. Griffiths
Richard A. Smith
BancBoston Robertson Stephens Inc.
Bayview 99 I, L.P.
Bayview 99 II, L.P.
Clark Callander
Richard Innenberg
{Schedule I to Amended and Restated
Stockholder Agreement of Advanced Telecommunications, Inc.}
I-14
<PAGE>
<TABLE>
<CAPTION>
Common Series A Series B1 Series B2 Series B3
Shares Preferred Preferred Preferred Preferred
<S> <C> <C> <C> <C> <C>
OUTSIDE SHAREHOLDERS
Stolberg Partners, L.P. 54,660 4,800,000 1,130,059 1,476,523 480,261
Bain Investors -- -- -- -- --
Stolberg, Meehan & Scano II, L.P. 112,740 -- -- -- 720,391
General Electric Capital Corp (warrants) -- -- -- -- --
Artesian Capital L.P. II 245,640 -- -- -- --
RWJ Co. 97,320 -- -- -- --
Moses Family Limited Partnership 88,260 -- -- -- --
Marvin Moses 17,640 -- -- -- --
Peter Fyhrie 70,440 -- -- -- --
J.M. Hixon Partners LLC 64,620 -- -- -- --
Minnesota Management Partners I 42,180 -- -- -- --
Stolberg Partners, L.P., as Nominee for 780
Partners, a Wisconsin general partnership 0 13,740 13,739 9,843 --
Sit Investment Associates, Inc. 33,720 -- -- -- --
Michael Karangelen -- -- -- -- --
Stolberg Partners, L.P., as Nominee for Larry Walker -- -- 13,739 9,843 --
Stolberg Partners, L.P., as Nominee for Lawrence Freeborg -- 10,320 13,739 -- --
Joseph & Marguerite Rubin 9,600 -- -- -- --
John & Maryanne Dennis 17,220 -- -- -- --
Gary Snyder -- 13,740 -- -- --
Nottingham & Spirk -- 13,740 -- -- --
Adele W. Bennett & Winslow W. Bennett 12,600 -- -- -- --
Imperial Bank (warants) -- -- -- -- --
Stolberg Partners, L.P., as Nominee for Peter Van Genderen -- -- -- 9,843 --
Kathleen Brown Zerwas & James Zerwas 5,760 -- -- -- --
Bayview Capital Group, Inc. 6,660 -- -- -- --
Ronald W. Mullins & Sara G. Mullins 6,300 -- -- -- --
Tim Maudlin 4,140 -- -- -- --
Richard E. Struthers 3,360 -- -- -- --
Ghyselinck & Associates LLC 3,300 -- -- -- --
Mullins Living Trust 2,460 -- -- -- --
Artesian Management, Inc. 1,800 -- -- -- --
George T. Holden 1,740 -- -- -- --
Joseph Alexander 1,620 -- -- -- --
<CAPTION>
TOTAL PERCENT
Series B4 Series C SHARES (Pre- OWNERSHIP
Preferred Preferred Options) (Pre-Option)
<S> <C> <C> <C> <C>
OUTSIDE SHAREHOLDERS
Stolberg Partners, L.P. 227,946 2,000,000 10,169,449 48.11%
Bain Investors -- 7,080,000 7,080,000 33.49%
Stolberg, Meehan & Scano II, L.P. 43,029 -- 876,160 4.14%
General Electric Capital Corp (warrants) -- -- 0 0.00%
Artesian Capital L.P. II -- -- 245,640 1.16%
RWJ Co. -- -- 97,320 0.46%
Moses Family Limited Partnership -- -- 88,260 0.42%
Marvin Moses -- -- 17,640 0.08%
Peter Fyhrie -- -- 70,440 0.33%
J.M. Hixon Partners LLC -- -- 64,620 0.31%
Minnesota Management Partners I -- -- 42,180 0.20%
Stolberg Partners, L.P., as Nominee for 780
Partners, a Wisconsin general partnership 1,660 -- 38,982 0.18%
Sit Investment Associates, Inc. -- -- 33,720 0.16%
Michael Karangelen -- -- 0 0.00%
Stolberg Partners, L.P., as Nominee for Larry Walker 1,660 -- 25,242 0.12%
Stolberg Partners, L.P., as Nominee for Lawrence Freeborg 1,056 -- 25,115 0.12%
Joseph & Marguerite Rubin -- -- 9,600 0.05%
John & Maryanne Dennis -- -- 17,220 0.08%
Gary Snyder -- -- 13,740 0.06%
Nottingham & Spirk -- -- 13,740 0.06%
Adele W. Bennett & Winslow W. Bennett -- -- 12,600 0.06%
Imperial Bank (warants) -- -- 0 0.00%
Stolberg Partners, L.P., as Nominee for Peter Van Genderen 604 -- 10,447 0.05%
Kathleen Brown Zerwas & James Zerwas -- -- 5,760 0.03%
Bayview Capital Group, Inc. -- -- 6,660 0.03%
Ronald W. Mullins & Sara G. Mullins -- -- 6,300 0.03%
Tim Maudlin -- -- 4,140 0.02%
Richard E. Struthers -- -- 3,360 0.02%
Ghyselinck & Associates LLC -- -- 3,300 0.02%
Mullins Living Trust -- -- 2,460 0.01%
Artesian Management, Inc. -- -- 1,800 0.01%
George T. Holden -- -- 1,740 0.01%
Joseph Alexander -- -- 1,620 0.01%
<CAPTION>
ATI Options/ Vested TOTAL
Warrants Options/ Common Stock SHARES (Post-
(Total) Warrants Equivalents* Options/Warrants)
<S> <C> <C> <C> <C>
OUTSIDE SHAREHOLDERS
Stolberg Partners, L.P. -- -- 10,169,449 10,169,449
Bain Investors -- -- 7,080,000 7,080,000
Stolberg, Meehan & Scano II, L.P. -- -- 876,160 876,160
General Electric Capital Corp (warrants) 428,500 428,500 428,500 428,500
Artesian Capital L.P. II -- -- 245,640 245,640
RWJ Co. -- -- 97,320 97,320
Moses Family Limited Partnership -- -- 88,260 88,260
Marvin Moses 58,800 19,620 37,260 76,440
Peter Fyhrie -- -- 70,440 70,440
J.M. Hixon Partners LLC -- -- 64,620 64,620
Minnesota Management Partners I -- -- 42,180 42,180
Stolberg Partners, L.P., as Nominee for 780
Partners, a Wisconsin general partnership -- -- 38,982 38,982
Sit Investment Associates, Inc. -- -- 33,720 33,720
Michael Karangelen 29,160 29,160 29,160 29,160
Stolberg Partners, L.P., as Nominee for Larry Walker -- -- 25,242 25,242
Stolberg Partners, L.P., as Nominee for Lawrence Freeborg -- -- 25,115 25,115
Joseph & Marguerite Rubin 15,480 15,480 25,080 25,080
John & Maryanne Dennis -- -- 17,220 17,220
Gary Snyder -- -- 13,740 13,740
Nottingham & Spirk -- -- 13,740 13,740
Adele W. Bennett & Winslow W. Bennett -- -- 12,600 12,600
Imperial Bank (warants) 12,000 12,000 12,000 12,000
Stolberg Partners, L.P., as Nominee for Peter Van Genderen -- -- 10,447 10,447
Kathleen Brown Zerwas & James Zerwas 7,860 7,860 13,620 13,620
Bayview Capital Group, Inc. -- -- 6,660 6,660
Ronald W. Mullins & Sara G. Mullins -- -- 6,300 6,300
Tim Maudlin -- -- 4,140 4,140
Richard E. Struthers -- -- 3,360 3,360
Ghyselinck & Associates LLC -- -- 3,300 3,300
Mullins Living Trust -- -- 2,460 2,460
Artesian Management, Inc. -- -- 1,800 1,800
George T. Holden -- -- 1,740 1,740
Joseph Alexander -- -- 1,620 1,620
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Thomas & Georgia Burton 840 -- -- -- --
Burton Real Estate Advisors, Inc. 300 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 904,920 4,851,540 1,171,276 1,506,052 1,200,652
INSIDE SHAREHOLDERS
Cliff D. Williams -- 406,980 76,893 -- --
Paul D. Cady -- 280,000 -- -- --
Sheldon Allen 206,120 -- -- -- --
Richard A. Smith -- -- -- -- 96,052
Michael Lopata 231,000 -- -- -- --
Satish C. Tiwari -- 55,440 13,739 9,843 --
Bill Shanley 123,060 -- -- -- --
Daniel P. Cady & Jane Maland Cady -- 90,000 20,596 -- --
Steven M. Simon 16,200 60,000 13,730 22,147 --
Robert E. Pickens -- 3,480 2,746 -- --
David A. Kunde -- -- -- -- --
Carol L. Braun-Wolfram -- 30,000 10,984 7,440 --
William Whitney 77,040 -- -- -- --
Greg W. Griffiths -- -- 13,730 -- --
Scott Bussey 56,340 -- -- -- --
Thomas J. & Susan E. Rivera -- 30,000 4,119 -- --
Jim Lawrence -- 7,140 -- -- --
Michael A. Donahue -- 6,900 8,238 -- --
David A. Patterson -- 10,320 2,746 -- --
Bob Pentico 40,140 -- -- -- --
Arlin B. Goldberg -- 6,900 2,746 -- --
David G. & Kim S. Cady -- 30,000 4,119 -- --
Laurie A. Goldman -- 13,740 1,098 984 --
Stephen and Robin Cady -- 30,000 -- -- --
Jim Gordon -- -- -- -- --
Diane M. Petroff -- -- 2,746 -- --
Lynne Powers -- -- -- -- --
Maureen Fahey -- -- -- -- --
Janet Darkenwald -- -- -- -- --
John M. Monson -- -- -- 2,460 --
Gary R. Nelson -- -- -- 1,968 --
Gary Sheppard -- -- -- -- --
Todd Kolb -- -- -- -- --
Dianna Dole -- -- -- -- --
Liz Ktytor -- -- -- -- --
<CAPTION>
<S> <C> <C> <C> <C> <C>
Thomas & Georgia Burton -- -- 840 0.00% --
Burton Real Estate Advisors, Inc. -- -- 300 0.00% --
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 275,955 9,080,000 18,990,395 89.83% 551,800
INSIDE SHAREHOLDERS
Cliff D. Williams 5,920 -- 489,793 2.32% 348,240
Paul D. Cady -- -- 280,000 1.32% --
Sheldon Allen -- -- 206,120 0.98% 49,440
Richard A. Smith 1,824 -- 97,876 0.46% 220,020
Michael Lopata -- -- 231,000 1.09% 18,000
Satish C. Tiwari 1,660 -- 80,682 0.38% 90,000
Bill Shanley -- -- 123,060 0.58% 27,000
Daniel P. Cady & Jane Maland Cady 1,587 -- 112,183 0.53% 27,300
Steven M. Simon 2,371 -- 114,448 0.54% 9,000
Robert E. Pickens 211 -- 6,437 0.03% 85,200
David A. Kunde -- -- 0 0.00% 90,000
Carol L. Braun-Wolfram 1,290 -- 49,714 0.24% 37,200
William Whitney -- -- 77,040 0.36% 9,000
Greg W. Griffiths 1,054 -- 14,784 0.07% 51,060
Scott Bussey -- -- 56,340 0.27% 9,000
Thomas J. & Susan E. Rivera 317 -- 34,436 0.16% 27,300
Jim Lawrence -- -- 7,140 0.03% 52,800
Michael A. Donahue 635 -- 15,773 0.07% 37,200
David A. Patterson 211 -- 13,277 0.06% 37,200
Bob Pentico -- -- 40,140 0.19% 9,000
Arlin B. Goldberg 211 -- 9,857 0.05% 37,200
David G. & Kim S. Cady 317 -- 34,436 0.16% 9,000
Laurie A. Goldman 143 -- 15,965 0.08% 19,200
Stephen and Robin Cady -- -- 30,000 0.14% --
Jim Gordon -- -- 0 0.00% 24,000
Diane M. Petroff 211 -- 2,957 0.01% 19,200
Lynne Powers -- -- 0 0.00% 19,200
Maureen Fahey -- -- 0 0.00% 19,200
Janet Darkenwald -- -- 0 0.00% 15,000
John M. Monson 145 -- 2,605 0.01% 9,000
Gary R. Nelson 116 -- 2,084 0.01% 9,000
Gary Sheppard -- -- 0 0.00% 9,000
Todd Kolb -- -- 0 0.00% 9,000
Dianna Dole -- -- 0 0.00% 9,000
Liz Ktytor -- -- 0 0.00% 9,000
<CAPTION>
<S> <C> <C> <C>
Thomas & Georgia Burton -- 840 840
Burton Real Estate Advisors, Inc. -- 300 300
- ------------------------------------------------------------------------------------------------------------
SUBTOTAL 512,620 19,503,015 19,542,195
INSIDE SHAREHOLDERS
Cliff D. Williams 208,980 698,773 838,033
Paul D. Cady -- 280,000 280,000
Sheldon Allen 29,700 235,820 255,560
Richard A. Smith 46,740 144,616 317,896
Michael Lopata 7,200 238,200 249,000
Satish C. Tiwari -- 80,682 170,682
Bill Shanley 10,800 133,860 150,060
Daniel P. Cady & Jane Maland Cady 16,380 128,563 139,483
Steven M. Simon 5,400 119,848 123,448
Robert E. Pickens 33,720 40,157 91,637
David A. Kunde -- 0 90,000
Carol L. Braun-Wolfram 19,620 69,334 86,914
William Whitney 3,600 80,640 86,040
Greg W. Griffiths 30,600 45,384 65,844
Scott Bussey 5,400 61,740 65,340
Thomas J. & Susan E. Rivera 16,380 50,816 61,736
Jim Lawrence 21,120 28,260 59,940
Michael A. Donahue 19,620 35,393 52,973
David A. Patterson 19,620 32,897 50,477
Bob Pentico 5,400 45,540 49,140
Arlin B. Goldberg 19,620 29,477 47,057
David G. & Kim S. Cady 5,400 39,836 43,436
Laurie A. Goldman 11,520 27,485 35,165
Stephen and Robin Cady -- 30,000 30,000
Jim Gordon 4,800 4,800 24,000
Diane M. Petroff 7,680 10,637 22,157
Lynne Powers 3,840 3,840 19,200
Maureen Fahey 7,680 7,680 19,200
Janet Darkenwald 3,000 3,000 15,000
John M. Monson 2,700 5,305 11,605
Gary R. Nelson 3,600 5,684 11,084
Gary Sheppard 5,400 5,400 9,000
Todd Kolb 5,400 5,400 9,000
Dianna Dole 1,800 1,800 9,000
Liz Ktytor 1,800 1,800 9,000
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Julie Dzubay -- -- -- -- -- -- --
Michele Speranza -- -- -- -- -- -- --
Tammy Anderson (Gottas) -- -- -- -- -- -- --
Angela McGregor -- -- -- -- -- -- --
Bob Thompson -- -- -- -- -- -- --
Judith Proell -- -- -- -- -- -- --
Elaine Britt -- -- -- -- -- -- --
Mark Hechtl -- -- -- -- -- -- --
Chris Ammon -- -- -- -- -- -- --
Pete Desrocher -- -- -- -- -- -- --
Alan Keck -- -- -- -- -- -- --
Sally L. Hay -- -- -- -- -- -- --
Tom Hoffman -- -- -- -- -- -- --
Jeff Cammerrer -- -- -- -- -- -- --
Chris Frederiksen -- -- -- -- -- -- --
Toni T. Albani -- -- -- 1,260 -- 76 --
D.J. Ingwaldson -- -- -- -- -- -- --
Tracy Householder -- -- -- -- -- -- --
Corky Raines -- -- -- -- -- -- --
Brian Johnson -- -- -- -- -- -- --
Greg Luvelle -- -- -- -- -- -- --
Darlene Langdon -- -- -- -- -- -- --
Mary Braun -- -- -- -- -- -- --
Ron Davis -- -- -- -- -- -- --
Karen Nystrom -- -- -- -- -- -- --
William Flores -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 749,900 1,060,900 178,230 46,102 96,052 18,299 --
========================================================================================================================
GRAND TOTAL 1,654,820 5,912,440 1,349,506 1,552,154 1,296,704 294,254 9,080,000
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Julie Dzubay 0 0.00% 9,000 1,800 1,800 9,000
Michele Speranza 0 0.00% 9,000 1,800 1,800 9,000
Tammy Anderson (Gottas) 0 0.00% 9,000 3,600 3,600 9,000
Angela McGregor 0 0.00% 9,000 1,800 1,800 9,000
Bob Thompson 0 0.00% 9,000 1,800 1,800 9,000
Judith Proell 0 0.00% 9,000 1,800 1,800 9,000
Elaine Britt 0 0.00% 9,000 3,000 3,000 9,000
Mark Hechtl 0 0.00% 9,000 3,000 3,000 9,000
Chris Ammon 0 0.00% 9,000 3,000 3,000 9,000
Pete Desrocher 0 0.00% 9,000 3,600 3,600 9,000
Anlan Keck 0 0.00% 9,000 1,800 1,800 9,000
Sally L. Hay 0 0.00% 9,000 1,800 1,800 9,000
Tom Hoffman 0 0.00% 9,000 3,600 3,600 9,000
Jeff Cammerver 0 0.00% 9,000 3,600 3,600 9,000
Chris Frederiksen 0 0.00% 9,000 1,800 1,800 9,000
Toni T. Albani 1,336 0.01% 5,400 5,400 6,736 6,736
D.J. Ingwaldson 0 0.00% 4,500 2,700 2,700 4,500
Tracy Householder 0 0.00% 4,500 2,700 2,700 4,500
Corky Raines 0 0.00% 4,500 900 900 4,500
Brian Johnson 0 0.00% 4,500 900 900 4,500
Greg Luvelle 0 0.00% 4,500 900 900 4,500
Darlene Langdon 0 0.00% 4,500 900 900 4,500
Mary Braun 0 0.00% 4,500 900 900 4,500
Ron Davis 0 0.00% 4,500 900 900 4,500
Karen Nystrom 0 0.00% 3,000 600 600 3,000
William Flores 0 0.00% 1,200 240 240 1,200
- --------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL 2,149,483 10.17% 1,630,560 639,360 2,788,843 3,780,043
================================================================================================================================
GRAND TOTAL 21,139,878 100.00% 2,182,360 1,151,980 22,291,858 23,322,238
</TABLE>
<PAGE>
Exhibit 10.1.2
BAKER CENTER
LEASE OF OFFICE SPACE
DATE: AUGUST 14, 1996
BETWEEN: ST. PAUL PROPERTIES, INC.
(address) 435 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND ADVANCED TELECOMMUNICATIONS, INC.
(address) 410 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402
("Tenant")
FOR PREMISES IN: Peavey Building, Minneapolis, MN
LANDLORD AND TENANT, in consideration of the covenants herein contained, hereby
agree as follows:
ARTICLE 1.00 DEFINITIONS
1.01 Definitions In this Lease:
(a) "Annual Rent" means the amount payable by Tenant to Landlord in
respect of each year of the Term under Article 4.01.
(b) "Article" means an article of this Lease.
(c) "Commencement Date" means the date set forth in Article 3.01 as the
first day of the Term.
(d) "Exhibit A" means the plan(s) attached hereto as Exhibit A.
(e) "Exhibit B" means the provisions relating to Occupancy Costs and
other matters attached hereto as Exhibit B.
(f) "Exhibit C" means the Rules and Regulations attached hereto as
Exhibit C.
(g) "Expiration Date" means the date set forth in Article 3.01 as the
last day of the Term.
(h) "Fiscal Year" means the calendar year unless Landlord elects by
thirty (30) days' notice to Tenant that Fiscal Year shall mean a
twelve-month period from time to time determined by Landlord, with
concurrence of the appropriate taxation authorities, at the end of
which Landlord's books are balanced for auditing or taxation
purposes.
(i) "Lease" means this lease, Exhibits A, B, C and (if attached) D to
this lease, and every properly executed instrument which by its
terms amends, modifies or supplements this lease.
(j) "Occupancy Costs" means amounts payable by Tenant to Landlord under
Article 4.02.
(k) "Other Charges" means amounts payable by Tenant to Landlord under
Article 4.03.
1
<PAGE>
(l) "Premises" means the area on the 4th floor of the Building as
indicated on Exhibit A. hereby deemed to contain 3.337 square feet,
plus for calculation of Rent only, an additional 400 square feet of
unallocated space in the Building.
(m) "Rent" means the aggregate of all amounts payable by Tenant to
Landlord under Articles 4.01, 4.02 and 4.03.
(n) "Term" means the period of time set out in Article 3.01.
Other words and phrases are defined in Exhibit B.
ARTICLE 2.00 GRANT OF LEASE
2.01 Grant Landlord hereby demises and leases the Premises to Tenant, and
Tenant hereby leases and accepts the Premises from Landlord, to have and
to hold during the Term, subject to the terms, covenants and conditions of
this Lease.
2.02 Quiet Enjoyment So long as tenant observes and performs all of the terms,
covenants and conditions to be observed and performed by Tenant under this
Lease, tenant shall quietly have, hold and enjoy possession of the
Premises during the Term subject to the terms and conditions of this
Lease.
2.03 Covenants of Landlord and Tenant Landlord covenants to observe and
perform all of the terms and conditions to be observed and performed by
Landlord under this Lease. Tenant covenants to pay the Rent when due under
this Lease, and to observe and perform all of the terms and conditions to
be observed and performed by Tenant under this Lease.
ARTICLE 3.00 TERM AND POSSESSION
3.01 Term Notwithstanding Articles 3.02 and 3.03, the term of this Lease shall
be five (5) years, sixteen (16) days, beginning on the fifteenth day of
the month of September, 1996 and ending on the last day of the month of
September, 2001, unless terminated earlier as provided in this Lease.
3.02 Early Occupancy If Tenant begins to conduct business in all or any
portion of the Premises before the Commencement Date, Tenant shall pay to
Landlord on the Commencement Date a rental in respect thereof for the
period from the date Tenant begins to conduct business therein to the
Commencement Date, which rental shall be that proportion of Rent for one
calendar year which the number of days in such period bears to 365. Except
where clearly inappropriate, the provisions of this Lease shall be
applicable during such period.
3.03 Delayed Possession If Landlord is delayed in delivering possession of all
or any portion of the Premises on the date (not later than one year after
the Commencement Date) when Landlord delivers possession of all of the
Premises. This Lease shall not be void or voidable nor shall Landlord be
liable to Tenant for any loss or damage resulting from any delay in
delivering possession of the Premises to Tenant nor shall any delay be
construed in any way to affect the Expiration Date, but unless such delay
is principally caused by or attributable to Tenant, its servants, agents
or independent contractors, no Rent shall be payable by Tenant for the
period prior to the date on which Landlord can so deliver possession of
all of the Premises, unless Tenant elects to take possession of a portion
of the Premises whereupon Rent shall be payable in respect of that portion
from the date such possession is so taken.
3.04 Acceptance of Premises Taking possession of all or any portion of the
Premises by Tenant shall be rebuttal evidence as against Tenant that the
Premises or such portion thereof are in satisfactory condition on the date
of taking possession.
ARTICLE 4.00 RENT AND OCCUPANCY COSTS
4.01 Annual Rent Tenant shall pay to Landlord as Annual Rent for the Premises
the annual sum of twenty-two thousand four hundred twenty-two dollars and
no/100 ($22,422.00) in respect to the period from and including the
Commencement Date through September 30, 1997; twenty-six thousand one
hundred fifty-nine dollars and no/100 ($26,159.00) in respect to the
period October 1, 1997 through September 30, 1998; thirty-three thousand
six hundred thirty-three dollars and no/l00 ($33,633.00) in respect to the
period October 1, 1998 through September 30, 1999; and forty-four thousand
eight hundred forty-four dollars and no/l00 ($44,844.00) in respect to the
period October 1, 1999 through September 30, 2001.
2
<PAGE>
payable in advance and without notice in monthly installments (each equal
to one-twelfth of the Annual Rent) on the Commencement Date and on the
first day of each calendar month thereafter during the term.
4.02 Occupancy Costs Tenant shall pay to Landlord, at the times and in the
manner provided in Article 4.06, the Occupancy Costs (if any) determined
under Exhibit B.
4.03 Other Charges Tenant shall pay to Landlord, at the times and in the
manner provided in this Lease or, if not so provided, as reasonably
required by Landlord, all amounts (other than that payable under Articles
4.01 and 4.02 which are payable by Tenant to Landlord under this Lease).
4.04 Payment of Rent-General All amounts payable by Tenant to Landlord under
this Lease shall be deemed to be Rent and shall be payable and recoverable
as Rent in the manner herein provided, and Landlord shall have all rights
against Tenant for default in any such payment as in the case of arrears
of rent. Rent shall be paid to Landlord without deduction or set-off in
legal tender of the jurisdiction in which the Building is located, at the
address of Landlord as set forth in the beginning of this Lease, or to
such other person or at such other address as Landlord may from time to
time designate in writing. Tenant's obligation to pay Rent shall survive
the expiration or earlier termination of this Lease.
4.05 Annual Rent - Partial Months If the Term begins on a day other than the
first day of a calendar month or ends on a day other than the last day of
a calendar month, the installment of Annual Rent payable in respect of
that calendar month shall be that proportion of the Annual Rent which the
number of days in that calendar month which fall within the Term bears to
365.
4.06 Payment - Occupancy Costs
(a) Unless delayed by causes beyond Landlord's reasonable control, prior
to the Commencement Date and the beginning of each Fiscal Year
thereafter, Landlord shall compute and deliver to Tenant a bona fide
estimate of Occupancy Costs for the appropriate Fiscal Year. Without
further notice Tenant shall pay to Landlord in monthly installments
one-twelfth of such estimate simultaneously with Tenant's payments
of Annual Rent during such Fiscal Year.
(b) Landlord may at any time during a Fiscal Year compute and deliver to
Tenant a revised bona fide estimate of Occupancy Costs for that
Fiscal Year, together with Landlord's determination of the
adjustment to Tenant's monthly installments of Occupancy Costs for
that Fiscal Year to fully recover the revised estimate of Occupancy
Costs in that Fiscal Year. Without further notice, Tenant shall pay
to Landlord monthly installments of Occupancy Costs in accordance
with that adjustment.
(c) Unless delayed by causes beyond Landlord's reasonable control,
Landlord shall deliver to Tenant within one hundred twenty (120)
days after the end of each Fiscal Year a written statement (the
"statement") setting out in reasonable detail the amount of
Occupancy Costs for such Fiscal Year and certified to be correct by
an officer of Landlord. If the aggregate of monthly installments of
Occupancy Costs actually paid by Tenant to Landlord during such
Fiscal Year differs from the amount of Occupancy Costs payable for
such Fiscal Year under Article 4.02, Tenant shall pay, or if Tenant
is not then in default under this Lease beyond the applicable grace
period, Landlord shall refund the difference (as the case may be)
without interest within thirty (30) days after the date of delivery
of the Statement.
(d) If Landlord and Tenant disagree on the accuracy of Occupancy Costs
as set forth in the Statement, Tenant shall nevertheless make
payment in accordance with any notice given by Landlord, and
Landlord shall immediately refer the disagreement to a public
accountant, architect, insurance broker or other professional
consultant selected by Landlord and approved by Tenant, which
approval will not be unreasonably withheld, who shall be deemed to
be acting as an expert and not an arbitrator, and a determination
signed by the selected expert shall be final and binding on both
Landlord and Tenant. Any adjustment required to any previous payment
made by Tenant or Landlord by reason of any such decision shall be
made within fourteen (14) days thereof, and the party required to
make payment under such adjustment shall bear all costs of the
expert making such decision, except where that payment represents 3%
or less of the Occupancy Costs that were the subject of the
disagreement in which case Tenant shall bear all costs.
3
<PAGE>
(e) Neither party may claim re-adjustment in respect of occupancy Costs
for a Fiscal Year if based upon any error of computation or
allocation except by notice delivered to the other party within six
months after the date of delivery of the Statement.
ARTICLE 5.00 USE OF PREMISES
5.01 Use The Premises shall be used and occupied only as executive,
administrative, and general business offices of Tenant or for such other
purpose as Landlord may specifically authorize in writing.
5.02 Compliance The Premises shall be used and occupied in a prudent, safe,
careful and proper manner and in such manner as not to contravene any
present or future governmental or quasi-governmental laws in force or
regulations or orders, or to make void or voidable any insurance on the
Building. If, due to Tenant's non-compliance with the foregoing sentence,
Landlord's insurance carrier(s) reasonably imposes an increased or extra
premium for Landlord's insurance on the Building, Tenant shall pay such
increased or extra premium. If, due solely to Tenant's use of the
Premises, improvements are necessary to comply with any of the foregoing
or with the requirements of insurance carriers, Landlord, or Tenant at
Landlord's election, shall make such improvements and, in either event,
Tenant shall pay the entire cost thereof. Any such improvements by Tenant
shall comply with the provisions of Article 7.04.
5.03 Abandonment Tenant shall not vacate or abandon the Premises at any time
during the Term without Landlord's prior written consent.
5.04 Nuisance Tenant shall not cause or maintain any nuisance in or about the
Premises, and shall keep the Premises free of debris, rodents, vermin and
anything of a dangerous, noxious or offensive nature or which could create
a fire hazard (through undue load on electrical circuits or otherwise) or
undue vibration, heat, odor or noise.
ARTICLE 6.00 SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS BY Landlord
6.01 Operation of Building During the Term Landlord shall operate and maintain
the Building in accordance with all applicable laws and regulations and
with standards from time to time prevailing for first-class office
buildings in the area in which the Building is located and, subject to
participation by Tenant by payment of Occupancy Costs under Article 4.02,
shall provide the services set out in Articles 6.02 and 6.03.
6.02 Services to Premises Landlord shall provide in the Premises:
(a) heat, ventilation and cooling as required for the comfortable use
and occupancy of the Premises during normal business hours,
(b) janitor services, including window washing. Monday through Friday,
excluding holidays, as reasonably required to keep the Premises in a
clean and wholesome condition, provided that Tenant shall leave the
Premises in a reasonably orderly condition at the end of each
business day, and
(c) maintenance, repair and replacement as set out in Article 6.04.
6.03 Building Services Landlord shall provide in the Building:
(a) domestic running water and necessary supplies in washrooms
sufficient for the normal use thereof by occupants in the Building.
(b) access to and egress from the Premises, including elevator or
escalator service if included in the Building,
(c) heat, ventilation, cooling, lighting, electric power, domestic
running water, and janitor service in those areas of the Building
from time to time designated by Landlord for use during normal
business hours by Tenant in common with all tenants and other
persons in the Building but under the exclusive control of Landlord,
4
<PAGE>
(d) a general directory board on which Tenant shall be entitled to have
shown, provided that Landlord shall have exclusive control thereof
and of the space thereon to be allocated to each tenant, and
(e) maintenance, repair, and replacement as set out in Article 6.04.
6.04 Maintenance, Repair and Replacement Landlord shall operate, maintain,
repair and replace the systems, facilities and equipment necessary for the
proper operation of the Building and for provision of Landlord's services
under Articles 6.02 and 6.03 (except such systems, facilities and
equipment as may be installed by or be the property of Tenant) and shall
be responsible for and shall maintain and repair the foundations,
structure and roof of the Building and repair damage to the Building which
Landlord is obligated to insure against under Article 9.00, provided that
(a) if all or part of such systems, facilities or equipment is
destroyed, damaged, impaired or taken by condemnation, Landlord
shall have a reasonable time in which to complete the necessary
repair or replacement, and during that time shall be required only
to maintain such services as are reasonably possible in the
circumstances, and
(b) Landlord may temporarily reduce or discontinue such services or any
of them at such times as may be reasonably necessary due to causes
(except lack of funds) beyond the reasonable control of Landlord.
6.05 Additional Services
(a) If from time to time requested in writing by Tenant and to the
extent that it is reasonably able, Landlord shall endeavor to
provide in the Premises services in addition to those set out in
Article 6.02, provided that Tenant shall within ten (10) days of
receipt of any statement for any such additional service pay
Landlord therefore at such rates as Landlord may from time to time
reasonably establish. So long as Landlord is entitled to terminate
this Lease, Landlord may terminate any such additional services.
(b) If electricity is provided by Landlord under Article 7.02(b),
Landlord will pay the cost thereof and will apportion such costs
among the users based on meter readings for the Premises or, if the
Premises are not separately metered, according to the proportion of
each user's floor space to the total floor space of all users on a
common meter with the Premises. Upon receipt of Landlord's statement
of apportionment, Tenant shall reimburse Landlord for the amounts
which Tenant is shown thereon to be liable to Landlord.
(c) Tenant shall not without Landlord's prior written consent, which
consent will not be unreasonably withheld, install in the Premises
equipment (including telephone equipment) which generates sufficient
heat to affect the temperature otherwise maintained in the Premises
by the air conditioning system as normally operated. If Tenant
installs such equipment, Landlord may install supplementary air
conditioning units, facilities or services in the Premises, or
modify its air conditioning system, as may in Landlords reasonable
opinion be required to maintain proper temperature levels, and
Tenant shall pay Landlord the cost thereof (including, without
limitation, installation, operation and maintenance expenses) within
ten (10) days of receipt of notice from Landlord.
(d) If Landlord shall from time to time reasonably determine that the
use of electricity or any other utility or service in the Premises
is disproportionate to the use of other tenants, Landlord may
separately charge Tenant for the excess costs attributable to such
disproportionate use. In the event of such determination, Landlord
may also install and maintain, at Tenant's expense, metering devices
for determining the use of any such utility or service in the
Premises.
6.06 Alterations by Landlord Landlord may from time to time
(a) make repairs, replacements, changes or additions to the structure,
systems, facilities and equipment in the Premises where necessary to
serve the Premises or other parts of the Building or Project.
(b) make changes in or additions to any part of the Building or Project
not in or forming part of the Premises and
(c) change or alter the location of those areas of the Building, or
Project from time to time designated by Landlord for use during
Normal Business Hours for the Building by Tenant in common with all
tenants and other persons in the Building but under the exclusive
control of Landlord,
5
<PAGE>
provided that, subject to Article 6.04, Landlord shall not disturb or
interfere with Tenant's use of the Premises and operation of its business
any more than is reasonably necessary under the circumstances and shall
repair any damage to the Premises caused thereby.
6.07 Access by Landlord Tenant shall permit Landlord to enter the Premises
outside normal business hours and during normal business hours where such
will not reasonably disturb or interfere with Tenant's use of the Premises
and operation of his business, to examine and inspect the Premises and
show the Premises to any prospective purchaser or mortgagee of the
Building or person wishing to lease them, to provide services or make
repairs, replacements, changes or alterations as set out in this Lease,
and to take such steps as Landlord may deem necessary for the safety,
improvement or preservation of the Premises, the Building, or the Project.
Landlord shall, to the extent reasonably possible, consult with or give
notice to Tenant prior to such entry, and no such entry shall constitute
an eviction or entitle Tenant to any abatement of Rent.
6.08 Energy, Conservation and Security Policies Landlord shall be deemed to
have observed and performed the terms and conditions to be performed by
Landlord under this Lease, including those relating to the provision of
utilities and services, if in doing so it acts in accordance with a
directive, policy or request of a governmental or quasi-governmental
authority serving the public interest in the fields of energy,
conservation or security.
6.09 Limitation
(a) Landlord shall use reasonable diligence in carrying out its
obligations under Article 6.00, but shall not be liable under any
circumstances for any consequential damage to any person or property
for any failure to carry out such obligations.
(b) No reduction or discontinuance of any services under this Article
6.00 shall be construed as an eviction of Tenant or (except as
specifically provided in this Lease) release Tenant from any
obligation of Tenant under this Lease.
(c) Nothing contained in this Article 6.00 shall derogate from the
provisions of Article 15.00 or Article 16.00.
ARTICLE 7.00 UTILITIES, MAINTENANCE, REPAIR AND ALTERATIONS BY TENANT
7.01 Condition of Premises Except to the extent to Landlord is specifically
responsible therefore under this Lease, Tenant shall maintain the Premises
and all improvements therein in good order and condition, including
(a) repainting and redecorating the Premises and cleaning drapes and
carpets at reasonable intervals as needed, and
(b) making repairs, replacements and alterations as needed, including
those necessary to comply with the requirements of any governmental
or quasi-governmental authority having jurisdiction over the
Premises.
7.02 Electricity
(a) During the term, Tenant shall provide in the Premises at its own
expense all electricity required in the Premises, except electricity
required for such heat, ventilation and cooling of the Premises as
shall be the Landlord's responsibility under Article 6.02(a).
(b) If during the Term the electrical utility serving the Building
ceases to make electricity directly available to Tenant, Landlord
shall connect Tenant's electrical service to the Building system at
Tenant's cost and expense and, to the extent such utility makes
electricity available to Landlord, shall provide electrical power in
the Premises as an additional service in accordance with the
conditions of Article 6.05.
7.03 Failure to Maintain Premises If Tenant fails to perform any obligation
under Article 7.01, then on not less than ten (10) days' notice to Tenant
(or without notice in an emergency). Landlord may enter the Premises and
perform such obligation without liability to Tenant for any loss or damage
to Tenant thereby incurred, and Tenant shall pay Landlord for the cost
thereof, plus 20% of such cost for overhead and supervision, within ten
(10) days of notice from Landlord of such cost.
6
<PAGE>
7.04 Alterations by Tenant Tenant may from time to time at its own expense
make non-structural changes, additions and improvements in the Premises to
better adapt the same to its business, provided that any such change,
addition or improvement shall
(a) comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction.
(b) be made only with the prior written consent of Landlord, which
consent will not be unreasonably withheld,
(c) equal or exceed the then current standard for the Building, and
(d) be carried out only by persons selected by Tenant and approved in
writing by Landlord, which approval will not be unreasonably
withheld, who shall if required by Landlord deliver to Landlord
before commencement of the work performance and payment bonds as
well as proof of worker's compensation and public liability and
property damage insurance coverage, with Landlord names as an
additional insured, in amounts with companies, and in forms
reasonably satisfactory to Landlord, which shall remain in effect
during the entire period in which the work will be carried out.
Any increase in property taxes on or fire or casualty insurance
premiums for the Building attributable to such change, addition or
improvements shall be borne by Tenant.
7.05 Trade Fixtures and Personal Property Tenant may install in the Premises
its usual trade fixtures and personal property in a proper manner,
provided that no such installation shall interfere with or damage the
mechanical or electrical systems or the structure of the Building. Trade
fixtures and personal property installed in the Premises by Tenant may be
removed from the Premises
(a) from time to time in the ordinary course of Tenant's business or in
the course of reconstruction, renovation or alteration of the
Premises by Tenant, and
(b) during a reasonable period prior to the expiration of the Term,
provided that Tenant conducts such installation and removal in a manner
which does not unreasonably interfere with the rights of other tenants in
the Building and otherwise in compliance with any Rules and Regulations
promulgated under Article 14.00, and Tenant promptly repairs at its own
expense any damage to the Premises, Building or Project resulting from
such installation and removal.
7.06 Mechanic Liens Tenant shall pay before delinquency all costs for work
done or caused to be done by Tenant in the Premises which could result in
any lien or encumbrance on Landlord's interest in the land and Building or
any part thereof or on Tenant's interest in the Premises, shall keep the
title to the Land and Building and every part thereof free and clear of
any lien or encumbrance in respect of such work and shall indemnify and
hold harmless Landlord against any claim, loss, cost, demand and legal or
other expense, whether in respect of any lien or otherwise, arising out of
the supply of materials, services or labor for such work. Tenant shall
immediately notify Landlord of any such lien, claim of lien or other
action of which it has or reasonably should have knowledge and which
affects the title to the Land or Building or any part thereof or to
Tenant's interest in the Premises, and shall cause the same to be removed
within five (5) days (or such additional time as Landlord may reasonably
consent to in writing) failing which Landlord may take such action as
Landlord deems necessary to remove the same and the entire cost thereof
shall be immediately due and payable by Tenant to Landlord.
7.07 Signs Any sign, lettering or design of Tenant which is visible from the
exterior of the Premises shall be a Tenant's expense and subject to
approval by Landlord, and shall conform to the uniform pattern of
identification signs for tenants in the Building as prescribed by
Landlord, Tenant shall not inscribe or affix any sign, lettering or design
in the Premises or Building which is visible from the exterior of the
Building.
ARTICLE 8.00 TAXES
8.01 Landlord's Taxes Landlord shall pay before delinquency (with
participation by Tenant by payment of Occupancy Costs under Article 4.02)
every real estate tax, assessment, license fee and other charge, excepting
Tenant's Taxes under Article 4.02) every real estate tax, assessment,
license fee and other charge, excepting Tenant's Taxes under Article 8.02
which is imposed,
7
<PAGE>
levied, assessed or charged by any governmental or quasi-governmental
authority having jurisdiction and which is payable in respect of the Term
upon or on account of the Land or Building.
8.02 Tenant's Taxes Tenant shall pay before delinquency every tax, assessment,
license fee, excise and other charge, however described, which is imposed,
levied, assessed or charged by any governmental or quasi-governmental
authority having jurisdiction and which is payable in respect of the Term
upon or on account of
(a) operations at, occupancy of, or conduct of business in or from the
Premises by or with the permission of Tenant,
(b) fixtures or personal property in the Premises which do not belong to
the Landlord, and
(c) the Rent paid or payable by Tenant to Landlord for the Premises or
for the use and occupancy of all or any part thereof;
provided that if it is a rent or similar tax and Landlord so elects by
notice to Tenant, Tenant shall add any amounts payable under this Article
8.02 to the monthly installments of Annual Rent payable under Article 4.01
and Landlord shall remit such amounts to the appropriate authorities.
8.03 Right to Contest Landlord and Tenant shall each have the right to contest
in good faith the validity or amount of any tax, assessment, license fee,
excise fee and any other charge which it is responsible to pay under this
Article 8.00, provided that no contest by Tenant may involve the
possibility of forfeiture, sale or disturbance of Landlord's interest in
the Premises. Building or Project and that upon the final determination of
any contest by Tenant, Tenant shall immediately pay and satisfy the amount
found to be due, together with any costs, penalties and interest.
ARTICLE 9.00 INSURANCE
9.01 Landlord's Insurance During the Term, Landlord shall maintain at its own
expense (with participation by Tenant by payment of Occupancy Costs under
Article 4.01) liability insurance, fire insurance with extended coverage,
boiler and pressure vessel insurance, and other insurance on the Building
and all property and interest of Landlord in the Building with coverage
and in amounts not less than those which are from time to time reasonably
acceptable to a prudent owner in the area in which the Building is
located. Policies for such insurance shall waive, to the extent available
from Landlord's insurance carrier(s) any right of subrogation against
Tenant. If there shall be an additional charge for such waiver, Tenant
shall promptly pay the same upon demand by Landlord.
9.02 Tenant's Insurance During the Term, Tenant shall maintain at its own
expense
(a) fire insurance with extended coverage and water damage insurance in
amounts sufficient to fully cover Tenant's improvements and all
property in the Premises which is not owned by Landlord, and
(b) liability insurance, with Landlord named as an additional insured,
against claims for death, personal injury and property damage in or
about the Premises, in amounts which are not less than those from
time to time acceptable to a prudent tenant in the community in
which the Building is located, but in no event less than One Million
Dollars ($1,000,000) for death, illness or injury to any one or more
persons, and Five Hundred Thousand Dollars ($500,000) for property
damage, in respect of each occurrence.
Policies for such insurance shall be in a form and with an insurer
reasonably acceptable to Landlord, shall require at least fifteen (15)
days' written notice to Landlord of termination or material alteration
during the Term, and shall waive, to the extent available from Tenant's
insurance carriers, any right of subrogation against Landlord. If there
shall be an additional charge for such waiver, Landlord shall promptly pay
the same upon demand by Tenant. If requested by Landlord, Tenant shall
from time to time promptly deliver to Landlord certified copies or other
evidence of such policies acceptable to Landlord, and evidence
satisfactory to Landlord that all premiums thereon have been paid and the
policies are in full force and effect.
ARTICLE 10.00 INJURY TO PERSON OR PROPERTY
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10.01 Indemnity by Tenant Tenant shall indemnify and hold harmless Landlord
from and against every demand, claim, cause of action, judgment and
expense (including attorney's fees), and all loss and damage arising from
(a) any injury or damage to the person or property of Tenant, any other
tenant in the Project or to any other person in the Project, where
the injury or damage is caused by negligence or misconduct of
Tenant, its agents, servants or employees, or of any other person
entering upon the Premises under express or implied invitation of
Tenant, or results from the violation of laws or ordinances,
governmental orders of any kind or of the provisions of this Lease
by any of the foregoing parties,
(b) any loss or damage, however caused, to books, records, files, money,
securities, negotiable instruments or papers in or about the
Premises,
(c) any loss or damage, resulting from interference with or obstruction
of deliveries to or from the Premises, and
(d) any injury or damage not specified above to the person or property
of Tenant, its agents, servants or employees, or any other person
entering upon the Premises under express or implied invitation of
Tenant, where the injury or damage is caused by any reason other
than the negligence of misconduct of Landlord, its agents, servants,
or employees.
10.02 Subrogation The provisions of this Article 10.00 are subject to the
waiver of any right of subrogation against Tenant in Landlord's Insurance
Under Article 9.01 and to the waiver of any right of subrogation against
Landlord in Tenant's Insurance under Article 9.02.
ARTICLE 11.00 ASSIGNMENT AND SUBLETTING
11.01 Assignment Tenant may assign this Lease with Landlord's prior written
consent, which consent will not be unreasonably withheld.
(a) to an assignee who is a purchaser of all or substantially all of the
assets of Tenant, a parent or wholly owned subsidiary of Tenant, a
company which results from the reconstruction, consolidation or
merger of Tenant, or a partnership in which Tenant (or not less than
one-half of the principals thereof) has a greater than 50% interest,
provided that consent will not be required if the assignment is for
a good business purpose and not principally for the purpose of
transferring this Lease and (except for an assignment to a
subsidiary of Tenant) the net worth of the assignee immediately
following the assignment is not less than the net worth of the
Tenant on the Commencement Date or immediately prior to the
assignment, whichever is greater, or
(b) subject to the Article 11.03, to any other assignee who, in
Landlord's reasonable opinion, will not be inconsistent with the
dignity, character and standards of the Building and its other
tenants.
11.02 Subleasing Tenant may sublet all or any part of the Premises with
Landlords prior written consent, which consent will not be unreasonably
withheld.
(a) to a sublessee who is a parent or wholly owned subsidiary of Tenant
and is consistent with the dignity, character and standards of the
Building and its other tenants, and only for such period as it
remains a parent or wholly owned subsidiary of Tenant, or
(b) subject to Article 11.03, to any other sublessee who, in Landlord's
reasonable opinion, will not be inconsistent with the dignity,
character and standards of the Building and its other tenants.
11.03 First Offer
(a) If Tenant wishes to assign this Lease or sublet all or any part of
the Premises (except as set out in Article 11.01(a) or 11.02(a) to a
named third party, Tenant shall first offer in writing to assign or
sublet (as the case may be) to Landlord. Such first offer shall
contain the terms of Tenant's proposed assignment or subletting. Any
such first offer shall be deemed to be rejected unless within thirty
(30) days of receipt thereof Landlord delivers written notice of
acceptance to Tenant.
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(b) If Landlord accepts Tenants offer, Tenant shall assign this Lease to
Landlord or sublet the proposed space to Landlord without cost, such
assignment or subletting to be effective on the date and for the
periods of time set forth in Tenant's notice, provided the effective
date shall not be sooner than forty-five (45) days after the giving
of Tenant's offer.
(c) Any sublease to Landlord will be on the same terms and conditions as
provided in this Lease except that
(i) Rent shall be the Rent (on a square-foot basis) provided in
this Lease, or the rent Tenant's proposed sublessee would have
paid, whichever is less,
(ii) Landlord may assign the sublease or further sublet all or any
part of the space without Tenant's consent, and
(iii) Landlord may make changes, additions, alterations or
improvements (structural or otherwise to the space provided
that Landlord shall be required to restore the space to its
condition immediately prior to the commencement of the
sublease to the same extent as Tenant's proposed sublessee
would have been required to do so.
11.04 Limitation No assignment or sublease which is permitted under this
Article 11.00 shall be effective until Tenant delivers a copy of the
executed instrument to Landlord. Except as specifically provided in this
Article 11.00, Tenant shall not assign or transfer this Lease or any
interest therein or in any way part with possession of all or any part of
the Premises, or permit all or any part of the Premises to be used or
occupied by any other person. Any assignment, transfer or subletting or
purported assignment, transfer or subletting except as specifically
provided herein shall be null and void and of no force and effect.
Landlord shall not be required to consent to an assignment of this Lease
or a sublease of all or part of the Premises by Tenant to any tenant in
the Project or with whom Landlord is negotiating in good faith for space
in the Project. Except as expressly provided herein, the rights and
interests of Tenant under this Lease shall not be assignable by operation
of law without Landlord's written consent, which consent may be withheld
in Landlord's absolute discretion.
11.05 Tenant's Obligations Continue No assignment, transfer, or subletting (or
use or occupation of the Premises by any other person) shall in any way
release or relieve Tenant of its obligations under this Lease unless such
release or relief is specifically granted by Landlord to Tenant in
writing, except should Landlord accept Tenant's First Offer under Article
11.03, then Tenant shall be released on the portion of the Premises taken
by Landlord.
11.06 Subsequent Consent Landlord's consent to an assignment; transfer or
subletting (or use or occupation of the Premises by any other person)
shall not be deemed to be a consent to any subsequent assignment,
transfer, subletting, use or occupation.
11.07 Change in Control As used in this Article 11.00. the term "assignment"
shall be deemed to include:
(d) Any transaction whether issuance of interest in Advanced
Telecommunications, Inc. or transference of interest of Advanced
Telecommunications, Inc. (whether stock, partnership interest, or
otherwise) which would reduce the personal holdings of Cliff
Williams and Paul Cady to less than 10% interest in Advance
Telecommunications, Inc.
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ARTICLE 12.00 SURRENDER
12.01 Possession Upon the expiration or other termination of the Term, Tenant
shall immediately quit and surrender possession of the Premises (including
all improvements made to the Premises) in substantially the condition in
which Tenant is required to maintain the Premises, excepting only
reasonable wear and tear and damage covered by Landlord's insurance under
Article 9.01. Upon such surrender, all right, title and interest of Tenant
in the Premises including the improvements made to the Premises shall
cease.
12.02 Trade Fixtures, Personal Property and Improvements Subject to Tenant's
rights under Article 7.05, after the expiration or other termination of
the Term all of Tenant's trade fixtures and personal property remaining in
the Premises shall be deemed conclusively to have been abandoned by
Tenant. All of Tenant's trade fixtures, personal property and improvements
remaining in the Premises may be appropriated, sold, destroyed or
otherwise disposed of by Landlord without notice or obligation to
compensate Tenant or to account therefore, and Tenant shall pay to
Landlord on written demand all costs incurred by Landlord in connection
therewith. The obligations of Tenant under this Article 12.02 shall
survive the expiration or other termination of the Term.
12.03 Merger The voluntary or other surrender of this Lease by Tenant or the
cancellation or termination of this Lease by mutual agreement of Tenant
and Landlord or otherwise shall not work a merger, and shall at Landlord's
option terminate all or any subleases and subtenancies or operate as an
assignment to Landlord of all or any subleases or subtenancies.
12.04 Payments After Termination No payments of money by Tenant to Landlord
after the expiration or other termination of the Term or after the giving
of any notice (other than a demand for payment of money) by Landlord to
Tenant, shall reinstate, continue or extend the Term or make ineffective
any notice given to Tenant prior to the payment of such money. After the
service of notice or the commencement of a suit, or after final judgment
granting Landlord possession of the Premises, Landlord may receive and
collect any sums of Rent due under the Lease, and the payment thereof
shall not make ineffective any notice, or in any manner affect any pending
suit or any judgment therefore obtained.
ARTICLE 13.00 HOLDING OVER
13.01 Month-to-Month Tenancy If with Landlord's written consent (which consent
will not be unreasonably withheld if all or part of the Premises is not
leased to others or required for Landlord's use) Tenant remains in
possession of the Premises after the expiration or other termination of
the Term, Tenant shall be deemed to be occupying the Premises on a
month-to-month tenancy only at a monthly rental equal to the installment
of Annual Rent in effect for the last month of the Term, plus all other
Rent which would have been payable under this Lease for such additional
month or months if the Term had remained in effect, as determined in
accordance with Article 4.00 or such other rental as is stated in such
written consent, and such month-to-month tenancy may be terminated by
Landlord or Tenant on the last day of any calendar month by giving at
least one month's advance notice of termination to the other.
13.02 Tenancy at Sufferance If without Landlord's written consent Tenant
remains in possession of the Premises after the expiration or other
termination of the Term, Tenant shall promptly surrender the Premises to
Landlord in accordance with Article 12.00, and shall pay to Landlord for
each day that Tenant retains possession of the Premises or any portion
thereof beyond the expiration or other termination of the Term an amount
equal to two times the Annual Rent in effect on the last day of the Term,
plus all other Rent which would have been payable under this Lease if the
Term had remained in effect, as determined in accordance with Article 4.00
and adjusted and calculated on a per diem basis.
13.03 General Any month-to-month tenancy or tenancy at sufferance hereunder
shall be subject to all other terms and conditions of this Lease except
any right of renewal and nothing contained in this Article 13.00 shall be
construed to limit or impair any of Landlord's rights of re-entry or
eviction or constitute a waiver thereof.
ARTICLE 14.00 RULES AND REGULATIONS
14.01 Purpose The Rules and Regulations in Exhibit C have been adopted by
Landlord for the, safety, benefit and convenience of all tenants and other
persons in the Building.
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14.02 Observance Tenant shall at all times comply with, and shall cause its
employees, agents, licensees and invitees to comply with the Rules and
Regulations from time to time in effect.
14.03 Modification Landlord may from time to time, for the purposes set out in
Article 14.01, amend, delete from, or add to the Rules and Regulations,
provided that any such modification.
(a) shall not be repugnant to any other provision of this Lease,
(b) shall be reasonable and have general application to all tenants in
the Building, and
(c) shall be effective only upon delivery of a copy thereof to Tenant at
the Premises.
14.04 Non-Compliance Landlord shall endeavor to secure compliance by all
tenants in the Building with the Rules and Regulations from time to time
in effect, but shall not be responsible to Tenant for failure of any
person to comply with such Rules and Regulations.
ARTICLE 15.00 EMINENT DOMAIN
15.01 Taking of Premises If during the Term all of the Premises shall be taken
for any public or quasi-public use under any statute or by right of
eminent domain, or purchased under threat of such taking, this Lease shall
automatically terminate on the date on which the condemning authority
takes possession of the Premises (hereinafter called the "date of such
taking").
15.02 Partial Taking of Building If during the Term only part of the Building
is taken or purchased as set out in Article 15.01, then
(a) if in the reasonable opinion of Landlord substantial alteration or
reconstruction of the Building is necessary or desirable as a result
thereof, whether or not the Premises are or may be affected,
Landlord shall have the right to terminate this Lease by giving
Tenant at least thirty (30) days' written notice of such
termination, and
(b) if more than one-third of the number of square feet in the Premises
is included in such taking or purchase, Landlord and Tenant shall
each have the right to terminate this Lease by giving the other at
least thirty (30) days' written notice thereof.
If either party exercises its right of termination hereunder, this Lease
shall terminate on the date stated in the notice, provided, however, that
no termination pursuant to notice hereunder may occur later than sixty
(60) days after the date of such taking.
15.03 Surrender On any such date of termination under Article 15.01 or 15.02,
Tenant shall immediately surrender to Landlord the Premises and all
interests therein under this Lease. Landlord may re-enter and take
possession of the Premises and remove Tenant therefrom, and the Rent shall
abate on the date of termination, except that if the date of such taking
differs from the date of termination, Rent shall abate on the former date
in respect of the portion taken. After such termination, and on notice
from Landlord stating the Rent then owing, Tenant shall forthwith pay
Landlord such Rent.
15.04 Partial Taking of Premises If any portion of the Premises (but less than
the whole thereof) is so taken, and no rights of termination herein
conferred are timely exercised, the Term of this Lease shall expire with
respect to the portion so taken on the date of such taking. In such event
the Rent payable hereunder with respect to such portion so taken shall
abate on such date, and the Rent thereafter payable with respect to the
remainder not so taken shall be adjusted pro rata by Landlord in order to
account for the resulting reduction in the number of square feet in the
Premises.
15.05 Awards Upon any such taking or purchase, Landlord shall be entitled to
receive and retain the entire award or consideration for the affected
lands and improvements, and Tenant shall not have nor advance any claim
against Landlord or the condemning authority for the value of its property
or its leasehold estate or the unexpired Term of this Lease, or for costs
of removal or relocation, or business interruption expenses or any other
damages arising out of such taking or purchase, and Tenant hereby assigns
to Landlord all of its interest to such award and agrees to execute any
documents that may be required to facilitate collection thereof by
Landlord. Nothing herein shall give Landlord any interest in or preclude
Tenant from seeking and recovering on its own account from the condemning
authority any separate award or compensation attributable to the taking or
purchase of Tenant's trade fixtures or personal property, or the removal
or relocation of its business and effects, or the
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interruption of its business, provided such award shall be made in
addition to, and not result in a reduction of, the award otherwise made to
Landlord. If any such award made or compensation paid to either party
specifically includes an award or amount for the other, the party first
receiving the same shall promptly account therefore to the other.
ARTICLE 16.00 DAMAGE BY FIRE OR OTHER CASUALTY
16.01 Limited Damage to Premises If all or part of the Premises are rendered
untenantable by damage from fire or other casualty, in the reasonable
opinion of an architect selected by Landlord and approved by Tenant, which
approval will not be unreasonably withheld, cannot be substantially
repaired under applicable laws and governmental regulations within one
hundred eighty (180) days from the date of such casualty (employing normal
construction methods without overtime or other premium), then either
Landlord or Tenant may elect to terminate this Lease as of the date of
such casualty by written notice delivered to the other not more than
twenty (20) days after receipt of such architect's opinion, failing which
Landlord shall forthwith at its own expense repair such damage other than
damage to improvements, trade fixtures or personal property which do not
belong to Landlord.
16.02 Major Damage to Premises If all or part of the Premises are rendered
untenantable by damage from fire or other casualty, in the reasonable
opinion of an architect selected by Landlord and approved by Tenant, which
approval will not be unreasonably withheld, cannot be substantially
repaired under applicable laws and governmental regulations within one
hundred eighty (180) days from the date of such casualty (employing normal
construction methods without overtime or other premium), then either
Landlord or Tenant may elect to terminate this Lease as of the date of
such casualty by written notice delivered to the other not more than
twenty (20) days after receipt of such architect's opinion, failing which
Landlord shall forthwith at its own expense repair such damage other than
damage to improvements, trade fixtures or personal property which do not
belong to Landlord.
16.03 Abatement If Landlord is required to repair damage to all or part of the
Premises under Article 16.01 or 16.02, the Rent payable by Tenant
hereunder shall be proportionately reduced to the extent that the Premises
are thereby rendered unusable by Tenant in its business, from the date of
such casualty until five (5) days after completion by Landlord of the
repairs to the Premises (or the part thereof rendered untenantable) or
until Tenant again uses the Premises (or the part thereof rendered
untenantable) in its business, whichever first occurs.
16.04 Major Damage to Building If all or a substantial part (whether or not
including the Premises) of the Building is rendered untenantable by damage
from fire or other casualty to such a material extent that in the
reasonable opinion of Landlord the Building must be totally or partially
demolished, whether or not to be reconstructed in whole or in part,
Landlord may elect to terminate this Lease as of the date of such casualty
(or on the date of notice if the Premises are unaffected by such casualty)
by written notice delivered to Tenant not more than sixty (60) days after
the date of such casualty.
16.05 Limitation on Landlord's Liability Except as specifically provided in
this Article 16.00, there shall be no reduction of Rent and Landlord shall
have no liability to Tenant by reason of any injury to or interference
with Tenant's business or property arising from fire or other casualty,
howsoever caused or from the making of any repairs resulting therefrom in
or to any portion of the Building or the Premises. Notwithstanding
anything contained herein, Rent payable by Tenant hereunder shall not be
abated if the damage is caused by any act or omission of Tenant, its
agents, servants, employees or any other person entering upon the Premises
under express or implied invitation of Tenant.
ARTICLE 17.00 TRANSFERS BY LANDLORD
17.01 Sales, Conveyance and Assignment Nothing in this Lease shall restrict the
right of Landlord to sell, convey, assign or otherwise deal with the
Building, subject only to the rights of Tenant under this Lease.
17.02 Effect of Sale, Conveyance or Assignment A sale, conveyance or assignment
of the Building shall operate to release Landlord from liability from and
after the effective date thereof upon all of the covenants, terms and
conditions of this Lease, express or implied, except as such may relate to
the period prior to such effective date, and Tenant shall thereafter look
solely to Landlord's successor in interest in and to this Lease. This
Lease shall not be affected by any such sale, conveyance or assignment,
and Tenant shall attorn to Landlord's successor in interest thereunder.
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17.03 Subordination This Lease is and shall be subject and subordinate in all
respects to any and all ground or underlying leases, and to all mortgages
and deeds of trust which may now or hereafter affect any of such leases or
the Building or Land, and to all renewals, modifications, consolidations,
replacements and extensions thereof.
17.04 Attornment Subject to Article 17.05, if the interest of Landlord is
transferred to any person (herein called "Purchaser") by reason of
foreclosure or other proceedings for enforcement of any such mortgage or
deed of trust, or by delivery of a deed in lieu of such foreclosure or
other proceedings, Tenant shall immediately and automatically attorn to
Purchaser.
17.05 Nondisturbance No attornment by Tenant under Article 17.04 shall be
effective unless, before the date of transfer to Purchaser, Purchaser
delivers to Tenant a written undertaking, binding upon Purchaser and
enforceable by and for the benefit of Tenant under applicable law, that
this Lease and Tenant's rights hereunder shall continue undisturbed while
Tenant is not in default despite such enforcement proceedings and
transfer.
17.06 Effect of Attornment Upon attornment under Article 17.04, this Lease
shall continue in full force and effect as a direct lease between
Purchaser and Tenant, upon all of the same terms, conditions and covenants
as are set forth in this Lease except that, after such attornment,
Purchaser shall not be
(a) liable for any act or omission of Landlord, or
(b) subject to any offsets or defenses which Tenant might have against
Landlord, or
(c) bound by any prepayment by Tenant of more than one month's
installment of Rent, or by any previous modification of this Lease,
unless such prepayment or modification shall have been approved in
writing by Purchaser or any predecessor in interest except Landlord.
17.07 Execution of Instruments The subordination and attornment provisions of
this Article 17.00 shall be self-operating and, except as set out in
Article 17.05, no further instrument shall be required. Nevertheless,
Tenant, on request by and without cost to Landlord or any successor in
interest, shall promptly execute and deliver to Landlord any and all
instruments further evidencing such subordination and (where applicable
hereunder) attornment.
ARTICLE 18.00 NOTICES, ACKNOWLEDGEMENTS, AUTHORITIES FOR ACTION
18.01 Notices Any notice from Landlord to Tenant shall be in writing and shall
be deemed duly served if delivered personally to a responsible employee of
Tenant, or if mailed by registered or certified mail addressed to Tenant
at the Premises (whether or not Tenant has departed from, vacated or
abandoned the same). Any notice from Tenant to Landlord shall be in
writing and shall be deemed duly served if mailed by registered or
certified mail addressed to Landlord at the place from time to time
established for the payment of Rent. Any notice shall be deemed to have
been given at the time of personal delivery or, if mailed, three (3) days
after the date of mailing thereof. Either party shall have the right to
designate by notice, in the manner above set forth, a different address to
which notices are to be mailed.
18.02 Acknowledgements Each of the parties hereto shall at any time and from
time to time upon not less than fifteen (15) days' prior notice from the
other execute, acknowledge and deliver a written statement certifying
(a) that this Lease is in full force and effect, subject only to such
modifications (if any) as may be set out therein,
(b) that Tenant is in possession of the Premises and paying Rent as
provided in this Lease,
(c) the dates (if any) to which Rent is paid,
(d) that there are not, to such party's knowledge, any uncured defaults
on the part of the other party hereunder, or specifying such
defaults if any are claimed,
(e) as to such other matters pertaining to this Lease as the other party
may reasonably request.
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Any such statement may be relied upon by any prospective transferee or
encumbrancer of all or any portion of the Building, or any assignee of any
such persons. If Tenant fails to timely deliver such statement, Tenant
shall be deemed to have acknowledged that this Lease is in full force and
effect, without modification except as may be represented by Landlord, and
that there are no uncured defaults in Landlord's performance.
18.03 Authorities for Action Landlord may act in any matter provided for herein
through its property manager and any other person who shall from time to
time be designated by Landlord by notice to Tenant. Tenant shall designate
in writing one or more persons to act on its behalf in any matter provided
for herein and may from time to time change, by notice to Landlord, such
designation. In the absence of any such designation, the person or persons
executing this Lease for Tenant shall be deemed to be authorized to act on
behalf of Tenant in any matter provided for herein.
ARTICLE 19.00 DEFAULT
19.01 Interest and Costs Tenant shall pay to Landlord interest at a rate equal
to the lesser of 1 1/2% per month, or the maximum rate permitted by
applicable law, upon all Rent required to be paid hereunder from the due
date for payment thereof until the same is fully paid and satisfied.
Tenant shall indemnify Landlord against all costs and charges (including
legal fees) reasonably incurred in enforcing Tenant's payment of Rent, and
in obtaining possession of the Premises after default of Tenant or upon
expiration or earlier termination of the Term of this Lease, and in
enforcing any covenant, proviso or agreement of Tenant herein contained.
19.02 Right of Landlord to Perform Covenants All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be
performed by Tenant, at Tenant's sole cost and expense, and without any
abatement of Rent. If Tenant shall fail to perform any act on its part to
be performed hereunder, and such failure shall continue for ten (10) days
after notice thereof from Landlord (or without notice in an emergency),
Landlord may (but shall not be obligated to) perform such act without
waiving or releasing Tenant from any of its obligations or liabilities
relative thereto. All sums paid or costs incurred by Landlord in so
performing such acts under this Article 19.02, together with interest
thereon at the rate set out in Article 19.01 from the date each such
payment was made or each such cost incurred by Landlord, shall be payable
by Tenant to Landlord on demand.
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19.03 Events of Default The rights of Tenant under this Lease are subject to
the limitations that if
(a) Tenant files a voluntary petition in bankruptcy or insolvency, or is
adjudicated a bankrupt or insolvent, or files a petition or answer
seeking any relief under any bankruptcy act or other similar
applicable law, or makes an assignment for the benefit of creditors
or seeks or consents in the appointment of any trustee, receiver, or
liquidator of Tenant's business or property, or
(b) within sixty (60) days after the commencement of any proceeding
against Tenant seeking any relief under any bankruptcy act or
similar applicable law, such proceeding has not been dismissed, or
if, within sixty (60) days after the appointment of any trustee,
receiver or liquidator of Tenant's business or property without the
consent of Tenant, such appointment has not been vacated or
otherwise discharged, or if any execution or attachment shall be
issued against Tenant's business or property pursuant to which the
Premises may be taken or occupied, or
(c) part or all of the Rent is not paid when due and such default
continues for five (5) days after the due date thereof, or
(d) Tenant's interest in this Lease devolves or passes to any party
other than Tenant, by operation of law or otherwise, except with the
prior written consent of Landlord, or
(e) the Premises are vacated or abandoned or if Tenant fails to take
occupancy of the Premises within thirty (30) days after the
Commencement Date, except with the prior written consent of
Landlord, or
(f) Tenant fails to observe or perform any other term, covenant or
condition of this Lease on Tenant's part to be observed or
performed, other than the payment of Rent, and fails to remedy such
default within ten (10) days after notice by Landlord to Tenant of
such default or, if such default within ten (10) days after notice
by Landlord to Tenant of such default or, if such default is of such
a nature that it cannot be completely remedied within said period,
Tenant fails to promptly, upon the giving of such notice, advise
Landlord of Tenant's intent to institute all steps necessary to
remedy the default and promptly institute and thereafter diligently
prosecute to completion all steps necessary to remedy the default,
and complete such remedy within a reasonable time after the giving
of such notice by Landlord and in any event prior to such time as
would cause a default under any mortgage or underlying lease on the
Building or Land,
then in any of said events Landlord may terminate this Lease by giving at
least three (3) days' prior written notice to Tenant and this Lease shall
terminate upon the expiration of that notice period as though that date
were the Expiration Date, but Tenant shall remain liable for damages as
provided in this Article 19.00.
19.04 Re-Entry and Remedies If part or all of the Rent is not paid when due and
such default continues for five (5) days after notice from Landlord to
Tenant or of this Lease is terminated as provided in Article 19.03,
(a) Landlord may immediately or at any time thereafter re-enter the
Premises or any part thereof in accordance with applicable law by
summary proceedings or otherwise, and may repossess the Premises and
dispossess Tenant and any other persons from the Premises and remove
Tenant's trade fixtures and personal property from the Premises,
without liability for damage thereto, and in no event shall re-entry
be deemed an acceptance of surrender of this Lease, and
(b) Landlord may from time to time (but shall not be obligated to) relet
the whole or any part of the Premises on such terms and at such
rentals as Landlord deems advisable. Landlord may make such changes,
additions, improvements and repairs to the Premises as Landlord
deems advisable without affecting Tenant's liability under this
Lease.
19.05 Waiver Tenant hereby expressly waives any and all rights of redemption or
reinstatement granted by or under any present or future laws in the event
of Tenant being evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession of the Premises, by reason of the violation
by Tenant of any of the terms, covenants or conditions of this Lease or
otherwise.
19.06 Payments If this Lease is terminated or if Landlord re-enters the
Premises under this Article 19.00:
(a) Tenant shall pay to Landlord all Rent up to the time of re-entry or
termination, whichever is later,
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(b) Landlord may retain all monies, if any, paid by Tenant to Landlord,
whether as advance rent, security or otherwise, but such monies
shall be credited by Landlord against any Rent due at the time of
such termination or re-entry or, at Landlord's option, against any
damages payable by Tenant,
(c) Tenant shall pay to Landlord all expenses incurred by Landlord in
terminating, re-entering and re-letting, including all repossession
costs, brokerage and legal fees and costs of preparing the Premises
for reletting, and
(d) (i) Tenant shall pay to Landlord, as damages, any deficiency
between the Rent for the period which otherwise would have
constituted the unexpired portion of the Term and the
payments, if any, received by Landlord from other tenants in
the Premises, such deficiency to be paid at the times and in
the manner as Rent is payable under Article 4.00, and Landlord
shall be entitled to bring a suit to recover each deficiency
as the same shall arise, or at Landlord's election, bring
suits from time to time.
(ii) If elected by Landlord, at or after re-entry or termination,
Tenant shall pay Landlord on demand as liquidated and final
damages for lost Rent and not as a penalty, a sum equal to the
amount by which the Rent payable hereunder for the period to
the Expiration Date from the latest of the date of termination
of this Lease, the date of re-entry or the date through which
monthly deficiencies shall have been paid (conclusively
presuming the Occupancy Costs to be the same as payable for
the Fiscal Year immediately preceding such termination or
re-entry) exceeds the then fair rental value of the Premises
for the same period, discounted at the rate of 7% per annum to
present worth. If, before presentation of proof of such
liquidated damages to any court, commission or tribunal, all
or part of the Premises are relet by Landlord for all or part
of the period which otherwise would have constituted the
unexpired portion of the Term, the amount of rent upon such
reletting shall be deemed to be the fair rental value for the
part or whole of the Premises during the term of the
reletting.
(iii) In no event shall Tenant be entitled to receive any excess of
any payments received by Landlord from a reletting of the
Premises over the sums payable by Tenant to Landlord
hereunder; and
(iv) If the Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a
square foot area basis shall be made of the rent received from
such reletting and the expenses of reletting.
Nothing herein shall be construed as limiting or precluding the recovery
by Landlord against Tenant of any sums or damages to which, in addition to
the damages set out in this Article 19.06, Landlord may lawfully be
entitled by reason of any default hereunder by Tenant.
19.07 Remedies Cumulative Each right of Landlord provided for in this Lease
shall be cumulative and shall be in addition to every other right provided
for in this Lease or existing at law or in equity, and the exercise by
Landlord of any one or more of such rights shall not preclude the
simultaneous or later exercise by Landlord of any other rights provided
for in this Lease or existing at law or in equity.
ARTICLE 20.00 MISCELLANEOUS
20.01 Relationship of Parties Nothing contained in this Lease shall create any
relationships between the parties hereto other than that of Landlord and
tenant, and it is acknowledged and agreed that Landlord does not in any
way or for any purpose become a partner of Tenant in the conduct of its
business, or a joint venturer or a member of a joint or common enterprise
with Tenant.
20.02 Name of Building Landlord shall have the right, after thirty (30) days'
notice to Tenant, to change the name, number and designation of the
Building, during the Term without liability to Tenant.
20.03 Applicable Law and Construction This Lease shall be governed by and
construed under the laws of Minnesota and its provisions shall be
construed as a whole according to their common meaning and not strictly
for or against Landlord or Tenant. The words Landlord and Tenant shall
include the plural as well as the singular. If this Lease is executed by
more than one tenant, Tenant's obligations hereunder shall be joint and
several obligations of such executing tenants. Time is of the essence of
this Lease and each of its provisions. The captions of the Articles are
included for convenience only, and shall have not effect upon the
construction or interpretation of this Lease.
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20.04 Entire Agreement If there are any terms and conditions which at the date
of execution of this Lease are additional or supplemental to those set out
on the first 18 pages and in Exhibits A, B and C, such terms and
conditions are contained in Exhibit D (if any) attached hereto as part of
this Lease. This Lease contains the entire agreement between the parties
hereto with respect to the subject matter of this Lease. Tenant
acknowledges and agrees that it has not relied upon any statement,
representation, agreement or warranty except such as are set out in this
Lease.
20.05 Amendment or Modification Unless otherwise specifically provided in this
Lease, no amendment, modification, or supplement to this Lease shall be
valid or binding unless set out in writing and executed by the parties
hereto in the same manner as the execution of this Lease.
20.06 Construed Covenants and Severability All of the provisions of this Lease
are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate Article
hereof. Should any provision of this Lease be or become invalid, void,
illegal or not enforceable, it shall be considered separate and severable
from the Lease and the remaining provisions shall remain in force and be
binding upon the parties hereto as though such provision had not been
included.
20.07 No Implied Surrender or Waiver No provisions of this Lease shall be
deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord. Landlord's waiver of a breach of any term, covenant or
condition of this Lease shall not prevent a subsequent act, which would
have originally constituted a breach, from having all the force and effect
of any original breach. Landlord's receipt of Rent with knowledge of a
breach by Tenant of any term, covenant or condition of this Lease shall
not be deemed a waiver of such breach. Landlord's failure to enforce
against Tenant or any other tenant in the Building any of the Rules and
Regulations made under Article 14.00 shall not be deemed a waiver of such
Rules and Regulations. No act or thing done by Landlord, its agents or
employees during the Term shall be deemed an acceptance of a surrender of
the Premises, and no agreement to accept a surrender of the Premises shall
be valid, unless in writing signed by Landlord. The delivery of keys to
any of Landlord's agents or employees shall not operate as a termination
of this Lease or a surrender of the Premises. No payment by Tenant, or
receipt by Landlord, of a lesser amount than the Rent due hereunder shall
be deemed to be other than on account of the full Rent due, nor shall any
endorsement or statement on any check or any letter accompanying any
check, or payment of Rent, be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy
available to Landlord.
20.08 Successors Bound Except as otherwise specifically provided, the
covenants, terms, and conditions contained in this Lease shall apply to
and bind the heirs, successors, executors, administrators and assigns of
the parties hereto.
ARTICLE 21.00 RELOCATION BY TENANT
21.01 Landlord, at its sole expense, on at least one hundred eighty (180) days
prior written notice, may require Tenant to move from the Premises to
other space of comparable size and decor in order to permit Landlord to
consolidate the space leased to Tenant with other adjoining space leased
or to be leased to another tenant. Provided, however, that in the event of
receipt of any such notice, Tenant by written notice to Landlord may elect
not to move to other space and in lieu thereof terminate this Lease,
effective ninety (90) days after the date of the original notice of
relocation by Landlord. In the event of any such relocation, within the
Project, Landlord will pay all expenses of preparing and decorating the
new premises so that they will be substantially similar to the Premises
from which Tenant is moving and Landlord will also pay the expense of
moving Tenant's furniture and equipment to the relocated premises. In such
event this Lease and each and all of the terms and covenants and
conditions hereof shall remain in full force and effect and thereupon be
deemed applicable to such new space.
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IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. Advanced Telecommunications, Inc.
By: /s/ R. William Inserra By: /s/ Cliff Williams
------------------------------ -------------------------
R. William Inserra Its: CEO
Vice President Asset Management Cliff Williams
------------------------------
(Type name)
9-3-96
- ----------------------------------
Date Executed
By:
--------------------------------
Its:
-------------------------------
-------------------------------
(Type name)
-------------------------------
Witness to the signature of
Tenant if not incorporated.
-------------------------------
Date Executed
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Exhibit A
[FLOOR PLAN OMITTED]
PEAVEY BUILDING - FLOOR 4
<PAGE>
BAKER CENTER EXHIBIT B
Office Space
PEAVEY BUILDING
730 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
SECTION 1.00 WORDS AND PHRASES
1.01 Definitions In the Lease, including this Exhibit:
(a) "Architect" means that firm of professional architects or engineers
as Landlord may from time to time engage for preparation of
construction drawings for the Building or for general supervision of
architectural and engineering aspects and operations of the Building
and includes any consultant(s) from time to time appointed by
Landlord or the Architect whenever such consultants(s) is acting
within the scope of his or her appointment and specialty.
(b) "Land" means those lands located in Hennepin County, Minnesota,
described as:
Lots 9,10 and 11, and the Southeasterly, 10 feet of the
Southwesterly 90 feet of Lot 8, Auditors Subdivision No. 178
Hennepin County, Minnesota.
(c) "Project" means those portions of those lands, in Hennepin County,
Minnesota, described as:
Lots 1, 2, 3, 4, 5, 6, 7, 8, 9,10 and 11, Auditor's
Subdivision No. 178 Hennepin County, Minnesota,
from time to time owned or leased by Landlord, and the developments
and improvements from time to time constructed on those portions.
(d) "Building" means the building in which the Premises are located,
being those portions of the Project on the Land.
(e) "Investors Building" means those portions of the Project on those
lands in Hennepin County, Minnesota, described as:
Lots 6, 7 and 8, Auditor's Subdivision 178 Hennepin County,
Minnesota, except the Southeasterly 10 feet of the
Southwesterly 90 feet of said Lot 8.
(f) "Roanoke Building" means those portions of the Project on those
lands located in Hennepin County, Minnesota, described as:
Lots 3, 4 and 5, Auditor's Subdivision No. 178 Hennepin
County, Minnesota.
(g) "Baker Building" means those portions of the Project on those lands
located in Hennepin County, Minnesota, described as:
Lots 1 and 2, Auditor's Subdivision No. 178 Hennepin County,
Minnesota.
(h) "Rentable Components" means the Building, Investors Building,
Roanoke Building and Baker Building, in each case excluding Common
Areas and Parking Facilities.
(i) "Parking Facilities" means those portions of the Project from time
to time designated by Landlord for vehicular parking.
(j) "Common Areas" means those portions of the Project (excluding
Parking Facilities) not leased or designated for lease to tenants
that Landlord provides for use in common by Landlord, Tenant, and
other tenants of the Project (or by their respective sublessees,
agents, employees, customers or licensees), whether or not those
areas are open to the general public, and includes any fixtures,
chattels, systems, decor, signs, facilities, or
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landscaping contained, maintained, or used in connection with those
areas, and is deemed to include the city sidewalks adjacent to the
Land and adjoining lands and any pedestrian walkway system (either
above or below ground) or other facility open to the general public
in respect of which Landlord is from time to time subject to
obligations arising from the Project, but does not include any space
on office floors designated by Landlord for use in common by tenants
and other persons.
(k) "Delivery Facilities" means those portions of the Common Areas from
time to time designated by Landlord as facilities to be used in
common by Landlord, tenants in the Project, and others for purposes
of loading, unloading, delivery, dispatch, and holding of
merchandise, goods and materials entering or leaving the Project and
giving vehicular access to those portions of the Project.
(l) "Section" means a section of this Exhibit B.
1.02 Normal Business Hours Except as otherwise specifically provided in this
Lease, normal business hours for the Building shall be from 8:00 a.m. to
6:00 p.m. Monday through Friday, and 8:00 a.m. to 1:00 p.m. Saturday,
excluding days which are legal or statutory holidays in the jurisdiction
in which the Building is located.
SECTION 2.00 DETERMINATION OF OCCUPANCY COSTS
2.01 Definitions In this Section 2.00:
(a) "Tax Cost" means the Taxes accruing in respect of the calendar year
in which the Fiscal Year begins, less that part of those Taxes
attributable to the Parking Facilities.
(b) "Taxes" means the aggregate of all taxes, rates, charges, levies and
assessments payable by Landlord and imposed by any competent
authority upon or in respect of the Land and all improvements on the
Land, including any tax imposed on the capital invested in the Land
or improvements on the Land. In determining Taxes, any corporate
income, profits, excess profits and business tax imposed upon the
income of Landlord and any other impost of a personal nature charged
or levied against the Landlord shall be excluded, except to the
extent that it is levied in lieu of or as a substitute for increases
in taxes, rates, charges or assessments in respect of the Land or
any improvements on the Land.
(c) "HVAC Cost" means a percentage of the costs in the Fiscal Year for
the operation, repair and maintenance of the system for heating,
ventilating and cooling the Project as established by Landlord from
time to time on a fair and equitable basis which reflects load and
hours of operation.
(d) "Common Areas Costs" means all net costs, charges and expenses in
respect of a Fiscal Year which are directly attributable to the
operation, repair and maintenance of the Common Areas, including
without limitation HVAC Cost.
(e) "Project Costs" means all net costs, charges and expenses in respect
of a Fiscal Year which are directly attributable to the operation,
repair and maintenance of the Project, but which are not
attributable solely to the operation, repair or maintenance of the
Common Areas, Parking Facilities, or any Rentable Component.
(f) "Square Feet in the Premises" means the number of square feet set
out in Article 1.01(l) or 1.01(n) of the Lease, which for office
tenants includes the number of square feet of unallocated space in
the Building set out in Article 1.01(l) of the Lease.
(g) "Square Feet in the Building" means 307,245 square feet, being the
aggregate of the rentable areas of office space (on a single-tenancy
floor basis) and retail and service store space in the Building. If
from time to time there is a material change in the rentable areas
of the Building, Square Feet in the Building shall (until any
further change) mean the number of square feet in the Building
determined on completion of such change on the basis set out in
Sections 3.01 and 3.03.
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2.02 Occupancy Costs Occupancy Costs for any Fiscal Year shall be an amount
equal to the Operating Cost in respect of that Fiscal Year multiplied by
the Square Feet in the Premises.
2.03 Determination Of Operating Cost "Operating Cost" means an amount per
square foot (calculated to the nearest tenth of a cent) established in
accordance with generally accepted accounting principles and confirmed in
a certificate of Landlord, and equal to the sum of the following costs in
respect of a Fiscal Year, divided by the Square Feet in the Building:
(a) all net costs, charges and expenses directly attributable to the
operation, repair and maintenance of the Building (excluding Common
Areas and Parking Facilities), including, without limitation, Tax
Cost and HVAC Cost, and
(b) a portion of the Common Areas Costs as established by Landlord from
time to time on a fair and equitable basis, and
(c) that proportion of Project Costs which the gross area of the
Building (excluding Common Areas and Parking Facilities) is of the
aggregate gross area of the Rentable Components.
Operating Cost under this Section 2.03 includes all net expenses properly
allocable to the Fiscal Year for any capital improvement or structural
repair incurred to reduce or limit increases in Operating Cost, or
required by Landlord's insurance carrier or by the laws, rules,
regulations or orders of any governmental or quasi-governmental authority
having jurisdiction, which expenses shall be amortized at applicable
interest rates over the useful capital life of the capital improvement or
structural repair. If Landlord manages the Building or other applicable
portion of the Project, Operating Cost under this Section 2.03 also
includes an imputed management fee commensurate with the then-current
Minneapolis-Saint Paul metropolitan market for management services.
2.04 Limitation on Operating Cost In determining Operating Cost, the cost (if
any) of the following shall be excluded except as specifically provided in
Section 2.03:
(a) major structural repairs to the Project,
(b) improvements, additions or alterations to the Project,
(c) repair and replacement resulting from inferior or deficient
workmanship, materials or equipment in the initial construction of
the Project or for which Landlord is reimbursed by insurers,
(d) ground rent (if any), depreciation, amortization and interest on and
capital retirement of debt,
(e) operation, repair and maintenance which is attributable solely to.
the Parking Facilities or to any Rentable Component other than the
Building, and
(f) leasing commissions.
2.05 When Services Are Not Provided Notwithstanding Section 2.03, when and
if any service which is normally provided by Landlord to some tenants of
the building in their premises
(a) is not provided by Landlord in the Premises under the specific
terms of the Lease, in determining Occupancy Costs for Tenant, the
cost of that service (except as it relates to Common Areas, those
spaces on office floors designated by Landlord for use in common by
tenants and other persons in the Building, and janitorial services)
shall be excluded, and
(b) is not provided by Landlord in a significant portion of the
Building, in determining Occupancy Costs for Tenant, the cost of
that service shall be divided by the number of square feet in the
Building in which Landlord provides that service, determined on the
basis set out in Sections 3.01 and 3.03.
2.06 Shared Facilities, Services and Utilities If any facilities, services
or utilities:
(a) for the operation, repair and maintenance of the Project are
provided from another building or other buildings, owned or
operated by Landlord or an affiliate of Landlord, or
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(b) for the operation, repair and maintenance of another building or
other buildings owned or operated by Landlord or an affiliate of
Landlord are provided from the Project,
the net costs, charges and expenses for those facilities, services and
utilities shall, for the purpose of Section 2.03, be allocated by
Landlord between the Project and the other building or among the Project
and the other buildings on a fair and equitable basis.
2.07 Credit to Common Areas Landlord shall use reasonable efforts to recover
where circumstances so permit an equitable share of the cost of
operating and maintaining Common Areas from owners or occupants of
neighboring properties and others who benefit from the use of the Common
Areas, and shall credit any recovery to the gross cost before
determination of Common Areas Costs.
2.08 Occupancy Adjustment If the Project is not fully leased and occupied in
any Fiscal Year, appropriate adjustments shall be made in determining
Occupancy Costs under this Section 2.00 so that Occupancy Costs shall be
as though the Project had been fully leased and occupied during that
Fiscal Year.
2.09 Partial Fiscal Year If the Term commences after the beginning of or
terminates before the end of a Fiscal Year, any amount payable by Tenant
under Section 2.02 shall be adjusted accordingly.
SECTION 3.00 DETERMINATION OF SQUARE FEET IN THE PREMISES
3.01 Office Space -- Single Tenancy Floors For the purposes of this Lease,
the number of square feet of office space in the Premises on a
single-tenancy floor in the Building (if any) shall be calculated from
dimensioned Architects drawings to the inside face of the glass in the
permanent exterior building walls (whether or not the glass extends to
the floor) or to the inside finish of those walls if they contain no
glass. It shall include all space within exterior building walls except
for stairs (other than stairs exclusively serving a tenant occupying
offices on more than one floor), elevator shafts, flues, pipe shafts,
vertical ducts, and other vertical risers which penetrate the floor and
their enclosing walls. No deduction shall be made for washrooms, janitor
closets, air conditioning rooms, fan closets, or for electrical or
telephone cupboards within and servicing only that floor or servicing a
single tenant on more than one floor, or for any other rooms, corridors,
or areas available to the tenant on that floor for its use, furnishings,
or personnel, or for any columns located wholly or partially within the
space, or for any enclosures around the periphery of the Building used
for the purpose of heating, ventilating or cooling.
3.02 Office Space -- Multiple-Tenancy Floors For the purposes of this Lease,
the number of square feet of office space in the Premises on a
multiple-tenancy floor in the Building (if any) shall be calculated from
dimensioned architect's drawings to the inside finish of permanent
exterior building walls or the inside face of the glass as described in
Section 3.01, to the face of permanent interior walls and to the center
line of demising partitions. No deductions shall be made for any columns
located wholly or partially within the space, or for any enclosures
around the periphery of the Building used for the purpose of heating,
ventilating or cooling.
3.03 Retail Space For the purposes of this Lease, the number of square feet
of retail and service store space in the Building, whether above or
below grade, is calculated from dimensioned Architect's drawings to the
inside face of permanent exterior building walls, to the face of
permanent interior walls, to the center line of demising partitions, and
to the center line of a predetermined lease line (usually referred to as
the storefront line) in the case of retail and service store space
facing onto either an interior public mall or corridor or onto a public
street or lane. No deduction is made for vestibules inside the permanent
exterior building walls or inside the predetermined lease line, or for
any columns located wholly or partially within the space.
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SECTION 4.00 LOADING AND DELIVERY
4.01 The delivery and shipping of merchandise, supplies, fixtures, and other
materials or goods of any kind to or from the Premises and all loading,
unloading, and handling of them shall be done only at such times, in
such areas, by such means, and through such elevators, entrances, malls,
and corridors as are designated from time to time by Landlord.
4.02 Landlord accepts no liability and is hereby relieved and released by
Tenant in respect of the operation and adequacy of the Delivery
Facilities, the acts or omissions of any person or persons engaged in
the operation of the Delivery Facilities, or in the acceptance, holding,
handling, delivery or dispatch of any goods for or on behalf of Tenant,
and any claim of Tenant by reason of damage, loss, theft or any
acceptance, holding, handling, delivery or dispatch, or failure of any
acceptance, holding, handling or dispatch, or any error, negligence or
delay in acceptance, holding, handling, or dispatch.
4.03 Landlord may from time to time make and amend regulations for the
orderly and efficient operation of the Delivery Facilities, and may
require the payment of reasonable and equitable charges for delivery
services and demurrage provided by Landlord.
SECTION 5.00 NON-DISCRIMINATION
5.01 Non-Discrimination If Tenant operates or has the right to operate under
this Lease any store, shop, restaurant, cafeteria, restroom, or any
other facility of a public nature in the Building, Tenant shall not
discriminate by segregation or otherwise against any person or persons
because of race, creed, color, or national origin in furnishing, or by
refusing to furnish, to such person or persons the use of any such
facility including any and all services, privileges, accommodations, and
activities provided thereby.
5.02 Enforcement Tenant's noncompliance with the provisions of this Section
5.00 shall constitute a material breach of this Lease. In the event of
such noncompliance, Landlord may take appropriate action to enforce
compliance, may terminate this lease, or may pursue such other remedies
as may be provided by law.
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BAKER CENTER EXHIBIT C
BAKER CENTER
RULES AND REGULATIONS
1. Security Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Building, any persons
occupying, using or entering the same, or any equipment, finishings or
contents thereof, and Tenant shall comply with Landlord's reasonable
requirements relative thereto.
2. Locks Landlord may from time to time install and change locking
mechanisms on entrances to the Building, common areas thereof, and the
Premises, and (unless 24 hour security is provided by the Building) shall
provide to Tenant a reasonable number of keys and replacements therefor to
meet the bona tide requirements of Tenant. In these rules "keys" include
any device serving the same purpose. Tenant shall not add to or change
existing locking mechanisms on any door in or to the Premises without
Landlord's prior written consent. If with Landlord's consent, Tenant
installs lock(s) incompatible with the Building master locking system:
(a) Landlord, without abatement of Rent, shall be relieved of any
obligation under the Lease to provide any service to the affected
areas which require access thereto.
(b) Tenant shall indemnify Landlord against any expense as a result of
forced entry thereto which may be required in an emergency, and
(c) Tenant shall at the end of the Term and at Landlord's request remove
such lock(s) at Tenant's expense.
3. Return of Keys At the end of the Term, Tenant shall promptly return to
Landlord all keys for the Building and Premises which are in possession of
Tenant.
4. Windows Tenant shall observe Landlord's rules with respect to maintaining
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance, and shall not install any window
shades, screens, drapes, covers, or other materials on or at any window in
the Premises without Landlord's prior written consent. Tenant shall ensure
that window coverings are closed on all windows in the Premises while they
are exposed to the direct rays of the sun.
5. Repair, Maintenance, Alterations and Improvements Tenant shall carry out
Tenant's repair, maintenance, alterations and improvements in the Premises
only during times agreed to in advance by Landlord and in a manner which
will not interfere with the rights of other tenants in the Building.
6. Water Fixtures Tenant shall not use water fixtures for any purpose for
which they are not intended, nor shall water be wasted by tampering with
such fixtures. Any cost or damage resulting from such misuse by Tenant
shall be paid for by Tenant.
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7. Personal Use of Premises The Premises shall not be used or permitted to
be used for residential, lodging or sleeping purposes or for the storage
of personal effects or property not required for business purposes.
8. Heavy Articles Tenant shall not place in or move about the Premises
without Landlord's prior written consent any safe or other heavy article
which in Landlord's reasonable opinion may damage the Building, and
Landlord may designate the location of any heavy articles in the Premises.
9. Smoking Policy Smoking is not permitted throughout the Project common
areas to include, but not limited to, elevator lobbies, corridors and
restrooms.
10. Bicycles, Animals Tenant shall not bring any animals or birds into the
Building, and shall not permit bicycles or other vehicles inside or on the
sidewalks outside the Building except in areas designated from time to
time by Landlord for such purposes.
11. Deliveries Tenant shall ensure that deliveries of materials and supplies
to the Premises are made through such entrances, elevators and corridors
and at such times as may from time to time be designated by Landlord, and
shall promptly pay or cause to be paid to Landlord the cost of repairing
any damage in the Building caused by any person making such deliveries.
12. Furniture and Equipment Tenant shall ensure that furniture and equipment
being moved into or out of the Premises is moved through such entrances,
elevators and corridors and at such times as may from time to time be
designated by Landlord, and by movers or a moving company approved by
Landlord, and shall promptly pay or cause to be paid to Landlord the cost
of repairing any damage in the Building caused thereby. Tenant shall be
required to use a temporary hard surface to protect corridor and elevator
carpets when moving heavy furniture in, out or about the Building.
13. Solicitations Landlord reserves the right to restrict or prohibit
canvassing, soliciting or peddling in the Building.
14. Food and Beverages Only persons approved from time to time by Landlord
may prepare, solicit orders for, sell, serve or distribute foods or
beverages in the Building, or use the elevators, corridors or common areas
for any such purpose. Except with Landlord's prior written consent and in
accordance with arrangements approved by Landlord, Tenant shall not permit
on the Premises the use of equipment for dispensing food or beverages or
for the preparation, solicitation of orders for, sale, serving or
distribution of food or beverages.
15. Refuse Tenant shall place all refuse in proper receptacles provided by
Tenant at its expense in the Premises or in receptacles (if any) provided
by Landlord for the Building, and shall keep sidewalks and driveways
outside the Building, and lobbies, corridors, stairwells, ducts and shafts
of the Building, free of all refuse.
16. Obstructions Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells or other common areas of the Building, or use such locations
for any purpose except access to and exit from the Premises without
Landlord's prior written consent. Landlord may remove at Tenants expense
any such obstruction or thing (unauthorized by Landlord) without notice or
obligation to Tenant.
II
<PAGE>
17. Dangerous or Immoral Activities Tenant shall not make any use of the
Premises which involves the danger of injury to any person, nor shall the
same be used for any immoral purpose.
18. Proper Conduct Tenant shall not conduct itself in any manner which is
inconsistent with the character of the Building as a first class building
or which will impair the comfort and convenience of other tenants in the
Building.
19. Employees, Agents and Invitees In these Rules and Regulations, Tenant
includes the employees, agents, invitees and licensees of Tenant and
others permitted by Tenant and others permitted by Tenant to use or occupy
the Premises.
III
<PAGE>
SUPPLEMENTAL TERMS
AND CONDITIONS
1. The following is added as Article 22.00:
ARTICLE 22.00 LANDLORD'S WORK
22.01 Landlord agrees to construct the Tenant Improvements to the Premises
in accordance with working drawings to be approved by Landlord &
Tenant, which upon such approval will be attached hereto and
incorporated herein by reference as Exhibit D-3. Such working
drawings will be based on the fit plan attached hereto as Exhibit
D-1. Improvements to the Premises will be made using Building
Standard Materials defined on attached Exhibit D-2.
22.02 Any additions or modifications to the Tenant Improvements described
in Article 22.01 and Exhibit D-1 which are requested by Tenant and
which result in an increase in the total costs of the Tenant
Improvements are to be paid by Tenant (plus 10% of that cost for
coordination by Landlord).
22.03 Provided the Lease is executed by both Landlord and Tenant, Landlord
requires forty-five (45) days from the date Landlord and Tenant
approve working drawings (construction drawings) to substantially
complete the Premises for occupancy.
2. The following is added as Article 23.00:
ARTICLE 23.00 EXPANSION SPACE
23.01 If Tenant is not in default under the Lease, Tenant shall have the
option to expand after September 31, 1998, provided Tenant gives
written notice to Landlord no earlier than nine (9) months prior to
the date when the additional space is needed for occupancy by
Tenant. Landlord shall notify Tenant within thirty (30) days of
Tenant's notice whether such additional space can be accommodated
with either contiguous or noncontiguous space in the Building
("Expansion Space") or by relocating Tenant to new space within the
Project which will accommodate Tenant's Premises plus the amount of
additional space requested by Tenant in their notice ("New
Premises").
Should Tenant's additional space request be accommodated through
Expansion Space, then:
(a) Landlord shall build out the "Expansion Space" to be of a
comparable level to Tenant's existing space, based on mutually
approved plans; and
(b) Occupancy Costs for the Expansion Space shall be determined in
accordance with this Lease; and
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(c) Commencement Date for the lease of Expansion Space shall be
the date set forth in Tenant notice to Landlord; and
(d) Term on the Expansion Space shall end on the later of (i) on
the expiration of this Lease or (ii) the last day of the
thirty-sixth (36th) month after the Commencement Date of the
Expansion Space; and
(e) If the expiration of the Term on the Expansion Space is later
than the expiration of this Lease then Tenant agrees to extend
the Term of this Lease to be co-terminous with the Expansion
Space; and
(f) Annual Rent on the Expansion Space and the extended term on
the Premises, if any, will be at Market Rent determined in
accordance with Article 24.00 of this Lease.
Should Tenant's additional space be accommodated through New Space,
then:
(a) Landlord shall build out the New Space to be of a comparable
level and layout to Tenant's existing space, based on mutually
approved plans; and
(b) Tenant agrees to amend this Lease to extend the Term to be
five (5) years from the date Tenant relocates to the New
Space; and
(c) Annual Rent on the New Space shall be at Market Rent
determined in accordance with Article 24.00 plus the recapture
of reduced Annual Rent under this Lease during the initial two
years of the Term. The calculation of such reduced rent is two
dollars ($2.00) per square foot during the first lease year
($7,474.00) and one dollar ($1.00) per square foot during the
second lease year ($3,737). Such reduced rent will be
amortized 10% per annum and paid as additional rent over the
last five (5) years of the term.
If Landlord notifies Tenant that it is unable to accommodate Tenant
request for additional space or does not respond within thirty (30)
days of Tenant notice and provided Tenant has greater than twelve
(12) months remaining on its original Term, Tenant shall have the
right to cancel this Lease with six (6) months prior written notice
and payment to Landlord, at the time of notice, liquidated damages
equal to unamortized transaction costs (which upon final
determination will be set forth as Exhibit E of this Lease) plus
seven thousand four hundred seventy-four dollars and no/100
($7,474.00) if canceled prior to the end of the third lease year and
three thousand seven hundred thirty seven dollars and no/100
($3,737.00) if canceled after the third lease year and prior to the
end of the fourth lease year. Transaction costs shall be equal to
all Tenant Improvement costs and commissions paid to Madison
Marquette Realty Services by St. Paul Properties, Inc. and will be
amortized at 10% per annum over the term of the Lease.
23.02 Documentation Landlord and Tenant shall execute and deliver
appropriate documentation to evidence any additional space taken
under this Article 23.00.
21
<PAGE>
23.03 Non-Severability The rights of Tenant under this Article 23.00 shall
not be severed from this Lease or separately sold, assigned, or
otherwise transferred, and shall expire on the expiration of earlier
termination of this Lease.
3. The following is added as Article 24.00:
ARTICLE 24.00 MARKET RENT
24.01 Definition "Market Rent" means the amount of cash (exclusive of
Occupancy Costs) which a landlord would receive annually by then
renting the space in questions assuming the landlord to be a prudent
person willing to lease but being under no compulsion to do so,
assuming the tenant to be a prudent person willing to lease but
being under no compulsion to do so, assuming a lease term equal to
the term in question, and assuming a lease containing the same terms
and provisions as those contained in this Lease.
24.02 Determination of Market Rent Whenever Annual Rent under this Lease
is based on the Market Rent, Landlord shall initially determine the
Market Rent and shall thereupon give Tenant notice of the amount of
Annual Rent and the basis on which Landlord made its determination
of that amount. Upon receipt of that notice, Tenant shall pay the
Annual Rent stated in that notice in the manner set out in Article
4.01.
24.03 Disagreement on Market Rent
(a) If Tenant does not agree with the Landlord's determination of
Market Rent, Tenant shall nevertheless pay to Landlord the
amount set out in the notice Landlord gives under Article
21.02 and Tenant shall give notice to Landlord of that
disagreement within ten (10) days of receipt of that notice
from Landlord.
(b) If Tenant gives Landlord notice of disagreement, Landlord
shall immediately refer the matter to an individual (the
"Expert") selected by Landlord, subject to approval by Tenant,
such approval not to be unreasonably withheld, who shall be
deemed to be acting as an expert and not as an arbitrator. The
Expert shall make a determination of Market Rent as
expeditiously as possible.
(c) If the Market Rent as determined by the Expert is greater than
the Tenant has paid in accordance with the notice given under
Article 21.02, Tenant shall immediately pay to Landlord the
difference and shall after that make the payments of Annual
Rent as determined by the Expert. If the Market Rate as
determined by the Expert is less than Tenant has paid in
accordance with the notice given under Article 21.02, Landlord
shall immediately pay to Tenant the difference and Tenant
shall after that make the payments of Annual Rent as
determined by the Expert.
(d) If the Market Rent as determine by the Expert is less than 95%
of the amount set out in the notice under Article 21.02,
Landlord shall bear the costs and reasonable expenses of the
Expert. If the Market Rent as determined by the Expert is 95%
or more of the
22
<PAGE>
amount set out in the notice under Article 21.02, Tenant shall
bear the costs and reasonable expenses of the Expert.
4. The following is added as Article 25.00:
Article 25.00 RIGHT OF FIRST OFFER
25.01 Provided there has been no default by Tenant, Tenant shall have the
continual "Right of First Offer" to lease the space ("Offered
Space") containing approximately 524 square feet, more or less, on
the fourth floor of the Peavey Building, shown crosshatched on
Exhibit A, upon the terms and conditions set out in this Article
25.00, if:
(a) Tenant is not in default under this Lease at the time such
option is exercised and at the time such option is to
commence; and
(b) If Landlord intends to offer for lease the "Offer Space" to
another party including an existing tenant, Landlord will give
Tenant written notification of its intent; and
(c) Tenant delivers their response to Landlord not later than
seven (7) business days following receipt of notification by
Landlord of their intent to lease said "Offer Space"; and
(d) Tenant shall have not less than twenty-four months remaining
on the term of its Lease. If Tenant fails to exercise its
right to lease the Offer Space, Tenant shall have no further
right to lease the Offer Space under this Article 25.01 until
the Offer Space has been leased and again becomes available to
Landlord for releasing or until two (2) months have passed if
the Offer Space remains unleased, provided Landlord shall not
then be negotiating, in good faith, a lease of such space.
25.02 Terms A lease of space under this Article 25.00 shall contain the
following:
(a) Annual Rent shall be equal to Market Rent as set out in
Article 24.00 as of the commencement of the Offered Space; and
(b) Occupancy Costs shall be determined in accordance with this
Lease; and
(c) Commencement Date for the lease of Offered Space shall be
thirty (30) days after the date Tenant notifies Landlord of
their intent to lease the Offered Space; and
(d) Term shall end on the expiration of this Lease; and
(e) The Offer Space shall be taken in "as is" condition; and
(f) The other terms and conditions shall be as set out in this
Lease.
23
<PAGE>
25.03 Documentation Within fifteen (15) days of receipt from Landlord,
Tenant shall execute and deliver to Landlord those instruments
Landlord may request to evidence any lease of space under this
Article 25.00.
25.04 Non-Severability The rights of Tenant under this Article 25.00
shall not be severed from this Lease or separately sold, assigned,
or otherwise transferred, and shall expire on the expiration or
earlier termination of this Lease.
5. The following is added as Article 26.00:
Article 26.00 PARKING
26.01 Parking During the Term, Landlord will make available to Tenant, at
Tenant's expense, one parking space in the Parking Facilities. The
parking space will be for the sole use of Tenant. The parking
agreement shall be on Landlord's standard parking agreement and at
the monthly market rental rate from time to time in effect. Landlord
will use reasonable efforts to accommodate Tenant's parking on level
11 of the Parking Facility.
24
<PAGE>
Building Standard Materials Exhibit D-2
Peavey Building
In order to simplify the design process and to maintain a consistency in the
quality of the tenant finishes, the Baker Center has assembled "building
standard materials" that are recommended for use in interior construction. These
items include:
1. Acoustical Ceiling System
a. Grid system - 2 x 2 suspended white metal grid - laser leveled.
b. Ceiling tiles - 2 x 2 recessed revealed edge textone tile
c. Ceiling height - 8'0" clear
2. Light Fixtures
2' x 4' - 3 tube, T-8 light fixture, 18 cube parabolic fixture with 4"
depth. Landlord shall supply sufficient fixtures so as to allow a
maintained maximum at desktop of 70-75 footcandles.
3. Window Blinds
1" blind
4. Carpet
Type 1 - 32 oz. cut pile
Type 2 - 22 oz. level loop
Base - 2 1/2" vinyl
5. Wallcover
Complete selection of 12-15 oz. type 1 in stock vinyl wallcover
6. Wall Construction
2 1/2" metal studs with 5/8" sheetrock - both sides. Sheetrock taped and
sanded to accept paint or wall covering. 1 1/2" sound intimation
insulation in demising walls.
7. Tenant Entrances
a. Doors - 3'0" x 8'0" solid core oak doors stained "Medium Oak"
mounted on hollow metal frames.
<PAGE>
b. Sidelights - 18" x 8'0" sidelight with 1/4" wire glass mounted in
hollow metal frame.
c. Hardware - mortise lock -Entrance Sets Satin Chrome
-Latch Sets Satin Chrome
8. Interior Doors
3'0" x 8'0" solid core oak doors - stain "Medium Oak". Slim Line Timely
frames, painted to match tenants decorum.
9. Sprinklers
Concelor sprinkler heads up to a maximum of 1 per 136 usf and all
associated piping.
<PAGE>
EXHIBIT D1-B
DOOR AND WALL FINISH SCHEDULE
[FLOOR PLAN OMITTED]
<PAGE>
Exhibit 10.1.3
BAKER CENTER
FIRST AMENDMENT OF LEASE
DATE: September 5, 1996
BETWEEN: ST. PAUL PROPERTIES, INC.
435 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND: ADVANCED TELECOMMUNICATIONS, INC.
410 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Tenant")
IN RESPECT OF PREMISES IN: Peavey Building
LANDLORD AND TENANT hereby agree as follows:
1. In this Amendment of Lease:
(a) "Building" means Peavey Building located in the city of Minneapolis
(b) "Premises" means 3,737 square feet of space on the fourth floor of
the Building, as set out in the Lease.
(c) "Lease" means the lease between Landlord and Tenant dated August 14,
1996, covering the Premises.
(d) "Amendment Date" means the 4th day of September, 1 996.
2. Effective on the Amendment Date, the following is added as Article 27.00:
ARTICLE 27.00 SECURITY DEPOSIT
27.01 Security Deposit Tenant shall deposit with Landlord, the sum of Five
Thousand Six Hundred and Five Dollars and no/100 ($5,605.00), (the
"Security Deposit"), on or before the date of full execution of this
Lease. The Security Deposit shall be held by Landlord, without
interest
1
<PAGE>
thereon, as security for the full and faithful performance by Tenant
of each and every term, covenant and condition of this Lease to be
observed and performed by Tenant. The Security Deposit shall not be
mortgaged, assigned, transferred or encumbered by Tenant and any
such act on the part of Tenant shall be null and void and of no
force and effect. If any Rent or any other sum payable by Tenant to
Landlord shall be unpaid or should Tenant fail to perform any of the
terms of this Lease, then Landlord may, and without prejudice to any
other remedy, appropriate and apply the Security Deposit to
compensate Landlord toward they payment of the Rent or other sums
due from Tenant, or towards any loss, damage or expense sustained by
Landlord resulting from such default; and, in such event, Tenant
shall forthwith restore the Security Deposit to the original sum
required to be deposited. In the event Tenant shall fully and
faithfully comply with all of the terms, covenants and conditions of
this Lease, the Security deposit shill be returned in full to Tenant
following the date of the expiration of the Lease Term and the
surrender of the Premises by Tenant in compliance with the
provisions of this Lease. In the event any bankruptcy, insolvency,
reorganization or other creditor-debtor proceedings shall be
instituted by or against Tenant, or its successors or assigns, such
Security Deposit shall be deemed to be applied first to the payment
of any rents and/or other charges due Landlord for all periods prior
to institution of such proceedings and the balance, if any, of such
Security Deposit may be Security Deposit to the purchaser or other
transferee of Landlord's interest in the Premises and thereupon
Landlord shall be discharged and released from all further liability
with respect to such Security Deposit, and Tenant agrees to look
solely to the new landlord or other transferee for the return of
said Security Deposit. No holder of mortgage or deed of trust or
lessor under a ground or underlying lease to which this Lease is or
may be superior or subordinate shall be responsible in connection
with the Security Deposit, unless such mortgagee or holder of such
deed of trust or lessor shall have actually received the Security
Deposit as such.
Except as specifically provided herein, the terms and conditions of the Lease
are confirmed and continued in full force and effect.
This Amendment of Lease shall be binding on the heirs, administrators,
successors and assigns (as the case may be) of the parties hereto.
2
<PAGE>
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. Advanced Telecommunications, Inc.
By: /s/ R. William Inserra By: /s/ Michael A. Donahue
------------------------------- -------------------------------
R. William Inserra
Vice President Asset Management Its: Treasurer
9/10-96 Michael A. Donahue
- ----------------------------------- -----------------------------------
Date Executed Please Type Signature
9/5/96
-----------------------------------
Date Executed
-----------------------------------
Witness to the signature of Tenant
if not incorporated.
3
<PAGE>
Exhibit 10.1.4
BAKER CENTER
LEASE OF ADDITIONAL OFFICE SPACE
DATE: January 22, 1997
BETWEEN: ST. PAUL PROPERTIES, INC.
435 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND: ADVANCED TELECOMMUNICATIONS, INC.
410 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Tenant")
IN RESPECT OF PREMISES IN: Peavey Building, Minneapolis, MN
LANDLORD AND TENANT hereby agree as follows:
1. In this Lease of Additional Space:
(a) "Building" means Peavey Building located in the city of Minneapolis.
(b) "Prime Lease" means the lease between Landlord and Tenant dated
August 14, 1996 covering 3,737 square feet on the fourth floor of
the Building.
(c) "Term" means that period of time commencing February 1, 1997 and
terminating on the same date that the Prime Lease terminates.
(d) "Additional Space" means 468 rentable square feet, plus for
calculation of Rent only, an additional 56 square feet of
unallocated space in the Building, as shown crosshatched on Exhibit
1 hereof.
(e) "Rent" means the amount Tenant shall pay to Landlord as Annual Rent
for the Additional Space as summarized below:
Three Thousand Six Hundred Sixty-Eight Dollars and no/100
($3,668.00) in respect to the period of February 1, 1997 through
September 30, 1998;
1
<PAGE>
Four Thousand Seven Hundred Sixteen Dollars and no/100 ($4,716.00)
in respect to the period of October 1, 1998 through September 30,
1999;
Six Thousand Two Hundred Eighty-Eight Dollars and no/100
($6,288.00) in respect to the period of October 1, 1999 through
September 30, 2001,
payable in advance and without notice in monthly installments (each
equal to one-twelfth of the Annual Rent) on the Commencement Date
and on the first day of each calendar month thereafter during the
term.
(f) All other words and phrases, unless otherwise defined herein, have
the meanings attributed to them in the Prime Lease.
2. Landlord hereby demises and leases the Additional Space to Tenant, and
Tenant accepts the lease of the Additional Space to have and to hold
during the Term, on the same terms and conditions as are contained in the
Prime Lease except as herein otherwise provided, and expressly excepting
the following:
(a) Rent - Tenant shall pay the Rent to Landlord in advance in equal
monthly payments at the times and in the manner as rental payments
are to be made pursuant to the Prime Lease.
(b) Renewals - This lease shall be subject to the same right to renewal
(if any) as is contained in the Prime Lease, and any renewal of the
Prime Lease in accordance therewith shall be deemed to be a renewal
of this Lease upon the same terms and conditions as are applicable
to such renewal of the Prime Lease.
(c) Condition of Additional Space - Tenant shall be deemed to have
examined and accepted the Additional Space in the condition as of
the date hereof, and no tenant or other allowance shall be paid by
Landlord to Tenant in respect of the Additional Space.
(d) Default - Any default by Tenant under the Prime Lease shall be
deemed to be a default hereunder, and any default hereunder shall be
deemed to be a default under the Prime Lease.
(e) Termination - If the Prime Lease terminates for any reason
whatsoever, this Lease shall terminate on the same date.
2
<PAGE>
(f) Occupancy Costs - Tenant shall pay as additional rent Occupancy
Costs in respect of the Additional Space at the times and in the
manner as payments of Occupancy Costs are to be made pursuant to the
Prime Lease.
Except as specifically provided herein, the terms and conditions of the Prime
Lease are confirmed and continued in full force and effect.
This Lease shall be binding on the heirs, administrators, successors and assigns
(as the case may be) of the parties hereto.
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ R. William Inserra By: /s/ Michael A. Donahue
-------------------------------- -------------------------------
R. William Inserra
Vice President Asset Management Its: Treasurer
3-3-97 Michael A. Donahue
- ------------------------------------ -----------------------------------
Date Executed Please Type Signature
2/18/97
-----------------------------------
Date Executed
-----------------------------------
Witness to the signature of Tenant
if not incorporated.
3
<PAGE>
EXHIBIT 1
[GRAPHIC OMITTED]
<PAGE>
Exhibit 10.1.5
BAKER CENTER
AMENDMENT OF LEASE
DATE: May 15, 1997
BETWEEN: ST. PAUL PROPERTIES, INC.
435 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND: ONE CALL TELECOM, INC.
1200 Baker Building
706 Second Avenue South
Minneapolis, MN. 55402 ("Tenant")
IN RESPECT OF PREMISES IN: Baker Building, Minneapolis, MN
LANDLORD AND TENANT hereby agree as follows:
1. In this Amendment of Lease:
(a) "Building" means Baker Building located in the city of Minneapolis,
Minnesota.
(b) "Premises" means 3,555 square feet of space on the 12th floor of the
Baker Building, as set out in the Lease.
(c) "Lease" means the lease between Landlord and Tenant dated July 29,
1996, covering the Premises.
(d) "Amendment Date" means May 15, 1997.
2. Effective on the Amendment Date, Article 3.01 of the Lease is deleted, and
the following is substituted therefor:
3.01 Term Notwithstanding Article 3.02 and 3.03, the Term of this Lease
shall be five (5) years, eleven 11 months and ten (10) days
beginning on the twenty second day of the month of July 1996 and
ending on the last day of the month of June 2002, unless terminated
earlier as provided in this lease.
1
<PAGE>
3. Effective on the Amendment Date, Article 4.01 of the Lease is deleted and
the following is substituted therefor:
4.01 Tenant shall pay to Landlord as Annual Rent for the Premises the
annual sum of thirty-one thousand nine hundred ninety-five and
00/100 dollars ($31,95.00) in respect of the period July 22, 1996
through June 30, 1997, and thirty-seven thousand three hundred
twenty-seven and 50/100 dollars ($37,327.50) in respect of the
period July 1, 1997 through June 30, 2002, payable in advance and
without notice in monthly installments (each equal to one-twelfth of
the Annual Rent) on the Commencement Date and on the first day of
each month thereafter during the Term.
4. Effective on the Amendment Date, the following is added as Article 27.00:
ARTICLE 27.00 Additional Premises
27.01 Additional Premises means the area on the twelfth floor of the
Building as indicated on Exhibit 1 attached hereto, hereby deemed to
contain 1,776 square feet plus, for the calculation of Rent only, an
additional 266 square feet of unallocated space in the Building.
27.02 Term The Term on the Additional Premises shall commence on the
"Additional Premises Commencement Date" which shall be July 1, 1997,
subject to the substantial completion of Tenant Improvements set
forth in Article 28.00 of this Amendment of Lease and terminate on
the same day of the Premises.
27.03 Rent Tenant shall pay to Landlord as Annual Rent for the Additional
Premises, the annual sum twenty-one thousand four hundred forty-one
and 00/100 dollars ($21,441.00). Rent shall be paid in equal monthly
payments at the time and in the same manner as Annual Rent payments
are to be made pursuant to the Lease.
27.04 Occupancy Costs Tenant shall pay, as additional rent, Occupancy
Costs in respect of the Additional Premises at the time and in the
same manner as payment of Occupancy Costs are to be made pursuant to
the Lease.
2
<PAGE>
5. Effective on the Amendment Date, the following is added as Article 28.00:
ARTICLE 28.00 Landlord's Work
28.01 Landlord will construct Tenant Improvements to the Additional
Premises in accordance with the "Plan" which is attached hereto as
Exhibit 2. All other work necessary for occupancy of the Additional
Premises by Tenant will be Tenant's responsibility.
6. Effective on the Amendment Date, the following is added as Article 29.00:
ARTICLE 29.00 Option Space
29.01 Option Space In the event there has been no default by Tenant,
Tenant shall have the right to lease the space ("Option Space")
containing 1,461 square feet, more or less, on the twelfth (12)
floor of the Building as generally indicated on Exhibit 1, plus for
calculation of Rent only, an additional 219 square feet of
unallocated space in the Building, upon the terms and conditions set
out in this Article 29.00, if
(a) Tenant is not in default under this Lease at the time such
option is exercised and at the time such option is to
commence, and
(b) Tenant delivers to Landlord not later than October 1, 1997
written notice exercising its right to lease the Option Space.
If Tenant fails to exercise its right to lease the Option Space,
Tenant shall have no further right to lease the Offer Space under
this Article 29.00.
Terms A lease of space under this Article 29.00 shall contain the
following:
(a) Annual Rent shall be equal to $17,640.00 payable in monthly
installments in accordance with the Lease;
(b) Occupancy Costs shall be determined in accordance with this
Lease;
3
<PAGE>
(c) Commencement Date for the lease of Option Space shall be the
later of August 1, 1998 or Fifteen (15) days notice from
Landlord that the Offer Space is available.
(d) Term shall end on the expiration or earlier termination of the
Lease, subject to the same option to extend as the Lease;
(e) Landlord will deliver the Option Space to Tenant with the
following work done at Landlord's expense:
o Demolition and construction of interior walls in
accordance with attached Exhibit 3.
o Install new building standard carpet and wall covering
throughout the Option Space. Carpet and wall covering
are to be selected by Tenant from Landlord building
standard selection.
o Patch where needed due to demolition of interior walls.
o Patch, as close as reasonably possible to existing,
ceiling in areas where interior walls were removed.
o Relocate existing door as shown on attached Exhibit 3.
o Install one (1) light fixture as shown on attached
Exhibit 3.
(f) These other terms and conditions shall be as set out in this
lease.
29.02 Documentation Within fifteen (15) days of receipt from Landlord,
Tenant shall execute and deliver to Landlord those instruments
Landlord may request to evidence any lease of space under this
Article 9.00.
4
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29.03 Non-Severabililty The rights of Tenant under this Article 29.00
shall not be severed from this Lease or separately sold, assigned,
or otherwise transferred, and shall expire on the expiration or
earlier termination of this Lease.
7. The following is added as Article 30.00
ARTICLE 30.00 EXTENSION OF TERM
30.01 Grant In the event there has been no default by Tenant, Landlord
hereby grants to Tenant the one-time option to extend the Term upon
the terms and conditions set out in this Article 30.00, if
(a) Tenant is not in default under this Lease at the time such
option is exercised and at the time such extension is to
commence; and
(b) Tenant delivers to Landlord, not later than nine (9) months
prior to the end of the original Term, written notice
exercising its option to extend the Term.
30.02 Terms During the extended Term:
(a) Annual Rent shall be equal to Market Rent as of the
commencement of that extended Term, but in no event less than
the highest amount set out in Article 4.01;
(b) Occupancy Costs shall be as determined in the manner set out
in Landlord's then-current standard form of lease for the
Building;
(c) the Term shall be three (3) years, commencing upon expiration
of the original Term; and
(d) the other terms and conditions shall be as set out in this
Lease, except that there shall be no further right of renewal
(in the case of a one time option).
5
<PAGE>
8. The following is added as Article 31.00:
ARTICLE 31.00 MARKET RENT
31.01 Definition "Market Rent" means the amount of cash (exclusively of
Occupancy Costs) which a landlord would receive annually by then
renting the space in question assuming the Landlord to be a prudent
person willing to lease but being under no compulsion to do so,
assuming the Tenant to be a prudent person willing to lease but
being under no compulsion to do so, assuming a lease term equal to
the term in question, and assuming lease containing the same terms
and provisions as those contained in this Lease.
31.02 Determination of Market Rent Whenever Annual Rent under this Lease
is based on the Market Rent Landlord shall initially determine the
Market Rent and shall thereupon give Tenant notice of the amount of
Annual Rent and the basis on which Landlord made its determination
of that amount. Upon receipt of that notice, Tenant shall pay the
Annual Rent stated in that notice in the manner set out in Article
4.01.
31.03 Disagreement on Market Rent
(a) If Tenant does not agree with the Landlord's determination of
Market Rent, Tenant shall nevertheless pay to Landlord the
amount set out in the notice Landlord gives under Article
31.02 and Tenant shall give notice to Landlord of that
disagreement within ten (10) days of receipt of that notice
from Landlord.
(b) If Tenant gives Landlord notice of disagreement, Landlord
shall immediately refer the matter to an individual (the
"Expert") selected by Landlord, subject to approval by Tenant,
such approval not to be unreasonably withheld, who shall be
deemed to be acting as an expert and not as an arbitrator. The
Expert shall make a determination of Market Rent as
expeditiously as possible.
(c) If the Market Rent as determined by the Expert is greater than
the Tenant has paid in accordance with the notice given under
Article 31.02, Tenant shall immediately pay to Landlord the
difference and shall after that make the
6
<PAGE>
payments of Annual Rent as determined by the Expert. If the
Market Rate as determined by the Expert is less than Tenant
has paid in accordance with the notice given under Article
31.02, Landlord shall immediately pay to Tenant the difference
and Tenant shall after that make the payments of Annual Rent
as determined by the Expert.
(d) If the Market Rent as determined by the Expert is less than
95% of the amount set out in the notice under Article 31.02,
Landlord shall bear the costs and reasonable expenses of the
Expert. If the Market Rent as determined by the Expert is 95%
or more of the amount set out in the notice under Article
31.02, Tenant shall bear the costs and reasonable expenses of
the Expert.
Except as specifically provided herein, the terms and conditions of the Lease
are confirmed and continued in full force and effect
This Amendment of Lease shall be binding on the heirs, administrators,
successors and assigns (as the case may be) of the parties hereto.
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. ONE CALL TELECOM, INC.
By: /s/ R. William Inserra By: /s/ Ronald W. Mullins
-------------------------------- -------------------------------
R. William Inserra
Vice President Asset Management Its: President
5-27-97 Ronald W. Mullins
- ------------------------------------ -----------------------------------
Date Executed Please Type Signature
19 MAY 97
-----------------------------------
Date Executed
-----------------------------------
Witness to the signature of Tenant
if not incorporated.
7
<PAGE>
Exhibit 1
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
Exhibit 3
[GRAPHIC OMITTED]
<PAGE>
Exhibit 10.1.6
BAKER CENTER
SECOND LEASE OF ADDITIONAL OFFICE SPACE
DATE: August 4, 1997
BETWEEN: ST. PAUL PROPERTIES, INC.
410 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 410
Minneapolis, Minnesota 55402 ("Tenant")
IN RESPECT OF PREMISES IN: Peavey Building, Minneapolis, Minnesota
LANDLORD AND TENANT hereby agree as follows:
1. In this Second Lease of Additional Space:
(a) "Building" means Peavey Building located in the city of Minneapolis
(b) "Prime Lease" means the lease between Landlord and Tenant dated
August 14, 1996 as amended by the First Amendment of lease dated
September 5, 1996, covering 3,737 square feet in the Building.
(c) "Term" means that period of time commencing August 15, 1997 and
terminating upon thirty (30) day notice from either party.
(d) "Additional Space" means 1,522 square feet of space on the Fourth
floor of the Building, as shown crosshatched on Exhibit 1 hereof.
(e) "Rent" means $1,200.00 during each month of the Term.
(f) All other words and phrases, unless otherwise defined herein, have
the meanings attributed to them in the Prime Lease.
1
<PAGE>
2. Landlord hereby demises and leases the Additional Space to Tenant, and
Tenant accepts the lease of the Additional Space to have and to hold
during the Term, on the same terms and conditions as are contained in the
Prime Lease except as herein otherwise provided, and expressly excepting
the following:
(a) Rent - Tenant shall pay the Rent to Landlord in advance in equal
monthly payments at the times and in the manner as rental payments
are to be made pursuant to the Prime Lease.
(c) Condition of Additional Space - Tenant shall be deemed to have
examined and accepted the Additional Space in the condition as of
the date hereof, and no tenant or other allowance shall be paid by
Landlord to Tenant in respect of the Additional Space.
(d) Inapplicable Clauses - The following clauses of the Prime Lease
Article 4.02, 4.06 and 6.02 shall not be applicable to this Lease.
(e) Default - Any default by Tenant under the Prime Lease shall be
deemed to be a default hereunder, and any default hereunder shall be
deemed to be a default under the Prime Lease.
(f) Termination - If the Prime Lease terminates for any reason
whatsoever, this Lease shall terminate on the same date.
(g) Occupancy Costs - Tenant shall pay as additional rent Occupancy
Costs in respect of the Additional Space at the times and in the
manner as payments of Occupancy Costs are to be made pursuant to the
Prime Lease.
2
<PAGE>
Except as specifically provided herein, the terms and conditions of the Prime
Lease are confirmed and continued in full force and effect.
This Lease shall be binding on the heirs, administrators, successors and assigns
(as the case may be) of the parties hereto.
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC.
By: By: /s/ Michael A. Donahue
-------------------------------- -------------------------------
R. William Inserra
Vice President Asset Management Its: Treasurer
Michael A. Donahue
- ------------------------------------ -----------------------------------
Date Executed Please Type Signature
8/8/97
-----------------------------------
Date Executed
-----------------------------------
Witness to the signature of Tenant
if not incorporated.
3
<PAGE>
Exhibit 1
[GRAPHIC OMITTED]
<PAGE>
September 3, 1997
TO: Advanced Telecommunications, Inc.
FROM: ST. PAUL PROPERTIES, INC.
Madison Marquette Realty Services
The Managing Agent
RE: Leasing Space In Baker Center
- --------------------------------------------------------------------------------
Delivery Date: October 1, 1997.
Premises: Approximately 9528 rentable square feet (approximately
8507 usable square feet) of office space on the twelfth
floor of the Peavey Building, as shown on the attached
plan.
Term: Five (5) years commencing October 1,1997 and expiring
September 30, 2002.
Annual Net Rent: The annual net rate per rentable square foot for each
lease year will be as follows:
Year Net Rate
---- --------
1 $10.00
2 $10.00
3 $11.50
4 $13.00
5 $13.00
Occupancy Costs: In addition to the Annual Net Rent, tenant will pay a
proportionate share of the building's operating costs
and real estate taxes "Occupancy Costs." Such
proportionate share of Occupancy Costs will be paid
monthly on an estimated basis and adjusted at the end of
each calendar year. The 1997 estimate of Occupancy Costs
is $8.69 per rentable square foot, plus electricity
consumed by tenant in its own space.
<PAGE>
Tenant Improvements: Landlord will buildout the Premises in accordance with a
mutually approved plan using building standard
materials. Landlord will contribute up to $8.00 per
square foot leased ("Landlord Contribution") to offset
the cost of tenant improvements to the Premises. All
costs incurred by Landlord in excess of Landlord's
Contribution will be paid by tenant upon invoice from
Landlord.
Use Of Premises: The Premises shall be used and occupied
only for general office use.
Tenant Inducements: Tenant's current lease for 4261
rentable square feet which expires September 30, 2001
would be terminated and a new lease would be prepared on
this proposal.
Qualification Of
Proposal: This proposal assumes no outside brokerage commissions
will be paid by landlord for the leasing of this space.
Building Management: Madison Marquette Realty Services ("Madison Marquette")
was formed in 1995 by the merger of Madison Realty
Partnership and Marquette Partners. Madison Realty
Partnership was a Cincinnati based real estate group
involved in acquisition and redevelopment of commercial
properties. Marquette Partners was a Minneapolis
based real estate company providing a full
range of real estate services including asset
management, property management, leasing & marketing to
owners and investors of real estate.
Today, Madison Marquette is a nationally recognized real
estate company involved in virtually every aspect of
commercial real estate. Madison Marquette's current
property portfolio consists of 11,370,151 square feet in
retail and office properties in 12 states. The
composition of the portfolio is 37% regional shopping
centers, 25% community centers, 21% office and
industrial.
Building Ownership: St. Paul Properties, Inc. is a wholly owned subsidiary
of the St. Paul Fire and Marine Insurance Company which
is the principal operating subsidiary of The St. Paul
Companies, Inc. The St. Paul Companies commemorated
their 140th anniversary in 1993. St. Paul Properties,
Inc. was established in 1981 to acquire real estate
investments on behalf of St. Paul Fire and Marine
Insurance Company.
<PAGE>
The mission of St. Paul Properties is to diversify the
general investment portfolio of St. Paul Fire and Marine
by investing in real estate and to achieve a longer term
total rate of return which is competitive with that
provided by other investments. As of December 31, 1995,
St. Paul Properties had invested $700 million in 20
different projects across the United States in such
major cities as Minneapolis, New York, Washington D.C.,
Atlanta, Chicago, Denver, Los Angeles, and San
Francisco.
Offer Expiration: The business terms as offered in this proposal will
expire thirty (30) days from the date of this proposal.
Not Binding: This proposal is not contractual in nature. Neither
party shall be bound to the other unless and until a
formal written agreement of lease (or amendment of
lease) in form and substance satisfactory to all parties
is concluded.
<PAGE>
Memo
To: Mike Donahue
From: Chuck Howard
RE: Lease Proposal
Brochure of proposal note
Current Premises 3737 RSF
Additional Premises 528 RSF
----
Total SF 4265 RSF
Net Rata
9/15/96 - 9/30/97 $6.00
10/1/97 - 9/30/98 $7.00
10/1/98 - 9/30/99 $9.00
10/1/99 - 9/30/01 $12.00
Any net over term = $9.20/RSF
Net Rent Recapture
$9.20 (avg Face Rate) - of 6.00 (Actual Face Rate) =
$3.20/of for previous 9/15/96 through 9/30/97 =
$3.20x4265 = $13,648.00
----------
Unamortized Tenant Improvements @ 10%, 60.5 months =
$705.32/month x 48 months (surrendered term) = $33,855.00
----------
Landlords Recapture of unpaid cost though Rent = $47,503.30
$47,503 amort @ 10%, 60 months = $12,011.58/yr
$12,011.58 / 9528 = $1.26/of/yr
STANDARD NET Rates Being Achieved in the P.U. Building Area
$9.00 for 70 months 9.00 + 1 = 10
12.00 for 30 months 12.00 + 1 = 13
<PAGE>
[LETTERHEAD OF MADISON MARQUETTE REALTY SERVICES]
March 7, 1997
Mr. Mike Donahue
Advanced Telecommunications, Inc.
410 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402
RE: Lease of Additional Office Space
Dear Mike:
Enclosed is one (1) fully-executed copy of the Lease of Additional Office Space
between Advanced
Telecommunications, Inc. and St. Paul Properties, Inc.
If you have any questions, please call.
Thank you.
Sincerely,
MADISON MARQUETTE REALTY SERVICES, L.P.
As Managing Agent for St. Paul Properties, Inc.
/s/ Charles F. Howard
Charles F. Howard
Vice President
Office and Industrial Properties Division
Enc.: lease of additional office space (1)
<PAGE>
Exhibit 10.1.7
BAKER CENTER
LEASE OF OFFICE SPACE
DATE: SEPTEMBER 15, 1997
BETWEEN: ST. PAUL PROPERTIES, NC.
(address) 385 Washington Street
St. Paul, MN 55102
("Landlord")
AND) ADVANCED TELECOMMUNICATIONS, INC
(address) 730 Second Avenue South
Suite 1200
Minneapolis, MN 55402
("Tenant")
FOR PREMISES IN: Peavey Building - Minneapolis, Minnesota
LANDLORD AND TENANT, in consideration of the covenants herein contained, hereby
agree as follows:
ARTICLE 1.00 DEFINITIONS
1.01 Definitions In this Lease:
(a) "Annual Rent" means the amount payable by Tenant to Landlord in
respect of each year of the Term under Article 4.01.
(b) "Article" means an article of this Lease.
(c) "Commencement Date" means the date set forth in Article 3.01 as the
first day of the Term.
(d) "Exhibit A" means the plan(s) attached hereto as Exhibit A.
(e) "Exhibit B" means the provisions relating to Occupancy Costs and
other matters attached hereto as Exhibit B.
(f) "Exhibit C" means the Rules and Regulations attached hereto as
Exhibit C.
(g) "Expiration Date" means the date set forth in Article 3.01 as the
last day of the Term.
(h) "Fiscal Year" means the calendar year unless Landlord elects by
thirty (30) days' notice to Tenant that Fiscal Year shall mean a
twelve-month period from time to time determined by Landlord, with
concurrence of the appropriate taxation authorities, at the end of
which Landlord's books are balanced for auditing or taxation
purposes.
(i) "Lease" means this lease, Exhibits A, B, C and (if attached) D to
this lease, and every properly executed instrument which by its
terms amends, modifies or supplements this lease.
(j) "Occupancy Costs" means amounts payable by Tenant to Landlord under
Article 4.02.
(k) "Other Charges" means amounts payable by Tenant to Landlord under
Article 4.03.
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(l) "Premises" means the area on the twelfth floor of the Building as
indicated on Exhibit A, hereby deemed to contain 8507 square feet,
plus for calculation of Rent only, an additional 1021 square feet of
unallocated space in the Building.
(m) "Rent" mean the aggregate of all amounts payable by Tenant to
Landlord under Articles 4.01, 4.02 and 4.03.
(n) "Term" means the period of time set out in Article 3.01.
Other words and phrases are defined in Exhibit B.
ARTICLE 2.00 GRANT OF LEASE
2.01 Grant Landlord hereby demises and leases the Premises to Tenant, and
Tenant hereby leases and accepts the Premises from Landlord, to have and
to hold during the Term, subject to the terms, covenants and conditions of
this Lease.
2.02 Quiet Enjoyment So long as tenant observes and performs all of the terms,
covenants and conditions to be observed and performed by Tenant under this
Lease, Tenant shall quietly have, hold and enjoy possession of the
Premises during the Term subject to the terms and conditions of this
Lease.
2.03 Covenants of Landlord and Tenant Landlord covenants to observe and
perform all of the terms and conditions to be observed and performed by
Landlord under this Lease. Tenant covenants to pay the Rent when due under
this Lease, and to observe and perform all of the terms and conditions to
be observed and performed by Tenant under this Lease.
ARTICLE 3.00 TERM AND POSSESSION
3.01 Term Notwithstanding Articles 3.02 and 3.03, the term of this Lease shall
be five (5) years, beginning on the first day of the month of November,
1997 and ending on the last day of the month of October, 2002, unless
terminated earlier as provided in this Lease.
3.02 Early Occupancy If Tenant begins to conduct business in all or any
portion of the Premises before the Commencement Date, Tenant shall pay to
Landlord on the Commencement Date a rental in respect thereof for the
period from the date Tenant begins to conduct business therein to the
Commencement Date, which rental shall be that proportion of Rent for one
calendar year which the number of days in such period bears to 365. Except
where clearly inappropriate, the provisions of this Lease shall be
applicable during such period.
3.03 Delayed Possession If Landlord is delayed in delivering possession of all
or any portion of the Premises on the date (not later than one year after
the Commencement Date) when Landlord delivers possession of all of the
Premises. This Lease shall not be void or voidable nor shall Landlord be
liable to Tenant for any loss or damage resulting from any delay in
delivering possession of the Premises to Tenant nor shall any delay be
construed in any way to affect the Expiration Date, but unless such delay
is principally caused by or attributable to Tenant, its servants, agents
or independent contractors, no Rent shall be payable by Tenant for the
period prior to the date on which Landlord can so deliver possession of
all of the Premises, unless Tenant elects to take possession of a portion
of the Premises whereupon Rent shall be payable in respect of that portion
from the date such possession is so taken.
3.04 Acceptance of Premises Taking possession of all or any portion of the
Premises by Tenant shall be conclusive evidence as against Tenant that the
Premises or such portion thereof are in satisfactory condition on the date
of taking possession.
ARTICLE 4.00 RENT AND OCCUPANCY COSTS
4.01 Annual Rent Tenant shall pay to Landlord as Annual Rent for the Premises
the annual sum of ninety five thousand two hundred eighty and 00/100
dollars ($95,280.00) in respect of the period November 1, 1997 through
October 31, 1999, one hundred nine thousand five hundred seventy two and
00/100 dollars ($109,572.00) in respect of the period November 1, 1999
through October 31, 2000, and one hundred twenty three thousand eight
hundred sixty four and 00/100 dollars ($123,864.00) in respect of the
period November 1, 2000 through October 31, 2002, payable in advance and
without notice in monthly
2
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installments (each equal to one-twelfth of the Annual Rent) on the
Commencement Date and on the first day of each calendar month thereafter
during the term.
4.02 Occupancy Costs Tenant shall pay to Landlord, at the times and in the
manner provided in Article 4.06, the Occupancy Costs (if any) determined
under Exhibit B.
4.03 Other Charges Tenant shall pay to Landlord, at the times and in the
manner provided in this Lease or, if not so provided, as reasonably
required by Landlord, all amounts (other than that payable under Articles
4.01 and 4.02 which are payable by Tenant to Landlord under this Lease).
4.04 Payment of Rent-General All amounts payable by Tenant to Landlord under
this Lease shall be deemed to be Rent and shall be payable and recoverable
as Rent in the manner herein provided, and Landlord shall have all rights
against Tenant for default in any such payment as in the case of arrears
of rent. Rent shall be paid to Landlord without deduction or set-off in
legal tender of the jurisdiction in which the Building is located, at the
address of Landlord as set forth in the beginning of this Lease, or to
such other person or at such other address as Landlord may from time to
time designate in writing. Tenant's obligation to pay Rent shall survive
the expiration or earlier termination of this Lease.
4.05 Annual Rent - Partial Months If the Term begins on a day other than the
first day of a calendar month or ends on a day other than the last day of
a calendar month, the installment of Annual Rent payable in respect of
that calendar month shall be that proportion of the Annual Rent which the
number of days in that calendar month which fall within the Term bears to
365.
4.06 Payment - Occupancy Costs
(a) Unless delayed by causes beyond Landlord's reasonable control, prior
to the Commencement Date and the beginning of each Fiscal Year
thereafter, Landlord shall compute and deliver to Tenant a born fide
estimate of Occupancy Costs for the appropriate Fiscal Year. Without
further notice Tenant shall pay to Landlord in monthly installments
one-twelfth of such estimate simultaneously with Tenant's payments
of Annual Rent during such Fiscal Year.
(b) Landlord may at any time during a Fiscal Year compute and deliver to
Tenant a revised bona fide estimate of Occupancy Costs for that
Fiscal Year, together with Landlord's determination of the
adjustment to Tenant's monthly installments of Occupancy Costs for
that Fiscal Year to fully recover the revised estimate of Occupancy
Costs in that Fiscal Year. Without further notice, Tenant shall pay
to Landlord monthly installments of Occupancy Costs in accordance
with that adjustment.
(c) Unless delayed by causes beyond Landlord's reasonable control,
Landlord shall deliver to Tenant within one hundred twenty (120)
days after the end of each Fiscal Year a written statement (the
"statement") setting out in reasonable detail the amount of
Occupancy Costs for such Fiscal Year and certified to be correct by
an officer of Landlord. If the aggregate of monthly installments of
Occupancy Costs actually paid by Tenant to Landlord during such
Fiscal Year differs from the amount of Occupancy Costs payable for
such Fiscal Year under Article 4.02, Tenant shall pay, or if Tenant
is not then in default under this Lease beyond the applicable grace
period, Landlord shall refund the difference (as the case may be)
without interest within thirty (30) days after the date of delivery
of the Statement.
(d) If Landlord and Tenant disagree on the accuracy of Occupancy Costs
as set forth in the Statement, Tenant shall nevertheless make
payment in accordance with any notice given by Landlord, and
Landlord shall immediately refer the disagreement to a public
accountant, architect, insurance broker or other professional
consultant selected by Landlord and approved by Tenant, which
approval will not be unreasonably withheld, who shall be deemed to
be acting as an expert and not an arbitrator, and a determination
signed by the selected expert shall be final and binding on both
Landlord and Tenant. Any adjustment required to any previous payment
made by Tenant or Landlord by reason of any such decision shall be
made within fourteen (14) days thereof, and the party required to
make payment under such adjustment shall bear all costs of the
expert making such decision, except where that payment represents 3%
or less of the Occupancy Costs that were the subject of the
disagreement in which case Tenant shall bear all costs.
(e) Neither party may claim re-adjustment in respect of Occupancy Costs
for a Fiscal Year if based upon any error of computation or
allocation except by notice delivered to the ocher party within six
months after the date of delivery of the Statement.
3
<PAGE>
ARTICLE 5.00 USE OF PREMISES
5.01 Use The Premises shall be used and occupied only as executive,
administrative, and general business offices of Tenant or for such other
purpose as Landlord may specifically authorize in writing.
5.02 Compliance The Premises shall be used and occupied in a prudent, safe,
careful and proper manner and in such manner as not to contravene any
present or future governmental or quasi-governmental laws in force or
regulations or orders, or to make void or voidable any insurance on the
Building. If, due to Tenant's non-compliance with the foregoing sentence,
Landlord's insurance carrier(s) reasonably imposes an increased or extra
premium for Landlord's insurance on the Building, Tenant shall pay such
increased or extra premium. If, due solely to Tenant's use of the
Premises, improvements are necessary to comply with any of the foregoing
or with the requirements of insurance carriers, Landlord, or Tenant at
Landlord's election, shall make such improvements and, in either event,
Tenant shall pay the entire cost thereof Any such improvements by Tenant
shall comply with the provisions of Article 7.04.
5.03 Abandonment Tenant shall not vacate or abandon the Premises at any time
during the Term without Landlord's prior written consent.
5.04 Nuisance Tenant shall not cause or maintain any nuisance in or about the
Premises, and shall keep the Premises free of debris, rodents, vermin and
anything of a dangerous, noxious or offensive nature or which could create
a fire hazard (through undue load on electrical circuits or otherwise) or
undue vibration, heat, odor or noise.
ARTICLE 6.00 SERVICES, MAINTENANCE, REPAIR AND ALTERATIONS BY Landlord
6.01 Operation of Building During the Term Landlord shall operate and maintain
the Building in accordance with all applicable laws and regulations and
with standards from time to time prevailing for first-class office
buildings in the area in which the Building is located and, subject to
participation by Tenant by payment of Occupancy Costs under Article 4.02,
shall provide the services set out in Articles 6.02 and 6.03.
6.02 Services to Premises Landlord shall provide in the Premises:
(a) heat, ventilation and cooling as required for the comfortable use
and occupancy of the Premises during normal business hours,
(b) janitor services, including window washing, Monday through Friday,
excluding holidays, as reasonably required to keep the Premises in a
clean and wholesome condition, provided that Tenant shall leave the
Premises in a reasonably orderly condition at the end of each
business day, and
(c) maintenance, repair and replacement as set out in Article 6.04.
6.03 Building Services Landlord shall provide in the Building:
(a) domestic running water and necessary supplies in washrooms
sufficient for the normal use thereof by occupants in the Building,
(b) access to and egress from the Premises, including elevator or
escalator service if included in the Building,
(c) heat, ventilation, cooling, lighting, electric power, domestic
running water, and janitor service in those areas of the Building
from time to time designated by Landlord for use during normal
business hours by Tenant in common with all tenants and other
persons in the Building but under the exclusive control of Landlord,
(d) a general directory board on which Tenant shall be entitled to have
shown, provided that Landlord shall have exclusive control thereof
and of the space thereon to be allocated to each tenant, and
4
<PAGE>
(e) maintenance, repair, and replacement as set out in Article 6.04.
6.04 Maintenance, Repair and Replacement Landlord shall operate, maintain,
repair and replace the systems, facilities and equipment necessary for the
proper operation of the Building and for provision of Landlord's services
under Articles 6.02 and 6.03 (except such systems, facilities and
equipment as may be installed by or be the property of Tenant) and shall
be responsible for and shall maintain and repair the foundations,
structure and roof of the Building and repair damage to the Building which
Landlord is obligated to insure against under Article 9.00, provided that
(a) if all or part of such systems, facilities or equipment is
destroyed, damaged, impaired or taken by condemnation, Landlord
shall have a reasonable time in which to complete the necessary
repair or replacement, and during that time shall be required only
to maintain such services as are reasonably possible in the
circumstances, and
(b) Landlord may temporarily reduce or discontinue such services or any
of them at such times as may be reasonably necessary due to causes
(except lack of funds) beyond the reasonable control of Landlord.
6.05 Additional Services
(a) If from time to time requested in writing by Tenant and to the
extent that it is reasonably able, Landlord shall endeavor to
provide in the Premises services in addition to those set out in
Article 6.02, provided that Tenant shall within ten (10) days of
receipt of any statement for any such additional service pay
Landlord therefore at such rates as Landlord may from time to time
reasonably establish. So long as Landlord is entitled to terminate
this Lease, Landlord may terminate any such additional services.
(b) If electricity is provided by Landlord under Article 7.02(b),
Landlord will pay the cost thereof and will apportion such costs
among the users based on meter readings for the Premises or, if the
Premises are not separately metered, according to the proportion of
each user's floor space to the total floor space of all users on a
common meter with the Premises. Upon receipt of Landlord's statement
of apportionment, Tenant shall reimburse Landlord for the amounts
which Tenant is shown thereon to be liable to Landlord.
(c) Tenant shall not without Landlord's prior written consent, which
consent will not be unreasonably withheld, install in the Premises
equipment (including telephone equipment) which generates sufficient
heat to affect the temperature otherwise maintained in the Premises
by the air conditioning system as normally operated. If Tenant
installs such equipment, Landlord may install supplementary air
conditioning units, facilities or services in the Premises, or
modify its air conditioning system, as may in Landlord's reasonable
opinion be required to maintain proper temperature levels, and
Tenant shall pay Landlord the cost thereof (including, without
limitation, installation, operation and maintenance expenses) within
ten (10) days of receipt of notice from Landlord.
(4) If Landlord shall from time to time reasonably determine that the
use of electricity or any other utility or service in the Premises
is disproportionate to the use of other tenants, Landlord may
separately charge Tenant for the excess costs attributable to such
disproportionate use. In the event of such determination, Landlord
may also install and maintain, at Tenant's expense, metering devices
for determining the use of any such utility or service in the
Premises
6.06 Alterations by Landlord Landlord may from time to time
(a) make repairs, replacements, changes or additions to the structure,
systems, facilities and equipment in the Premises where necessary to
serve the Premises or other parts of the Building or Project.
(b) make changes in or additions to any part of the Building or Project
not in or forming part of the Premises and
(c) change or alter the location of those areas of the Building, or
Project from time to time designated by Landlord for use during
Normal Business Hours for the Building by Tenant in common with all
tenants and other persons in the Building but under the exclusive
control of Landlord,
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provided that, subject to Article 6.04, Landlord shall not disturb or
interfere with Tenant's use of the Premises and operation of its business
any more than is reasonably necessary under the circumstances and shall
repair any damage to the Premises caused thereby.
6.07 Access by Landlord Tenant shall permit Landlord to enter the Premises
outside normal business hours and during normal business hours where such
will not reasonably disturb or interfere with Tenant's use of the Premises
and operation of his business, to examine and inspect the Premises and
show the Premises to any prospective purchaser or mortgagee of the
Building or person wishing to lease them, to provide services or make
repairs, replacements, changes or alterations as set out in this Lease,
and to take such steps as Landlord may deem necessary for the safety,
improvement or preservation of the Premises, the Building, or the Project.
Landlord shall, to the extent reasonably possible, consult with or give
notice to Tenant prior to such entry, and no such entry shall constitute
an eviction or entitle Tenant to any abatement of Rent.
6.08 Energy, Conservation and Security Policies Landlord shall be deemed to
have observed and performed the terms and conditions to be performed by
Landlord under this Lease, including those relating to the provision of
utilities and services, if in doing so it acts in accordance with a
directive, policy or request of a governmental or quasi-governmental
authority serving the public interest in the fields of energy,
conservation or security.
6.09 Limitation
(a) Landlord shall use reasonable diligence in carrying out its
obligations under Article 6.00, but shall not be liable under any
circumstances for any consequential damage to any person or property
for any failure to carry out such obligations.
(b) No reduction or discontinuance of any services under this Article
6.00 shall be construed as an eviction of Tenant or (except as
specifically provided in this Lease) release Tenant from any
obligation of Tenant under this Lease.
(c) Nothing contained in this Article 6.00 shall derogate from the
provisions of Article 15.00 or Article 16.00.
ARTICLE 7.00 UTILITIES, MAINTENANCE, REPAIR AND ALTERATIONS BY TENANT
7.01 Condition of Premises Except to the extent to Landlord is specifically
responsible therefore under this Lease, Tenant shall maintain the Premises
and all improvements therein in good order and condition, including
(a) repainting and redecorating the Premises and cleaning drapes and
carpets at reasonable intervals as needed, and
(b) making repairs, replacements and alterations as needed, including
those necessary to comply with the requirements of any governmental
or quasi-governmental authority having jurisdiction over the
Premises.
7.02 Electricity
(a) During the term, Tenant shall provide in the Premises at its own
expense all electricity required in the Premises, except electricity
required for such heat, ventilation and cooling of the Premises as
shall be the Landlord's responsibility under Article 6.02(a).
(b) If during the Term the electrical utility serving the Building
ceases to make electricity directly available to Tenant, Landlord
shall connect Tenant's electrical service to the Building system at
Tenant's cost and expense and, to the extent such utility makes
electricity available to Landlord, shall provide electrical power in
the Premises as an additional service in accordance with the
conditions of Article 6.05.
7.03 Failure to Maintain Premises If Tenant fails to perform any obligation
under Article 7.01, then on not less than ten (10) days' notice to Tenant
(or without notice in an emergency), Landlord may enter the Premises and
perform such obligation without liability to Tenant for any loss or damage
to Tenant thereby incurred, and Tenant shall pay Landlord for the cost
thereof, plus 20% of such cost for overhead and supervision, within ten
(10) days of notice from Landlord of such cost.
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7.04 Alterations by Tenant Tenant may from time to time at its own expense make
non-structural changes, additions and improvements in the Premises to
better adapt the same to its business, provided that any such change,
addition or improvement shall
(a) comply with the requirements of any governmental or
quasi-governmental authority having jurisdiction,
(b) be made only with the prior written consent of Landlord, which
consent will not be unreasonably withheld,
(c) equal or exceed the then current standard for the Building, and
(d) be carried out only by persons selected by Tenant and approved in
writing by Landlord, which approval will not be unreasonably
withheld, who shall if required by Landlord deliver to Landlord
before commencement of the work performance and payment bonds as
well as proof of worker's compensation and public liability and
property damage insurance coverage, with Landlord names as an
additional insured, in amounts with companies, and in forms
reasonably satisfactory to Landlord, which shall remain in effect
during the entire period in which the work will be carried out.
Any increase in property taxes on or fire or casualty insurance
premiums for the Building attributable to such change, addition or
improvements shall be borne by Tenant.
7.05 Trade Fixtures and Personal Property Tenant may install in the Premises
its usual trade fixtures and personal property in a proper manner,
provided that no such installation shall interfere with or damage the
mechanical or electrical systems or the structure of the Building. Trade
fixtures and personal property installed in the Premises by Tenant may be
removed from the Premises
(a) from time to time in the ordinary course of Tenant's business or in
the course of reconstruction, renovation or alteration of the
Premises by Tenant, and
(b) during a reasonable period prior to the expiration of the Term,
provided that Tenant conducts such installation and removal in a manner
which does not unreasonably interfere with the rights of other tenants in
the Building and otherwise in compliance with any Rules and Regulations
promulgated under Article 14.00, and Tenant promptly repairs at its own
expense any damage to the Premises, Building or Project resulting from
such installation and removal.
7.06 Mechanic Liens Tenant shall pay before delinquency all costs for work done
or caused to be done by Tenant in the Premises which could result in any
lien or encumbrance on Landlord's interest in the land and Building or any
part thereof or on Tenant's interest in the Premises, shall keep the title
to the Land and Building and every part thereof free and clear of any lien
or encumbrance in respect of such work and shall indemnify and hold
harmless Landlord against any claim, loss, cost, demand and legal or other
expense, whether in respect of any lien or otherwise, arising out of the
supply of materials, services or labor for such work. Tenant shall
immediately notify Landlord of any such lien, claim of lien or other
action of which it has or reasonably should have knowledge and which
affects the title to the Land or Building or any part thereof or to
Tenant's interest in the Premises, and shall cause the same to be removed
within five (5) days (or such additional time as Landlord may reasonably
consent to in writing) failing which Landlord may take such action as
Landlord deems necessary to remove the same and the entire cost thereof
shall be immediately due and payable by Tenant to Landlord.
7.07 Signs Any sign, lettering or design of Tenant which is visible from the
exterior of the Premises shall be a Tenant's expense and subject to
approval by Landlord, and shall conform to the uniform pattern of
identification signs for tenants in the Building as prescribed by
Landlord, Tenant shall not inscribe or affix any sign, lettering or design
in the Premises or Building which is visible from the exterior of the
Building.
ARTICLE 8.00 TAXES
8.01 Landlord's Taxes Landlord shall pay before delinquency (with participation
by Tenant by payment of Occupancy Costs under Article 4.02) every real
estate tax, assessment, license fee and other charge, excepting Tenant's
Taxes under Article 4.02) every real estate tax, assessment, license fee
and other charge, excepting Tenant's Taxes under Article 8.02 which is
imposed,
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levied, assessed or charged by any governmental or quasi-governmental
authority having jurisdiction and which is payable in respect of the Term
upon or on account of the Land or Building.
8.02 Tenant's Taxes Tenant shall pay before delinquency every tax, assessment,
license fee, excise and other charge, however described, which is imposed,
levied, assessed or charged by any governmental or quasi-governmental
authority having jurisdiction and which is payable in respect of the Term
upon or on account of
(a) operations at, occupancy of, or conduct of business in or from the
Premises by or with the permission of Tenant,
(b) fixtures or personal property in the Premises which do not belong to
the Landlord, and
(c) the Rent paid or payable by Tenant to Landlord for the Premises or
for the use and occupancy of all or any part thereof;
provided that if Landlord so elects by notice to Tenant, Tenant shall add
any amounts payable under this Article 8.02 to the monthly installments of
Annual Rent payable under Article 4.01 and Landlord shall remit such
amounts to the appropriate authorities.
8.03 Right to Contest Landlord and Tenant shall each have the right to contest
in good faith the validity or amount of any tax, assessment, license fee,
excise fee and any other charge which it is responsible to pay under this
Article 8.00, provided that no contest by Tenant may involve the
possibility of forfeiture, sale or disturbance of Landlord's interest in
the Premises, Building or Project and that upon the final determination of
any contest by Tenant, Tenant shall immediately pay and satisfy the amount
found to be due, together with any costs, penalties and interest.
ARTICLE 9.00 INSURANCE
9.01 Landlord's Insurance During the Term, Landlord shall maintain at its own
expense (with participation by Tenant by payment of Occupancy Costs under
Article 4.01) liability insurance, fire insurance with extended coverage,
boiler and pressure vessel insurance, and other insurance on the Building
and all property and interest of Landlord in the Building with coverage
and in amounts not less than those which are from time to time reasonably
acceptable to a prudent owner in the area in which the Building is
located. Policies for such insurance shall waive, to the extent available
from Landlord's insurance carrier(s) any right of subrogation against
Tenant. If there shall be an additional charge for such waiver, Tenant
shall promptly pay the same upon demand by Landlord.
9.02 Tenant's Insurance During the Term, Tenant shall maintain at its own
expense
(a) fire insurance with extended coverage and water damage insurance in
amounts sufficient to fully cover Tenant's improvements and all
property in the Premises which is not owned by Landlord, and
(b) liability insurance, with Landlord named as an additional insured,
against claims for death, personal injury and property damage in or
about the Premises, in amounts which are not less than those from
time to time acceptable to a prudent tenant in the community in
which the Building is located, but in no event less than One Million
Dollars ($1,000,000) for death, illness or injury to any one or more
persons, and Five Hundred Thousand Dollars ($500,000) for property
damage, in respect of each occurrence.
Policies for such insurance shall be in a form and with an insurer
reasonably acceptable to Landlord, shall require at least fifteen (15)
days' written notice to Landlord of termination or material alteration
during the Term, and shall waive, to the extent available from Tenant's
insurance carriers, any right of subrogation against Landlord. If there
shall be an additional charge for such waiver, Landlord shall promptly pay
the same upon demand by Tenant. If requested by Landlord, Tenant shall
from time to time promptly deliver to Landlord certified copies or other
evidence of such policies acceptable to Landlord, and evidence
satisfactory to Landlord that all premiums thereon have been paid and the
policies are in full force and effect.
ARTICLE 10.00 INJURY TO PERSON OR PROPERTY
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10.01 Indemnity by Tenant Tenant shall indemnify and hold harmless Landlord from
and against every demand, claim, cause of action, judgement and expense
(including attorney's fees), and all loss and damage arising from
(a) any injury or damage to the person or property of Tenant, any other
tenant in the Project or to any other person in the Project, where
the injury or damage is caused by negligence or misconduct of
Tenant, its agents, servants or employees, or of any other person
entering upon the Premises under express or implied invitation of
Tenant, or results from the violation of laws or ordinances,
governmental orders of any kind or of the provisions of this Lease
by any of the foregoing parties,
(b) any loss or damage, however caused, to books, records, files, money,
securities, negotiable instruments or papers in or about the
Premises,
(c) any loss or damage, resulting from interference with or obstruction
of deliveries to or from the Premises, and
(d) any injury or damage not specified above to the person or property
of Tenant, its agents, servants or employees, or any other person
entering upon the Premises under express or implied invitation of
Tenant, where the injury or damage is caused by any reason other
than the negligence of misconduct of Landlord, its agents, servants,
or employees.
10.02 Subrogation The provisions of this Article 10.00 are subject to the waiver
of any right of subrogation against Tenant in Landlord's Insurance Under
Article 9.01 and to the waiver of any right of subrogation against
Landlord in Tenant's Insurance under Article 9.02.
ARTICLE 11.00 ASSIGNMENT AND SUBLETTING
11.01 Assignment Tenant may assign this Lease with Landlord's prior written
consent, which consent will not be unreasonably withheld.
(a) to an assignee who is a purchaser of all or substantially all of the
assets of Tenant, a parent or wholly owned subsidiary of Tenant, a
company which results from the reconstruction, consolidation or
merger of Tenant, or a partnership in which Tenant (or not less than
one-half of the principals thereof) has a greater than 50% interest,
provided that consent will not be required if the assignment is for
a good business purpose and not principally for the purpose of
transferring this Lease and (except for an assignment to a
subsidiary of Tenant) the net worth of the assignee immediately
following the assignment is not less than the net worth of the
Tenant on the Commencement Date or immediately prior to the
assignment, whichever is greater, or
(b) subject to the Article 11.03, to any other assignee who, in
Landlord's reasonable opinion, will not be inconsistent with the
dignity, character and standards of the Building and its other
tenants.
11.02 Subleasing Tenant may sublet all or any part of the Premises with
Landlord's prior written consent, which consent will not be unreasonably
withheld.
(a) to a sublessee who is a parent or wholly owned subsidiary of Tenant
and is consistent with the dignity, character and standards of the
Building and its other tenants, and only for such period as it
remains a parent or wholly owned subsidiary of Tenant, or
(b) subject to Article 11.03, to any other sublessee who, in Landlord's
reasonable opinion, will not be inconsistent with the dignity,
character and standards of the Building and its ocher tenants.
11.03 First Offer
(a) If Tenant wishes to assign this Lease or sublet all or any part of
the Premises (except as set out in Article 11.01(a) or 11.02(a) to a
named third party, Tenant shall first offer in writing to assign or
sublet (as the case may be) to Landlord. Such first offer shall
contain the terms of Tenant's proposed assignment or subletting. Any
such first offer shall be deemed to be rejected unless within thirty
(30) days of receipt thereof Landlord delivers written notice of
acceptance to Tenant.
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(b) If Landlord accepts Tenant's offer, Tenant shall assign this Lease
to Landlord or sublet the proposed space to Landlord without cost,
such assignment or subletting to be effective on the date and for
the periods of time set forth in Tenant's notice, provided the
effective date shall not be sooner than forty-five (45) days after
the giving of Tenant's offer.
(c) Any sublease to Landlord will be on the same terms and conditions as
provided in this Lease except that
(i) Rent shall be the Rent (on a square-foot basis) provided in
this Lease, or the rent Tenant's proposed sublessee would have
paid, whichever is less,
(ii) Landlord may assign the sublease or further sublet all or any
part of the space without Tenant's consent, and
(iii) Landlord may make changes, additions, alterations or
improvements (structural or otherwise to the space provided
that Landlord shall be required to restore the space to its
condition immediately prior to the commencement of the
sublease to the same extent as Tenant's proposed sublessee
would have been required to do so.
11.04 limitation No assignment or sublease which is permitted under this Article
11.00 shall be effective until Tenant delivers a copy of the executed
instrument to Landlord. Except as specifically provided in this Article
11.00. Tenant shall not assign or transfer this Lease or any interest
therein or in any way part with possession of all or any part of the
Premises, or permit all or any part of the Premises to be used or occupied
by any other person. Any assignment, transfer or subletting or purported
assignment, transfer or subletting except as specifically provided herein
shall be null and void and of no force and effect. Landlord shall not be
required to consent to a assignment of this Lease or a sublease of all or
part of the Premises by Tenant to any tenant in the Project or with whom
Landlord is negotiating in good faith for space in the Project. Except as
expressly provided herein, the rights and interests of Tenant under this
Lease shall not be assignable by operation of law without Landlord's
written consent, which consent may be withheld in Landlord's absolute
discretion.
11.05 Tenant's Obligations Continue No assignment, transfer, or subletting (or
use or occupation of the Premises by any other person) shall in any way
release or relieve Tenant of its obligations under this Lease unless such
release or relief is specifically granted by Landlord to Tenant in
writing, except should Landlord accept Tenant's First Offer under Article
11.03. when Tenant shall be released on the portion of the Premises taken
by Landlord.
11.06 Subsequent Consent Landlord's consent to a assignment; transfer or
subletting (or use or occupation of the Premises by any other person)
shall not be deemed to be a consent to any subsequent assignment,
transfer, subletting, use or occupation.
11.07 Change in Control As used in this Article 11.00, the term "assignment"
shall be deemed to include
(d) any transaction whether issuance of interest in Advanced
Telecommunications, Inc. or transference of interest of Advanced
Telecommunications, Inc. (whether stock, partnership interest, or
otherwise) which would reduce the personal holdings of Cliff
Williams or Paul Cady to less than 5% interest in Advanced
Telecommuncitions, Inc.
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ARTICLE 12.00 SURRENDER
12.01 Possession Upon the expiration or other termination of the Term, Tenant
shall immediately quit and surrender possession of the Premises (including
all improvements made to the Premises) in substantially the condition in
which Tenant is required to maintain the Premises, excepting only
reasonable wear and tear and damage covered by Landlord's insurance under
Article 9.01. Upon such surrender, all right, tide and interest of Tenant
in the Premises including the improvements made to the Premises shall
cease.
12.02 Trade Fixtures, Personal Property and Improvements Subject to Tenant's
rights under Article 7.05, after the expiration or other termination of
the Term all of Tenant's trade fixtures and personal property remaining in
the Premises shall be deemed conclusively to have been abandoned by
Tenant. All of Tenant's trade fixtures, personal property and improvements
remaining in the Premises may be appropriated, sold, destroyed or
otherwise disposed of by Landlord without notice or obligation to
compensate Tenant or to account therefore, and Tenant shall pay to
Landlord on written demand all costs incurred by Landlord in connection
therewith. The obligations of Tenant under this Article 12.02 shall
survive the expiration or other termination of the Term.
12.03 Merger The voluntary or other surrender of this Lease by Tenant or the
cancellation or termination of this Lease by mutual agreement of Tenant
and Landlord or otherwise shall not work a merger, and shall at Landlord's
option terminate all or any subleases and subtenancies or operate as an
assignment to Landlord of all or any subleases or subtenancies.
12.04 Payments After Termination No payments of money by Tenant to Landlord
after the expiration or other termination of the Term or after the giving
of any notice (other than a demand for payment of money) by Landlord to
Tenant, shall reinstate, continue or extend the Term or make ineffective
any notice given to Tenant prior to the payment of such money. After the
service of notice or the commencement of a suit, or after final judgment
granting Landlord possession of the Premises, Landlord may receive and
collect any sums of Rent due under the Lease, and the payment thereof
shall not make ineffective any notice, or in any manner affect any pending
suit or any judgment therefore obtained.
ARTICLE 13.00 HOLDING OVER
13.01 Month-to-Month Tenancy If with Landlord's written consent (which consent
will not be unreasonably withheld if all or part of the Premises is not
leased to others or required for Landlord's use) Tenant remains in
possession of the Premises after the expiration or other termination of
the Term, Tenant shall be deemed to be occupying the Premises on a
month-to-month tenancy only at a monthly rental equal to the installment
of Annual Rent in effect for the last month of the Term, plus all other
Rent which would have been payable under this Lease for such additional
month or months if the Term had remained in effect, as determined in
accordance with Article 4.00 or such other rental as is stated in such
written consent, and such month-to-month tenancy may be terminated by
Landlord or Tenant on the last day of any calendar month by giving at
least one month's advance notice of termination to the other.
13.02 Tenancy at Sufferance If without Landlord's written consent Tenant
remains in possession of the Premises after the expiration or other
termination of the Term, Tenant shall promptly surrender the Premises to
Landlord in accordance with Article 12.00, and shall pay to Landlord for
each day that Tenant retains possession of the Premises or any portion
thereof beyond the expiration or other termination of the Term an amount
equal to two times the Annual Rent in effect on the last day of the Term,
plus all other Rent which would have been payable under this Lease if the
Term had remained in effect, as determined in accordance with Article 4.00
and adjusted and calculated on a per diem basis.
13.03 General Any month-to-month tenancy or tenancy at sufferance hereunder
shall be subject to all other terms and conditions of this Lease except
any right of renewal and nothing contained in this Article 13.00 shall be
construed to limit or impair any of Landlord's rights of re-entry or
eviction or constitute a waiver thereof.
ARTICLE 14.00 RULES AND REGULATIONS
14.01 Purpose The Rules and Regulations in Exhibit C have been adopted by
Landlord for the safety, benefit and convenience of all tenants and other
persons in the Building.
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14.02 Observance Tenant shall at all times comply with, and shall cause its
employees, agents, licensees and invitees to comply with the Rules and
Regulations from time to time in effect.
14.03 Modification Landlord may from time to time, for the purposes set out in
Article 14.01, amend, delete from, or add to the Rules and Regulations,
provided that any such modification.
(a) shall not be repugnant to any other provision of this Lease,
(b) shall be reasonable and have general application to all tenants in
the Building, and
(c) shall be effective only upon delivery of a copy thereof to Tenant at
the Premises.
14.04 Non-Compliance Landlord shall endeavor to secure compliance by all
tenants in the Building with the Rules and Regulations from time to time
in effect, but shall not be responsible to Tenant for failure of any
person to comply with such Rules and Regulations.
ARTICLE 15.00 EMINENT DOMAIN
15.01 Taking of Premises If during the Term all of the Premises shall be taken
for any public or quasi-public use under any statute or by right of
eminent domain, or purchased under threat of such taking, this Lease shall
automatically terminate on the date on which the condemning authority
takes possession of the Premises (hereinafter called the "date of such
taking").
15.02 Partial Taking of Building If during the Term only part of the Building
is taken or purchased as set out in Article 15.01, then
(a) if in the reasonable opinion of Landlord substantial alteration or
reconstruction of the Building is necessary or desirable as a result
thereof, whether or not the Premises are or may be affected,
Landlord shall have the right to terminate this Lease by giving
Tenant at least thirty (30) days' written notice of such
termination, and
(b) if more than one-third of the number of square feet in the Premises
is included in such taking or purchase, Landlord and Tenant shall
each have the right to terminate this Lease by giving the other at
least thirty (30) days' written notice thereof.
If either party exercises its right of termination hereunder, this Lease
shall terminate on the date stated in the notice, provided, however, that
no termination pursuant to notice hereunder may occur later than sixty
(60) days after the date of such taking.
15.03 Surrender On any such date of termination under Article 15.01 or 15.02.
Tenant shall immediately surrender to Landlord the Premises and all
interests therein under this Lease. Landlord may re-enter and take
possession of the Premises and remove Tenant therefrom, and the Rent shall
abate on the date of termination, except that if the date of such taking
differs from the date of termination, Rent shall abate on the former date
in respect of the portion taken. After such termination, and on notice
from Landlord stating the Rent then owing, Tenant shall forthwith pay
Landlord such Rent.
15.04 Partial Taking of Premises If any portion of the Premises (but less than
the whole thereof) is so taken, and no rights of termination herein
conferred are timely exercised, the Term of this Lease shall expire with
respect to the portion so taken on the date of such taking. In such event
the Rent payable hereunder with respect to such portion so taken shall
abate on such date, and the Rent thereafter payable with respect to the
remainder not so taken shall be adjusted pro rata by Landlord in order to
account for the resulting reduction in the number of square feet in the
Premises.
15.05 Awards Upon any such taking or purchase, Landlord shall be entitled to
receive and retain the entire award or consideration for the affected
lands and improvements, and Tenant shall not have nor advance any claim
against Landlord or the condemning authority for the value of its property
or its leasehold estate or the unexpired Term of this Lease, or for costs
of removal or relocation, or business interruption expenses or any other
damages arising out of such taking or purchase, and Tenant hereby assigns
to Landlord all of its interest to such award and agrees to execute any
documents that may be required to facilitate collection thereof by
Landlord. Nothing herein shall give Landlord any interest in or preclude
Tenant from seeking and recovering on its own account from the condemning
authority any separate award or compensation attributable to the taking or
purchase of Tenant's trade fixtures or personal property, or the removal
or relocation of its business and effects, or the
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interruption of its business, provided such award shall be made in
addition to, and not result in a reduction of, the award otherwise made to
Landlord. If any such award made or compensation paid to either party
specifically includes an award or amount for the other, the party first
receiving the same shall promptly account therefore to the other.
ARTICLE 16.00 DAMAGE BY FIRE OR OTHER CASUALTY
16.01 Limited Damage to Premises If all or part of the Premises are rendered
untenantable by damage from fire or other casualty, in the reasonable
opinion of an architect selected by Landlord and approved by Tenant, which
approval will not be unreasonably withheld, cannot be substantially
repaired under applicable laws and governmental regulations within one
hundred eighty (180) days from the date of such casualty (employing normal
construction methods without overtime or other premium), then either
Landlord or Tenant may elect to terminate this Lease as of the date of
such casualty by written notice delivered to the other not more than
twenty (20) days after receipt of such architect's opinion, failing which
Landlord shall forthwith at its own expense repair such damage other than
damage to improvements, trade fixtures or personal property which do not
belong to Landlord.
16.02 Major Damage to Premises If all or part of the Premises are rendered
untenantable by damage from fire or other casualty, in the reasonable
opinion of an architect selected by Landlord and approved by Tenant, which
approval will not be unreasonably withheld, cannot be substantially
repaired under applicable laws and governmental regulations within one
hundred eighty (180) days from the date of such casualty (employing normal
construction methods without overtime or other premium), then either
Landlord or Tenant may elect to terminate this Lease as of the date of
such casualty by written notice delivered to the other not more than
twenty (20) days after receipt of such architect's opinion, failing which
Landlord shall forthwith as its own expense repair such damage other than
damage to improvements, trade fixtures or personal property which do not
belong to Landlord.
16.03 Abatement If Landlord is required to repair damage to all or part of the
Premises under Article 16.01 or 16.02, the Rent payable by Tenant
hereunder shall be proportionately reduced to the extent that the Premises
are thereby rendered unusable by Tenant in its business, from the date of
such casualty until five (5) days after completion by Landlord of the
repairs to the Premises (or the part thereof rendered untenantable) or
until Tenant again uses the Premises (or the part thereof rendered
untenantable) in its business, whichever first occurs.
16.04 Major Damage to Building If all or a substantial part (whether or not
including the Premises) of the Building is rendered untenantable by damage
from fire or other casualty to such a material extent that in the
reasonable opinion of Landlord the Building must be totally or partially
demolished, whether or not to be reconstructed in whole or in part,
Landlord may elect to terminate this Lease as of the date of such casualty
(or on the date of notice if the Premises are unaffected by such casualty)
by written notice delivered to Tenant not more than sixty (60) days after
the date of such casualty.
16.05 Limitation on Landlord's Liability Except as specifically provided in
this Article 16.00, there shall be no reduction of Rent and Landlord shall
have no liability to Tenant by reason of any injury to or interference
with Tenant's business or property arising from fire or other casualty,
howsoever caused or from the making of any repairs resulting therefrom in
or to any portion of the Building or the Premises. Notwithstanding
anything contained herein, Rent payable by Tenant hereunder shall not be
abated if the damage is caused by any act or omission of Tenant, its
agents, servants, employees or any other person entering upon the Premises
under express or implied invitation of Tenant.
ARTICLE 17.00 TRANSFERS BY LANDLORD
17.01 Sales, Conveyance and Assignment Nothing in this Lease shall restrict the
right of Landlord to sell, convey, assign or otherwise deal with the
Building, subject only to the rights of Tenant under this Lease.
17.02 Effect of Sale, Conveyance or Assignment A sale, conveyance or assignment
of the Building shall operate to release Landlord from liability from and
after the effective date thereof upon all of the covenants, terms and
conditions of this Lease, express or implied, except as such may relate to
the period prior to such effective date, and Tenant shall thereafter look
solely to Landlord's successor in interest in and to this Lease. This
Lease shall not be affected by any such sale, conveyance or assignment,
and Tenant shall attorn to Landlord's successor in interest thereunder.
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17.03 Subordination This Lease is and shall be subject and subordinate in all
respects to any and all ground or underlying leases, and to all mortgages
and deeds of trust which may now or hereafter affect any of such leases or
the Building or Land, and to all renewals, modifications, consolidations,
replacements and extensions thereof.
17.04 Attornment Subject to Article 17.05, if the interest of Landlord is
transferred to any person (herein called "Purchaser") by reason of
foreclosure or other proceedings for enforcement of any such mortgage or
deed of trust, or by delivery of a deed in lieu of such foreclosure or
other proceedings, Tenant shall immediately and automatically attorn to
Purchaser.
17.05 Nondisturbance No attornment by Tenant under Article 17.04 shall be
effective unless, before the date of transfer to Purchaser, Purchaser
delivers to Tenant a written undertaking, binding upon Purchaser and
enforceable by and for the benefit of Tenant under applicable law, that
this Lease and Tenant's rights hereunder shall continue undisturbed while
Tenant is not in default despite such enforcement proceedings and
transfer.
17.06 Effect of Attornment Upon attornment under Article 17.04, this Lease
shall continue in full force and effect as a direct lease between
Purchaser and Tenant, upon all of the same terms, conditions and covenants
as are set forth in this Lease except that, after such attornment,
Purchaser shall not be
(a) liable for any act or omission of Landlord, or
(b) subject to any offsets or defenses which Tenant might have against
Landlord, or
(c) bound by any prepayment by Tenant of more than one month's
installment of Rent, or by any previous modification of this Lease,
unless such prepayment or modification shall have been approved in
writing by Purchaser or any predecessor in interest except Landlord.
17.07 Execution of Instruments The subordination and attornment provisions of
this Article 17.00 shall be self-operating and, except as set out in
Article 17.05, no further instrument shall be required. Nevertheless,
Tenant, on request by and without cost to Landlord or any successor in
interest, shall promptly execute and deliver to Landlord any and all
instruments further evidencing such subordination and (where applicable
hereunder) attornment.
ARTICLE 18.00 NOTICES, ACKNOWLEDGEMENTS, AUTHORITIES FOR ACTION
18.01 Notices Any notice from Landlord to Tenant shall be in writing and shall
be deemed duly served if delivered personally to a responsible employee of
Tenant, or if mailed by registered or certified mail addressed to Tenant
at the Premises (whether or nor Tenant has departed from, vacated or
abandoned the same). Any notice from Tenant to Landlord shall be in
writing and shall be deemed duly served if mailed by registered or
certified mail addressed to Landlord at the place from time to time
established for the payment of Rent. Any notice shall be deemed to have
been given at the time of personal delivery or, if mailed, three (3) days
after the date of mailing thereof. Either party shall have the right to
designate by notice, in the manner above set forth, a different address to
which notices are to be mailed.
18.02 Acknowledgements Each of the parties hereto shall at any time and from
time to time upon not less than fifteen (15) days' prior notice from the
other execute, acknowledge and deliver a written statement certifying
(a) that this Lease is in full force and effect, subject only to such
modifications (if any) as may be set out therein,
(b) that Tenant is in possession of the Premises and paying Rent as
provided in this Lease,
(c) the dates (if any) to which Rent is paid,
(d) that there are not, to such party's knowledge, any uncured defaults
on the part of the other party hereunder, or specifying such
defaults if any are claimed,
(e) as to such other matters pertaining to this Lease as the other party
may reasonably request.
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Any such statement may be relied upon by any prospective transferee or
encumbrancer of all or any portion of the Building, or any assignee of any
such persons. If Tenant fails to timely deliver such statement, Tenant
shall be deemed to have acknowledged that this Lease is in full force and
effect, without modification except as may be represented by Landlord, and
that there are no uncured defaults in Landlord's performance.
18.03 Authorities for Action Landlord may act in any matter provided for herein
through its property manager and any other person who shall from time to
time be designated by Landlord by notice to Tenant. Tenant shall designate
in writing one or more persons to act on its behalf in any matter provided
for herein and may from time to time change, by notice to Landlord, such
designation. In the absence of any such designation, the person or persons
executing this Lease for Tenant shall be deemed to be authorized to act on
behalf of Tenant in any matter provided for herein.
ARTICLE 19.00 DEFAULT
19.01 Interest and Costs Tenant shall pay to Landlord interest at a rate equal
to the lesser of 1 1/2% per month, or the maximum rate permitted by
applicable law, upon all Rent required to be paid hereunder from the due
date for payment thereof until the same is fully paid and satisfied.
Tenant shall indemnify Landlord against all costs and charges (including
legal fees) reasonably incurred in enforcing Tenant's payment of Rent, and
in obtaining possession of the Premises after default of Tenant or upon
expiration or earlier termination of the Term of this Lease, and in
enforcing any covenant, proviso or agreement of Tenant herein contained.
19.02 Right of Landlord to Perform Covenants All covenants and agreements to be
performed by Tenant under any of the terms of this Lease shall be
performed by Tenant, at Tenant's sole cost and expense, and without any
abatement of Rent. If Tenant shall fail to perform any act on its part to
be performed hereunder, and such failure shall continue for ten (10) days
after notice thereof from Landlord (or without notice in an emergency),
Landlord may (but shall not be obligated to) perform such act without
waiving or releasing Tenant from any of its obligations or liabilities
relative thereto. All sums paid or costs incurred by Landlord in so
performing such acts under this Article 19.02, together with interest
thereon at the rate set out in Article 19.01 from the date each such
payment was made or each such cost incurred by Landlord, shall be payable
by Tenant to Landlord on demand.
19.03 Events of Default The rights of Tenant under this Lease are subject to the
limitations that if
(a) Tenant files a voluntary petition in bankruptcy or insolvency, or is
adjudicated a bankrupt or insolvent, or files a petition or answer
seeking any relief under any bankruptcy act or other similar
applicable law, or makes an assignment for the benefit of creditors
or seeks or consents in the appointment of any trustee, receiver, or
liquidator of Tenant's business or property, or
(b) within sixty (60) days after the commencement of any proceeding
against Tenant seeking any relief under any bankruptcy act or
similar applicable law, such proceeding has not been dismissed, or
if, within sixty (60) days after the appointment of any trustee,
receiver or liquidator of Tenant's business or property without the
consent of Tenant, such appointment has not been vacated or
otherwise discharged, or if any execution or attachment shall be
issued against Tenant's business or property pursuant to which the
Premises may be taken or occupied, or
(c) part or all of the Rent is not paid when due and such default
continues for five (5) days after the due date thereof, or
(d) Tenant's interest in this Lease devolves or passes to any party
other than Tenant, by operation of law or otherwise, except with the
prior written consent of Landlord, or
(e) the Premises are vacated or abandoned or if Tenant fails to take
occupancy of the Premises within thirty (30) days after the
Commencement Date, except with the prior written consent of
Landlord, or
(f) Tenant fails to observe or perform any other term, covenant or
condition of this Lease on Tenant's part to be observed or
performed, other than the payment of Rent, and fails to remedy such
default within ten (10) days after notice by Landlord to Tenant of
such default or, if such default within ten (10) days after notice
by Landlord to Tenant of such default or, if such default is of such
a nature that it cannot be completely remedied within said period,
Tenant fails to
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promptly, upon the giving of such notice, advise Landlord of
Tenant's intent to institute all steps necessary to remedy the
default and promptly institute and thereafter diligently prosecute
to completion all steps necessary to remedy the default, and
complete such remedy within a reasonable time after the giving of
such notice by Landlord and in any event prior to such time as would
cause a default under any mortgage or underlying lease on the
Building or Land,
then in any of said events Landlord may terminate this Lease by giving at
least three (3) days' prior written notice to Tenant and this Lease shall
terminate upon the expiration of that notice period as though that date
were the Expiration Date, but Tenant shall remain liable for damages as
provided in this Article 19.00.
19.04 Re-Entry and Remedies If part or all of the Rent is not paid when due and
such default continues for five (5) days after notice from Landlord to
Tenant or of this Lease is terminated as provided in Article 19.03,
(a) Landlord may immediately or at any time thereafter re-enter the
Premises or any part thereof in accordance with applicable law by
summary proceedings or otherwise, and may repossess the Premises and
dispossess Tenant and any other persons from the Premises and remove
Tenant's trade fixtures and personal property from the Premises,
without liability for damage thereto, and in no event shall re-entry
be deemed an acceptance of surrender of this Lease, and
(b) Landlord may from time to time (but shall not be obligated to) relet
the whole or any part of the Premises on such terms and at such
rentals as Landlord deems advisable. Landlord may make such changes,
additions, improvements and repairs to the Premises as Landlord
deems advisable without affecting Tenant's liability under this
Lease.
19.05 Waiver Tenant hereby expressly waives any and all rights of redemption or
reinstatement granted by or under any present or future laws in the event
of Tenant being evicted or dispossessed for any cause, or in the event of
Landlord obtaining possession of the Premises, by reason of the violation
by Tenant of any of the terms, covenants or conditions of this Lease or
otherwise.
19.06 Payments If this Lease is terminated or if Landlord re-enters the Premises
under this Article 19.00:
(a) Tenant shall pay to Landlord all Rent up to the time of re-entry or
termination, whichever is later,
(b) Landlord may retain all monies, if any, paid by Tenant to Landlord,
whether as advance rent, security or otherwise, but such monies
shall be credited by Landlord against any Rent due at the time of
such termination or re-entry or, at Landlord's option, against any
damages payable by Tenant,
(c) Tenant shall pay to Landlord all expenses incurred by Landlord in
terminating, re-entering and re-letting, including all repossession
costs, brokerage and legal fees and costs of preparing the Premises
for reletting, and
(d) (i) Tenant shall pay to Landlord, as damages, any deficiency
between the Rent for the period which otherwise would have
constituted the unexpired portion of the Term and the
payments, if any, received by Landlord from other tenants in
the Premises, such deficiency to be paid at the times and in
the manner as Rent is payable under Article 4.00, and Landlord
shall be entitled to bring a suit to recover each deficiency
as the same shall arise, or at Landlord's election, bring
suits from time to time.
(ii) If elected by Landlord, at or after re-entry or termination,
Tenant shall pay Landlord on demand as liquidated and final
damages for lost Rent and not as a penalty, a sum equal to the
amount by which the Rent payable hereunder for the period to
the Expiration Date from the latest of the date of termination
of this Lease, the date of re-entry or the date through which
monthly deficiencies shall have been paid (conclusively
presuming the Occupancy Costs to be the same as payable for
the Fiscal Year immediately preceding such termination or
re-entry) exceeds the then fair rental value of the Premises
for the same period, discounted at the rate of 7% per annum to
present worth. If, before presentation of proof of such
liquidated damages to any court, commission or tribunal, all
or part of the Premises are relet by Landlord for all or part
of the period which otherwise would have constituted the
unexpired portion of the Term, the amount of rent upon such
reletting shall be deemed to be the fair rental value for the
part or whole of the Premises during the term of the
reletting.
(iii) In no event shall Tenant be entitled to receive any excess of
any payments received by Landlord from a reletting of the
Premises over the sums payable by Tenant to Landlord
hereunder; and
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(iv) If the Premises or any part thereof should be relet in
combination with other space, then proper apportionment on a
square foot area basis shall be made of the rent received from
such reletting and the expenses of reletting.
Nothing herein shall be construed as limiting or precluding the recovery
by Landlord against Tenant of any sums or damages to which, in addition to
the damages set out in this Article 19.06, Landlord may lawfully be
entitled by reason of any default hereunder by Tenant.
19.07 Remedies Cumulative Each right of Landlord provided for in this Lease
shall be cumulative and shall be in addition to every other right provided
for in this Lease or existing at law or in equity, and the exercise by
Landlord of any one or more of such rights shall not preclude the
simultaneous or later exercise by Landlord of any other rights provided
for in this Lease or existing at law or inequity.
ARTICLE 20.00 MISCELLANEOUS
20.01 Relationship of Parties Nothing contained in this Lease shall create any
relationships between the parties hereto other than that of Landlord and
tenant, and it is acknowledged and agreed that Landlord does not in any
way or for any purpose become a partner of Tenant in the conduct of its
business, or a joint venturer or a member of a joint or common enterprise
with Tenant.
20.02 Name of Building Landlord shall have the right, after thirty (30) days'
notice to Tenant, to change the name, number and designation of the
Building, during the Term without liability to Tenant.
20.03 Applicable Law and Construction This Lease shall be governed by and
construed under the laws of Minnesota and its provisions shall be
construed as a whole according to their common meaning and not strictly
for or against Landlord or Tenant. The words Landlord and Tenant shall
include the plural as well as the singular. If this Lease is executed by
more than one tenant, Tenant's obligations hereunder shall be joint and
several obligations of such executing tenants. Time is of the essence of
this Lease and each of its provisions. The captions of the Articles are
included for convenience only, and shall have not effect upon the
construction or interpretation of this Lease.
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20.04 Entire Agreement If there are any terms and conditions which at the date
of execution of this Lease are additional or supplemental to those set out
on the first 18 pages and in Exhibits A, B and C, such terms and
conditions are contained in Exhibit D (if any) attached hereto as part of
this Lease. This Lease contains the entire agreement between the parties
hereto with respect to the subject matter of this Lease. Tenant
acknowledges and agrees that it has not relied upon any statement,
representation, agreement or warranty except such as are set out in this
Lease.
20.05 Amendment or Modification Unless otherwise specifically provided in this
Lease, no amendment, modification, or supplement to this Lease shall be
valid or binding unless set out in writing and executed by the parties
hereto in the same manner as the execution of this Lease.
20.06 Construed Covenants and Severability All of the provisions of this Lease
are to be construed as covenants and agreements as though the words
importing such covenants and agreements were used in each separate Article
hereof. Should any provision of this Lease be or become invalid, void,
illegal or not enforceable, it shall be considered separate and severable
from the Lease and the remaining provisions shall remain in force and be
binding upon the parties hereto as though such provision had not been
included.
20.07 No Implied Surrender or Waiver No provisions of this Lease shall be deemed
to have been waived by Landlord unless such waiver is in writing signed by
Landlord. Landlord's waiver of a breach of any term, covenant or condition
of this Lease shall not prevent a subsequent act, which would have
originally constituted a breach, from having all the force and effect of
any original breach. Landlord's receipt of Rent with knowledge of a breach
by Tenant of any term, covenant or condition of this Lease shall not be
deemed a waiver of such breach. Landlord's failure to enforce against
Tenant or any other tenant in the Building any of the Rules and
Regulations made under Article 14.00 shall not be deemed a waiver of such
Rules and Regulations. No act or thing done by Landlord, its agents or
employees during the Term shall be deemed an acceptance of a surrender of
the Premises, and no agreement to accept a surrender of the Premises shall
be valid, unless in writing signed by Landlord. The delivery of keys to
any of Landlord's agents or employees shall not operate as a termination
of this Lease or a surrender of the Premises. No payment by Tenant, or
receipt by Landlord, of a lesser amount than the Rent due hereunder shall
be deemed to be other than on account of the full Rent due, nor shall any
endorsement or statement on any check or any letter accompanying any
check, or payment of Rent, be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such Rent or pursue any other remedy
available to Landlord.
20.08 Successors Bound Except as otherwise specifically provided, the covenants,
terms, and conditions contained in this Lease shall apply to and bind the
heirs, successors, executors, administrators and assigns of the parties
hereto.
ARTICLE 21.00 RELOCATION BY TENANT
21.01 Landlord, at its sole expense, on at least one hundred eighty (180) days
prior written notice, may require Tenant to move from the Premises to
other space of comparable size and decor in order to permit Landlord to
consolidate the space leased to Tenant with other adjoining space leased
or to be leased to another tenant. Provided, however, that in the event of
receipt of any such notice, Tenant by written notice to Landlord may elect
not so move to other space and in lieu thereof terminate this Lease,
effective ninety (90) days after the date of the original notice of
relocation by Landlord. In the event of any such relocation, within the
Project, Landlord will pay all expenses of preparing and decorating the
new premises so that they will be substantially similar to the Premises
from which Tenant is moving and Landlord will also pay the expense of
moving Tenant's furniture and equipment to the relocated premises. In such
event this Lease and each and all of the terms and covenants and
conditions hereof shall remain in full force and effect and thereupon be
deemed applicable to such new space.
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IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ R. William Inserra By: /s/ Cliff D. Williams
-------------------------------- --------------------------------
R. William Inserra CLIFF D. WILLIAMS
Vice President Asset Management --------------------------------
(Type name) CEO
--------------------------------
By:
--------------------------------
--------------------------------
(Type name)
Date Executed: 9-29-97 Date Executed:
-------------------- ----------------------
--------------------------------
if not incorporated
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EXHIBIT A
[GRAPHIC OMITTED]
PEAVY BUILDING - FLOOR 12
<PAGE>
BAKER CENTER EXHIBIT B
Office Space
PEAVEY BUILDING
730 SECOND AVENUE SOUTH
MINNEAPOLIS, MINNESOTA 55402
SECTION 1.00 WORDS AND PHRASES
1.01 Definitions In the Lease, including this Exhibit:
(a) "Architect" means that firm of professional architects or engineers
as Landlord may from time to time engage for preparation of
construction drawings for the Building or for general supervision of
architectural and engineering aspects and operations of the Building
and includes any consultant(s) from time to time appointed by
Landlord or the Architect whenever such consultants(s) is acting
within the scope of his or her appointment and specialty.
(b) "Land" means those lands located in Hennepin County, Minnesota,
described as:
Lots 9,10 and 11, and the Southeasterly 10 feet of the
Southwesterly 90 feet of Lot 8, Auditor's Subdivision No. 178
Hennepin County, Minnesota.
(c) "Project" means those portions of those lands, in Hennepin County,
Minnesota, described as:
Lots 1,2,3,4,5,6,7,8,9, 10 and 11, Auditors Subdivision No.
178 Hennepin County, Minnesota, hum time to time owned or
leased by Landlord, and the developments and improvements from
time to time constructed on those portions.
(d) "Building" means the building in which the Premises are located,
being those portions of the Project on the Land.
(e) "Investors Building" means those portions of the Project on those
lands in Hennepin County, Minnesota, described as:
Lots 6, 7 and 8, Auditors Subdivision 178 Hennepin County,
Minnesota, except the Southeasterly 10 feet of the
Southwesterly 90 feet of said Lot 8.
(f) "Roanoke Building" means those portions of the Project on those
lands located in Hennepin County, Minnesota, described as:
Lots 3,4 and 5, Auditor's Subdivision No. 178 Hennepin County,
Minnesota.
(g) "Baker Building" means those portions of the Project on those lands
located in Hennepin County, Minnesota, described as:
Lots 1 and 2, Auditors Subdivision No. 178 Hennepin County,
Minnesota.
(h) "Rentable Components" means the Building, Investors Building,
Roanoke Building and Baker Building, in each case excluding Common
Areas and Parking Facilities.
(i) "Parking Facilities" means those portions of the Project from time
to time designated by Landlord for vehicular parking.
(j) "Common Areas" means those portions of the Project (excluding
Parking Facilities) not leased or designated for lease to tenants
that Landlord provides for use in common by Landlord, Tenant, and
other tenants of the Project (or by respective sublessees, agents,
employees, customers or licensees), whether or not those areas are
open to the general public, and includes any fixtures, chattels,
systems, decor, signs, facilities, or landscaping contained,
maintained, or used in connection with those areas, and is deemed to
include the city sidewalks adjacent to the Land and adjoining lands
and any pedestrian walkway system (either above or below ground) or
other facility open to the general public in respect of which
Landlord is from time to time subject to obligations arising from
the Project, but does not include any space on office floors
designated by Landlord for use in common by tenants and other
persons.
(k) "Delivery Facilities" means those portions of the Common Areas from
time to time designated by Landlord as facilities to be used in
common by Landlord, tenants in the Project, and others for purposes
of loading, unloading, delivery, dispatch, and holding of
merchandise, goods and materials entering or leaving the Project and
giving vehicular access to those portions of the Project.
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(l) "Section" means a section of this Exhibit B.
1.02 Normal Business Hours Except as otherwise specifically provided in this
Lease, normal business hours for the Building shall be from 8:00 a.m. to
6:00 p.m. Monday through Friday, and 8:00 a.m. to 1:00 p.m. Saturday,
excluding days which are legal or statutory holidays in the jurisdiction
in which the Building is located.
SECTION 2.00 DETERMINATION OF OCCUPANCY COSTS
2.01 Definitions In this Section 2.00:
(a) "Tax Cost" means the Taxes accruing in respect of the calendar year
in which the Fiscal Year begins, less that part of those Taxes
attributable to the Parking Facilities.
(b) "Taxes" means the aggregate of all taxes, rates, charges, levies and
assessments payable by Landlord and imposed by any competent
authority upon or in respect of the Land and all improvements on the
Land, including any tax imposed on the capital invested in the Land
or improvements on the Land. In determining Taxes, any corporate
income, profits, excess profits and business tax imposed upon the
income of Landlord and any other impost of a personal nature charged
or levied against the Landlord shall be excluded, except to the
extent that it is levied in lieu of or as a substitute for increases
in taxes, rates, charges or assessments in respect of the Land or
any improvements on the Land.
(c) "HVAC Cost" means a percentage of the costs in the Fiscal Year for
the operation, repair and maintenance of the system for heating,
ventilating and cooling the Project as established by Landlord from
time to time on a fair and equitable basis which reflects load and
hours of operation.
(d) "Common Areas Costs" means all net costs, charges and expenses in
respect of a Fiscal Year which are directly attributable to the
operation, repair and maintenance of the Common Areas, including
without limitation HVAC Cost.
(e) "Project Costs" means all net costs, charges and expenses in respect
of a Fiscal Year which are directly attributable to the operation,
repair and maintenance of the Project, but which are not
attributable solely to the operation, repair or maintenance of the
Common Areas, Parking Facilities, or any Rentable Component.
(f) "Square Feet in the Premises" means the number of square feet set
out in Article l.01(l) or l.01(n)of the Lease, which for office
tenants includes the number of square feet of unallocated space in
the Building set out in Article 1.01(l) of the Lease.
(g) "Square Feet in the Building" means 307,245 square feet, being the
aggregate of the rentable areas of office space (on a single-tenancy
floor basis) and retail and service store space in the Building. If
from time to time there is a material change in the rentable areas
of the Building, Square Feet in the Building shall (until any
further change) mean the number of square feet in the Building
determined on completion of such change on the basis set out in
Sections 3.01 and 3.03.
2.02 Occupancy Costs Occupancy Costs for any Fiscal Year shall be an amount
equal to the Operating Cost in respect of that Fiscal Year multiplied by
the Square Feet in the Premises.
2.03 Determination Of Operating Cost "Operating Cost" means an amount per
square foot (calculated to the nearest tenth of a cent) established in
accordance with generally accepted accounting principles and confirmed in
a certificate of Landlord, and equal to the sum of the following costs in
respect of a Fiscal Year, divided by the Square Feet in the Building:
(a) all net costs, charges and expenses directly attributable to the
operation, repair and maintenance of the Building (excluding Common
Areas and Parking Facilities), including, without limitation, Tax
Cost and HVAC Cost, and
(b) a portion of the Common Areas Costs as established by Landlord from
time to time on a fair and equitable basis, and
(c) that proportion of Project Costs which the gross area of the
Building (excluding Common Areas and Parking Faculties) is of the
aggregate gross area of the Rentable Components.
Operating Cost under this Section 2.03 includes all net expenses properly
allocable to the Fiscal Year for any capital improvement or structural
repair incurred to reduce or limit increases in Operating Cost, or
required by Landlord's insurance carrier or by the laws, rules,
regulations or orders of any governmental or quasi-governmental authority
having jurisdiction,
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which expenses shall be amortized at applicable interest rates over the useful
capital life of the capital improvement or structural repair. If Landlord
manages the Building or other applicable portion of the Project, Operating Cost
under this Section 2.03 also includes an imputed management fee commensurate
with the then-current Minneapolis-Saint Paul metropolitan market for management
services.
2.04 Limitation on Operating Cost In determining Operating Cost, the cost (if
any) of the following shall be excluded except as specifically provided in
Section 2.03:
(a) major structural repairs to the Project,
(b) improvements, additions or alterations to the Project,
(c) repair and replacement resulting from inferior or deficient
workmanship, materials or equipment in the initial construction of
the Project or for which Landlord is reimbursed by insurers,
(d) ground rent (if any), depreciation, amortization and interest on and
capital retirement of debt,
(e) operation, repair and maintenance which is attributable solely to
the Parking Facilities or to any Rentable Component other than the
Building, and
(f) leasing commissions.
2.05 When Services Are Not Provided Notwithstanding Section 2.03, when and if
any service which is normally provided by Landlord to some tenants of the
building in their premises
(a) is not provided by Landlord in the Premises under the specific terms
of the Lease, in determining Occupancy Costs for Tenant, the cost of
that service (except as it relates to Common Areas, those spaces on
office floors designated by Landlord for use in common by tenants
and other persons in the Building, and janitorial services) shall be
excluded, and
(b) is not provided by Landlord in a significant portion of the
Building, in determining Occupancy Costs for Tenant, the cost of
that service shall be divided by the number of square feet in the
Building in which Landlord provides that service, determined on the
basis set out in Sections 3.01 and 3.03.
2.06 Shared Facilities, Services and Utilities If any facilities, services or
utilities:
(a) for the operation, repair and maintenance of the Project are
provided from another building or other buildings, owned or operated
by Landlord or an affiliate of Landlord, or
(b) for the operation, repair and maintenance of another building or
other buildings owned or operated by Landlord or an affiliate of
Landlord are provided from the Project, the net costs, charges and
expenses for those facilities, services and utilities shall, for the
purpose of Section 2.03, be allocated by Landlord between the
Project and the other biding or among the Project and the other
buildings on a fair and equitable basis.
2.07 Credit to Common Areas Landlord shall use reasonable efforts to recover
where circumstances so permit an equitable share of the cost of operating
and maintaining Common Areas from owners or occupants of neighboring
properties and others who benefit from the use of the Common Areas, and
shall credit any recovery to the gross cost before determination of Common
Areas Costs.
2.08 Occupancy Adjustment If the Project is not fully leased and occupied in
any Fiscal Year, appropriate adjustments shall be made in determining
Occupancy Costs under this Section 2.00 so that Occupancy Costs shall be
as though the Project had been fully leased and occupied during that
Fiscal Year.
2.09 Partial Fiscal Year If the Term commences after the beginning of or
terminates before the end of a Fiscal Year, any amount payable by Tenant
under Section 2.02 shall be adjusted accordingly.
SECTION 3.00 DETERMINATION OF SQUARE FEET IN THE PREMISES
3.01 Office Space - Single Tenancy Floors For the purposes of this Lease, the
number of square feet of office space in the Premises on a single-tenancy
floor in the Building (if any) shall be calculated from dimensioned
Architect's drawings to the
3
<PAGE>
inside face of the glass in the permanent exterior building walls (whether
or not the glass extends to the floor) or to the inside finish of those
walls if they contain no glass. It shall include all space within exterior
building walls except for stairs (other than stairs exclusively serving a
tenant occupying offices on more than one floor), elevator shafts, flues,
pipe shafts, vertical ducts, and other vertical risers which penetrate the
floor and their enclosing walls. No deduction shall be made for washrooms,
janitor closets, air conditioning rooms, fan closets, or for electrical or
telephone cupboards within and servicing only that floor or servicing a
single tenant on more than one floor, or for any other rooms, corridors,
or areas available to the tenant on that floor for its use, furnishings,
or personnel, or for any columns located wholly or partially within the
space, or for any enclosures around the periphery of the Building used for
the purpose of heating, ventilating or cooling.
3.02 Office Space - Multiple-Tenancy Floors For the purposes of this Lease, the
number of square feet of office space in the Premises on a
multiple-tenancy floor in the Building (if any) shall be calculated from
dimensioned architect's drawings to the inside finish of permanent
exterior building walls or the inside face of the glass as described in
Section 3.01, to the face of permanent interior walls and to the center
line of demising partitions. No deductions shall be made for any columns
located wholly or partially within the space, or for any enclosures around
the periphery of the Building used for the purpose of heating, ventilating
or cooling.
3.03 Retail Space For the purposes of this Lease, the number of square feet of
retail and service store space in the Building, whether above or below
grade, is calculated from dimensioned Architect's drawings to the inside
face of permanent exterior building walls, to the face of permanent
interior walls, to the center line of demising partitions, and to the
center line of a predetermined lease line (usually referred to as the
storefront line) in the case of retail and service store space facing onto
either an interior public mail or corridor or onto a public street or
lane. No deduction is made for vestibules inside the permanent exterior
building walls or inside the predetermined lease line, or for any columns
located wholly or partially within the space.
SECTION 4.00 LOADING AND DELIVERY
4.01 The delivery and shipping of merchandise, supplies, fixtures, and other
materials or goods of any kind to or from the Premises and all loading,
unloading, and handling of them shall be done only at such times, in such
areas, by such means, and through such elevators, entrances, malls, and
corridors as are designated from time to time by Landlord.
4.02 Landlord accepts no liability and is hereby relieved and released by
Tenant in respect of the operation and adequacy of the Delivery
Facilities, the acts or omissions of any person or persons engaged in the
operation of the Delivery Facilities, or in the acceptance, holding,
handling, delivery or dispatch of any goods for or on behalf of Tenant,
and any claim of Tenant by reason of damage, loss, theft or any
acceptance, holding, handling, delivery or dispatch, or failure of any
acceptance, holding, handling or dispatch, or any error, negligence or
delay in acceptance, holding, handling, or dispatch.
4.03 Landlord may from time to time make and amend regulations for the orderly
and efficient operation of the Delivery Facilities, and may require the
payment of reasonable and equitable charges for delivery services and
demurrage provided by Landlord.
SECTION 5.00 NON-DISCRIMINATION
5.01 Non-Discrimination If Tenant operates or has the right to operate under
this Lease any store, shop, restaurant, cafeteria, restroom, or any other
facility of a public nature in the Building, Tenant shall not discriminate
by segregation or otherwise against any person or persons because of race,
creed, color, or national origin in furnishing, or by refusing to furnish,
to such person or persons the use of any such facility including any and
all services, privileges, accommodations, and activities provided thereby.
4
<PAGE>
5.02 Enforcement Tenants noncompliance with the provisions of this Section 5.00
shall constitute a material breach of this Lease. In the event of such
noncompliance, Landlord may take appropriate action to enforce compliance,
may terminate this lease, or may pursue such other remedies as may be
provided by law.
5
<PAGE>
BAKER CENTER EXHIBIT C
BAKER CENTER
RULES AND REGULATIONS
1. Security Landlord may from time to time adopt appropriate systems and
procedures for the security or safety of the Building, any persons
occupying, using or entering the same, or any equipment, finishings or
contents thereof, and Tenant shall comply with Landlord's reasonable
requirements relative thereto.
2. Locks Landlord may from time to time install and change locking mechanisms
on entrances to the Building, common areas thereof, and the Premises, and
(unless 24 hour security is provided by the Building) shall provide to
Tenant a reasonable number of keys and replacements therefor to meet the
bona tide requirements of Tenant. In these rules "keys" include any device
serving the same purpose. Tenant shall not add to or change existing
locking mechanisms on any door in or to the Premises without Landlord's
prior written consent. If with Landlord's consent, Tenant installs lock(s)
incompatible with the Building master locking system:
(a) Landlord, without abatement of Rent, shall be relieved of any
obligation under the Lease to provide any service to the affected
areas which require access thereto.
(b) Tenant shall indemnify Landlord against any expense as a result of
forced entry thereto which may be required in an emergency, and
(c) Tenant shall at the end of the Term and at Landlord's request remove
such lock(s) at Tenant's expense.
3. Return of Keys At the end of the Term, Tenant shall promptly return to
Landlord all keys for the Building and Premises which are in possession of
Tenant.
4. Windows Tenant shall observe Landlord's rules with respect to maintaining
window coverings at all windows in the Premises so that the Building
presents a uniform exterior appearance, and shall not install any window
shades, screens, drapes, covers, or other materials on or at any window in
the Premises without Landlord's prior written consent. Tenant shall ensure
that window coverings are closed on all windows in the Premises while they
are exposed to the direct rays of the sun.
5. Repair, Maintenance, Alterations and Improvements Tenant shall carry out
Tenant's repair, maintenance, alterations and improvements in the Premises
only during times agreed to in advance by Landlord and in a manner which
will not interfere with the rights of other tenants in the Building.
6. Water Fixtures Tenant shall not use water fixtures for any purpose for
which they are not intended, nor shall water be wasted by tampering with
such fixtures. Any cost or damage resulting from such misuse by Tenant
shall be paid for by Tenant.
1
<PAGE>
7. Personal Use of Premises The Premises shall not be used or permitted to be
used for residential, lodging or sleeping purposes or for the storage of
personal effects or property not required for business purposes.
8. Heavy Articles Tenant shall not place in or move about the Premises
without Landlord's prior written consent any safe or other heavy article
which in Landlord's reasonable opinion may damage the Building, and
Landlord may designate the location of any heavy articles in the Premises.
9. Smoking Policy Smoking is not permitted throughout the Project common
areas to include, but not limited to, elevator lobbies, corridors and
restrooms.
10. Bicycles, Animals Tenant shall not bring any animals or birds into the
Building, and shall not permit bicycles or other vehicles inside or on the
Sidewalks outside the Building except in areas designated from time to
time by Landlord for such purposes.
11. Deliveries Tenant shall ensure that deliveries of materials and supplies
to the Premises are made through such entrances, elevators and corridors
and at such times as may from time to time be designated by Landlord, and
shall promptly pay or cause to be paid to Landlord the cost of repairing
any damage in the Building caused by any person making such deliveries.
12. Furniture and Equipment Tenant shall ensure that furniture and equipment
being moved into or out of the Premises is moved through such entrances,
elevators and corridors and at such times as may from time to time be
designated by Landlord, and by movers or a moving company approved by
Landlord, and shall promptly pay or cause to be paid to Landlord the cost
of repairing any damage in the Building caused thereby. Tenant shall be
required to use a temporary hard surface to protect corridor and elevator
carpets when moving heavy furniture in, out or about the Building.
13. Solicitations Landlord reserves the right to restrict or prohibit
canvassing, soliciting or peddling in the Building.
14. Food and Beverages Only persons approved from time to time by Landlord may
prepare, solicit orders for, sell, serve or distribute foods or beverages
in the Building, or use the elevators, corridors or common areas for any
such purpose. Except with Landlord's prior written consent and in
accordance with arrangements approved by Landlord, Tenant shall not permit
on the Premises the use of equipment for dispensing food or beverages or
for the preparation, solicitation of orders for, sale, serving or
distribution of food or beverages.
15. Refuse Tenant shall place all refuse in proper receptacles provided by
Tenant at its expense in the Premises or in receptacles (if any) provided
by Landlord for the Building, and shall keep sidewalks and driveways
outside the Building, and lobbies, corridors, stairwells, ducts and shafts
of the Building, free of all refuse.
16. Obstructions Tenant shall not obstruct or place anything in or on the
sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells or other common areas of the Building, or use such locations
for any purpose except access to and exit from the Premises without
Landlord's prior written consent. Landlord may remove at Tenant's expense
any such obstruction or thing (unauthorized by Landlord) without notice or
obligation to Tenant.
2
<PAGE>
17. Dangerous or Immoral Activities Tenant shall not make any use of the
Premises which involves the danger of injury to any person, nor shall the
same be used for any immoral purpose.
18. Proper Conduct Tenant shall not conduct itself in any manner which is
inconsistent with the character of the Building as a first class building
or which will impair the comfort and convenience of other tenants in the
Building.
19. Employees, Agents and Invitees In these Rules and Regulations, Tenant
includes the employees, agents, invitees and licensees of Tenant and
others permitted by Tenant and others permitted by Tenant to use or occupy
the Premises.
3
<PAGE>
EXHIBIT D
SUPPLEMENTAL TERMS & CONDITIONS
1. The following is added as Article 22.0
Article 22.00 Tenant Improvements
Article 22.01 Landlord shall construct the Premises according to
plans and specifications prepared by Tenant and approved by
Landlord. Landlord shall contribute a credit against the cost of
that work (including any coordination fee by Landlord) equal to
$76,224.00, but not to exceed the cost to Landlord for that work.
Tenant shall pay to Landlord upon request the amount by which the
actual cost to Landlord exceeds Landlord contribution. Tenant shall
be responsible for all work not described in those plans and
specifications desired by Tenant or necessary to complete the
Premises for occupancy.
2. The following is added as Article 23.00
Article 23.00 Surrender
23.01 On the Commencement Date of this Lease ("Surrender Date"),
Tenant will surrender to Landlord that lease dated August 14,1996
and the leases of additional space dated January 22,1997 and August
4,1997 ("Surrendered Leases") covering 6,041 square feet on the
fourth floor of the Peavey Building ("Surrendered Premises") for the
unexpired term of the Surrendered Leases, Tenant will promptly quit
and surrender possession of the Surrendered Premises on the
Surrender Date in good order and condition, reasonable wear and tear
and damage by fire and other casualty accepted. Any property of
Tenant not removed from the Surrendered Premises on or before the
Surrender Date shall be and become the property of Landlord
absolutely. The respective rights and obligations of Landlord and
Tenant under the Surrendered Lease shall be preserved and shall
survive the Surrender Date as to all matters arising or accruing
prior to the Surrender Date, but no such rights or obligations will
arise or accrue to either of them under the Surrendered Lease on or
after Surrender Date.
<PAGE>
ADVANCED TELECOMMUNICATIONS, INC.
Office Rent Operating Tax Adjustment
December January (Increase)
1998 1999 Decrease
========================================
Operating Expense Escalation
Peavey 3,893 4,010 (117)
Baker 1 1,508 1,555 (48)
Baker 2 369 381 (12)
Baker 3 497 512 (16)
Baker 4 -- 735 (735)
----------------------------------------
6,267 7,193 (927)
----------------------------------------
Property Taxes
Peavey 2,863 2,747 116
Baker 1 1,187 1,081 106
Baker 2 291 265 26
Baker 3 391 356 35
Baker 4 -- 511 (511)
----------------------------------------
4,732 4,961 (229)
----------------------------------------
Total
Peavey 6,756 6,757 (1)
Baker 1 2,695 2,637 58
Baker 2 660 646 14
Baker 3 888 868 19
Baker 4 -- 1,246 (1,246)
----------------------------------------
10,999 12,154 (1,155)
----------------------------------------
<PAGE>
[LETTERHEAD OF BAKER CENTER]
December 30, 1998
Mr. Mike Donahue
Advanced Telecommunications, Inc.
1200 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402
Dear Mr. Donahue:
In accordance with the provisions of your lease, your monthly rent is to be
adjusted prior to the beginning of each calendar year, based upon our bona fide
estimate of Occupancy Costs for the upcoming calendar year.
This year, as in the past, we will separate the cost estimate into two major
categories: Real Estate Taxes and Operating Costs. The attached exhibit(s) will
explain how these adjustments were determined and how they will be reflected on
your January rent statement. Please note that this letter is for informational
purposes only - the January 1999 invoice will reflect these and all charges.
As soon as the actual operating costs and real estate taxes for 1999 are
determined, your account will be adjusted to reflect any cost increase or
decrease from the 1999 estimate.
If you should have any questions regarding this matter, please do not hesitate
to contact me.
Sincerely yours,
Equity Commercial Services, Inc.
As Managing Agent for St. Paul Properties, Inc.
/s/ Mark Troxel
Mark Troxel
General Manager
Enclosure(s)
<PAGE>
- --------------------------------------------------------------------------------
BAKER CENTER
CALCULATION OF MONTHLY OPERATING COST & REAL ESTATE TAX CHARGES
BASED ON ESTIMATES FOR 1999
- --------------------------------------------------------------------------------
BUILDING: Peavey
---------------------------------
TENANT: Advanced Telemanagement
---------------------------------
SUITE: 1200
---------------------------------
SQ FT: 9,528
---------------------------------
Tax and Operating Cost per square foot:
Real Estate Tax: 3.460
Operating Cost: 5.050
--------
Total Cost psf: $ 8.510
========
MONTHLY REAL ESTATE TAX CALCULATION:
Monthly Real Estate
9,528 sq ft x 3.460 /sq ft $2,747.24 Tax beginning
---------------------------------------- ========= January 1, 1998
12 months
MONTHLY OPERATING COST CALCULATION:
Monthly Operating
9,528 sq ft x 5.050 /sq ft $4,009.70 Cost beginning
---------------------------------------- ========= January 1, 1998
12 Months
A final adjustment to 1999 actual Real Estate Taxes and Operating Costs will be
in April of 2000.
NOTE: The Base Rent amount (determined from the Lease) is added to the above
figures to determine total monthly rent to be charged in 1999
The January 1, 1999 invoice reflects the adjusted monthly rental.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BAKER CENTER
CALCULATION OF MONTHLY OPERATING COST & REAL ESTATE TAX CHARGES
BASED ON ESTIMATES FOR 1999
- --------------------------------------------------------------------------------
BUILDING: Baker
------------------------
TENANT: ATI
------------------------
SUITE: 1200
------------------------
SQ FT: 3,555
------------------------
Tax and Operating Cost per square foot:
Real Estate Tax: 3.650
Operating Cost: 5.250
--------
Total Cost psf: $ 8.900
========
MONTHLY REAL ESTATE TAX CALCULATION:
Monthly Real Estate
3,555 sq ft x 3.650 /sq ft $1,081.31 Tax beginning
---------------------------------------- ========= January 1, 1998
12 Months
MONTHLY OPERATING COST CALCULATION:
Monthly Operating
3,555 sq ft x 5.250 /sq ft $1,555.31 Cost beginning
---------------------------------------- ========= January 1, 1998
12 Months
A final adjustment to 1999 actual Real Estate Taxes and Operating Costs will be
in April of 2000.
NOTE: The Base Rent amount (determined from the Lease) is added to the above
figures to determine total monthly rent to be charged in 1999
The January 1, 1999 invoice reflects the adjusted monthly rental.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BAKER CENTER
CALCULATION OF MONTHLY OPERATING COST & REAL ESTATE TAX CHARGES
BASED ON ESTIMATES FOR 1999
- --------------------------------------------------------------------------------
BUILDING: Baker
-----------------------
TENANT: ATI
-----------------------
SUITE: 1212
-----------------------
SQ FT: 871
-----------------------
Tax and Operating Cost per square toot:
Real Estate Tax: 3.650
Operating Cost: 5.250
--------
Total Cost pst $ 8.900
========
MONTHLY REAL ESTATE TAX CALCULATION:
Monthly Real Estate
871 sq ft x 3.650 /sq ft $ 264.93 Tax beginning
---------------------------------------- ========= January 1, 1998
12 Months
MONTHLY OPERATING COST CALCULATION:
Monthly Operating
871 sq ft x 5.250 /sq ft $ 381.06 Cost beginning
---------------------------------------- ========= January 1, 1998
12 Months
A final adjustment to 1999 actual Real Estate Taxes and Operating Costs will be
in April of 2000.
NOTE: The Base Rent amount (determined from the Lease) is added to the above
figures to determine total monthly rent to be charged in 1999
The January 1, 1999 invoice reflects the adjusted monthly rental.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BAKER CENTER
CALCULATION OF MONTHLY OPERATING COST & REAL ESTATE TAX CHARGES
BASED ON ESTIMATES FOR 1999
- --------------------------------------------------------------------------------
BUILDING: Baker
----------------------
TENANT: ATI
----------------------
SUITE: 1230
----------------------
SQ FT: 1,171
----------------------
Tax and Operating Cost per square foot:
Real Estate Tax: 3.650
Operating Cost: 5.250
--------
Total Cost psf: $ 8.900
========
MONTHLY REAL ESTATE TAX CALCULATION:
Monthly Real Estate
1,171 sq ft x 3.650 /sq.ft. $ 356.18 Tax beginning
--------------------------------------- ========= January 1, 1998
12 Months
MONTHLY OPERATING COST CALCULATION:
Monthly Operating
1,171 sq ft x 5.250 /sq.ft. $ 521.31 Cost beginning
--------------------------------------- ========= January 1, 1998
12 Months
A final adjustment to 1999 actual Real Estate Taxes and Operating Costs will be
in April of 2000.
NOTE: The Base Rent amount (determined from the Lease) is added to the above
figures to determine total monthly rent to be charged in 1999
The January 1, 1999 invoice reflects the adjusted monthly rental.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BAKER CENTER
CALCULATION OF MONTHLY OPERATING COST & REAL ESTATE TAX CHARGES
BASED ON ESTIMATES FOR 1999
- --------------------------------------------------------------------------------
BUILDING: Baker
--------------------------
TENANT: ATI
--------------------------
SUITE: 1244
--------------------------
SQ FT: 1,680
--------------------------
Tax and Operating Cost per square foot:
Real Estate Tax: 3.650
Operating Cost: 5.250
--------
Total Cost psf: $ 8.900
========
MONTHLY REAL ESTATE TAX CALCULATION:
Monthly Real Estate
1,680 sq ft x 3.650 /sq. foot $ 511.00 Tax beginning
--------------------------------------- ========= January 1, 1998
12 Months
MONTHLY OPERATING COST CALCULATION:
Monthly Operating
1,680 sq ft x 5.250 /sq. foot $ 735.00 Cost beginning
--------------------------------------- ========= January 1, 1998
12 Months
A final adjustment to 1999 actual Real Estate Taxes and Operating Costs will be
in April of 2000.
NOTE: The Base Rent amount (determined from the Lease) is added to the above
figures to determine total monthly rent to be charged in 1999
The January 1, 1999 invoice reflects the adjusted monthly rental.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
BAKER CENTER
CALCULATION OF MONTHLY OPERATING COST & REAL ESTATE TAX CHARGES
BASED ON ESTIMATES FOR 1998
- --------------------------------------------------------------------------------
BUILDING: PEAVEY
--------------------------
TENANT: ADVANCED TELEMANAGEMENT
--------------------------
SUITE: 1200
--------------------------
SQUARE FOOTAGE: 9528
--------------------------
Monthly charges per square foot:
Real Estate Tax: 3.606
Operating Cost 4.903
---------
Total Charge pat 8.509
=========
MONTHLY REAL ESTATE TAX CHARGE:
This amount will be the monthly Real
9,528 sq ft x 3.650 / sq. foot $2,863.16 Estate tax charge beginning
- ------------------------------ ========= January 1, 1998
12 Months
MONTHLY OPERATING COST CALCULATION:
This amount will be the monthly
9,528 square feet x 4.903 /sq. foot $3,892.98 Real Estate tax charge beginning
- ----------------------------------- ========= January 1, 1998
12 Months
A final adjustment to 1998 actual Real Estate Taxes and Operating Costs will be
in April of 1999.
NOTE: The Base Rent amount (determined from the Lease) is added to the above
figures to determine total monthly rent to be charged in 1998.
An invoice reflecting the adjusted monthly rental amount will be mailed within
ten days.
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 10.1.8
BAKER CENTER
SECOND AMENDMENT OF LEASE
DATE: October 15, 1998
BETWEEN: ST. PAUL PROPERTIES, INC.
435 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND: ADVANCED TELECOMMUNICATIONS, INC.
successor in interest to: One Call Telecom, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, MN 55402 ("Tenant")
IN RESPECT OF PREMISES IN: Baker Building, Minneapolis, Minnesota
LANDLORD AND TENANT hereby agree as follows:
1. In this Second Amendment of Lease:
(a) "Building" means Baker Building located in the city of Minneapolis.
(b) "Premises" means 3,555 square feet of space in the Building, as set
out in the Lease.
(c) "Additional Premises" means 2,042 square feet in the Buildings as
set out in the Amendment Of Lease dated May 15,1997.
(d) "Lease" means the lease between Landlord and Tenant dated July,
1996, as amended by Amendment of Lease, dated May 15, 1997, covering
the Premises and Additional Premises and assigned under the
Assignment of Lease dated August 18, 1998.
(e) "Second Amendment Date" means the 15th day of October, 1998.
2. Effective on the Second Amendment Date, Article 3.01 of the Lease as
amended by the Amendment of Lease dated May 15, 1997 is deleted, and the
following is substituted therefor:
3.01 Term Notwithstanding Article 3.02 and 3.03, the Term of this Lease
shall be eight (8) years, three (3) months and ten (10) days beginning on
the twenty second day of the month of July 1996 and ending on the last day
of the month of October, 2004, unless terminated earlier as provided in
this lease.
-1-
<PAGE>
3. Effective on the Second Amendment Date, Article 4.01 of the Lease as
amended by the Amendment of Lease dated May 15,1997 is deleted and the
following substituted therefore:
4.01 Annual Rent Tenant shall pay to Landlord as Annual Rent for the
Premises the annual sum of thirty-one thousand nine hundred ninety-five
and 00/100 dollars ($31,995.00) in respect of the period July 22,1996
through June 30,1997, thirty-seven thousand three hundred twenty-seven,
50/100 dollars ($37,327.50) in respect of the period July 1, 1997 through
October 31, 1998, and forty-nine thousand seven hundred seventy 00/100
dollars ($49,770.00) in respect of the period November 1, 1998 through
October 31, 2004, payable in advance and without notice in monthly
installments (each equal to one-twelfth of the Annual Rent) on the
Commencement Date and on the first day of each month thereafter during the
Term.
4. Effective on the Second Amendment Date, Article 27.03 of the Lease as set
forth in the Amendment of Lease, dated May 15,1997 is deleted and the
following is substituted thereby:
27.03 Rent Tenant shall pay to Landlord as Annual Rent for the Additional
Premises, the annual sum of twenty-one thousand four hundred forty-one
00/100 dollars ($21,441.00) with respect to the period July 1, 1997
through October 31, 1998 and twenty-eight thousand five hundred
eighty-eight 00/100 dollars ($28,588.00) with respect to the period
November 1,1998 through October 31,2004. Rent shall be paid in equal
monthly payments at the time and in the same manner as Annual Rent
payments are to be made pursuant to the Lease.
5. Effective on the Amendment Date, Article 29 of the Lease as set forth in
the Amendment of Lease, dated May 15, 1997 is deleted without
substitution.
6. Effective on the Second Amendment Date, the following is added as Article
32.00:
ARTICLE 32.00 Second Additional Premises
32.01 "Second Additional Promises" means the area on the twelfth floor of
the Building as indicated on Exhibit 1 attached hereto, hereby deemed to
contain 1,461 square feet plus, for the calculation of Rent only, an
additional 219 square feet of unallocated space in the Building.
32.02 Term The Term on the Second Additional Premises shall commence on
the "Second Additional Premises Commencement Date" which shall be November
1, 1998, subject to the substantial completion of Tenant Improvements set
forth in Article 33.00 of this Second Amendment of Lease and terminate on
the same day of the Premises.
32.03 Rent Tenant shall pay to Landlord as Annual Rent for the Second
Additional Premises, the annual sum of twenty-one thousand eight hundred
forty 00/100 dollars
-2-
<PAGE>
($21,840.00). Rent shall be paid in equal monthly payments at the time and
in the same manner as Annual Rent payments are to be made pursuant to the
Lease.
32.04 Occupancy Costs Tenant shall pay, as additional rent, Occupancy
Costs in respect of the Second Additional Premises at the time and in the
same manner as payment of Occupancy Costs are to be made pursuant to the
Lease.
7. Effective on the Second Amendment Date, the following is added as Article
33.00:
ARTICLE 33.00 Landlord's Work
33.00 Landlord shall, using Building Standard materials and finishes,
construct Tenant Improvements to the Premises, Additional Premises and
Second Additional Premises ("the Space") in accordance with the "Plan"
which is attached hereto as Exhibit 2. All other work necessary for
occupancy of the Space by Tenant will be Tenant's responsibility at
Tenants cost
Except as specifically provided herein, the terms and conditions of this Lease
are confirmed and continued in full force and effect.
This Second Amendment of Lease shall be binding on the heirs, administrators,
successors and assigns (as the case may be) of the parties hereto.
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed it as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ R. William Inserra By: /s/ Michael A. Donahue
-------------------------------- --------------------------------
R. William Inserra
Vice President Asset Management Its: Treasurer
--------------------------------
10-19-98 Michael A. Donahue
- ----------------------------------- ------------------------------------
Date Executed Please Print Name
10/9/98
------------------------------------
Date Executed:
------------------------------------
Witness to the signature of Tenant
if not incorporated.
-3-
<PAGE>
EXHIBIT 1
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT 2
[GRAPHIC OMITTED]
<PAGE>
BAKER CENTER
AMENDMENT OF LEASE
DATE: October 5, 1998
BETWEEN: ST. PAUL PROPERTIES, INC.
435 Peavey Building
730 Second Avenue South
Minneapolis, MN 55402 ("Landlord")
AND: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, MN 55402 ("Tenant")
IN RESPECT OF PREMISES IN: Peavey Building - Minneapolis, Minnesota
LANDLORD AND TENANT hereby agree as follows:
1. In this Amendment of Lease:
(a) "Building" means Peavey Building located in the city of Minneapolis.
(b) "Premises" means 9,528 square bet of space in the Building, as set
out in the Lease.
(c) "Lease" means the lease between Landlord and Tenant dated September
15, 1997, covering the Premises.
(d) "Amendment Date" mean the 15th day of October, 1998.
2. Effective on the Amendment Date, Article 3.01 of the Lease is deleted, and
the following is substituted therefore:
3.01 Term Notwithstanding Articles 3.02 and 3.03, the term of this Lease
shall be seven (7) years, beginning on the first day of the month of
November, 1997 and ending on the last day of the month of October,
2004, unless terminated earlier as provided in this Lease.
3. Effective on the Amendment Date, Article 4.01 is deleted and the following
substituted therefore:
4.01 Annual Rent Tenant shall pay to Landlord as Annual Rent for the
Premises the annual sum of ninety five thousand two hundred eighty
and 00/100 dollars
-1-
<PAGE>
($95,280.00) in respect of the period November 1, 1997 through
October 31, 1999, one hundred nine thousand five hundred seventy-two
and 00/100 dollars ($109,572.00) in respect of the period November
1, 1999 through October 31, 2000, and one hundred twenty-three
thousand eight hundred sixty-four and 00/100 dollars ($123,864.00)
in respect of the period November 1, 2000 through October 31, 2004,
payable in advance and without notice in monthly installments (each
equal to one-twelfth of the Annual Rent) on the Commencement Date
and on the First of each calendar month thereafter during the term.
Except as specifically provided herein, the terms and conditions of this Lease
are confirmed and continued in fun force and effect.
This Amendment of Lease shall be binding on the heirs, administrators,
successors and assigns (as the case may be) of the parties hereto.
IN WITNESS OF THIS LEASE Landlord and Tenant have properly executed It as of the
date set out on page one.
LANDLORD: TENANT:
ST. PAUL PROPERTIES, INC. ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ William Inserra By: /s/ Michael A. Donahue
-------------------------------- --------------------------------
R. William Inserra
Vice President Asset Management Its: Treasurer
--------------------------------
10-19-98 Michael A. Donahue
- ----------------------------------- --------------------------------
Date Executed Please Print Name
10-19-98
--------------------------------
Date Executed
--------------------------------
Witness to the signature of
Tenant if not incorporated
<PAGE>
MADISONMARQUETTERealtyServices
September 30, 1997
HAND DELIVERED
--------------
Mr. Mike Donahue
Advanced Telecommunications, Inc.
410 Peavey Building
730 Second Avenue South
410 Peavey Building Minneapolis, MN 55402
730 Second Avenue South
Minneapolis, Minnesota RE: Lease of Office Space
55402-2450
Dear Mike:
Tel: 612/344-1570
Fax: 612/344-1574 Enclosed please find one fully executed copy of the
Lease of Office Space between Advanced
Telecommunications, Inc. and St. Paul Properties, Inc.
for your new space on twelfth floor Peavey Building.
It has been a pleasure working with you on your
relocation. Please do not hesitate to call me if I can
be of further assistance to you.
Sincerely,
MADISON MARQUETTE REALTY SERVICES, L.P.
As Managing Agent For St. Paul Properties, Inc.
/s/ Charles F. Howard
--------------------------------
Charles F. Howard
Vice President
Office & Industrial Properties Division
/ljw
enclosure
<PAGE>
Exhibit 10.1.9
[LETTERHEAD OF DUGGAN REALTY ADVISORS L.L.C.]
December 7, 1999
Mr. Satish Tiwari
Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, MN 55402
RE: Advanced Telecommunications, Inc.
1500 Champa, Denver, CO
Lease Agreement
Dear Satish:
Enclosed you will find a fully executed Lease Agreement for 1500 Champa, Suite
B-300. We are excited and look forward to Advanced Telecommunications' tenancy
at the property.
Please feel free to contact me with any property management issues that might
arise. I will work closely with Mr. Larry Vann, who will oversee the
construction of the space on behalf of Duggan Realty Advisors, L.L.C. If you can
supply me with the name and contact of your construction manager, I will forward
a construction manual accordingly.
Again, we look forward to your tenancy. If I may be of any assistance, please
contact me at (972) 980-9686 ext. 111.
Sincerely,
DUGGAN REALTY ADVISORS L.L.C
/s/ Jim Pratt
Jim Pratt
Director of Management Services
Enclosures
cc John Fefley
JWP/cmr
<PAGE>
================================================================================
LEASE AGREEMENT BETWEEN
DENVER FDS, L.P.,
AS LANDLORD
AND
ADVANCED TELECOMMUNICATIONS, INC.,
AS TENANT
DATED November 29, 1999
================================================================================
<PAGE>
BASIC LEASE INFORMATION
Lease Date: November 29, 1999
Tenant ADVANCED TELECOMMUNICATIONS, INC., a Delaware corporation
Landlord: DENVER FDS, L.P., a Texas limited partnership
Premises: Suite No. B-300 in the office building commonly known as
1500 Champs (the "Building"), and whose street address is
1500 Champa, Denver, Colorado, 80202. The Premises are
outlined on the plan attached to the Lease as Exhibit A.
The land on which the Building is located (the "Land") is
described on Exhibit B. The term "Project" shall
collectively refer to the Building, the Land, and the
driveways, parking facilities, similar improvements and
easements associated with the foregoing or the operation
thereof.
Term: Approximately 123 months, commencing on the earlier of (1)
the date on which Tenant occupies any portion of the
Premises and begins conducting business therein, or (2)
January 1,2000 (the "Commencement Date") and ending at
5:00 p.m. on the last day of the 123rd full calendar month
following the Commencement Date, subject to adjustment and
earlier termination as provided in the Lease.
Basic Rent: Subject to the conditional abatement of basic rent
provided in Exhibit K hereto, Tenant's initial monthly
installments of Basic Rent shall be $12,680.63 per month,
subject to adjustment as provided in the Lease.
Additional Rent: Collectively, the following amounts, subject to adjustment
as provided in the Lease:
Chiller/Condenser Rent: $ 0 per month
------
Conduit Rent: $ 0 per diameter inch
------ per month
Generator Rent: $ 0 per month
------
Meet-Me Room Rent: $ 0 per month
------
Transmission Equipment Rent: $ 0 per month
------
Security Deposit: $12,680.63
Rent: Basic Rent, Additional Rent, Tenant's Proportionate Share
of Operating Costs and all other sums that Tenant may owe
to Landlord or otherwise be required to pay under the
Lease.
Permitted Use: General office use and the operation of telecommunications
equipment and facilities.
Tenant's
Proportionate
Share: 5.00%, which is the percentage obtained by dividing (a)
the 6,763 rentable square feet in the Premises by (b) the
135,189 rentable square feet in the Building. Landlord and
Tenant stipulate that the number of rentable square feet
in the Premises and in the Building set forth above shall
be binding upon them.
Initial
Liability
Insurance Amount: $3,000,000.
i
<PAGE>
Tenant's For all Notices:
Address: Advanced Telecommunications, Inc.
730 Second Avenue South, Suite 1200
Minneapolis, MN 55402
Attention: Satish Tiwari
Telephone: 612-519-4669
Telecopy: 612-376-4414
Landlord's For all Notices
Address: Denver FDS, L.P.
c/o Duggan Realty Advisors, L.L.C.
15770 Denver Parkway, Suite 850
Dallas, Texas 75248
Attention: James F. Duggan
Telephone: 972-980-9686
Telecopy: 972-980-9705
The foregoing Basic Lease Information is incorporated into and made a part of
the Lease identified above. If any conflict exists between any Basic Lease
Information and the Lease, then the Lease shall control.
LANDLORD: DENVER FDS, L.P., a Texas limited partnership
By: FDS Realty Partners, L.L.C., a Texas
limited liability company, as general
partner
By: /s/ James F. Duggan
-------------------------------------------
Name: James F. Duggan
Title: Manager
TENANT: ADVANCED TELECOMMUNICATIONS, INC., a Delaware
corporation
By: /s/ Satish Tiwari
-------------------------------------------
Name: Satish Tiwari
Title: Vice President
ii
<PAGE>
TABLE OF CONTENTS
Page
----
1. Definitions and Basic Provisions ..................................... 1
2. Lease Grant .......................................................... 1
3. Term ................................................................. 1
4. Rent ................................................................. 1
(a) Payment .......................................................... 1
(b) Adjustments to Basic Rent and Additional Rent .................... 1
(c) Operating Costs; Taxes; Electrical Costs ......................... 2
5. Delinquent Payment; Handling Charges ................................. 4
6. Security Deposit ..................................................... 4
7. Services ............................................................. 4
(a) Landlord's Obligations ........................................... 4
(b) Electrical Service ............................................... 4
(c) Janitorial Services .............................................. 5
(d) Restoration of Services; Abatement ............................... 5
8. Improvements; Alterations; Repairs; Maintenance ...................... 5
(a) Improvements; Alterations ........................................ 5
(b) Repairs; Maintenance ............................................. 5
(c) Performance of Work .............................................. 6
(d) Mechanic's Liens ................................................. 6
9. Tenant's Equipment
(a) Approval by Landlord ............................................. 6
(b) Generator
(c) HVAC, Chillers, and Condensing Units ............................. 7
(d) Transmission Equipment ........................................... 7
(e) Installation and Maintenance ..................................... 7
(f) Conduits and Infrastructure ...................................... 8
(g) Non-Interference ................................................. 8
(h) Indemnity ........................................................ 8
(i) Governmental Notices ............................................. 8
(j) Relocation ....................................................... 8
10. Use .................................................................. 8
11. Interconnection Rights ............................................... 9
12. Co-Location .......................................................... 9
13. Assignment and Subletting ............................................ 9
iii
<PAGE>
(a) Transfers ....................................................... 9
(b) Consent Standards ............................................... 9
(c) Request for Consent ............................................. 10
(d) Conditions to Consent ........................................... 10
(e) Cancellation .................................................... 10
(f) Additional Compensation ......................................... 10
(g) Permitted Transfers ............................................. 10
14. Insurance; Waivers; Subrogation; Indemnity .......................... 11
(a) Insurance ....................................................... 11
(b) Waiver of Negligence; No Subrogation ............................ 11
(c) Indemnity ....................................................... 12
15. Subordination; Attornment; Notice to Landlord's Mortgagee ........... 12
(a) Subordination ................................................... 12
(b) Attornment ...................................................... 12
(c) Notice to Landlord's Mortgagee .................................. 12
(d) Landlord's Mortgagee's Protection Provisions .................... 12
16. Rules and Regulations ............................................... 13
17. Condemnation ........................................................ 13
(a) Total Taking .................................................... 13
(b) Partial Taking - Tenant's Rights ................................ 13
(c) Partial Taking - Landlord's Rights .............................. 13
(d) Award
18. Fire or Other Casualty .............................................. 13
(a) Repair Estimates ................................................ 13
(b) Landlord's and Tenant's Rights .................................. 14
(c) Landlord's Rights ............................................... 14
(d) Repair Obligation ............................................... 14
19. Personal Property Taxes ............................................. 14
20. Events of Default ................................................... 14
21. Remedies ............................................................ 15
22. Payment by Tenant; Non-Waiver ....................................... 16
(a) Payment by Tenant ............................................... 16
(b) No Waiver ....................................................... 16
23. Landlord's Lien ..................................................... 16
24. Surrender of Premises ............................................... 16
25. Holding Over ........................................................ 17
26. Certain Rights Reserved by Landlord ................................. 17
<PAGE>
27. Substitution Space................................................... 17
28. Miscellaneous ....................................................... 18
(a) Landlord Transfer ............................................... 18
(b) Landlord's Liability ............................................ 18
(c) Force Majeure ................................................... 18
(d) Brokerage ....................................................... 18
(e) Estoppel Certificates ........................................... 18
(f) Notices ......................................................... 18
(g) Separability .................................................... 18
(h) Amendments; and Binding Effect .................................. 18
(i) Quiet Enjoyment ................................................. 19
(j) No Merger ....................................................... 19
(k) No Offer ........................................................ 19
(l) Entire Agreement ................................................ 19
(m) Waiver of Jury Trial ............................................ 19
(n) Governing Law ................................................... 19
(o) Joint and Several Liability ..................................... 19
(p) Financial Reports ............................................... 19
(q) Landlord's Fees ................................................. 20
(r) Telecommunications .............................................. 20
(s) Confidentiality ................................................. 20
(t) Hazardous Materials ............................................. 20
(u) List of Exhibits ................................................ 20
29. Other Provisions .................................................... 20
<PAGE>
LIST OF DEFINED TERMS
Page
----
Additional Rent ......................................................... i
Affiliate ............................................................... 1
Basic Lease Information ................................................. 1
Basic Rent .............................................................. i
Building ................................................................ i
Casualty ................................................................ 13
Chiller/Condenser Rent .................................................. i
Collateral .............................................................. 16
Commencement Date ....................................................... i
Conduit Rent ............................................................ i
Damage Notice ........................................................... 13
Event of Default ........................................................ 14
GAAP .................................................................... 11
Generator ............................................................... 6
Generator Rent .......................................................... i
Hazardous Materials ..................................................... 20
HVAC .................................................................... 4
including ............................................................... 1
Initial Conduits ........................................................ 8
Interconnection Equipment ............................................... 9
Land .................................................................... i
Landlord ................................................................ 1
Landlord's Mortgagee .................................................... 12
Law ..................................................................... 1
Laws .................................................................... 1
Lease ................................................................... 1
Lease Date .............................................................. i
Lease Year .............................................................. 2
Legal Requirements ...................................................... 6
Lines ................................................................... 8
Loss .................................................................... 11
Meet-Me Room ............................................................ 9
Meet-Me Room Rent ....................................................... i
Operating Costs ......................................................... 2
Operating Costs Statement ............................................... 3
Permitted Transfer ...................................................... 10
Permitted Transferee .................................................... 10
Permitted Use ........................................................... i
Premises ................................................................ i
Project ................................................................. i
Punchlist Items ......................................................... E-1
Rent .................................................................... i
Security Deposit ........................................................ i
Taking .................................................................. 13
Tangible Net Worth ...................................................... 11
Taxes ................................................................... 3
Tenant .................................................................. 1
vi
<PAGE>
Tenant Delay Day ....................................................... D-2
Tenant Party ........................................................... 1
Tenant's Architect ..................................................... D-1
Tenant's Equipment ..................................................... 6
Tenant's Proportionate Share ........................................... 1
Term ................................................................... 1
Total Construction Costs ............................................... D-2
Transfer ............................................................... 9
Transmission Equipment ................................................. 7
Transmission Equipment Rent ............................................ i
UCC .................................................................... 16
Work ................................................................... D-1
Working Drawings ....................................................... D-1
vii
<PAGE>
LEASE
This Lease Agreement (this "Lease") is entered into as of November ___,
1999, between DENVER FDS, L.P., a Texas limited partnership ("Landlord"), and
ADVANCED TELECOMMUNICATIONS, INC., a Delaware corporation ("Tenant").
1. Definitions and Basic Provisions. The definitions and basic provisions
set forth in the Basic Lease Information (the "Basic Lease Information")
executed by Landlord and Tenant contemporaneously herewith are incorporated
herein by reference for all purposes. Additionally, the following terms shall
have the following meanings when used in this Lease: "Laws" means all federal,
state, and local laws, ordinances, rules and regulations, all court orders,
governmental directives, and governmental orders, and all interpretations of the
foregoing, and all restrictive covenants affecting the Project, and "Law shall
mean any of the foregoing; "Affiliate" means any person or entity which,
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the party in question; "Tenant
Party" means any of the following persons: Tenant; any assignees claiming by,
through, or under Tenant; any subtenants claiming by, through, or under Tenant;
and any of their respective agents, contractors, employees, and invitees; and
"including" means including, without limitation.
2. Lease Grant. Subject to the terms of this Lease, Landlord leases to
Tenant, and Tenant leases from Landlord, the Premises.
3. Term. If the Premises are not ready for occupancy by Tenant and
Landlord is unable to tender possession of the Premises to Tenant by the
Commencement Date, then (a) Tenant's obligation to pay Basic Rent, Additional
Rent (defined below) and Operating Costs (defined below) shall be waived until
the date on which Landlord tenders possession of the Premises to Tenant (which
date will then be defined as the Commencement Date), (b) Landlord shall not be
in default hereunder or be liable for damages therefor, and (c) Tenant shall
accept possession of the Premises when Landlord tenders possession thereof to
Tenant. By occupying the Premises, Tenant shall be deemed to have accepted the
Premises in their condition as of the date of such occupancy, subject to the
performance of punch-list items that remain to be performed by Landlord, if any.
Tenant shall execute and deliver to Landlord, within ten days after Landlord has
requested the same, an amendment substantially in the form of Exhibit E hereto
confirming (1) the Commencement Date and the expiration date of the initial
Term, (2) that Tenant has accepted the Premises, and (3) that Landlord has
performed all of its obligations with respect to the Premises (except for
punch-list items specified in such letter).
4. Rent.
(a) Payment. Tenant shall timely pay to Landlord Rent, without
deduction or set off, at Landlord's address provided for in this Lease or as
otherwise specified by Landlord and shall be accompanied by all applicable state
and local sales or use taxes. Basic Rent, adjusted as herein provided, shall be
payable monthly in advance. Tenant's obligation to pay Basic Rent, Additional
Rent and Tenant's Proportionate Share of Operating Costs shall be abated for the
first three months of the Term. The first monthly installment of Basic Rent
(i.e., the fourth month of the Term) shall be payable contemporaneously with the
execution of this Lease; thereafter, Basic Rent shall be payable on the first
day of each month beginning on the first day of the fifth full calendar month of
the Term. The monthly Basic Rent for any partial month at the beginning of the
Term shall equal the product of 1/365 of the annual Basic Rent in effect during
the partial month and the number of days in the partial month from and after the
Commencement Date, and shall be due on the Commencement Date. Tenant shall pay
Additional Rent at the same time and in the same manner as Basic Rent
(b) Adjustments to Basic Rent and Additional Rent. Beginning on the
first day of the second Lease Year (defined herein) and again on the first day
of each succeeding Lease Year thereafter, the
1
<PAGE>
monthly Basic Rent and Additional Rent shall be increased to an amount equal
to the product of (1) 103% times (2) the monthly Basic Rent and Additional
Rent last payable hereunder for the immediately preceding Lease Year. As used
herein, the "Lease Year" means each successive 12-month period beginning on
the Commencement Date (and if the Commencement Date does not occur on the
first day of a calendar month, the first Lease Year shall also include the
period from the Commencement Date to the first day of the next calendar
month).
(c) Operating Costs; Taxes; Electrical Costs.
(1) Tenant shall pay Tenant's Proportionate Share of Operating
Costs (defined herein) during each calendar year of the Term. If the Term
begins on a day other than the first day of a calendar year or ends on a
day other than the last day of a calendar year, then, for purposes of
determining Tenant's obligations under this Section 4.(c), the Operating
Costs for such year shall be determined by multiplying the aggregate
Operating Costs for the entire year in question by a fraction whose
numerator is the number of days in the Term falling within such year and
whose denominator is the number of days in such year, and Tenant shall pay
Tenant's Proportionate Share thereof. Landlord may make a good faith
estimate of the Operating Costs to be due by Tenant for any calendar year
or part thereof during the Term, and Tenant shall pay to Landlord, on the
first day of each calendar month thereafter, an amount equal to the
estimated Operating Costs for such calendar year or part thereof divided
by the number of months therein. From time to time, Landlord may estimate
and re-estimate the Operating Costs to be due by Tenant and deliver a copy
of the estimate or re-estimate to Tenant. Thereafter; the monthly
installments of Operating Costs payable by Tenant shall be appropriately
adjusted in accordance with the estimations so that, by the end of the
calendar year in question, Tenant shall have paid all of the Operating
Costs as estimated by Landlord. Any amounts paid based on such an estimate
shall be subject to adjustment as herein provided when actual Operating
Costs are available for each calendar year.
(2) The term "Operating Costs" shall mean all expenses and
disbursements (subject to the limitations set forth below) that Landlord
incurs in connection with the ownership, operation, and maintenance of the
common areas of the Project, determined in accordance with sound
accounting principles consistently applied, including, but not limited to,
the following costs:
(A) wages and salaries (including management fees)
of all employees engaged in the operation, maintenance, and
security of the Project, including taxes, insurance and
benefits relating thereto;
(B) all supplies and materials used in the
operation, maintenance, repair, replacement, and security of
the Project;
(C) costs for improvements made to the Project
which, although capital in nature, are expected to reduce the
normal operating costs (including all utility costs) of the
Project, as well as capital improvements made in order to
comply with any law hereafter promulgated by any governmental
authority, as amortized over the useful economic life of such
improvements as determined by Landlord in its reasonable
discretion;
(D) cost of all utilities, including fuel, gas,
electricity (except electrical costs reimbursed to Landlord by
the Building's tenants, other than pursuant to a provision
similar to this Section 4.(c)), water, sewer, telephone and
other services;
(E) insurance expenses;
2
<PAGE>
(F) all taxes, assessments, and governmental
charges whether federal, state, county or municipal, and
whether they be by taxing districts or authorities presently
taxing or by others, subsequently created or otherwise, and
any other taxes and assessments attributable to the Project
(or its operation) (collectively, "Taxes"), excluding,
however, penalties and interest thereon and federal and state
taxes on income; if the present method of taxation changes so
that in lieu of the whole or any part of any Taxes, there is
levied on Landlord a capital tax directly on the rents
received therefrom or a franchise tax, assessment, or charge
based, in whole or in part, upon such rents for the Project,
then all such taxes, assessments, or charges, or the part
thereof so based, shall be deemed to be included within the
term "Taxes" for purposes hereof. Taxes shall include the
costs of consultants retained in a effort to lower taxes and
all costs incurred in disputing any taxes or in seeking to
lower the tax valuation of the Project. For property tax
purposes, Tenant waives all rights under applicable Law to
protest or appeal the appraised value of the Project or any
part thereof; and to receive notices of reappraisement;
(G) fair market rental and other costs with
respect to the management office for the Building;
(H) repairs, replacements, and general maintenance
of the Building, including janitorial services (with respect
to common areas only);
(I) service or maintenance contracts with
independent contractors for the operation, maintenance,
repair, replacement, or security of the Building (including,
without limitation, alarm service, window cleaning, and
elevator maintenance); and
(J) costs of professional services rendered for
the general benefit of the Project
Operating Costs shall not include costs for (i) capital
improvements made to the Project, other than capital improvements
described in Section 4.(c)(2)(C) and except for items which are generally
considered maintenance and repair items, such as painting of common
areas, replacement of carpet in elevator lobbies, and the like; (ii)
repair, replacements and general maintenance paid by proceeds of insurance
or by Tenant or other third parties; (iii) interest, amortization or other
payments on loans to Landlord; (iv) depreciation; (v) leasing commissions;
(vi) legal expenses for services, other than those that benefit the
Building tenants generally (e.g., tax disputes); (vii) renovating or
otherwise improving space for occupants of the Building or vacant space in
the Building; and (viii) federal income taxes imposed on or measured by
the income of Landlord from the operation of the Project
(3) By April 1 of each calendar year, or as soon thereafter as
practicable, landlord shall finish to Tenant a statement of Operating
Costs for the previous year, adjusted as provided in Section 4.(c)(4) (the
"Operating Costs Statement"). If the Operating Costs Statement reveals
that Tenant paid more for Operating Costs than the actual amount of
Tenant's Proportionate Share thereof for the year for which such statement
was prepared, Landlord shall promptly credit or reimburse Tenant for such
excess; likewise, if Tenant paid less than Tenant Proportionate Share of
Operating Costs, then Tenant shall pay Landlord such deficiency within 30
days after delivery of the Operating Costs Statement in question.
(4) With respect to any calendar year or partial calendar year
in which the Building is not occupied to the extent of 100% of the
rentable area thereof; the Operating Costs for such period
3
<PAGE>
shall, for the purposes hereof be increased to the amount which would have
been incurred had the Building been occupied to the extent of 100% of the
rentable area thereof.
5. Delinquent Payment; Handling Charges. All past due payments required of
Tenant hereunder shall bear interest from the date due until paid at the lesser
of eighteen percent per annum or the maximum lawful rate of interest;
additionally, Landlord, in addition to all other rights and remedies available
to it, may charge Tenant a fee equal to 5% of the delinquent payment to
reimburse Landlord for its cost and inconvenience incurred as a consequence of
Tenant's delinquency. In no event, however, shall the charges permitted under
this Section 5 or elsewhere in this Lease, to the extent they are considered to
be interest under applicable Law, exceed the maximum lawful rate of interest.
6. Security Deposit. Contemporaneously with the execution of this Lease,
Tenant shall pay to Landlord the Security Deposit, which shall be held by
Landlord to secure Tenant's performance of its obligations under this Lease. The
Security Deposit is not an advance payment of Rent or a measure or limit of
Landlord's damages upon an Event of Default (defined in Section 20). Landlord
may, from time to time following an Event of Default and without prejudice to
any other remedy, use all or a part of the Security Deposit to perform any
obligation Tenant fails to perform hereunder. Following any such application of
the Security Deposit, Tenant shall pay to Landlord on demand the amount so
applied in order to restore the Security Deposit to its original amount.
Provided that Tenant has performed all of its obligations hereunder, Landlord
shall, within 30 days after the Term ends, return to Tenant the portion of the
Security Deposit which was not applied to satisfy Tenant's obligations. The
Security Deposit may be commingled with other funds, and no interest shall be
paid thereon. If Landlord transfers its interest in the Premises and the
transferee assumes Landlord's obligations under this Lease, then Landlord may
assign the Security Deposit to the transferee and Landlord thereafter shall have
no further liability for the return of the Security Deposit.
7. Services.
(a) Landlord's Obligations. Landlord shall use all reasonable efforts
to finish to Tenant (1) water at those points of supply provided for general
use of tenants of the Building in the common areas thereof; (2) heated and
refrigerated air conditioning ("HVAC") as appropriate to the common areas of
the Building, at such temperatures and in such amounts as are standard for
comparable buildings in the vicinity of the Building; (3) janitorial service
to the common areas of the Building on weekdays, other than holidays, for
Building-standard installations and such window washing as may from time to
time be reasonably required; and (4) elevator(s) for ingress and egress to
the floor on which the Premises are located, in common with other tenants,
provided that Landlord may reasonably limit the number of operating elevators
during non-business hours and holidays. Landlord shall maintain the common
areas of the Building in reasonably good order and condition, except for
damage caused by a Tenant Party. If Tenant desires any of the services
specified in this Section 7.(a) at any time other than the times herein
stated, such services shall be supplied upon the written request of Tenant
delivered to Landlord before 3:00 p.m. on the business day preceding such
extra usage, and Tenant shall pay to Landlord the cost of such services, plus
an administrative fee equal to 15% of the cost thereof, within ten days after
Landlord has delivered to Tenant an invoice therefor. The costs incurred by
Landlord in providing after-hour HVAC service shall include costs for
electricity, water, sewage, water treatment, labor, metering, filtering, and
maintenance reasonably allocated by Landlord to providing such service.
(b) Electrical Service. All electrical power for the Premises and for
the operation of Tenant's Equipment (defined herein) shall be provided directly
to Tenant from an electrical service provider through a direct utility hookup to
the Premises (or through submetering at Landlord's sole discretion) to be
furnished, installed and maintained at Tenant's sole expense. Without limiting
the generality of the foregoing, Tenant, at its sole cost and expense, shall pay
the cost of all equipment, meters, switches, transformers, feeders, risers, and
wiring required to provide electrical service to the Premises and Tenant's
Equipment (collectively, the
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"Electrical Equipment"). Landlord will provide Tenant's electrical service
provider reasonable access to the Building to install, at a location therein
acceptable to Landlord, the transformer required to furnish electrical service
to the Premises. The installation of all Electrical Equipment shall be done only
in accordance with plans and specifications that have been previously submitted
to and approved by Landlord in writing and shall be subject to the provisions of
Section 8. Whenever Tenant is required to pay the cost of any Electrical
Equipment under the foregoing provisions, the cost thereof shall include the
cost of installation, operation, use and maintenance of such Electrical
Equipment. If electrical service to the Premises or for Tenant's Equipment is
submetered, the submeter shall be read by Landlord and Tenant shall pay to
Landlord the cost of such electrical service based on rates charged for such
service by the utility company furnishing such service, including all fuel
adjustment charges, demand charges and taxes. Landlord makes no representation
or warranty to Tenant concerning the quantity or availability of electrical
power or electrical service to the Premises or for Tenant's Equipment and shall
not be liable for any damages (direct or consequential) caused by, and in no
event shall Rent abate by reason of, the interruption, insufficiency,
unavailability or discontinuance of such electric service.
(c) Janitorial Services. Notwithstanding any contrary provision
herein, Tenant, at its sole expense, shall provide its own janitorial services
to the Premises (including trash removal) and shall maintain the Premises in a
clean, safe and operable condition as required by Section 8.(b). If Tenant fails
to provide janitorial services to the Premises in compliance with the foregoing,
Landlord, in addition to any other rights and remedies available to it, may
provide such janitorial services, and Tenant shall pay to Landlord the cost
thereof, plus an administrative fee equal to 15% of such cost, within ten days
after Landlord delivers to Tenant an invoice therefor.
(d) Restoration of Services; Abatement. Landlord shall use reasonable
efforts to restore any service required of it under Section 7.(a) that becomes
unavailable; however, such unavailability shall not render Landlord liable for
any damages caused thereby, be a constructive eviction of Tenant, constitute a
breach of any implied warrant, or, except as provided in the next sentence,
entitle Tenant to any abatement of Tenant's obligations hereunder. If, however,
Tenant is prevented from using the Premises for more than 25 consecutive
business days because of the unavailability of any such service and such
unavailability was not caused by a Tenant Party, then Tenant shall, as its
exclusive remedy he entitled to a reasonable abatement of Rent for each
consecutive day (after such 25-day period) that Tenant is so prevented from
using the Premises. Landlord shall have no obligation to restore any electrical
service that becomes unavailable to the Premises and such unavailability shall
not render Landlord liable for any damages caused thereby, be a constructive
eviction of Tenant, constitute a breach of any implied warranty or entitle
Tenant to any abatement of Tenant's obligations hereunder unless caused by
Landlord's gross negligence or willful misconduct.
8. Improvements; Alterations; Repairs; Maintenance.
(a) Improvements; Alterations. Improvements to the Premises shall be
installed at Tenant's expense only in accordance with plans and specifications
which have been previously submitted to and approved in writing by Landlord. No
alterations or physical additions in or to the Premises may be made without
Landlord's prior written consent, which shall not be unreasonably withheld or
delayed; however, Landlord may withhold its consent to any alteration or
addition that would affect the Building's structure or its HVAC, plumbing
electrical, or mechanical systems. Tenant shall not paint or install lighting or
decorations, signs, window or door lettering, or advertising media of any type
on or about the Premises without the prior written consent of Landlord, which
shall not be unreasonably withheld or delayed; however, Landlord may withhold
its consent to any such painting or installation which would affect the
appearance of the exterior of the Building or of any common areas of the
Building. All alterations, additions, and improvements shall be constructed,
maintained, and used by Tenant, at its risk and expense, in accordance with all
Laws; Landlord's approval of the plans and specifications therefor shall not be
a representation by Landlord that such alterations, additions, or improvements
comply with any Law.
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(b) Repairs; Maintenance. Tenant shall maintain the Premises in a
clean, safe, and operable condition, and shall not permit or allow remaining any
waste or damage to any portion of the Premises. Tenant shall repair or replace,
subject to Landlord's direction and supervision, any damage to the Building
caused by a Tenant Party. If Tenant fails to make such repairs or replacements
within 15 days after the occurrence of such damage, then Landlord may make the
same at Tenant's cost. If any such damage occurs outside of the Premises, then
Landlord may elect to repair such damage at Tenant's expense, rather than having
Tenant repair such damage. The cost of all repair or replacement work performed
by Landlord under this Section 8 shall be paid by Tenant to Landlord within ten
days after Landlord has invoiced Tenant therefor.
(c) Performance of Work. All work described in this Section 8 shall be
performed only by Landlord or by contractors and subcontractors approved in
writing by Landlord. Tenant shall cause all contractors and subcontractors to
procure and maintain insurance coverage naming Landlord, Landlord's agents and
their respective Affiliates, as additional insureds against such risks, in such
amounts, and with such companies as Landlord may reasonably require. All such
work shall be performed in accordance with all Laws and in a good and
workmanlike manner so as not to damage the Building (including the Premises, the
structural elements, and the plumbing, electrical lines, or other utility
transmission facility). All such work which may affect the Building's HVAC,
electrical, plumbing other mechanical systems, or structural elements must be
approved by the Building's engineer of record, at Tenant's expense and, at
Landlord's election, must be performed by Landlord's usual contractor for such
work.
(d) Mechanic's Liens. Tenant shall not permit any mechanic's liens to
be filed against the Premises or the Project for any work performed, materials
furnished, or obligation incurred by or at the request of Tenant. If such a lien
is filed, then Tenant shall, within ten days after Landlord has delivered notice
of the filing thereof to Tenant, either pay the amount of the lien or diligently
contest such lien and deliver to Landlord a bond or other security reasonably
satisfactory to Landlord, If Tenant fails to timely take either such action,
then Landlord may pay the lien claim, and any amounts so paid, including
expenses and interest, shall be paid by Tenant to Landlord within ten days after
Landlord has invoiced Tenant therefor.
9. Tenant's Equipment.
(a) Approval by Landlord. Tenant shall, at its sole cost and expense,
provide to Landlord for its prior written approval, detailed plans and
specifications for the installation by Tenant within and outside the Premises of
all communications switching equipment and associated ancillary equipment used
in Tenant's business operations, including the Generator (defined below), the
Transmission Equipment (defined below), HVAC equipment, chillers and condensing
units, and all conduits installed by or for Tenant as described below
(collectively, "Tenant's Equipment").
(b) Generator. Subject to the provisions of Section 8 and Tenant's
payment of Generator Rent, Tenant may (1) install, operate, and maintain one
generator within the Project (in the area described in the next sentence) for
Tenant's business operations for emergency back-up purposes, which generator
will require either a propane, diesel or natural gas fuel system, as more
particularly described in Tenant's plans and specifications, and (2) store fuel
on the Premises or elsewhere within the Project (as described below), in such
amounts as Tenant reasonably determines necessary for Tenant's generator (the
"Generator," which defined term shall also refer to all related equipment
including the Generator Fuel Tanks, as defined below). The Generator shall be
installed at a location on the roof over the third floor of the Building
reasonably acceptable to Landlord within the area shown on Exhibit A-2, provided
that the installation, maintenance, use, and operation thereof complies with all
Laws, and Tenant receives all approvals, consents, and permits required under
applicable Law before the installation, maintenance, use, and operation thereof.
To the extent that any permits or registrations are required for the
installation or operation of the Generator, they shall be obtained by Tenant in
Tenant's name. The fuel for the Generator shall be stored in tank located above
ground in the portion of the Premises located
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in the basement of the Building (the "Generator Fuel Tank"). Tenant may lease
from Landlord an additional 1,392 rentable square feet in the basement of the
Building (the "Expansion Space") at a location reasonably acceptable to Tenant
and Landlord for the purpose of installing its Generator Fuel Tank. If Tenant
timely exercises its option to lease the Expansion Space, then (a) possession of
the Expansion Space shall be delivered to Tenant in an "AS-IS" condition on the
earlier of five business days after Tenant's written election to lease the
Expansion Space or the date on which Tenant occupies the Expansion Space with
Landlord's prior written consent, and (b) Tenant and Landlord shall execute an
amendment to this Lease including the Expansion Space in the Premises on the
same terms as this Lease, except as follows: (1) the rentable square feet of the
Premises shall be increased by the rentable square feet in the Expansion Space;
(2) the per rentable square foot Basic Rent for the Expansion Space shall be
equal to $22.50 per rentable square foot per year; and (3) Landlord shall not
provide to Tenant any allowances (e.g. moving allowance, construction allowance,
and the like) or other tenant inducements. Before beginning the installation of
the Generator, Tenant shall deliver to Landlord final plans and specifications
therefor prepared by an engineer reasonably approved by Landlord and setting
forth in detail the design, location, size, and method of installation
(including without limitation, separation walls, interstitial monitoring and
ventilation system) for Landlord's review and approval, with approval shall not
be unreasonably withheld, conditioned or delayed, together with evidence
reasonably satisfactory to Landlord of compliance thereof with all Laws. Copies
of such final plans and specifications shall be initialed by Landlord (unless
deemed approved) and by Tenant, and promptly attached to and incorporated into
this Lease by reference in place of Exhibit A-2. Landlord's approval of any such
plans and specifications shall not constitute a representation or warranty by
Landlord that such plans and specifications comply with all Laws; such
compliance shall be the sole responsibility of Tenant. The Generator shall be
installed and screened in a manner acceptable to Landlord, and no underground
storage tanks may be installed or used in connection therewith. Upon reasonable
approval of the plans and specifications therefor and the location thereof,
Tenant may install the Generator provided that such work is coordinated with
Landlord and is performed in a good and workmanlike manner, in accordance with
all Laws and the plans and specifications therefor and in a manner so as not to
damage the Building or materially interfere with the use of any portion of the
Building while such installation is taking place; thereafter, Tenant shall use,
maintain, and operate the Generator in a good, clean, and safe condition and in
accordance with all Laws. Provided no Event of Default exists, Tenant may remove
the Generator at any time during the Term, and shall remove the Generator at the
end of the Term as provided in Section 24. Tenant shall repair all damage caused
by the installation, use, maintenance, operation, or removal of the Generator
and, upon its removal, restore the portion of the Building grounds where it was
located to its condition immediately before the installation thereof, normal
wear and tear and damage by casualty excepted. If Tenant fails to repair such
damage and restore such Building grounds within 30 days after Landlord's
request, Landlord may perform such work, and Tenant shall pay to Landlord all
reasonable costs incurred in connection therewith within 30 days after
Landlord's written request therefor. Tenant shall properly fuel and immediately
remove from the area surrounding the Generator any spills or other leaks of
fluid from the Generator. Additionally, Tenant shall ensure that the Generator
is properly exhausted at all times so no odors emanate therefrom. The Generator
shall be installed, used, maintained, operated, and removed at Tenant's risk and
expense. All testing of the Generator shall be performed after normal business
hours and must be coordinated with Landlord.
(c) HVAC, Chillers, and Condensing Units. Subject to the provisions of
Section 8 and Tenant's payment of Chiller/Condenser Rent, Tenant shall have the
right to install and maintain, at Tenant's sole cost and expense, supplemental
HVAC equipment in the Premises ("Tenant's HVAC Equipment") ad chillers, dry
coolers and/or condensing units (collectively, the "Cooling Equipment) and upon
the roof of the Building at a location reasonably acceptable to Landlord within
the area shown on Exhibit A-3, and shall have a route reasonably acceptable to
Landlord for glycol or similar piping from Tenant's HVAC Equipment to the
Cooling Equipment Copies of the final plans and specifications evidencing the
specific location within the area shown on Exhibit A-3 shall be initialed by
Landlord (unless deemed approved) and by Tenant, and promptly attached to and
incorporated into this Lease by reference in place of Exhibit A-3. Tenant shall
comply with all Laws in
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connection with the installation, maintenance, use and operation of Tenant's
HVAC equipment and the Cooling Equipment.
(d) Transmission Equipment. Subject to the provisions of Section 8 and
Tenant's payment of Transmission Equipment Rent, Tenant shall have the right at
its sole cost and expense, to install and maintain an antenna, satellite dish
and/or other transmission facilities, including all related wiring (the
"Transmission Equipment) at a location on the Building acceptable to Landlord.
Tenant shall comply with all Legal Requirements applicable to the installation,
operation, use and maintenance of the Transmission Equipment and rules and
regulations of the Building. Tenant, at its sole cost and expense, shall obtain
and maintain all necessary permits and licenses required for the installation,
operation and maintenance of the Transmission Equipment. Tenant shall maintain
the Transmission Equipment in a manner so as not to interfere with the
Building's operations or the operations of any other tenant or occupant of the
Building or any other person providing services to or in connection with the
Building or its occupants.
(e) Installation and Maintenance. Tenant shall, at its sole expense
and risk, install Tenant's Equipment in a good and workmanlike manner in
compliance with plans and specifications therefor approved by Landlord and all
Legal Requirements and Section 8. Tenant shall be solely responsible for the
adequacy and safety of the installation, operation, maintenance, repair and
removal of Tenant's Equipment. Tenant shall be solely liable for any damage or
injury arising out of the installation, operation, maintenance, repair and
removal of Tenant's Equipment; including any damage to the Premises, the Project
or any property of other tenants or occupants of the Building. Tenant shall pay
to Landlord on demand the cost of repairing any damage to the Project caused by
such installation, operation, maintenance, repair or removal of Tenant's
Equipment, and all costs incurred by Landlord in reviewing and inspecting the
installation and operation of Tenant's Equipment, including the costs and fees
of any consulting engineers, roofers, or other contractors hired by Landlord for
such purpose.
(f) Conduits and Infrastructure. Subject to the provisions of Section
8 and Tenant's payment of Conduit Rent, Tenant shall have the right, at its sole
cost and expense, as part of its installation of Tenant's Equipment and the
Initial Improvements, to upgrade the Building's infrastructure, including fire
suppression system, electrical, water and telecommunications conduits. Subject
to the provisions of Section 8, Tenant (1) may install a reasonable number of
conduits as shown and described in Tenant's plans and specifications from the
Premises to the Meet-Me Room (defined below), the Generator and the Building
electrical room, which will be installed by Tenant at Tenant's sole cost and
expense in a good and workmanlike manner and in compliance with applicable Laws,
(2) may install pipe chases from the basement of the Building to the southwest
corner of the roof above the third floor of the Building for the supply and
return of fuel lines from the Generator Fuel Tank to the Generator, and (3) may,
at Tenant's sole cost and expense, install additional conduits for power, four
4" conduits for Tenant's HVAC Equipment, two 4" conduits directly from the
Premises to Champa Street and two 4" conduits directly from the Premises to 15th
Street but only for use by Tenant in the operation of its business to
interconnect with other telecommunications providers, in each case in locations
reasonably approved by Landlord (all of the foregoing conduits are herein
collectively referred to as the "Initial Conduits"). If Landlord permits Tenant
to install or use conduits or equivalent cable runs in excess of the Initial
Conduits, Tenant shall pay Conduit Rent equal to the fair market rate, as
reasonably determined by Landlord, for each diameter inch that exceeds the
Initial Conduits. The foregoing provisions shall apply to all conduits and
equivalent cable runs installed and/or used by Tenant, including those for
interconnection rights under Section 11 and for Tenant's Equipment and
Electrical Equipment that exceeds the Initial Conduits. The Initial Conduits and
any other conduits and cable runs that Tenant is permitted to install or use
under the foregoing provisions are herein collectively referred to as "Tenant's
Conduits." Landlord shall have no liability for damages arising from, and
Landlord does not warrant that Tenant's use of any communications or computer
wires, cables and related devices (collectively, the "Lines") in or serving the
Premises will be free from any (A) eavesdropping or
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wiretapping by unauthorized parties, provided that Landlord shall not have
authorized or permitted such acts unless required by Law, (B) failure of any
Lines to satisfy Tenant's requirements, or (C) shortages, failures, variations,
interruptions, disconnections, loss or damage caused by the installation,
operation, maintenance, repair or removal of the Lines by or for other tenants
or occupants of the Building except to the extent caused by Landlord's gross
negligence or willful misconduct.
(g) Non-Interference. Tenant shall operate Tenant's Equipment in such
a manner as not to interfere with the maintenance or operation of the Building
including the Building's HVAC, plumbing, electrical or mechanical systems or the
operation of any existing radio or telecommunications equipment operated on or
from the Building In the event of any such interference, Tenant shall suspend
operation of Tenant's Equipment within 24 hours after written notice thereof
from Landlord and shall not resume operation of Tenant's Equipment until such
operation is in strict compliance with the foregoing requirements.
(h) Indemnity. Tenant's indemnification obligations under Section
14.(c) shall also apply to any Loss arising from Tenant's installation,
operation, maintenance, repair or removal of Tenant's Equipment.
(i) Governmental Notices. Tenant shall promptly provide Landlord
copies of any notices, demands or directives received by Tenant from any
governmental authority or insurance carrier in connection with the installation,
operation, maintenance, repair or removal of Tenant's Equipment, and Tenant
shall promptly comply with all such notices, demands and directives at its sole
cost and expense. Such cost shall include all equipment and transport related to
the equipment.
(j) Relocation. Notwithstanding any contrary provision herein,
Landlord shall have the right, at its option and sole cost, upon not less than
60 days prior written notice to Tenant, to relocate any of Tenant's Equipment to
such other location or locations within the Project as Landlord may designate.
Tenant shall cooperate with Landlord to enable Landlord to accomplish any such
relocation.
10. Use. Tenant shall occupy and use the Premises only for the Permitted
Use and shall comply with all Laws relating to the use, condition, access to,
and occupancy of the Premises. The population density within the Premises as a
whole shall at no time exceed one person for each 300 rentable square feet in
the Premises. The Premises shall not be used for any use which is disreputable,
creates extraordinary fire hazards, or results in an increased rate of insurance
on the Building or its contents, or for the storage of any Hazardous Materials.
If, because of a Tenant Party's acts, the rate of insurance on the Building or
its contents increases, then such acts shall be an Event of Default, Tenant
shall pay to Landlord the amount of such increase on demand, and acceptance of
such payment shall not waive any of Landlord's other rights. Tenant shall
conduct its business and control each other Tenant Party so as not to create any
nuisance or unreasonably interfere with other tenants or Landlord in its
management of the Building.
11. Interconnection Rights. Landlord acknowledges that the nature of
Tenant's business may require it to interconnect with other telecommunications
companies that may also be located in the Building. To facilitate such
interconnection and subject to the payment of Conduit Rent and Meet-Me Room
Rent, Landlord agrees that it will make available to Tenant space for Tenant to
install and maintain, at its sole expense, one relay rack; cage or cabinet in
the conduit room for the Building (the "Meet-Me Room"). The location, size and
configuration of space available to Tenant in the Meet-Me Room shall be
determined by Landlord in its sole discretion and which is reasonably acceptable
to Tenant. Subject to the payment of Conduit Rent and Meet-Me Room Rent and
Landlord's prior written approval, Tenant may (1) install, maintain and use
cables, conduits, wires, cable ducts, telephone closets and ladder racks for the
conduct of its business between the Premises and other parts of the Building and
(2) directly connect to, interface with, or otherwise attach to the lines and
facilities of the public utilities finishing electrical or telephone services to
the Building, for additional electrical energy and telephone connections to the
Premises. The cost of installation, operation, use and maintenance of the
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foregoing modifications or improvements (including telecommunications cabinets,
relays, and cages) shall be borne solely by Tenant. All modifications or
improvements just described are herein collectively referred to as the
"Interconnection Equipment." Tenant, at its sole cost and expense, shall comply
with all Legal Requirements relating to the installation, operation,
maintenance, repair or removal of the Interconnection Equipment. Tenant's
indemnification obligations under Section 14.(c) shall also apply to any Loss
arising from Tenant's installation, operation, maintenance, repair or removal of
the Interconnection Equipment.
12. Co-Location. Landlord acknowledges that Tenant's business to be
conducted in the Premises may require the installation in the Premises of
certain communications equipment by certain licensees and customers of Tenant to
permit such customers to interconnect with Tenant's equipment or to permit
Tenant to manage or operate such customers' equipment, or otherwise as may be
required pursuant to applicable Law. Notwithstanding any contrary provision
herein, Tenant shall not enter into any sublease, license agreement, co-location
agreement or similar agreement without first obtaining Landlord's written
consent, which shall not be unreasonably withheld.
13. Assignment and Subletting.
(a) Transfers. Except as provided in Section 13.(g), Tenant shall not,
without the prior written consent of Landlord, (1) assign, transfer, or encumber
this Lease or any estate or interest herein, whether directly or by operation of
law, (2) permit any other entity to become Tenant hereunder by merger,
consolidation, or other reorganization, (3) if Tenant is an entity other than a
corporation whose stock is publicly traded, permit the transfer of an ownership
interest in Tenant so as to result in a change in the current control of Tenant,
(4) sublet any portion of the Premises, (5) grant any license, concession, or
other right of occupancy of any portion of the Premises, or (6) permit the use
of the Premises by any parties other than Tenant (any of the events listed in
Section 13.(a)(l) through 13.(a)(6) being a "Transfer").
(b) Consent Standards. Landlord shall not unreasonably withhold its
consent to any assignment or subletting of the Premises, provided that the
proposed transferee (1) is creditworthy, (2) has a good reputation in the
business community, (3) will use the Premises for the Permitted Use (thus,
excluding, without limitation, uses for credit processing and telemarketing) and
will not use the Premises in any manner that would conflict with any exclusive
use agreement or other similar agreement entered into by Landlord with any other
tenant of the Building (4) is not a governmental entity, or subdivision or
agency thereof, and (5) is not another occupant of the Building or person or
entity with whom Landlord is negotiating to lease space in the Building;
otherwise, Landlord may withhold its consent in its sole discretion.
(c) Request for Consent. If Tenant requests Landlord's consent to a
Transfer, then Tenant shall provide Landlord with a written description of all
terms and conditions of the proposed Transfer, copies of the proposed
documentation, and the following information about the proposed transferee: name
and address; reasonably satisfactory information about its business and business
history; its proposed use of the Premises, banking, financial, and other credit
information, and general references sufficient to enable Landlord to determine
the proposed transferee's creditworthiness and character. Concurrently with
Tenant's notice of any request for consent to a Transfer, Tenant shall pay to
Landlord a fee of $750 to defray Landlord's expenses in reviewing such request,
and Tenant shall also reimburse Landlord immediately upon request for its
reasonable attorneys' fees incurred in connection with considering any request
for consent to a Transfer.
(d) Conditions to Consent. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver to Landlord a written
agreement whereby it expressly assumes Tenant's obligations hereunder; however,
any transferee of less than all of the space in the Premises shall be liable
only for obligations under this Lease that are properly allocable to the space
subject to the Transfer for the period of the Transfer. No Transfer shall
release Tenant from its obligations under this Lease, but rather Tenant and its
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transferee shall be jointly and severally liable therefor. Landlord's consent to
any Transfer shall not waive Landlord's rights as to any subsequent Transfers.
If an Event of Default occurs while the Premises or any part thereof are subject
to a Transfer, then Landlord, in addition to its other remedies, may collect
directly from such transferee all rents becoming due to Tenant and apply such
rents against Rent. Tenant authorizes its transferees to make payments of rent
directly to Landlord upon receipt of notice from Landlord to do so. Tenant shall
pay for the cost of any demising walls or other improvements necessitated by a
proposed subletting or assignment.
(e) Cancellation. Landlord may, within 30 days after submission of
Tenant's written request for Landlord's consent to an assignment or subletting
cancel this Lease as to the portion of the Premises proposed to be sublet or
assigned as of the date the proposed Transfer is to be effective, If Landlord
cancels this Lease as to any portion of the Premises, then this Lease shall
cease for such portion of the Premises and Tenant shall pay to Landlord all Rent
accrued through the cancellation date relating to the portion of the Premises
covered by the proposed Transfer. Thereafter, Landlord may lease such portion of
the Premises to the prospective transferee (or to any other person) without
liability to Tenant.
(f) Additional Compensation. Tenant shall pay to Landlord, immediately
upon receipt thereof, the excess of (l) all compensation received by Tenant for
a Transfer less the costs reasonably incurred by Tenant with unaffiliated third
parties in connection with such Transfer (i.e., brokerage commissions, tenant
finish work, and the like) over (2) the Rent allocable to the portion of the
Premises covered thereby.
(g) Permitted Transfers. Notwithstanding Section 13.(a), Tenant may
Transfer all or part of its interest in this Lease or all or part of the
Premises (a "Permitted Transfer") to the following types of entities (a
"Permitted Transferee") without the written consent of Landlord:
(1) an Affiliate of Tenant;
(2) any corporation, limited partnership, limited liability
partnership, limited liability company or other business entity in which
or with which Tenant, or its corporate successors or assigns, is merged
or consolidated, in accordance with applicable statutory provisions
governing merger and consolidation of business entities, so long as (D)
Tenant's obligations hereunder are assumed by the entity surviving such
merger or created by such consolidation; and (E) the Tangible Net Worth
of the surviving or created entity is not less than the Tangible Net
Worth of Tenant as of the date hereof; or
(3) any corporation, limited partnership, limited liability
partnership, limited liability company or other business entity acquiring
all or substantially all of Tenant's assets if such entity's Tangible Net
Worth after such acquisition is not less than the Tangible Net Worth of
Tenant as of the date hereof.
Tenant shall promptly notify Landlord of any such Permitted Transfer. Tenant
shall remain liable for the performance of all of the obligations of Tenant
hereunder, or if Tenant no longer exists because of a merger, consolidation, or
acquisition, the surviving or acquiring entity shall expressly assume in writing
the obligations of Tenant hereunder. Additionally, the Permitted Transferee
shall comply with all of the terms and conditions of this Lease, including the
Permitted Use, and the use of the Premises by the Permitted Transferee may not
violate any other agreements affecting the Premises, the Building, Landlord or
other tenants of the Building. At least 30 days after the effective date of any
Permitted Transfer, Tenant agrees to furnish Landlord with copies of the
instrument effecting any of the foregoing Transfers and documentation
establishing Tenant's satisfaction of the requirements set forth above
applicable to any such Transfer. The occurrence of a Permitted Transfer shall
not waive Landlord's rights as to any subsequent Transfers. "Tangible Net Worth"
means the excess of total assets over total liabilities, in each case as
determined in accordance with generally accepted accounting principles
consistently applied ("GAAP"), excluding, however, from the determination of
total assets all assets which would
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be classified as intangible assets under GAAP including without limitation,
goodwill, licenses, patents, trademarks, trade names, copyrights, and
franchises. Any subsequent Transfer by a Permitted Transferee shall be subject
to Landlord's prior written consent (which Landlord may grant or deny in its
sole discretion).
14. Insurance: Waivers: Subrogation; Indemnity.
(a) Insurance. Tenant shall maintain throughout the Term the following
insurance policies: (1) commercial general liability insurance in amounts of
$3,000,000 per occurrence or such other amounts as Landlord may from time to
time reasonably require, insuring Tenant, Landlord, Landlord's agents and their
respective Affiliates against all liability for injury to or death of a person
or persons or damage to property arising from the use and occupancy of the
Premises and the installation, operation, maintenance, repair or removal of any
of Tenant's Equipment, Electrical Equipment, Lines, or Interconnection
Equipment, (2) insurance covering the full value of Tenant's property and
improvements, and other property (including property of others) in the Premises,
(3) contractual liability insurance sufficient to cover Tenant's indemnity
obligations hereunder (but only if such contractual liability insurance is not
already included in Tenant's commercial general liability insurance policy), (4)
worker's compensation insurance, containing a waiver of subrogation endorsement
acceptable to Landlord, and (5) business interruption insurance. Tenant's
insurance shall provide primary coverage to Landlord when any policy issued to
Landlord provides duplicate or similar coverage, and in such circumstance
Landlord's policy will be excess over Tenant's policy. Tenant shall furnish to
Landlord certificates of such insurance and such other evidence satisfactory to
Landlord of the maintenance of all insurance coverages required hereunder, and
Tenant shall obtain a written obligation on the part of each insurance company
to notify Landlord at least 30 days before cancellation or a material change of
any such insurance policies. All such insurance policies shall be in form, and
issued by companies, reasonably satisfactory to Landlord
(b) Waiver of Negligence; No Subrogation. Landlord and Tenant each
waives any claim it might have against the other for any injury to or death of
any person or persons or damage to or theft, destruction, loss, or loss of use
of any property (a "Loss"), to the extent the same is insured against under any
insurance policy that covers the Building, the Premises, Landlord's or Tenant's
fixtures, personal property, leasehold improvements, or business, or, in the
case of Tenant's waiver, is required to be insured against under the terms
hereof; regardless of whether the negligence of the other party caused such
Loss; however, Landlord's waiver shall not include any deductible amounts on
insurance policies carried by Landlord. Each party shall cause its insurance
carrier to endorse all applicable policies waiving the carrier's rights of
recovery under subrogation or otherwise against the other party.
(c) Indemnity. Subject to Section 14(b), Tenant shall defend,
indemnify, and hold harmless Landlord and its representatives and agents from
and against all claims, demands, liabilities, causes of action, suits,
judgments, damages, and expenses (including attorneys' fees) arising from (1)
any Loss arising from any occurrence on the Premises (other than any Loss
arising out of a breach of Tenant's obligations under Section 28.(t), which
shall be subject to the indemnity in such section) or arising out of the
installation, operation, maintenance, repair or removal of any of Tenant's
Equipment, Electrical Equipment, Lines or Interconnection Equipment, or (2)
Tenant's failure to perform its obligations under this Lease, even though caused
or alleged to he caused by the negligence or fault of Landlord or its agents
(other than a Loss arising from the sole or gross negligence of Landlord or its
agents), and even though any such claim, cause of action, or suit is based upon
or alleged to be based upon the strict liability of Landlord or its agents. This
indemnity is intended to indemnify Landlord and its agents against the
consequences of their own negligence when Landlord or its agents are jointly,
comparatively, contributively, or concurrently negligent with Tenant. This
indemnity provision shall survive termination or expiration of this Lease. if
any proceeding is filed for which indemnity is required hereunder, Tenant
agrees, upon request therefor, to defend the indemnified party in such
proceeding at its sole cost utilizing counsel satisfactory to the indemnified
party.
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15. Subordination; Attornment; Notice to Landlord's Mortgagee.
(a) Subordination. This Lease shall be subordinate to any deed of
trust, mortgage, or other security instrument, or any ground lease, master
lease, or primary lease, that now or hereafter covers all or any part of the
Premises (the mortgagee under any such mortgage or the lessor under any such
lease is referred to herein as a "Landlord's Mortgagee"). Any Landlord's
Mortgagee may elect, at any time, unilaterally, to make this Lease superior to
its mortgage, ground lease, or other interest in the Premises by so notifying
Tenant in writing.
(b) Attornment. Tenant shall attorn to any party succeeding to
Landlord's interest in the Premises, whether by purchase, foreclosure, deed in
lieu of foreclosure, power of sale, termination of lease, or otherwise, upon
such party's request, and shall execute such agreements confining such
attornment as such party may reasonably request
(c) Notice to Landlord's Mortgagee. Tenant shall not seek to enforce
any remedy it may have for any default on the part of Landlord without first
giving written notice by certified mail, return receipt requested, specifying
the default in reasonable detail, to any Landlord's Mortgagee whose address has
been given to Tenant, and affording such Landlord's Mortgagee a reasonable
opportunity to perform Landlord's obligations hereunder.
(d) Landlord's Mortgagee's Protection Provisions. If Landlord's
Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord's
Mortgagee shall not be: (1) liable for any act or omission of any prior lessor
(including Landlord); (2) bound by any rent or additional rent or advance rent
which Tenant might have paid for more than the current month to any prior lessor
(including Landlord), and all such rent shall remain due and owing
notwithstanding such advance payment; (3) bound by any security or advance
rental deposit made by Tenant which is not delivered or paid over to Landlord's
Mortgagee and with respect to which Tenant shall look solely to Landlord for
refund or reimbursement; (4) bound by any termination, amendment or modification
of this Lease made without Landlord's Mortgagee's consent and written approval,
except for those terminations, amendments and modifications permitted to be made
by Landlord without Landlord's Mortgagee's consent pursuant to the terms of the
loan documents between Landlord and Landlord's Mortgagee; (5) subject to the
defenses which Tenant might have against any prior lessor (including Landlord);
and (6) subject to the offsets which Tenant might have against any prior lessor
(including Landlord) except for those offset rights which (7) are expressly
provided in this Lease, (8) relate to periods of time following the acquisition
of the Building by Landlord's Mortgagee, and (9) Tenant has provided written
notice to Landlord's Mortgagee and provided Landlord's Mortgagee a reasonable
opportunity to cure the event giving rise to such offset event. Landlord's
Mortgagee shall have no liability or responsibility under or pursuant to the
terms of this Lease or otherwise after it ceases to own an interest in the
Building. Nothing in this Lease shall be construed to require Landlord's
Mortgagee to see to the application of the proceeds of any loan, and Tenant's
agreements set forth herein shall not be impaired on account of any modification
of the documents evidencing and securing any loan.
16. Rules and Regulations. Tenant shall comply with the rules and
regulations of the Building which are attached hereto as Exhibit C. Landlord
may, from time to time, change such rules and regulations for the safety, care,
or cleanliness of the Building and related facilities, provided that such
changes are applicable to all tenants of the Building and will not unreasonably
interfere with Tenant's use of the Premises. Tenant shall be responsible for the
compliance with such rules and regulations by each Tenant Party.
17. Condemnation.
(a) Total Taking. If the entire Building or Premises are taken by
right of eminent domain or conveyed in lieu thereof (a "Taking"), this Lease
shall terminate as of the date of the Taking.
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(b) Partial Taking - Tenant's Rights. If any part of the Building
becomes subject to a Taking and such Taking will prevent Tenant from conducting
its business in the Premises in a manner reasonably comparable to that conducted
immediately before such Taking for a period of more than 180 days, then Tenant
may terminate this Lease as of the date of such Taking by giving written notice
to Landlord within 30 days after the Taking and Rent shall be apportioned as of
the date of such Taking. If Tenant does not terminate this Lease then Rent shall
be abated on a reasonable basis as to that portion of the Premises rendered
untenantable by the Taking.
(c) Partial Taking - Landlord's Rights. if any material portion, but
less than all, of the Building becomes subject to a Taking or if Landlord is
required to pay any of the proceeds received for a Taking to a Landlord's
Mortgagee, then Landlord may terminate this Lease by delivering written notice
thereof to Tenant within 30 days after such Taking and Rent shall be apportioned
as of the date of such Taking. if Landlord does not so terminate this Lease,
then this Lease will continue, but if any portion of the Premises has been
taken, Rent shall abate as provided in the last sentence of Section 17.(b).
(d) Award. If any Taking occurs, then Landlord shall receive the
entire award or other compensation for the land on which the Building is
situated, the Building, and other improvements taken, and Tenant may separately
pursue a claim (to the extent it will not reduce Landlord's award) against the
condemnor for the value of Tenant's personal property which Tenant is entitled
to remove under this Lease, moving costs, loss of business, and other claims it
may have.
18. Fire or Other Casualty.
(a) Repair Estimate. If the Premises or the Building are damaged by
fire or other casualty (a "Casualty"), Landlord shall, within 90 days after such
Casualty, deliver to Tenant a good faith estimate (the "Damage Notice") of the
time needed to repair the damage caused by such Casualty.
(b) Landlord's and Tenant's Rights. If a material portion of the
Premises or the Building is damaged by Casualty such that Tenant is prevented
from conducting its business in the Premises in a manner reasonably comparable
to that conducted immediately before such Casualty and Landlord estimates that
the damage caused thereby cannot be repaired within 270 days after the Casualty,
then Tenant may terminate this Lease by delivering written notice to Landlord of
its election to terminate within 30 days after the Damage Notice has been
delivered to Tenant if Tenant does not so timely terminate this Lease, then
(subject to Section 18.(c)) Landlord shall repair the Building or the Premises,
as the case may be, as provided below, and Rent for the portion of the Premises
rendered untenantable by the damage shall be abated on a reasonable basis from
the date of damage until the completion of the repair, unless a Tenant Party
caused such damage, in which case, Tenant shall continue to pay Rent without
abatement
(c) Landlord's Rights. If a Casualty damages a material portion of the
Building, and Landlord makes a good faith determination that restoring the
Premises would be uneconomical, or if Landlord is required to pay any insurance
proceeds arising out of the Casualty to a Landlord's Mortgagee, then Landlord
may terminate this Lease by giving written notice of its election to terminate
within 30 days after the Damage Notice has been delivered to Tenant, and shall
be abated as of the date of the Casualty
(d) Repair Obligation. If neither party elects to terminate this Lease
following a Casualty, then Landlord shall, within a reasonable time after such
Casualty, begin to repair the Building and the Premises and shall proceed with
reasonable diligence to restore the Building and Premises to substantially the
same condition as they existed immediately before such Casualty; however,
Landlord shall not be required to repair or replace any of the furniture,
equipment fixtures, and other improvements which may have been placed by, or at
the request of, Tenant or other occupants in the Building or the Premises, and
Landlord's obligation to repair
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or restore the Building or Premises shall be limited to the extent of the
insurance proceeds actually received by Landlord for the Casualty in question.
19. Personal Property Taxes. Tenant shall be liable for all taxes levied or
assessed against personal property, furniture, or fixtures (including Tenant's
Equipment, Electrical Equipment, Lines and the Interconnection Equipment) placed
by Tenant in the Premises or in or on the Building or Project. If any taxes for
which Tenant is liable are levied or assessed against Landlord or Landlord's
property and Landlord elects to pay the same, or if the assessed value of
Landlord's property is increased by inclusion of such personal property,
furniture or fixtures and Landlord elects to pay the taxes based on such
increase, then Tenant shall pay to Landlord, upon demand, the part of such taxes
for which Tenant is primarily liable hereunder; however, Landlord shall not pay
such amount if Tenant notifies Landlord that it will contest the validity or
amount of such taxes before Landlord makes such payment, and thereafter
diligently proceeds with such contest in accordance with law and if the
non-payment thereof does not pose a threat of loss or seizure of the Building or
interest of Landlord therein or impose any fee or penalty against Landlord.
20. Events of Default. Each of the following occurrences shall be an "Event
of Default":
(a) Tenant's failure to pay Rent within five days after Landlord has
delivered notice to Tenant that the same is due; however, an Event of Default
shall occur hereunder without any obligation of Landlord to give any notice if
Landlord has given Tenant written notice under this Section 20.(a) on more than
one occasion during the twelve (12) month interval preceding such failure by
Tenant;
(b) Intentionally deleted.
(c) Tenant fails to comply with the Permitted Use set forth herein and
the continuance of such failure for a period of five (5) days after Landlord has
delivered to Tenant written notice thereof;
(d) Tenant fails to provide any estoppel certificate within the time
period required under Section 28(e) and such failure shall continue for five
days after written notice thereof from Landlord to Tenant;
(e) Tenant's failure to perform, comply with, or observe any other
agreement or obligation of Tenant under this Lease and the continuance of such
failure for a period of more than 30 days after Landlord has delivered to Tenant
written notice thereof; and
(f) The filing of a petition by or against Tenant (the term
"Tenant" shall include, for the purpose of this Section 20.(f), any guarantor of
Tenant's obligations hereunder) (1) in any bankruptcy or other insolvency
proceeding; (2) seeking any relief under any state or federal debtor relief law;
(3) for the appointment of a liquidator or receiver for all or substantially all
of Tenant's property or for Tenant's interest in this Lease; or (4) for the
reorganization or modification of Tenant's capital structure; however, if such a
petition is filed against Tenant, then such filing shall not be an Event of
Default unless Tenant fails to have the proceedings initiated by such petition
dismissed within 90 days after the filing thereof.
21. Remedies. Upon any Event of Default, Landlord may, in addition to all
other rights and remedies afforded Landlord hereunder or by law or equity, take
any of the following actions:
(a) Terminate this Lease by giving Tenant written notice thereof; in
which event Tenant shall pay to Landlord the sum of(1) all Rent accrued
hereunder through the date of termination, (2) all amounts due under Section
22.(a), and (3) an amount equal to (F) the total Rent that Tenant would have
been required to pay for the remainder of the Term discounted to present value
at a per annum rate equal to the "Prime Rate" as
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published on the date this Lease is terminated by The Wall Street Journal,
Southwest Edition, in its listing of "Money Rates", minus (G) the then present
fair rental value of the Premises for such period, similarly discounted;
(b) Terminate Tenant's right to possess the Premises without
terminating this Lease by giving written notice thereof to Tenant, in which
event Tenant shall pay to Landlord (1) all Rent and other amounts accrued
hereunder to the date of termination of possession, (2) all amounts due from
time to time under Section 22.(a), and (3) all Rent and other net sums required
hereunder to be paid by Tenant during the remainder of the Term, diminished by
any net sums thereafter received by Landlord through reletting the Premises
during such period, after deducting all costs incurred by Landlord in reletting
the Premises. Landlord shall use reasonable efforts to relet the Premises on
such terms as Landlord in its sole discretion may determine (including a term
different from the Term, rental concessions, and alterations to, and improvement
of, the Premises); however, Landlord shall not be obligated to relet the
Premises before leasing other portions of the Building. Landlord shall not be
liable for, nor shall Tenant's obligations hereunder be diminished because of;
Landlord's failure to relet the Premises or to collect rent due for such
reletting. Tenant shall not be entitled to the excess of any consideration
obtained by reletting over the Rent due hereunder. Reentry by Landlord in the
Premises shall not affect Tenant's obligations hereunder for the unexpired Term;
rather, Landlord may from time to time, bring an action against Tenant to
collect amounts due by Tenant, without the necessity of Landlord's waiting until
the expiration of the Term. Unless Landlord delivers written notice to Tenant
expressly stating that it has elected to terminate this Lease, all actions taken
by Landlord to dispossess or exclude Tenant from the Premises shall be deemed to
be taken under this Section 21.(b). If Landlord elects to proceed under this
Section 21.(b), it may at any time elect to terminate this Lease under Section
21.(a); or
(c) Additionally, without notice, Landlord may alter locks or other
security devices at the Premises to deprive Tenant of access thereto, and
Landlord shall not be required to provide a new key or right of access to
Tenant.
22. Payment by Tenant: Non-Waiver.
(a) Payment by Tenant. Upon any Event of Default, Tenant shall pay to
Landlord all costs incurred by Landlord (including court costs and reasonable
attorneys' fees and expenses) in (1) obtaining possession of the Premises, (2)
removing and storing Tenant's or any other occupant's property, (3) repairing,
restoring, altering, remodeling, or otherwise putting the Premises into
condition acceptable to a new tenant, (4) if Tenant is dispossessed of the
Premises and this Lease is not terminated, reletting all or any part of the
Premises (including brokerage commissions, cost of tenant finish work and
other costs incidental to such reletting), (5) performing Tenant's obligations
which Tenant failed to perform, and (6) enforcing, or advising Landlord of; its
rights, remedies, and recourses arising out of the Event of Default. To the full
extent permitted by law, Landlord and Tenant agree the federal and state courts
of the state in which the Premises are located shall have exclusive jurisdiction
over any matter relating to or arising from this Lease and the parties' rights
and obligations under this Lease.
(b) No Waiver. Landlord's acceptance of Rent following an Event of
Default shall not waive Landlord's rights regarding such Event of Default. No
waiver by Landlord of any violation or breach of any of the terms contained
herein shall waive Landlord's rights regarding any future violation of such
term. Landlord's acceptance of any partial payment of Rent shall not waive
Landlord's rights with regard to the remaining portion of the Rent that is due,
regardless of any endorsement or other statement on any instrument delivered in
payment of Rent or any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not constitute an
accord and satisfaction of the full amount of the Rent that is due.
23. Intentionally deleted.
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24. Surrender of Premises. No act by Landlord shall be deemed an acceptance
of a surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless it is in writing and signed by Landlord. At the
expiration or termination of this Lease, Tenant shall deliver to Landlord the
Premises with all improvements located therein in good repair and condition,
free of Hazardous Materials placed on the Premises during the Term, broom-clean,
reasonable wear and tear (and condemnation and Casualty damage not caused by
Tenant, as to which Sections 17 and 18 shall control) excepted, and shall
deliver to Landlord all keys to the Premises. Provided that Tenant has performed
all of its obligations hereunder, Tenant may remove all unattached trade
fixtures, furniture, and personal property placed in the Premises or elsewhere
in the Building by Tenant (but Tenant may not remove any such item which was
paid for, in whole or in part, by Landlord or any wiring or cabling unless
Landlord requires such removal). Additionally, at Landlord's option, Tenant
shall remove such alterations, additions, improvements, trade fixtures, personal
property, equipment, wiring, conduits, cabling, and furniture (including
Tenant's Equipment, Electrical Equipment, Lines and the Interconnection
Equipment) as Landlord may request; however, Tenant shall not be required to
remove any addition or improvement to the Premises or the Project if Landlord
has specifically agreed in writing that the improvement or addition in question
need not be removed. Tenant shall repair all damage caused by such removal. All
items not so removed shall, at Landlord's option, be deemed to have been
abandoned by Tenant and may be appropriated, sold, stored, destroyed, or
otherwise disposed of by Landlord without notice to Tenant and without any
obligation to account for such items; any such disposition shall not be
considered a strict foreclosure or other exercise of Landlord's rights in
respect of the security interest granted under Section 23. The provisions of
this Section 24 shall survive the end of the Term.
25. Holding Over. If Tenant fails to vacate the Premises at the end of the
Term, then Tenant shall be a tenant at will and, in addition to all other
damages and remedies to which Landlord may be entitled for such holding over,
Tenant shall pay; in addition to the other Rent, a daily Basic Rent equal to the
greater of (a) 150% of the daily Basic Rent payable during the last month of the
Term, or (b) 125% of the prevailing rental rate in the Building for similar
space. The provisions of this Section 25 shall not be deemed to limit or
constitute a waiver of any other rights or remedies of Landlord provided herein
or at law. If Tenant fails to surrender the Premises upon the termination or
expiration of this Lease, in addition to any other liabilities to Landlord
accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord
harmless from all loss, costs (including reasonable attorneys' fees) and
liability resulting from such failure, including, without limiting the
generality of the foregoing, any claims made by any succeeding tenant founded
upon such failure to surrender, and any lost profits to Landlord resulting
therefrom.
26. Certain Rights Reserved by Landlord. Provided that the exercise of such
rights does not unreasonably interfere with Tenant's occupancy of the Premises,
Landlord shall have the following rights:
(a) To decorate and to make inspections, repairs, alterations,
additions, changes, or improvements, whether structural or otherwise, in and
about the Project, or any part thereof; to enter upon the Premises (after giving
Tenant reasonable notice thereof, which may be oral notice, except in cases of
real or apparent emergency, in which case no notice shall be required) and,
during the continuance of any such work, to temporarily close doors, entryways,
public space, and corridors in the Building; to interrupt or temporarily suspend
Building services and facilities; to change the name of the Building, and to
change the arrangement and location of entrances or passageways, doors, and
doorways, corridors, elevators, stairs, restrooms, or other public parts of the
Building;
(b) To take such reasonable measures as Landlord deems advisable for
the security of the Project and Building occupants; evacuating the Building for
cause, suspected cause, or for drill purposes; temporarily denying access to the
Building, and closing the Building after normal business hours and on Sundays
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and holidays, subject, however, to Tenant's right to enter when the Building is
closed after normal business hours under such reasonable regulations as Landlord
may prescribe from time to time; and
(c) To enter the Premises at reasonable hours, to show the Premises to
prospective purchasers, lenders, or, during the last six months of the Term,
tenants.
27. Substitution Space. Intentionally deleted.
28. Miscellaneous.
(a) Landlord Transfer. Landlord may transfer any portion of the
Building and any of its rights under this Lease. If Landlord assigns its rights
under this Lease, then Landlord shall thereby be released from any further
obligations hereunder arising after the date of transfer, provided that the
assignee assumes Landlord's obligations hereunder in writing.
(b) Landlord's Liability. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited to Tenant's
actual direct, but not consequential, damages therefor and shall be recoverable
only from the interest of Landlord in the Building, and Landlord shall not be
personally liable for any deficiency. This Section shall not limit any remedies
which Tenant may have for Landlord's defaults which do not involve the personal
liability of Landlord.
(c) Force Majeure. Other than for Tenant's obligations under this
Lease that can be performed by the payment of money (e.g., payment of Rent and
maintenance of insurance), whenever a period of time is herein prescribed for
action to be taken by either party hereto, such party shall not be liable or
responsible for, and there shall be excluded from the computation of any such
period of time, any delays due to strikes, riots, acts of God, shortages of
labor or materials, war, governmental laws, regulations, or restrictions, or any
other causes of any kind whatsoever which are beyond the control of such party
(d) Brokerage. Neither Landlord nor Tenant has dealt with any broker
or agent in connection with the negotiation or execution of this Lease, other
than Duggan Realty Advisors L.L.C. and Mohr Partners, whose commission shall be
paid by the Landlord. Tenant and Landlord shall each indemnify the other against
all costs, expenses, attorneys' fees, and other liability for commissions or
other compensation claimed by any broker or agent claiming the same by, through,
or under the indemnifying party.
(e) Estoppel Certificates. From time to time, Tenant shall finish to
any party designated by Landlord, within ten days after Landlord has made a
request therefor, a certificate signed by Tenant confirming and containing such
factual certifications and representations as to this Lease as Landlord may
reasonably request. Unless otherwise required by Landlord's Mortgagee or a
prospective purchaser or mortgagee of the Building, the initial form of estoppel
certificate to be signed by Tenant is attached hereto as Exhibit F.
(f) Notices. All notices and other communications given pursuant to
this Lease shall be in writing and shall be (1) mailed by first class, United
States Mail, postage prepaid, certified, with return receipt requested, and
addressed to the parties hereto at the address specified in the Basic Lease
Information, (2) hand delivered to the intended address, (3) sent by a
nationally recognized overnight courier service, or (4) sent by facsimile
transmission during normal business hours followed by a confirmatory letter sent
in another manner permitted hereunder. All notices shall be effective upon
delivery to the address of the addressee. The parties hereto may change their
addresses by giving notice thereof to the other in conformity with this
provision.
(g) Separabilitv. If any clause or provision of this Lease is illegal,
invalid, or unenforceable under present or future laws, then the remainder of
this Lease shall not be affected thereby and in
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lieu of such clause or provision, there shall be added as a part of this Lease a
clause or provisions similar in terms to such illegal, invalid, or unenforceable
clause or provision as may be possible and be legal, valid, and enforceable.
(h) Amendments; and Binding Effect. This Lease may not be amended
except by Instrument in writing signed by Landlord and Tenant. No provision of
this Lease shall be deemed to have been waived by Landlord unless such waiver is
in writing signed by Landlord, and no custom or practice which may evolve
between the parties in the administration of the terms hereof shall waive or
diminish the right of Landlord to insist upon the performance by Tenant in
strict accordance with the terms hereof. The terms and conditions contained in
this Lease shall inure to the benefit of and be binding upon the parties hereto,
and upon their respective successors in interest and legal representatives,
except as otherwise herein expressly provided. This Lease is for the sole
benefit of Landlord and Tenant, and, other than Landlord's Mortgagee, no third
party shall be deemed a third party beneficiary hereof.
(i) Quiet Enjoyment. Provided Tenant has performed all of its
obligations hereunder, Tenant shall peaceably and quietly hold and enjoy the
Premises for the Term, without hindrance from Landlord or any party claiming by,
through, or under Landlord, but not otherwise, subject to the terms and
conditions of this Lease.
(j) No Merger. There shall be no merger of the leasehold estate hereby
created with the fee estate in the Premises or any part thereof if the same
person acquires or holds, directly or indirectly, this Lease or any interest in
this Lease and the fee estate in the leasehold Premises or any interest in such
fee estate.
(k) No Offer. The submission of this Lease to Tenant shall not be
construed as an offer, and Tenant shall not have any rights under this Lease
unless Landlord executes a copy of this Lease and delivers it to Tenant.
(l) Entire Agreement. This Lease constitutes the entire agreement
between Landlord and Tenant regarding the subject matter hereof and supersedes
all oral statements and prior writings relating thereto. Except for those set
forth in this Lease, no representations, warranties, or agreements have been
made by Landlord or Tenant to the other with respect to this Lease or the
obligations of Landlord or Tenant in connection therewith. The normal rule of
construction that any ambiguities be resolved against the drafting party shall
not apply to the interpretation of this Lease or any exhibits or amendments
hereto.
(m) Waiver of Jury Trial. To the maximum extent permitted by law,
Landlord and Tenant each waive right to trial by jury in any litigation arising
out of or with respect to this Lease.
(n) Governing Law. This Lease shall be governed by and construed in
accordance with the laws of the State in which the Premises are located.
(o) Joint and Several Liability. If Tenant is comprised of more than
one party, each such party shall be jointly and severally liable for Tenant's
obligations under this Lease.
(p) Financial Reports. Within 15 days after Landlord's request, Tenant
will finish Tenant's most recent audited financial statements (including any
notes to them) to Landlord, or, if no such audited statements have been
prepared, such other financial statements (and notes to them) as may have been
prepared by an independent certified public accountant or, failing those,
Tenant's internally prepared financial statements. If Tenant is a publicly
traded corporation, Tenant may satisfy its obligations hereunder by providing to
Landlord Tenant's most recent annual and quarterly reports. Tenant will discuss
its financial statements with Landlord and will give Landlord access to Tenant's
books and records in order to enable Landlord to verify the financial
19
<PAGE>
statements. Landlord will not disclose any aspect of Tenant's financial
statements that Tenant designates to Landlord as confidential except (1) to
Landlord's Mortgagee or prospective purchasers of the Building, (2) in
litigation between Landlord and Tenant, and (3) if required by court order.
Tenant shall not be required to deliver the financial statements required under
this Section 28.(p) more than once in any 12-month period unless requested by
Landlord's Mortgagee or a prospective buyer or lender of the Building or an
Event of Default occurs.
(q) Landlord's Fees. Whenever Tenant requests Landlord to take any
action not required of it hereunder or give any consent required or permitted
under this Lease, Tenant will reimburse Landlord for Landlord's reasonable,
out-of-pocket costs payable to third parties and incurred by Landlord in
reviewing the proposed action or consent, including without attorneys',
engineers' or architects' fees, within ten days after Landlord's delivery to
Tenant of a statement of such costs. Tenant will be obligated to make such
reimbursement without regard to whether Landlord consents to any such proposed
action.
(r) Telecommunications. Tenant and its telecommunications companies,
including but not limited to local exchange telecommunications companies and
alternative access vendor services companies shall have no right of access to
and within the Building, for the installation and operation of
telecommunications systems including but not limited to voice, video, data, and
any other telecommunications services provided over wire, fiber optic,
microwave, wireless, and any other transmission systems, for part or all of
Tenant's telecommunications within the Building and from the Building to any
other location without Landlord's prior written consent, which shall not be
unreasonably withheld, conditioned or delayed.
(s) Confidentiality. Tenant acknowledges that the terms and conditions
of this Lease are to remain confidential for Landlord's benefit, and may not be
disclosed by Tenant to anyone, by any manner or means, directly or indirectly,
without Landlord's prior written consent The consent by Landlord to any
disclosures shall not be deemed to be a waiver on the part of Landlord of any
prohibition against any future disclosure.
(t) Hazardous Materials. The term "Hazardous Materials" means any
substance, material, or waste which is now or herein classified or considered to
be hazardous, toxic, or dangerous under any Law relating to pollution or the
protection or regulation of human health, natural resources or the environment,
or poses or threatens to pose a hazard to the health or safety of persons on the
Premises or in the Building. Tenant shall not use, generate, store, or dispose
of, or permit the use, generation, storage or disposal of Hazardous Materials on
or about the Premises or the Building except in a manner and quantity necessary
for the ordinary performance of Tenant's business, and then in compliance with
all Laws. If Tenant breaches its obligations under this Section 28.(t), Landlord
may immediately take any and all action reasonably appropriate to remedy the
same, including taking all appropriate action to clean up or remediate any
contamination resulting from Tenant's use, generation, storage or disposal of
Hazardous Materials. Tenant shall defend, indemnify, and hold harmless Landlord
and its representatives and agents from and against any and all claims, demands,
liabilities, causes of action, suits, judgments, damages and expenses (including
reasonable attorneys' fees and cost of clean up and remediation) arising from
Tenant's failure to comply with the provisions of this Section 28.(t). This
indemnity provision shall survive termination or expiration of the Lease.
20
<PAGE>
(u) List of Exhibits. All exhibits and attachments attached hereto are
incorporated herein by this reference.
Exhibit A-1 Outline of Premises
Exhibit A-2 Area for Location of Generator
Exhibit A-3 Area for Location of Cooling Equipment
Exhibit B - Legal Description of Building
Exhibit C - Building Rules and Regulations
Exhibit D - Tenant Finish-Work
Exhibit E - Amendment No. 1
Exhibit F - Form of Tenant Estoppel Certificate
Exhibit H - Renewal Options
Exhibit I - Rent Abatement Provisions
29. Other Provisions. None.
21
<PAGE>
LANDLORD AND TENANT EXPRESSLY DISCLAIM ANY IMPLIED WARRANTY THAT THE PREMISES
ARE SUITABLE FOR TENANT'S INTENDED COMMERCIAL PURPOSE, AND TENANT'S OBLIGATION
TO PAY RENT HEREUNDER IS NOT DEPENDENT UPON THE CONDITION OF THE PREMISES OR THE
PERFORMANCE BY LANDLORD OF ITS OBLIGATIONS HEREUNDER, AND, EXCEPT AS OTHERWISE
EXPRESSLY PROVIDED HEREIN, TENANT SHALL CONTINUE TO PAY THE RENT, WITHOUT
ABATEMENT, SETOFF OR DEDUCTION, NOTWITHSTANDING ANY BREACH BY LANDLORD OF ITS
DUTIES OR OBLIGATIONS HEREUNDER, WHETHER EXPRESS OR IMPLIED.
Dated as of the date first above written.
LANDLORD: DENVER FDS, L.P., a Texas limited partnership
By: FDS Realty Partners, L.L.C., a Texas limited
liability company, as general partner
By: /s/ JAMES F. DUGGAN
Name: James F. Duggan
Title: Manager
TENANT: ADVANCED TELECOMMUNICATIONS, INC., a Delaware
Corporation
By: /s/ SATISH TIWARI
Name:Satish Tiwari
Title: Vice President
22
<PAGE>
EXHIBIT A - 1
[OUTLINE OF PREMISES]
[IMAGE: MAP OF PREMISES]
DENVER FDS BUILDING
1500 CHAMPA STREET
BASEMENT FLOOR PLAN
NOVEMBER 6 1999
A-1
<PAGE>
EXHIBIT A - 2
[AREA FOR LOCATION OF GENERATOR]
[IMAGE: MAP OF SECOND AND THIRD FLOOR ROOF]
A-2
<PAGE>
EXHIBIT A - 3
[AREA FOR LOCATION OF COOLING EQUIPMENT]
[IMAGE: MAP OF SECOND FLOOR ROOF]
DENVER FDS BUILDING
1500 CHAMPA BUILDING
THIRD FLOOR PLAN
A-3
<PAGE>
EXHIBIT B
[LEGAL DESCRIPTION OF BUILDING]
PARCEL 1:
Lots 5 through 10, inclusive,
Block 130,
East Denver
City and County of Denver,
State of Colorado
PARCEL 2:
Lots II through 16, inclusive,
Block 130,
East Denver,
City and County of Denver,
State of Colorado
B-1
<PAGE>
EXHIBIT C
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building the parking garage associated therewith, and the appurtenances thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. Plumbing fixtures and appliances shall be used only for the purposes for
which designed, and no sweepings, rubbish, rags or other unsuitable material
shall be thrown or deposited therein. Damage resulting to any such fixtures or
appliances from misuse by a tenant or its agents, employees or invitees, shall
be paid by such tenant.
3. No signs, advertisements or notices shall be painted or affixed on or to
any windows or doors or other part of the Building without the prior written
consent of Landlord. No nails, hooks or screws shall be driven or inserted in
any part of the Building except by Building maintenance personnel. No curtains
or other window treatments shall be placed between the glass and the Building
standard window treatments.
4. Landlord shall provide and maintain an alphabetical directory for all
tenants in the main lobby of the Building.
5. Landlord shall provide all door locks in each tenant's leased premises,
at the cost of such tenant, and no tenant shall place any additional door locks
in its leased premises without Landlord's prior written consent Landlord shall
furnish to each tenant a reasonable number of keys to such tenant's leased
premises, at such tenant's cost, and no tenant shall make a duplicate thereof.
6. Movement in or out of the Building of furniture or other equipment, or
dispatch or receipt by tenants of any bulky material, merchandise or materials
which require use of elevators or stairways, or movement through the Building
entrances or lobby shall be conducted under Landlord's supervision at such times
and in such a manner as Landlord may reasonably require. Each tenant assumes all
risks of and shall be liable for all damage to articles moved and injury to
persons or public engaged or not engaged in such movement, including equipment,
property and personnel of Landlord if damaged or injured as a result of acts in
connection with carrying out this service for such tenant.
7. Landlord may prescribe weight limitations and determine the locations
for safes and other heavy equipment or items, which shall in all cases be placed
in the Building so as to distribute weight in a manner acceptable to Landlord
which may include the use of such supporting devices as Landlord may require.
All damages to the Building caused by the installation or removal of any
property of a tenant, or done by a tenant's property while in the Building,
shall be repaired at the expense of such tenant.
8. Corridor doors, when not in use, shall be kept closed. Nothing shall be
swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
C-1
<PAGE>
9. Tenant shall cooperate with Landlord's employees in keeping its leased
premises neat and clean. Without Landlord's prior written consent, Tenant shall
not employ any person for the purpose of such cleaning other than the Building's
cleaning and maintenance personnel.
10. To ensure orderly operation of the Building, no ice, mineral or other
water, towels, newspapers, etc. shall be delivered to any leased area except by
persons approved by Landlord.
11. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors in the Building or otherwise
interfere in any way with other tenants or persons having business with them.
12. No machinery of any kind (other than normal office equipment) shall be
operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
13. Landlord will not be responsible for lost or stolen personal property,
money or jewelry from tenants leased premises or public or common areas
regardless of whether such loss occurs when the area is locked against entry or
not.
14. No vending or dispensing machines of any kind may be maintained in any
leased premises without the prior written permission of Landlord.
15. Tenant shall not conduct any activity on or about the Premises or
Building which will draw pickets, demonstrators, or the like.
16. All vehicles are to be currently licensed, in good operating condition,
parked for business purposes having to do with Tenant's business operated in
the Premises, parked within designated parking spaces, one vehicle to each
space. No vehicle shall be parked as a "billboard" vehicle or with for-sale
signs in the parking lot. Any vehicle parked improperly may be towed away.
Tenant, Tenant's agents, employees, vendors and customers who do not operate
or park their vehicles as required shall subject the vehicle to being towed
at the expense of the owner or driver. Landlord may place a "boot" on the
vehicle to immobilize it and may levy a charge of $50.00 to remove the
"boot." Tenant shall indemnify hold and save harmless Landlord of any
liability arising from the towing or booting of any vehicles belonging to a
Tenant Party.
17. No tenant may enter into phone rooms, electrical rooms, mechanical
rooms, or other service areas of the Building unless accompanied by Landlord or
the Building manager.
C-2
<PAGE>
EXHIBIT D
TENANT FlNISH-WORK
(Tenant Performs the Work)
1. Except as set forth in this Exhibit, Tenant accepts the Premises in
their "AS-IS" condition on the date that this Lease is entered into, and
Landlord shall have no obligation to perform any work therein (including without
limitation, demolition of any improvements existing therein or construction of
any tenant finish-work or other improvements therein), and shall not be
obligated to reimburse Tenant or provide an allowance for any costs related to
the demolition or construction of improvements therein.
2. Prior to commencing construction, Tenant shall provide to Landlord for
its approval final working drawings, prepared by an architect that has been
approved in writing by Landlord (which approval shall not be unreasonably
withheld) ("Tenants Architect"), of all improvements that Tenant proposes to
install in the Premises; such working drawings shall include the partition
layout, ceiling plan, electrical outlets and switches, telephone outlets,
drawings for any modifications to the Building's HVAC, electrical, mechanical
and plumbing systems, and detailed plans and specifications for the construction
of the improvements called for under this Exhibit in accordance with all
applicable Laws. Landlord shall notify Tenant whether it approves of the
submitted working drawings within ten business days after Tenant's submission
thereof If Landlord disapproves of such working drawings, then Landlord shall
notify Tenant thereof specifying in reasonable detail the reasons for such
disapproval, in which case Tenant shall, within three business days after such
notice, revise such working drawings in accordance with Landlord's objections
and submit to Landlord for its review and approval. Landlord shall notify Tenant
in writing whether it approves of the resubmitted working drawings within three
business day. after its receipt thereof. This process shall be repeated until
the working drawings have been finally approved by Landlord and Tenant If
Landlord fails to notify Tenant that it disapproves of the initial working
drawings within ten business days (or, in the case of resubmitted working
drawings, within three business days) after the submission thereof, then
Landlord shall be deemed to have approved the working drawings in question.
Further, if any of Tenant's proposed construction work will affect the
Building's HVAC, electrical, mechanical or plumbing systems, then the working
drawings pertaining thereto must be approved by the Building's engineer of
record. Landlord's approval of such working drawings shall not be unreasonably
withheld, provided that (a) they comply with all Laws, (b) such working drawings
are sufficiently detailed to allow construction of the improvements in a good
and workmanlike manner, and (c) the improvements depicted thereon conform to the
rules and regulations promulgated by Landlord for the construction of tenant
improvements in effect as of the date hereof (a copy of which has been delivered
to Tenant). As used herein, "Working Drawings" shall mean the final working
drawings approved by Landlord, as amended from time to time by any approved
changes thereto, and "Work" shall mean all improvements to be constructed in
accordance with and as indicated on the Working Drawings, together with any work
required by governmental authorities to be made to other areas of the Building
as a result of the improvements indicated by the Working Drawings. Landlord's
approval of the Working Drawings shall not be a representation or warranty of
Landlord that such drawings are adequate for any use or comply with any Law, but
shall merely be the consent of Landlord thereto. Tenant shall, at Landlord's
request, sign the Working Drawings to evidence its review and approval thereof
All changes in the Work must receive the prior written approval of Landlord, and
in the event of any such approved change Tenant shall, upon completion of the
Work, finish Landlord with an accurate, reproducible "as-built" plan of the
improvements as constructed.
3. After the Working Drawings have been approved, Tenant shall cause the
Work to be performed in accordance with the Working Drawings. The Work shall be
performed only by contractors and subcontractors approved in writing by
Landlord, which approval shall not be unreasonably withheld. All contractors and
subcontractors shall be required to procure and maintain insurance against such
risks, in such amounts, and with such companies as Landlord may reasonably
require. Certificates of such insurance, with paid receipts therefor,
D-1
<PAGE>
must be received by Landlord before the Work is commenced. The Work shall be
performed in a good and workmanlike manner free of defects, shall conform
strictly with the Working Drawings, and shall be performed in such a manner and
at such times as and not to interfere with or delay Landlord's other
contractors, the operation of the Building and the occupancy thereof by other
tenants. All contractors and subcontractors shall contact Landlord and schedule
time periods during which they may use Building facilities in connection with
the Work (e.g., elevators, excess electricity, etc.).
4. The entire cost of performing the Work (including without limitation,
design of the Work and preparation of the Working Drawings, costs of
construction labor and materials, electrical usage during construction,
additional janitorial services, general tenant signage, related taxes and
insurance costs, and the construction supervision fee referenced in Section 8 of
this Exhibit, all of which costs are herein collectively called the "Total
Construction Costs") shall be paid by Tenant
5. Upon completion of the Work, Tenant shall deliver to Landlord the
following items: (a) final lien waivers from all persons performing work or
supplying or fabricating materials for the Work, fully executed, acknowledged
and in recordable form, (b) Tenant's Architect's certification that the Work has
been finally completed, including any punch-list items, on the appropriate AIA
form or another form approved by Landlord, (c) the permanent certificate of
occupancy issued for the Premises, and (d) an estoppel certificate confirming
such factual matters as Landlord or Landlord's Mortgagee may reasonably request.
Notwithstanding any contrary provision herein, before Tenant may occupy the
Premises to conduct its business therein, Tenant shall, at its expense, obtain
and deliver to Landlord a permanent certificate of occupancy issued for the
Premises by the appropriate governmental authority.
6. Landlord or its affiliate or agent shall supervise the Work and
coordinate the relationship between the Work, the Building, and the Building's
systems. In consideration for Landlord's construction supervision services,
Tenant shall pay to Landlord a construction supervision fee of $7,500.
7. To the extent not inconsistent with this Exhibit, Section 8.(a) of this
Lease shall govern the performance of the Work and Landlord's and Tenant's
respective rights and obligations regarding the Improvements installed pursuant
thereto.
8. Landlord shall not assess any charges for Tenant's use of the loading
docks, passenger and normal use of the freight elevators; however, Landlord
reserves the right to charge Tenant for the extraordinary usage of the freight
elevators (e.g., moving materials on top of elevator cabs). Tenant may use the
freight elevators for moving into the Building subject to prior scheduling with
Landlord and the normal rules and regulations therefor.
9. Upon approval of the Working Drawings and provided that Tenant delivers
to Landlord evidence that the insurance required under Section 14 of this Lease
and Section 3 of this Exhibit has been obtained, Landlord shall tender
possession of the Premises to Tenant so that Tenant may commence performance of
the Work.
D-2
<PAGE>
EXHIBIT E
AMENDMENT NO. 1
This Amendment No. 1 (this "Amendment") is executed as of _____________,
199__ between ______________________, a _____________ ("Landlord"),
and____________________, a____________________ ("Tenant"), for the purpose of
amending the Lease Agreement between Landlord and Tenant dated______________,
199___ (the "Lease"). Capitalized terms used herein but not defined shall be
given the meanings assigned to them in the Lease.
AGREEMENTS
For valuable consideration, whose receipt and sufficiency are acknowledged,
Landlord and Tenant agree as follows:
1. Condition of Premises. Tenant has accepted possession of the Premises
pursuant to the Lease. All improvements (if any) required by the terms of the
Lease to be made by Landlord have been completed to the full and complete
satisfaction of Tenant in all respects except for the punchlist items described
on Exhibit A hereto (the "Punchlist Items"), and except for such Punchlist
Items, Landlord has fulfilled all of its duties under the Lease with respect to
such initial tenant improvements. Furthermore, Tenant acknowledges that the
Premises are suitable for the Permitted Use.
2. Commencement Date. The Commencement Date of the Lease is____________,
199__. If the Commencement Date set forth in the Lease is different than the
date set forth in the preceding sentence, then the Commencement Date as
contained in the Lease is amended to be the Commencement Date set forth in the
preceding sentence.
3. Expiration Date. The Term is scheduled to expire on ________,200_. If
the scheduled expiration date of the initial Term as set forth in the Lease is
different than the date set forth in the preceding sentence, then the scheduled
expiration date as set forth in the Lease is hereby amended to the expiration
date set forth in the preceding sentence.
4. Contact Numbers. Tenant's telephone number in the Premises is _______.
Tenant's telecopy number in the Premises is_____________.
5. Ratification. Tenant hereby ratifies and confirms its obligations under
the Lease, and represents and warrants to Landlord that it has no defenses
thereto. Additionally, Tenant further confirms and ratifies that, as of the date
hereto (a) the Lease is and remains in good standing and in full force and
effect, and (b) Tenant has no claims, counterclaims, set-offs or defenses
against Landlord arising out of the Lease or in any way relating thereto or
arising out of any other transaction between Landlord and Tenant.
6. Binding Effect; Governing Law. Except as modified hereby, the Lease
shall remain in full effect and this Amendment shall be binding upon Landlord
and Tenant and their respective successors and assigns. If any inconsistency
exists or arises between the terms of this Amendment and the terms of the Lease,
the terms of this Amendment shall prevail. This Amendment shall be governed by
the laws of the State in which the Premises is located.
E-1
<PAGE>
7. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall constitute an original, but all of which shall constitute
one document
Executed as of the date first written above.
LANDLORD: __________________________,a _______________
By:_________________________________________
Name:_______________________________________
Title:______________________________________
TENANT: __________________________,a _______________
By:_________________________________________
Name:_______________________________________
Title:______________________________________
E-2
<PAGE>
EXHIBIT F
FORM OF TENANT ESTOPPEL CERTIFICATE
The undersigned is the Tenant under the Lease (defined below)
between_________________, a_______________, as Landlord, and the undersigned as
Tenant, for the Premises on the_______ floor(s) of the office building located
at ______________, _______ and commonly known as _____________________ and
hereby certifies as follows:
1. The Lease consists of the original Lease Agreement dated as
of_______,199__ between Tenant and Landlord ['s predecessor-in-interest] and the
following amendments or modifications thereto (if none, please state
"none"):________________________________________________________________________
________________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
The documents listed above are herein collectively referred to as the "Lease"
and represent the entire agreement between the parties with respect to the
Premises. All capitalized terms used herein but not defined shall be given the
meaning assigned to them in the Lease.
2. The Lease is in full force and effect and has not been modified,
supplemented or amended in any way except as provided in Section 1 above.
3. The Term commenced on _________, 199__ and the Term expires, excluding
any renewal options, on_________________, 200__, and Tenant has no option to
purchase all or any part of the Premises or the Building or, except as expressly
set forth in the Lease, any option to terminate or cancel the Lease.
4. Tenant currently occupies the Premises described in the Lease and Tenant
has not transferred, assigned, or sublet any portion of the Premises nor entered
into any license or concession agreements with respect thereto except as follows
(if none, please state "none"):_________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
5. All monthly installments of Basic Rent, all Additional Rent, Operating
Costs, and monthly installments of estimated Operating Costs have been paid when
due through _____________ . The current monthly installment of Basic Rent is
$_________ .
6. All conditions of the Lease to be performed by Landlord necessary to the
enforceability of the Lease have been satisfied and Landlord is not in default
thereunder. In addition, Tenant has not delivered any notice to Landlord
regarding a default by Landlord thereunder.
7. As of the date hereof there are no existing defenses or offsets, or, to
the undersigned's knowledge, claims or any basis for a claim, that the
undersigned has against Landlord and no event has occurred and no condition
exists, which, with the giving of notice or the passage of time, or both, will
constitute a default under the Lease.
F-1
<PAGE>
8. No rental has been paid more than thirty (30) days in advance and no
security deposit has been delivered to Landlord except as provided in the Lease.
9. If Tenant is a corporation, partnership or other business entity, each
individual executing this Estoppel Certificate on behalf of Tenant hereby
represents and warrants that Tenant is a duly formed and existing entity
qualified to do business in the state in which the Premises is located and that
Tenant has full right and authority to execute and deliver this Estoppel
Certificate and that each person signing on behalf of Tenant is authorized to do
so.
10. There are no actions pending against Tenant under any bankruptcy or
similar laws of the United States or any state.
11. Other than in compliance with all applicable laws and incidental to the
ordinary course of the use of the Premises, the undersigned has not used or
stored any hazardous substances in the Premises.
12. All tenant improvement work to be performed by Landlord under the Lease
has been completed in accordance with the Lease and has been accepted by the
undersigned and all reimbursements and allowances due to the undersigned under
the Lease in connection with any tenant improvement work have been paid in full.
Tenant acknowledges that this Estoppel Certificate may be delivered to
Landlord, Landlord's Mortgagee or to a prospective mortgagee or prospective
purchaser, and their respective successors and assigns, and acknowledges that
Landlord, Landlord's Mortgagee and/or such prospective mortgagee or prospective
purchaser will be relying upon the statements contained herein in disbursing
loan advances or making a new loan or acquiring the property of which the
Premises are a part and that receipt by it of this certificate is a condition of
disbursing loan advances or making such loan or acquiring such property.
Executed as of ________________.
TENANT: __________________________,a _______________
By:_________________________________________
Name:_______________________________________
Title:______________________________________
F-2
<PAGE>
EXHIBIT H
RENEWAL OPTIONS
Provided no Event of Default exists and Tenant is occupying the entire
Premises at the time of such election, Tenant may renew this Lease for two (2)
additional period(s) of five (5) years each, by delivering written notice of the
exercise thereof to Landlord not earlier than nine months nor later than six
months before the expiration of the Term. On or before the commencement date of
the extended Term in question, Landlord and Tenant shall execute an amendment to
this Lease extending the Term on the same terms provided in this Lease, except
as follows:
(a) The Basic Rent and Additional Rent payable for each month during
such extended Term shall be the greater of (1) the prevailing rental rate
in the building at the commencement of such extended Term, for space of
equivalent quality, size, utility and location, with the length of the
extended Term and the credit standing of Tenant to be taken into account,
or (2) the total monthly Basic Rent and Additional Rent last payable
hereunder for the month immediately preceding the commencement date of the
extended Term in question multiplied by 1.03;
(b) Tenant shall have no further renewal option unless expressly
granted by Landlord in writing; and
(c) Landlord shall lease to Tenant the Premises in their then-current
condition, and Landlord shall not provide to Tenant any allowances (e.g.,
moving allowance, construction allowance, and the like) or other tenant
inducements.
Tenant's rights under this Exhibit shall terminate if (1) this Lease or
Tenant's right to possession of the Premises is terminated, (2) Tenant assigns
any of its interest in this Lease or sublets any portion of the Premises, (3)
Tenant fails to timely exercise its option under this Exhibit, time being of the
essence with respect to Tenant's exercise thereof, or (4) Landlord determines,
in its sole but reasonable discretion, that Tenant's financial condition or
creditworthiness has materially deteriorated since the date of this Lease.
H-1
<PAGE>
EXHIBIT I
RENT ABATEMENT PROVISIONS
Basic Rent shall be conditionally abated until March 31, 2000 Commencing on
April 1,2000, Tenant shall make Basic Rent payments as otherwise provided in the
Lease. Notwithstanding such abatement of Basic Rent all other sums due under the
Lease, including Additional Rent shall be payable as provided in the Lease, and
any increases in Basic Rent set forth in the Lease shall occur on the dates
scheduled therefor.
The abatement of Basic Rent provided for in this Exhibit is conditioned
upon Tenant's full and timely performance of all of its obligations under the
Lease. If at any time during the Term an Event of Default by Tenant occurs, then
the abatement of Basic Rent provided for in this Exhibit shall immediately
become void, and Tenant shall promptly pay to Landlord, in addition to all other
amounts due to Landlord under this Lease, the full amount of all Basic Rent
herein abated.
J-1
<PAGE>
Exhibit 10.1.10
THE
PITTOCK BLOCK
LEASE
Between ALCO INVESTMENT COMPANY,
a Washington corporation
("Landlord")
and
ADVANCED TELECOMMUNICATIONS, INC.,
a Delaware corporation
("Tenant")
<PAGE>
LEASE
THIS LEASE is made and entered into this 19th day of November, 1999, between
ALCO INVESTMENT COMPANY, a Washington corporation ("Landlord"), and ADVANCED
TELECOMMUNICATIONS, INC., a Delaware corporation ("Tenant")
1. BASIC LEASE PROVISIONS
AND IDENTIFICATION OF
ADDENDA AND EXHIBITS.
<TABLE>
<S> <C> <C>
11. Basic Lease Provisions. LEASED PREMISES: See Exhibit B, containing approximately 4,878 square feet of rentable
floor area
ADDRESS: 921 SW Washington Street, Suite 410 Portland Oregon 97205
LEASE TERM: Ten (10) years
COMMENCEMENT DATE: January 1, 2000
EXPIRATION DATE: December 31, 2009
MONTHLY BASE RENT: Years 1-5: $7,723.00 per month (see Base Rent Escalation Addendum
and Emergency Generator Connection Fee Addendum for
additional Monthly Base Rent payments)
Years 6-10: adjusted to market rental rate of the Building pursuant
to Market Rental Adjustment Addendum attached hereto
APPLICABLE PERCENTAGE: One and nine tenths of one percent (1.9%) (see Subsection 4.2(a))
PERMITTED USES: Location and operation of telecommunications equipment and general
offices.
TENANTS REPRESENTATIVE: Satish Tiwari
BROKER: Alco Properties
ADDENDA: BASE RENT ESCALATION, MARKET RENTAL ADJUSTMENT, COOLING TOWER CONNECTION
FEE, ELECTRICAL CONNECTION FEE, EMERGENCY GENERATOR CONNECTION FEE,
CONNECTIVITY RIGHT, RULES AND REGULATIONS
</TABLE>
1.2 Identification of The exhibits and addenda, if any, identified in
Exhibits and Addenda. and attached to this Lease are incorporated in
this Lease by reference.
2. LEASED PREMISES.
2.1 Leased Premises. Landlord hereby leases to Tenant, and Tenant
hereby accepts from Landlord, subject to and
with the benefit of the terms and provisions of
this Lease, the Leased Premises located in the
improvements which are located on the real
property described in Exhibit A and depicted in
Exhibit B. The real property and improvements
are hereinafter referred to as the "Building".
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2.2 Tenant Improvements Tenant accepts the Leased Premises in "as is"
Provisions. condition.
3. TERM. This Lease shall be for a term ("Term") which
commences on the Commencement Date and expires
on the Expiration Date. The "Commencement Date"
shall be the date listed in Section 1.1.
4. RENT AND OTHER CHARGES.
4.1 Monthly Base Rent. Commencing on the Commencement Date, Tenant
shall pay to Landlord, without notice or demand
and without any set-off or deduction
whatsoever, the monthly sums set forth in
Subsection 1.1 above (the "Monthly Base Rent")
which tenant shall pay in advance on or before
the first day of each calendar month of the
Term. If the Term commences on a day other than
the first day of a calendar month, the Monthly
Base Rent for such month shall be a prorated
portion of the Monthly Base Rent, based upon a
thirty (30) day month.
4.2 Other Charges. In addition to the Monthly Base Rent, Tenant
shall pay to Landlord in the manner' provided
in Subsection 4.2(b), Tenant's share of the
Insurance and Taxes described in Subsection
4.2(a) (hereinafter together called "Other
Charges").
(a) Other Charges. (i) Tenant shall pay to Landlord Tenant's
share of the Insurance and Taxes of the
Building for each Lease Year, or portion
thereof, during the Term. Tenant's share shall
be equal to the Applicable Percentage,
multiplied by the amount of the total Insurance
and Taxes during each Lease Year. The term
"Insurance" means the total cost and expense
for Insurance of the Building, including but
not limited to, the fire and extended coverage
insurance (with an earthquake endorsement);
public liability and property damage insurance;
and rent insurance.
(ii) The term "Taxes" means taxes on real
property and personal property, including all
tenant improvements which are paid for by
Landlord and not reimbursed by tenants, and
taxes on property of tenants of the Building
which have not been paid by such tenants
directly to the taxing authority; charges and
assessments levied with respect to the
Building, any improvements, fixtures and
equipment, and all other property of Landlord,
real or personal, used directly in the
operation of the Building, and located in or on
the Building; and any taxes levied or assessed
in addition to or in lieu of, in whole or in
part, such real property or personal property
taxes, or any other tax upon leasing of the
Building or rents collected, but excluding any
federal or state income tax or franchise tax.
(b) Payment of Other Prior to the first day of each Lease Year of
Charges. the Term (or as soon thereafter as such
information becomes available) Landlord will
notify Tenant in writing of Landlord's estimate
of Tenant's share of the Other Charges due for
the next Lease Year. Landlord's estimate shall
be based upon the actual amount of the Other
Charges for the immediately preceding Lease
Year and Landlord's estimate of Other Charges
for the next Lease Year. Tenant shall pay the
estimated Tenant's share in advance in twelve
(12) equal monthly installments on
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the first day of each month of such year.
Within thirty (30) days after the end of each
Lease Year, Landlord will compute Tenant's
share for such Lease Year based upon the actual
amount of the Other Charges for that Lease
Year, and if the total amount paid by Tenant
for such Lease Year is less than the actual
amount of Tenant's share for such Lease Years,
Tenant shall pay Landlord any deficiency. If
the total amount paid by Tenant for such Lease
Year exceeds the actual amount of Tenant's
share, Landlord shall credit such excess to the
next monthly payments of Other Charges which
thereafter come due. If the Term commences at a
time other than the beginning of a Lease Year,
Tenant shall pay the estimate of Tenant's share
for the portion remaining of the Lease Year
based upon the number of days of the Term in
such Lease Year. If this Lease expires at a
time other than the expiration date of a Lease
Year, Tenant shall be obligated to pay
immediately any deficiencies which shall be
computed at the expiration of that Lease Year.
If the estimated amount Tenant has paid for
that Lease Year exceeds the actual amount of
Tenant's share, Landlord shall refund such
excess to Tenant. If at any time during a Lease
Year the amount of the Other Charges increases
over the estimated amount, Landlord may, at its
election, adjust the amount of monthly
estimated installments due during the balance
of that Lease Year to reflect such increase.
Any increased payments required to be made
pursuant to this Subsection shall be made
within thirty (30) days after Landlord has
notified Tenant thereof. Tenant's obligations
under this Subsection shall survive the
expiration or termination of this Lease.
4.3 Late Charges. If Tenant fails to pay when the same is due and
payable, any Monthly Base Rent or any
additional rent, such unpaid amounts shall bear
interest at the rate of eighteen percent (18%)
per annum from the date due to the date of
payment, but in no event in excess of the
maximum rate, if any, permitted by applicable
law. In addition to such interest, if any
Monthly Base Rent installment is not received
by Landlord from Tenant by the tenth (10th) day
of the month for which such installment is due,
Tenant shall immediately pay to Landlord a
late charge equal to five percent (5%) of each
installment.
5. PERSONAL PROPERTY TAXES. Tenant shall pay, or cause to be paid, before
delinquency, any and all taxes levied or
assessed during the Term upon all Tenant's
leasehold improvements, equipment, furniture,
fixtures, and any other personal property
located in the Leased Premises.
6. LICENSES AND TAXES. Tenant shall be liable for, and shall pay
throughout the Term, all license and excise
fees and business and occupation taxes covering
the business conducted on the Leased Premises.
If any governmental authority or unit under any
present or future law effective at any time
during the Term hereof shall in any manner levy
a tax on rents payable under this Lease or
rents accruing from use of the Leased Premises
or a tax in any form against Landlord because
of or measured by income derived from the
leasing or rental of such property, such tax
shall be paid by Tenant, either directly or
through Landlord. Upon Tenant's failure to pay
such amounts, Landlord shall have the same
remedies as for failure to pay rent. Tenant
shall not be liable to pay any net income tax
imposed on Landlord.
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7. USE.
7.1 Permitted Uses. Tenant shall not use or permit or suffer the
use of the Leased Premises for any business or
purpose other than set forth in Subsection 1.1
above. Tenant shall not do or permit anything
to be done in or about the Leased Premises or
bring or keep anything therein which will in
any way increase the existing rate or premiums
of, or affect any, fire or other insurance upon
the Leased Premises or the Building, or cause a
cancellation of any insurance policy covering
the Leased Premises or the Building or any part
thereof or any of its contents. Tenant shall
not do or permit or suffer anything to be done
in or about the Leased Premises which will in
any way obstruct or interfere with the rights
of other tenants or occupants in the Building.
Tenant shall, at its sole cost and expense,
promptly comply with all local, state or
federal laws.
7.2 Hazardous Waste and Tenant shall not dispose of or otherwise allow
Materials. the release of any hazardous waste or materials
in, on or under the Leased Premises, or any
adjacent property, or in any improvements
placed on the Leased Premises. Tenant
represents and warrants to Landlord that
Tenant's intended use of the Premises does not
involve the use, production, disposal or
bringing on to the Leased Premises of any
hazardous waste or materials. As used herein,
the term "hazardous waste or materials"
includes any substance, waste or material
defined or designated as hazardous, toxic or
dangerous (or any similar term) by any federal,
state or local statute, regulation, rule or
ordinance now or hereafter in effect. Tenant
shall promptly comply with all statutes,
regulations and ordinances, and with all
orders, decrees or judgments of governmental
authorities or courts having jurisdiction,
relating to the use, collection, treatment,
disposal, storage, control, removal or cleanup
of hazardous waste or materials in, on or under
the Leased Premises or any adjacent property,
or incorporated in any improvements, at
Tenant's expense.
Tenant shall not allow smoke of any kind in the
Leased Premises, including but not limited to,
smoke from cigarettes, pipes and cigars unless
Tenant provides, at Tenant's sole expense, an
air supply and exhaust system which is one
hundred percent separated from the Building air
system shared with other tenants.
After notice to Tenant and a reasonable
opportunity for Tenant to effect such
compliance, Landlord may, but is not obligated
to, enter upon the Leased Premises and take
such actions and incur such costs and expenses
to effect such compliance as it deems advisable
to protect its interest in the Leased Premises;
provided, however, that Landlord shall not be
obligated to give Tenant notice and an
opportunity to effect such compliance if (1)
such delay might result in material adverse
harm to Landlord or the Leased Premises, (2)
Tenant has already had actual knowledge of the
situation and a reasonable opportunity to
effect such compliance, or (3) an emergency
exists. Whether or not Tenant has actual
knowledge of the release of hazardous waste or
materials on the Premises or any adjacent
property as the result of Tenant's use of the
Leased Premises, Tenant shall reimburse
Landlord for the full amount of all costs and
expenses incurred by
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Landlord in connection with such compliance
activities, and such obligation shall continue
even after the termination of this Lease.
Tenant shall notify Landlord immediately of any
release of any hazardous waste or materials on
the Leased Premises.
Tenant agrees to indemnify and hold Landlord
harmless against any and all losses,
liabilities, suits, obligations, fines,
damages, judgments, penalties, claims, charges,
cleanup costs, remedial actions, costs and
expenses (including, without limitations,
attorneys' fees and disbursements) which may be
imposed on, incurred or paid by, or asserted
against Landlord or the Premises by reason of,
or in connection with (1) any
misrepresentation, breach of warranty or other
default by Tenant under this Lease, or (2) the
acts or omissions of Tenant, or any subtenant
or other person for whom Tenant would otherwise
be liable, resulting in the release of any
hazardous waste or materials.
Tenant acknowledges that the Premises may
contain asbestos materials, and Tenant accepts
the Premises and the Building notwithstanding
such materials. If Landlord is required by any
statute, regulation, order, decree, judgment,
or other law to take any action to remove or
abate the asbestos materials, or if Landlord
deems it necessary to conduct special
maintenance or testing procedures with regard
to the asbestos materials, or to remove or
abate such asbestos material, Landlord may take
such action or conduct such procedures at times
and in a manner that Landlord deems appropriate
under the circumstances, and Tenant shall
permit the same.
8. ALTERATIONS. Tenant shall not make any alterations,
additions, or improvements in or to the Leased
Premises without the prior written consent of
Landlord, which consent may be subject to such
conditions as Landlord may deem appropriate but
which consent shall not be unreasonably
withheld or delayed. Landlord shall use its
best efforts to expedite review and approval of
Tenant's alteration plans when Tenant's
schedule requires expedited review. Except as
otherwise expressly provided in the Tenant
Improvements Provisions, any such alterations,
additions or improvements consented to by
Landlord shall be made at Tenant's sole cost
and expense. Tenant shall secure any and all
governmental permits, approvals or
authorizations required in connection with any
such work, and shall hold Landlord harmless
from any and all liability, costs, damages,
expenses (including attorneys' fees) and any
and all liens resulting therefrom. All
alterations, additions and improvements (and
expressly including all light fixtures and
floor coverings), except trade fixtures and
other equipment which do not become a part of
the Leased Premises, shall immediately become
the property of Landlord without any obligation
to pay therefore. Upon the expiration or sooner
termination of the Term, Tenant shall, upon
written demand by Landlord, given at least
thirty (30) days prior to the end of the Term,
at Tenant's sole cost and expense forthwith
remove any trade fixtures of Tenant designated
by Landlord to be removed, but not alterations,
additions or improvements made by Tenant, and
Tenant shall forthwith at its sole cost and
expense, repair any damage to the Leased
Premises caused by such removal of trade
fixtures.
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9. MAINTENANCE, REPAIRS AND
SERVICES.
9.1 Maintenance and Repairs Landlord shall repair and maintain in good
by Landlord. order and condition the public and common areas
of the Building, including lobbies, stairs,
elevators, corridors, restrooms, windows,
mechanical, plumbing and electrical equipment
and the structure itself. However, if such
maintenance and repair becomes necessary in
whole or in part due to the act, neglect, fault
or omission of any duty by Tenant, its
employees, agents, licensees, customers, guests
or invitees, or due to damage caused by actual
or attempted breaking and entering of the
Leased Premises or other unauthorized entry of
the Leased Premises, such maintenance and
repair shall be undertaken by Landlord at
Tenant's expense. There shall be no abatement
of rent and no liability of Landlord by reason
of any interference with Tenant's business
arising from the making of any repairs,
alterations or improvements to any portion of
the Leased Premises, the Building, or to
fixtures, appurtenances and equipment therein
so long as Landlord is making reasonable good
faith efforts to minimize such interference.
9.2 Maintenance and Repairs Tenant by occupying the Leased Premises accepts
by Tenant. same as being in good and tenantable condition
in accordance with Landlord's obligations.
Tenant shall at Tenant's sole expense keep the
Leased Premises and all interior partitions,
door surfaces, fixtures, equipment and
appurtenances (including lighting and plumbing
fixtures) in good and sanitary condition and
repair, ordinary wear and tear excepted;
provided, however, with respect to such items
that are shared with other tenants of the
Building, Tenant shall pay its pro-rata share
of such expenses. Tenant shall at the
expiration or termination of the Term surrender
to Landlord the Leased Premises and all
alterations, additions and improvements in the
same condition as when received, ordinary wear
and tear excepted. Landlord has no obligation
and has made no promise to alter, remodel,
improve, or repair the Leased Premises or any
part thereof, except as specifically set forth
in this Lease. Tenant also acknowledges that
Landlord has made no representations or
warranties respecting the condition of the
Leased Premises or the Building, except as
specifically set forth in this Lease. If any
standard or regulation is imposed on Landlord
or Tenant by any federal, state or local
governmental or quasi-governmental body charged
with the establishment, regulation and
enforcement of occupational, health or safety
standards for employers, employees, landlords
or tenants, then Tenant agrees, at its sole
cost and expense, to comply promptly with such
standards or regulations with respect to the
Leased Premises.
9.3 Failure to Maintain. If Tenant fails to keep and preserve the Leased
Premises as set forth in Subsection 9.2 above,
Landlord may, at its option, put or cause the
same to be put in the condition and state of
repair agreed upon, and in such case, upon
receipt of written statements from Landlord,
Tenant shall promptly pay the entire cost
thereof. Landlord shall have the right, without
liability, to enter the Leased Premises for the
purpose of making such repairs upon the failure
of Tenant to do so with fifteen (15) days'
notice to Tenant, unless Landlord deems entry
necessary without notice due to an emergency.
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9.4 Surrender of Leased At the expiration or sooner termination of this
Premises. Lease, Tenant shall return the Leased Premises
to Landlord in the same condition in which
received (or, if altered by Landlord or by
Tenant with the Landlord's consent, then the
Leased Premises shall be returned in such
altered condition), reasonable wear and tear
excepted. Tenant shall remove all trade
fixtures, appliances and equipment which do not
become a part of the Leased Premises and shall
restore the Leased Premises to the condition
they were in prior to the installation of such
items, reasonable wear and tear excepted.
9.5 Services. Landlord shall furnish the Leased Premises
with:
(a) Cooling tower water pursuant to the
attached Cooling Tower Connection Fee Addendum;
(b) Electrical service pursuant to the
attached Electrical Connection Fee Addendum;
and
(c) Emergency generator service pursuant
to the attached Emergency Generator Fee
Addendum.
9.6 Landlord's Duties. Landlord shall not be in default under this
Lease or liable for any damages resulting from
or incidental to, nor shall it be an actual or
constructive eviction of the Tenant, nor shall
the rent be abated by reason of:
(a) The interruption of use of any
equipment in connection with the furnishing of
any of the services described in this Section
9;
(b) Failure to furnish or delay in
furnishing any such services when such failure
or delay is caused by accident or any condition
beyond the reasonable control of Landlord,
including the making of necessary repairs or
improvements to the Leased Premises or to the
Building/systems;
(c) Any limitation, curtailment, rationing
restrictions on the use of electricity, water,
gas or other form of energy serving the Leased
Premises or the Building; or
(d) Failure to make any repair or to
perform any maintenance, unless such failure
shall persist for an unreasonable time after
written notice of the need for such repair or
maintenance is given to Landlord by Tenant.
Landlord shall use its commercially best
efforts to remedy any interruption in the
furnishing of such services.
9.7 Governmental Any other provisions of this Section 9
Regulations. notwithstanding, if any governmental agency or
utility supplier imposes any regulations,
controls, conditions, or other restrictions
upon Landlord, Tenant, or the Building, which
require or make desirable a change in the
services provided by Landlord under this Lease
or the lighting or equipment used by Tenant on
the Leased Premises, Landlord may comply and
may require Tenant to comply with such
regulations, controls, conditions or
restrictions without Landlord being in default
under this
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Lease or liable for any damages to Tenant and
without said actions constituting an actual or
constructive eviction of Tenant or entitling
Tenant to any abatement of rent, providing that
Tenant is able to conduct its ordinary and
customary business in the Leased Premises.
Without limiting the generality of the
foregoing, it shall specifically include
curtailment, rationing, or restrictions on the
use of electricity and other sources of power,
and recommended or mandated changes in
temperatures to be maintained in the Building
or Leased Premises.
9.8 Electricity Use. Tenant shall pay for the cost of furnishing the
Leased Premises with metered electrical service
from Landlord's Electrical Service Gear
pursuant to the attached Electrical Connection
Fee Addendum. Tenant shall reimburse Landlord
for all electrical energy used in the Leased
Premises. In no event shall the Tenant's use of
electricity exceed the capacity of existing
feeders to the Building or the risers or wiring
installation, and the Landlord may prohibit the
use of any electrical equipment which in the
Landlord's opinion will overload such wiring or
interfere with the use thereof by other tenants
in the Building. If Landlord consents to the
use of equipment requiring such changes, Tenant
shall pay the cost of installing any additional
risers, panels or other facilities that may be
necessary to furnish energy to the Leased
Premises.
9.9 Conservation. Tenant shall use its best efforts to recycle
its waste and to conserve heat, air
conditioning, electricity and water usage on
the Leased Premises.
10. LIENS AND ENCUMBRANCES. Tenant shall keep the Leased Premises and the
Building, free from any liens or encumbrances
arising out of any work performed, materials
furnished or obligations incurred by Tenant,
and shall indemnify and hold Landlord harmless
from any and all costs, liability or expenses
(including attorneys' fees) arising therefrom.
11. ASSIGNMENT AND Tenant shall not assign, transfer, mortgage,
SUBLETTING. pledge, hypothecate or encumber this Lease or
any interest therein, nor sublet the whole or
any part of the Leased Premises, nor shall this
Lease or any interest hereunder be assignable
or transferable by operation of law or by any
process or proceeding of any court, or
otherwise without the consent of Landlord.
Landlord reserves the right to refuse to give
such consent if in Landlord's reasonable
business judgment the quality of business
experience or the financial worth of the
proposed new tenant is less than that of
Tenant. For the purposes hereof, if Tenant is a
partnership, a transfer of a general partner's
interests in a partnership shall be deemed an
assignment. For the purposes hereof, a
consolidation or merger of Tenant (or if Tenant
is a partnership, one or more of whose partners
is a corporation, then of such corporation(s),
or a change in more than fifty percent (50%) of
the issued and outstanding voting or non-voting
stock of Tenant (or if Tenant is a partnership,
one or more of whose partners is a corporation,
then of such corporation(s) shall be deemed as
assignment. Tenant agrees to reimburse Landlord
for Landlord's reasonable attorneys' fees
incurred in conjunction with the proceeding and
documentation of any such requested transfer,
assignment, subletting, licensing or concession
agreement, change of fee ownership or
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hypothecation of this Lease or Tenant's
interest in the Leased Premises.
12. INSURANCE AND INDEMNITY.
12.1 Indemnification. Landlord shall not be liable for injury to any
person, or for the loss of or damage to any
property (including property of Tenant)
occurring in or about the Leased Premises from
any cause whatsoever, except for Landlord's
negligent acts or willful misconduct. Tenant
hereby indemnifies and holds Landlord harmless
from and against and agrees to defend Landlord
against any and all claims, charges,
liabilities, obligations, penalties, damages,
costs and expenses (including attorneys' fees)
arising, claimed, charged or incurred against
or by Landlord from any matter or thing arising
from Tenant's use of the Leased Premises, the
conduct of its business or from any activity,
work or other things done, permitted or
suffered by the Tenant in or about the Leased
Premises, and Tenant shall further indemnify
and hold Landlord harmless from and against any
and all claims arising from any breach or
default in the performance of any obligation on
Tenant's part or to be performed under the
terms of this Lease, or arising from any act or
negligence of the Tenant, or any officer,
agent, employee, guest, or invitee of Tenant,
and from all costs, attorneys' fees, and
liabilities incurred in or about the defense of
any such claim or any action or proceeding
brought thereon; and in case any action or
proceeding be brought against Landlord by
reason of such claim; Tenant, upon notice from
Landlord, shall defend the same at Tenant's
expense by counsel reasonably satisfactory to
Landlord. The indemnification provided for in
this paragraph with respect to any acts or
omissions during the term of this Lease shall
survive any termination or expiration of this
Lease. Landlord shall not be liable for
interference with light or air or view or for
any latent defect in the Leased Premises.
Tenant shall promptly notify Landlord of
casualties or accidents occurring in or about
the Leased Premises. In the event of concurrent
negligence of Tenant, its agents, employees,
sublessees, invitees, licensees or contractors
on the one hand, and that of Landlord, its
partners, directors, officers, agents,
employees, or contractors on the other hand,
which concurrent negligence results in the
injury or damage to persons or property and
relates to the construction, alteration,
repair, addition to, subtraction from,
improvement to or maintenance of the Leased
Premises, common areas or buildings, Tenant's
obligation to indemnify Landlord as set forth
in this Section shall be limited to the extent
of Tenant's negligence, and that of its agents,
employees, sublessees, invitees, licensees or
contractors, including Tenant's proportional
share of costs, including attorneys' fees and
expenses incurred in connection with any claim,
action or proceeding brought with respect to
such injury or damage. Tenant and Landlord
further agree that this indemnification
provision has been specifically negotiated and
agreed to the parties hereto. Any
indemnification of Landlord provided for in
this Lease shall include Landlord and its
property manager and their officers, employees
and agents.
12.2 Insurance. During the entire Term of this lease Tenant
shall, at its expense, maintain adequate
liability insurance with a reputable insurance
company or companies with a combined
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single limit of $1,000,000 for personal
injuries or property damage, to indemnify both
Landlord and Tenant against any such claims,
demands, losses, damages, liabilities and
expenses. Landlord shall be named as one of the
insureds and shall be furnished with a
certificate of such insurance, which shall bear
an endorsement that the same shall not be
canceled except upon not less than twenty (20)
days' prior written notice to Landlord. Tenant
shall also at its own expense maintain, during
the Term, all-risk insurance covering its
furniture, fixtures, equipment and inventory in
an amount equal to the replacement cost
thereof, and insurance covering all plate glass
and other glass on the Leased Premises. Tenant
shall provide Landlord with copies of the
policies of insurance or certificates thereof.
12.3 Increase in Insurance Tenant shall not keep, use, sell or offer for
Premium. sale in or upon the Leased Premises any article
which may be prohibited by the standard form of
fire insurance policies. Tenant shall pay any
increase in premium for casualty and fire
(including extended coverage) insurance that
may be charged during the Term on the amount of
such insurance which may be carried by Landlord
on the Leased Premises or the Building,
resulting from Tenant's occupancy or from the
type of property which Tenant stores on the
Leased Premises, whether or not Landlord has
consented thereto. In such event, Tenant shall
also pay any additional premium on the
insurance policy that Landlord may carry for
its protection against rent loss through fire
or casualty.
12.4 Waiver of Subrogation. Landlord and Tenant hereby mutually release
each other from liability and waive all right
of recovery against each other, their agents or
employees, for any loss in or about the Leased
Premises, from perils insured against under
their respective fire and all-risk insurance
contracts, including any extended coverage
endorsements thereof, whether due to negligence
or any other cause; provided that this
subsection shall be inapplicable if it would
have the effect, but only to the extent it
would have the effect, of invalidating any
insurance coverage of Landlord or Tenant.
13. EMINENT DOMAIN.
13.1 Taking. If all or part of the Leased Premises are taken
by the power of eminent domain exercised by any
governmental or quasi-governmental authority,
this Lease shall terminate as of the date
Tenant is required to vacate the Leased
Premises and all Monthly Base Rent and other
rentals and charges due hereunder shall be paid
to that date. The term "eminent domain" shall
include the taking or damaging of property by,
through or under any governmental or
quasi-governmental authority, and any purchase
or acquisition in lieu thereof, whether or not
the damaging or taking is by government or any
other person. If part of the Building is taken
or appropriated but no portion of the Leased
Premises is taken or appropriated, this Lease
may, at the option of the Landlord, be
terminated by written notice given to the
Tenant not more than thirty (30) days after
Landlord receives notice of the taking or
appropriation. If part of the Building is taken
or appropriated but no portion of the Leased
Premises is taken or appropriated and if such
taking or appropriation has a material adverse
affect on Tenant's business this Lease may, at
the option of Tenant, be terminated by written
notice
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given to Landlord within sixty (60) days of
receipt of notice by Tenant of such proposed
taking. Such terminations shall be effective as
of the date when the Landlord or its tenants
are required to vacate the portion of the
Building so taken.
13.2 Damages. Landlord reserves all rights to the entire
damage award or payment for any taking by
eminent domain, and Tenant shall make no claim
whatsoever against Landlord for damages. Tenant
hereby grants and assigns to Landlord any right
Tenant may now have or hereafter acquire to
such damages to which Landlord is entitled
under this Subsection 13.2 and agrees to
execute and deliver such further instruments of
assignment thereof as Landlord may from time to
time request. Tenant shall, however, have the
right to claim from the condemning authority
all compensation that may be recoverable by
Tenant for damages on account of any loss
incurred by Tenant in removing Tenant's
merchandise, furniture, trade fixtures and
equipment or for damage to Tenant's business;
provided, however, the Tenant may claim such
damages only if they are awarded separately in
the eminent domain proceeding and not as part
of landlord's damages.
14. TENANT'S DEFAULT.
14.1 Default. After ten (10) days' prior written notice to
Tenant, Landlord may at its option pay any
amounts which Tenant is obligated to pay to
third parties pursuant to this Lease, in which
event Tenant shall pay Landlord upon demand.
All amounts in addition to Monthly Base Rent
which Tenant is required to pay under this
Lease shall be considered "additional rent."
The occurrence of any one or more of the
following events shall constitute a default and
breach of this Lease by Tenant.
(a) Abandoning the The abandonment of the Leased Premises by
Leased Premises Tenant or the failure of Tenant to be open for
business (except in the event of damage or
destruction to the Leased Premises which
prevents Tenant from conducting any business
thereon or damage to the Leased Premises beyond
Tenant's reasonable control) for more than five
(5) business days.
(b) Failure to Pay The failure by Tenant to make any payment of
Rent. Monthly Base Rent, additional rent, or any
other payment required to be made by Tenant
hereunder, as and when due, where such failure
shall continue for a period of ten (10) days
after written notice thereof by Landlord to
Tenant.
(c) Failure to The failure by Tenant to observe or perform any
Perform. of the covenants, conditions or provisions of
this Lease to be observed or performed by the
Tenant, other than described in Subsection 14.1
(b) above, where such failure shall continue
for a period of fifteen (15) days after written
notice thereof by Landlord to Tenant; provided,
however, that if the nature of Tenant's default
is such that more than fifteen (15) days are
reasonably required for its cure, then Tenant
shall not be deemed to be in default if Tenant
commences such cure within said fifteen (15)
day period and thereafter diligently prosecutes
such cure to completion.
(d) Bankruptcy. The making by Tenant of any general assignment
or general arrangement for the benefit of
creditors; or the filing by or against Tenant
of a petition to have Tenant adjudged a
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<PAGE>
bankrupt, or a petition of reorganization or
arrangement under any law relating to
bankruptcy (unless, in the case of a petition
filed against Tenant, the same is dismissed
within sixty (60) days of filing); or the
appointment of a trustee or a receiver to the
possession of substantially all of Tenant's
assets located at or operated from the Leased
Premises or of Tenant's interest in this Lease,
where such seizure is not discharged in thirty
(30) days after appointment of such trustee or
receiver, or the filing of the petition for the
appointment of the same, whichever shall first
occur.
14.2 Remedies in Default. In the event of any such default or breach by
Tenant, Landlord may at any time thereafter,
with or without notice or demand and without
limiting Landlord in the exercise of a right or
remedy which Landlord may have by reason of
such default or breach:
(a) Terminate Terminate Tenant's right to possession of the
Lease. Leased Premises by any lawful means, in which
case this Lease shall terminate and Tenant
shall immediately surrender possession of the
Leased Premises to Landlord. In such event
Landlord shall be entitled to recover from the
Tenant all past due rents to the date of award
by the court having jurisdiction thereof; the
expenses of reletting the Leased Premises,
including necessary renovation and alteration
of the Leased Premises and reasonable
attorneys' fees; the worth at the time of award
by the court having jurisdiction thereof of the
amount by which the unpaid rent called for
herein for the balance of the Term after the
time of such award exceeds the amount of such
loss for the same period that Tenant proves
could be reasonably avoided; and that portion
of any leasing commission paid by Landlord and
applicable to the unexpired Term of this Lease.
Unpaid installments of rent or other sums shall
bear interest from the date due at the rate
provided in Subsection 4.3; or
(b) Continue the Maintain Tenant's right to possession, in which
Lease. case this Lease shall continue in effect
whether or not Tenant shall have abandoned the
Leased Premises. In such event Landlord shall
be entitled to enforce all Landlord's rights
and remedies under this Lease, including the
right to recover the Monthly Base Rent and
additional rent as may become due hereunder but
Landlord shall also be required to mitigate its
damages by seeking to re-let the Leased
Premises; or
(c) Other Remedies. Pursue any other remedy now or hereafter
available to Landlord under the laws or
judicial decisions of the State of Oregon.
14.3 Legal Expenses. If either party is required to bring or
maintain any action (including assertion of any
counterclaim or cross-claim, or claim in a
proceeding in bankruptcy, receivership or any
other proceeding instituted by a party hereto
or by others), or otherwise refers this Lease
to an attorney for the enforcement of any of
the covenants, terms or conditions of this
Lease, the prevailing party in such action
shall, in addition to all other payments
required herein, receive from the other all the
costs incurred by the prevailing party
including reasonable attorneys' fees which the
prevailing party incurred at trial and/or on
any appeal.
12
<PAGE>
14.4 Remedies Cumulative - Landlord's remedies hereunder are cumulative
Waiver. and the Landlord's exercise of any right or
remedy due to a default or breach by Tenant
shall not be deemed a waiver of, or to alter,
affect or prejudice any right or remedy which
Landlord may have under this Lease or by law.
Neither the acceptance of rent nor any other
acts or omission of Landlord at any time or
times after the happening of any event
authorizing the cancellation or forfeiture of
this Lease, shall operate a waiver of any past
or future violation, breach or failure to keep
or perform any covenant, agreement, term or
condition hereof or to deprive Landlord of its
right to cancel or forfeit this Lease, upon the
written notice provided for herein, at any time
that cause for cancellation or forfeiture may
exist, or be construed so as at any time to
stop Landlord from promptly exercising any
other option, right or remedy that it may have
under any term or provision of this Lease, at
law or in equity.
15. DEFAULT BY LANDLORD. Landlord shall not be in default unless
Landlord fails to perform obligations required
of Landlord within thirty (30) days after
written notice by Tenant to Landlord and to the
holder of any mortgage or deed of trust
covering the Leased Premises which describes
the default; provided, however, that if the
nature of Landlord's obligation is such that
more than thirty (30) days are required for
performance, then Landlord shall not be in
default if Landlord commences performance
within such thirty (30) day period and
thereafter diligently prosecutes the same to
completion. Tenant shall provide the holder of
the mortgage or deed of trust with notice and
time to cure as provided in Subsection 17.3.
16. DAMAGE OR DESTRUCTION.
16.1 Damage and Repair. In case of damage to the Leased Premises or the
Building by fire or other casualty, Tenant
shall give immediate notice to Landlord. If the
Building is damaged by fire or any other cause
to such extent that the cost of restoration, as
reasonably estimated by Landlord, will equal or
exceed thirty percent (30%) of the replacement
value of the Building (exclusive of
foundations) just prior to the occurrence of
the damage, or if insurance proceeds sufficient
for restoration are for any reason unavailable,
then Landlord may no later than the sixtieth
(60th) day following the damage, give tenant a
notice of election to terminate this Lease. In
the event of such an election this Lease shall
be deemed to terminate on the third (3rd) day
after the giving of said notice, and Tenant
shall surrender possession of the Leased
Premises within a reasonable time thereafter,
and the Monthly Base Rent shall be apportioned
as of the date of said surrender and any rent
paid for any period beyond said date shall be
repaid to Tenant. If the cost of restoration as
estimated by Landlord shall amount to less than
thirty percent (30%) of such replacement value
of the Building and insurance proceeds
sufficient for restoration are available, or if
despite the cost Landlord does not elect to
terminate this Lease, Landlord shall restore
the Building and the Leased Premises (to the
extent of improvements to the Leased Premises
originally provided by Landlord hereunder) with
reasonable promptness, subject to delays beyond
Landlord's control and delays in the making of
insurance adjustments by Landlord, and Tenant
shall have no right to terminate this Lease
except as herein provided. To the extent that
the
13
<PAGE>
Premises are rendered untenantable, the rent
shall proportionately abate, except in the
event such damage resulted or was contributed
to directly or indirectly from the act, fault
or neglect of Tenant, Tenant's officers,
contractors, agents, employees, invitees or
licensees, in which event rent shall abate only
to the extent Landlord receives proceeds from
Landlord's rental income Insurance policy to
compensate Landlord for loss of rent.
16.2 Destruction During Last In case the Building shall be substantially
Year of Term. destroyed by fire or other cause at any time
during the last twenty-four (24) calendar
months of the Term or of any extensions or
renewals thereof, either Landlord or Tenant may
terminate this Lease upon written notice to the
other party hereto given within sixty (60) days
of the date of such destruction.
16.3 Business Interruption. No damages, compensation or claim shall be
payable by Landlord for inconvenience, loss of
business or annoyance arising from any repair
or restoration of any portion of the Leased
Premises or of the Building. Landlord shall use
its best efforts to effect such repairs
promptly.
16.4 Tenant Improvements. Landlord will not carry insurance of any kind
on any improvements paid for by Tenant or on
Tenant's furniture or furnishings or on any
fixtures, equipment, improvements or
appurtenances of Tenant under this Lease, and
Landlord shall not be obligated to repair any
damage thereto or replace the same.
16.5 Express Agreement. The provisions of this Section shall be
considered an express agreement governing any
case of damage or destruction of the Building
or Leased Premises by fire or other casualty.
17. SUBORDINATION AND
ATTORNMENT: MORTGAGEE
PROTECTION.
17.1 Subordination. This Lease shall be subordinate to any existing
or future mortgages or deeds of trust on the
Building or on the leasehold interest held by
Landlord, and to any extensions, renewals, or
replacements thereof; provided, that the
mortgagee or beneficiary, as the case may be,
shall agree, in exchange for the agreement of
Tenant to attorn to such mortgagee or
beneficiary, to recognize this Lease in the
event of foreclosure if Tenant is not in
default at such time. At the request of
Landlord, Tenant shall promptly execute and
deliver all instruments which may be
appropriate to further secure and document such
subordination.
17.2 Tenant's Certificate. Tenant shall at any time and from time to time
upon not less than twenty (20) days' prior
written notice from Landlord execute,
acknowledge and deliver to Landlord a statement
in writing (a) certifying that this Lease is
unmodified and in full force and effect (or, if
modified, stating the nature of such
modification and certifying that this Lease as
so modified is in full force and effect), and
the date to which the rental and other charges
are paid in advance, if any, and (b)
acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of
the Landlord hereunder, or specifying such
defaults if any are claimed, and (c) setting
forth the date of commencement of rents and
expiration of the Term hereof. Any such
statement may be
14
<PAGE>
relied upon by any prospective purchaser or
encumbrancer of all or any portion of the
Building.
17.3 Mortgagee Protection Tenant agrees to give any mortgagees or deed of
Clause. trust holders, by registered or certified mail,
a copy of any notice of default served upon the
Landlord, provided that prior to such notice
Tenant has been notified in writing of the
addresses of such mortgagees or deed of trust
holders. Notwithstanding anything to the
contrary in this Lease, the Landlord shall not
be in default under any provision of this Lease
unless written notice specifying such default
is given to Landlord and to all persons who
have an interest in all or part of the Building
as mortgagee and/or deed of trust beneficiary,
and the provisions of Section 15 have been
complied with. Tenant further agrees as
follows: (i) if Landlord fails to cure or
commence the cure of such default within the
time period allowed under Section 15, above,
then a mortgagee or deed of trust beneficiary
shall have an additional thirty (30) days
within which to cure such default; and (ii) if
such default cannot be cured within that time,
then a mortgagee or deed of trust beneficiary
shall have such additional time as may be
necessary if within such additional thirty (30)
days any mortgagee or deed of trust beneficiary
has commenced and is diligently pursuing the
remedies necessary to cure such default
(including but not limited to commencement of
foreclosure proceedings if necessary to affect
such cure), in which event this Lease shall not
be terminated if such remedies are being so
diligently pursued.
18. ACCESS BY LANDLORD. Landlord or Landlord's employees, agents, and
contractors shall have the right to enter the
Leased Premises with reasonable notice to
examine the same or to make such repairs,
alterations, improvements or additions as
Landlord may deem necessary or desirable. If
Tenant is not personally present to permit
entry and an entry is necessary, Landlord may
in case of emergency forcibly enter the same,
without rendering Landlord liable therefor.
Nothing contained herein shall be construed to
impose upon Landlord any duty of repair of the
Leased Premises or Building except as otherwise
specifically provided for herein.
19. SURRENDER OR ABANDONMENT
OF LEASED PREMISES.
19.1 Surrender of Possession. Tenant shall promptly yield and deliver to
Landlord possession of the Leased Premises at
the expiration or prior termination of this
Lease. Landlord may place and maintain a "For
Rent" sign in conspicuous places on the Leased
Premises for sixty (60) days prior to the
expiration or prior termination of this Lease.
19.2 Holding Over. Any holding over by Tenant after the expiration
of the Term hereof, with Landlord's consent
shall be construed to be a tenancy from
month-to-month at the rents and on all of the
terms and conditions set forth herein, to the
extent not inconsistent with a month-to-month
tenancy; provided, however, the Monthly Base
Rent, at Landlord's discretion shall equal up
to one hundred fifty percent (150%) of the
Monthly Base Rent in effect immediately prior
to such month-to-month tenancy.
15
<PAGE>
19.3 Abandonment. Should Tenant abandon the Leased Premises or be
dispossessed by process of law or otherwise for
more than five (5) business days, such
abandonment, vacation or dispossession shall be
deemed a breach of this Lease, and, in addition
to any other rights which Landlord may have,
Landlord may remove any personal property
belonging to Tenant which remains on the Leased
Premises and store the same, the cost of such
removal and storage to be charged to the
account of Tenant.
19.4 Voluntary Surrender. The voluntary or other surrender of this Lease
by Tenant, or a mutual cancellation thereof,
shall not work a merger, but shall, at the
option of Landlord, terminate all or any
existing subleases or subtenancies, or operate
as an assignment to it of any or all such
subleases or subtenancies.
20. QUIET ENJOYMENT. Tenant, upon fully complying with and promptly
performing all of the terms, covenants and
conditions of this Lease on its part to be
performed, and upon the prompt and timely
payment of all sums due hereunder, shall have
and quietly enjoy the Leased Premises for the
Term set forth herein as against any adverse
claim of Landlord or any party claiming under
Landlord.
21 AUTHORITY OF PARTIES. If Tenant is a corporation, each individual
executing this Lease on behalf of such
corporation represents and warrants that he is
duly authorized to execute and deliver this
Lease on behalf of said corporation, in
accordance with a duly adopted resolution of
the board of directors of such corporation,
that such action and execution is in accordance
with the bylaws of such corporation, and that
this Lease is binding upon such corporation in
accordance with its terms. Tenant has
designated the person named in Section 1.1 as
Tenant's Representative. Landlord may rely on
all communications and statements of the
Tenant's Representative as the authorized
communications and statements of Tenant. Tenant
may notify Landlord that another individual is
the Tenant's Representative and Landlord may
rely on the communications and statements of
such individual.
22. SIGNS. Tenant shall not place or suffer to be placed
on the exterior walls of the Leased Premises or
upon the roof or any exterior door or wall or
on the exterior or interior of any window
thereof any sign, awning, canopy, marquee,
advertising matter, decoration, letter or other
thing of any kind (exclusive of the signs, if
any, which may be provided for in the original
construction or improvement plans and
specifications approved by the Landlord or
Tenant hereunder), without the prior written
consent of Landlord.
23. MISCELLANEOUS.
23.1 Tenant Defined. The word "Tenant" as used herein shall mean
each and every person, partnership or
corporation who is mentioned as a Tenant herein
or who executes this Lease as Tenant.
23.2 Broker's Commission. Tenant represents and warrants that it has
incurred no liabilities or claims for brokerage
commissions or finder's fees in connection with
the execution of this Lease and that it has not
dealt with or has any knowledge of any real
estate broker, agent or salesperson in
connection with this Lease except the Broker
whose name is set forth in Subsection 1.1.
16
<PAGE>
Tenant agrees to indemnify and hold Landlord
harmless from all such liabilities or claims
(including, without limitation, attorneys'
fees).
23.3 Partial Invalidity. If any term, covenant, or condition of this
Lease or the application thereof to any person
or circumstances is, to any extent, invalid or
unenforceable, the remainder of this Lease, or
the application of such term, covenant or
condition to persons or circumstances other
than those as to which it is held invalid or
unenforceable, shall not be affected thereby
and each term, covenant or condition of this
Lease shall be valid and be enforced to the
fullest extent permitted by law.
23.4 Recording. Tenant shall not record this Lease without the
prior written consent of Landlord. However,
upon the request of Landlord or Tenant, both
parties shall execute a memorandum of "short
form" of this Lease for the purposes of
recordation in a form customarily used for such
purposes. Said memorandum or short form of this
Lease shall describe the parties, the Leased
Premises and the Term and shall incorporate
this Lease by reference.
23.5 Notices. Any notice required in accordance with any of
the provisions herein if to Landlord shall be
delivered or mailed by registered or certified
mail to the address of Landlord as set forth by
the signature of the Parties, or at such other
place as Landlord may in writing from time to
time direct to Tenant, and if to Tenant, shall
be delivered or mailed by registered or
certified mail to Tenant at the Leased Premises
or at such other place as Tenant may in writing
from time to time direct to Landlord. If there
is more than one Tenant, any notice required or
permitted hereunder may be given by or to any
one thereof, and shall have the same force and
effect as if given by or to all thereof.
23.6 Waiver. The waiver by Landlord or Tenant of any term,
covenant or condition herein contained shall
not be deemed to be a waiver of such term,
covenant or condition or any subsequent breach
of the same or any other term, covenant or
condition herein contained. The subsequent
acceptance of Monthly Base Rent, additional
rent or sum hereunder by Landlord shall not be
deemed to be a waiver of any preceding default
by Tenant of any term, covenant or condition of
this Lease, regardless of Landlord's knowledge
of such preceding default at the time of the
acceptance of such sum.
23.7 Joint Obligation. If there is more than one Tenant, the
obligations hereunder imposed shall be joint
and several.
23.8 Time. Time is of the essence of this Lease and each
and all of its provisions in which performance
is a factor.
23.9 Successors and Assigns. All the terms, conditions, covenants and
agreements of this Lease shall extend to and be
binding upon Landlord, Tenant and their
respective heirs, administrators, executors,
successors and assigns, and upon any person or
persons coming into ownership or possession of
any interest in the Leased Premises by
operation of law or otherwise, and shall be
construed as covenants running with the land.
17
<PAGE>
23.10 Prior Agreements. This Lease contains all of the agreements of
the parties hereto with respect to any matter
covered or mentioned in this Lease, and no
prior agreements or understanding pertaining to
any such matters shall be effective for any
purpose. No provisions of this Lease may be
amended or added to except by an agreement in
writing signed by the parties hereto or their
respective successors in interest. This Lease
shall not be effective or binding on any party
until fully executed by both parties hereto.
23.11 Choice of Law. This Lease shall be governed by the laws of the
State of Oregon.
IN WITNESS WHEREOF, the parties hereto have executed this instrument the day and
year first above set forth.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engg. & Net Imptn.
Address: 921 SW Washington, Address: 730 Second Avenue South,
Suite 100 Ste 1200
Portland, OR 97205 Minneapolis MN 55402
18
<PAGE>
[STATE MICHELE J. SPERENZA
SEAL Notary Public
OF Ramsey County-Minnesota
MINNESOTA] My Commission Expires Jan. 31, 2000
STATE OF MINNESOTA )
) SS
COUNTY OF HENNEPIN )
The forgoing instrument was acknowledged before me this 22 day of November,
1999, by Satish Tiwari, the Vice-President/Engineering and Network
Implementation of ADVANCED TELECOMMUNICATIONS, INC., a Delaware corporation, on
behalf of the corporation.
/s/ Michele J. Sperenza
- ------------------------------------------
Notary Public
<PAGE>
STATE OF: OREGON }
} ss.
COUNTY OF: Multnomah }
I certify that I know or have satisfactory evidence that Douglas C. Rosen signed
this instrument, on oath stated that he was authorized to execute the
instrument, and acknowledged it as the Secretary of Alco Investment Company to
be free and voluntary act of such corporation for the uses and purposes
mentioned in the instrument.
[OREGON OFFICIAL SEAL Dated: 11/23/99
STATE JULIA A SPILKER Before me: /s/ Julia A. Spilker
SEAL] NOTARY PUBLIC-OREGON Notary Public for: Oregon
COMMISSION NO. 317305 My commission expires 12/20/02
COMMISSION EXPIRES DEC. 20, 2002
STATE OF: _________________________________________}
} ss.
COUNTY OF:_________________________________________}
I certify that I know or have satisfactory evidence that
____________________________ signed this instrument, on oath stated that he/she
was authorized to execute the instrument, and acknowledged it as the
__________________________________________________________ of Advanced
Telecommunications, Inc. to be free and voluntary act of such corporation for
the uses and purposes mentioned in the instrument.
Dated: ____________________________
Before me: ________________________
Notary Public for _________________
My commission expires:_____________
<PAGE>
EXHIBIT A
TO
PITTOCK BLOCK LEASE
Legal Description of Building
Lots 1 through 8 inclusive, Block 215, CITY OF PORTLAND, in the City of
Portland, County of Multnomah and State of Oregon.
<PAGE>
THE
PITTOCK
BLOCK
EXHIBIT B
[GRAPHIC OMITTED - FLOOR PLAN OF FOURTH FLOOR DESIGNATING LEASED PREMISES]
<PAGE>
Addendum
To
Pittock Block Lease
Base Rent Escalation
This Addendum to the Pittock Block Lease is entered into between the
Landlord and Tenant executing this Addendum for the purpose of amending such
Lease as provided herein.
1. On the first anniversary of the Commencement Date and on each
anniversary date thereafter during the Lease Term, (the "Escalation Dates"), the
Base Rent shall be increased by the Percentage Increase, if any. The "Percentage
Increase" shall mean the percentage increase, if any, in the United States
Consumer Price Index (as revised), All Urban Consumers, All Items, West-A (Base:
1982-1984 = 100), as published or issued by the United States Department of
Labor, Bureau of Labor Statistics (the "CPI Index"), computed from the Base Date
to the Comparison Date, as defined below. The "Comparison Date" shall mean the
date on which the most recent Index figure was published or issued prior to the
subject Escalation Date. The "Base Date" shall mean the date on which the most
recent Index figure was published prior to the Commencement Date. If the
Comparison Date precedes the subject Escalation Date by more than four (4)
calendar months, the CPI Index shall be deemed "no longer published or issued,"
and a substitute index or procedure shall be used as provided below. If at any
time prior to the subject Escalation Date the Index is no longer published or
issued, the parties shall use a substitute index, if available, or a substitute
procedure, to determine the "Percentage Increase" which accurately reflects the
increase in prices in a representative sample of consumer goods and services in
major expenditure groups, such as food, housing, apparel, transportation, health
and recreation, in the Portland, Oregon metropolitan area from the Base Date to
the Comparison Date. If the parties are unable to agree, within thirty (30) days
after demand of one (1) party on the selection of a substitute index or
procedure to replace the CPI Index, or if there is a dispute with respect to the
computation of any rental adjustment as herein provided, the selection or
computation shall be made by arbitration pursuant to Section 2 of this Addendum.
2. If any controversy, claim or dispute arises in connection with any
provision of this Addendum which expressly provides for resolution thereof by
arbitration pursuant to the terms of this Section 2, the same shall be submitted
to arbitration at the offices of the American Arbitration Association ("AAA") in
Portland, Oregon before a single arbitrator pursuant to the Commercial
Arbitration Rules of the AAA. If the AAA is not then functioning, the
arbitration shall be conducted in accordance with the requirements of O.R.S.
33.210-.340, and, if the parties are unable to agree upon an arbitrator within
ten (10) days of one party's notice of demand for arbitration to the other,
either party may petition the Presiding Judge of Multnomah County Circuit Court
to appoint the arbitrator. The arbitrator appointed by the AAA or the Presiding
Judge of Multnomah County Circuit Court shall be a person who has substantial
experience in the Portland, Oregon area in the professional area which is at
issue in the arbitration. Whether arbitration is conducted pursuant to the
Commercial Arbitration Rules of the AAA or O.R.S. 33.210-.340, the arbitrator
shall endeavor to promptly conduct and conclude the arbitration hearing within
sixty (60) days of his appointment. The arbitrator shall render his decision
within twenty (20) days of the conclusion of the arbitration hearing. The
decision of the arbitrator shall be final and binding upon the parties and shall
constitute a final adjudication of all matters submitted to arbitration. A
judgment on the arbitrator's award may be entered in Multnomah County Circuit
court and enforced as if the award were a judgment of such court.
3. Except as expressly provided herein, all other provisions of the Lease
and the Exhibits and Addenda thereto shall remain as set forth therein. In the
event of a conflict between this Addendum and the Lease proper, the provisions
of this Addendum shall prevail.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engg. & Net Imptn.
<PAGE>
Addendum
To
Pittock Block Lease
Market Rental Adjustment
This Addendum to the Pittock Block Lease is entered into between the
Landlord and Tenant executing this Addendum for the purpose of amending such
Lease as provided herein.
At the beginning of the sixth year of the Lease Term the Monthly Base Rent
for the Leased Premises shall be adjusted to the then Market Rental of the
Building. The Market Rental shall be specified by the Landlord sixty (60) days
in advance of the adjustment date and shall be the then current monthly rental
rate being offered by Landlord to other telecommunication companies in the
Building. In no event shall the Market Rental be less than the Base Rent
established by Landlord in its most recent lease agreement prior to the
adjustment date with a third party telecommunications tenant in the Building.
If the parties are still in disagreement twenty (20) days after delivery of
such notice from Landlord to Tenant, Landlord and Tenant shall immediately
choose an M.A.I. appraiser who shall determine the Market Rental for the
Premises as provided herein. If Landlord and Tenant are unable to agree on the
selection of an appraiser, either party may petition the Presiding Judge of
Multnomah County Circuit Court who shall select the appraiser. Until the Market
Rental is determined as provided herein, the Tenant shall pay Base Rent based on
the Market Rental specified by the Landlord, and if the Market Rental is
subsequently determined to be different than the Market Rental specified by the
Landlord, the Landlord or Tenant, as the case may be, shall reimburse the other
for such difference.
2. Except as expressly provided herein, all other provisions of the Lease
and the Exhibits and Addenda thereto, shall remain as set forth therein. In the
event of a conflict between this Addendum and the Lease proper, the provisions
of the Addendum shall prevail.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engg. & Net Imptn.
<PAGE>
Addendum
To
Pittock Block Lease
Cooling Tower Connection Fee
This Addendum to the Pittock Block Lease is entered into between the
Landlord and Tenant executing this Addendum for the purpose of amending such
Lease as provided herein.
Tenant shall have the right and hereby agrees to connect forty-five (45)
tons of capacity to Landlord's common cooling tower system to serve Tenant's air
conditioning equipment in the Leased Premises subject to the following
provisions:
1. The one time connection fee is forty-five thousand dollars
($45,000.00), payable to Landlord within 30 days of the connection or
within six months of the Commencement Date of the Lease Term, whichever
occurs first.
2. In addition to the connection fee, all engineering, permits and
installation costs shall be at Tenant's expense. Tenant shall not make any
connection to Landlord's common cooling tower system without Landlord's
prior written approval of engineering and installation specifications,
which consent is subject to such conditions and building standards as
Landlord deems reasonably appropriate.
3. In addition to Monthly Base Rent, Other Charges and all other
amounts due from Tenant under this Lease, Tenant shall pay its pro rata
share of all costs and expenses associated with the cooling tower system,
including but not limited to chemical treatment, maintenance, repair and
replacement expenses. Tenant's pro rata share for purposes of this section
shall be based on the connected load of Tenant compared to the total
connected capacity of the cooling tower system. Payment must be made within
ten days of receipt of invoice.
Except as expressly provided herein, all other provisions of the Lease and the
Exhibits and Addenda thereto, shall remain as set forth therein. In the event of
a conflict between this Addendum and the Lease proper, the provisions of the
Addendum shall prevail.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engg. & Net Imptn.
<PAGE>
Addendum
To
Pittock Block Lease
Primary Electrical Connection Fee
This Addendum to the Pittock Block Lease is entered into between the
Landlord and Tenant executing this Addendum for the purpose of amending such
Lease as provided herein.
Tenant shall have the right and hereby agrees to connect 600 amps at 480
volt electrical service capacity to Landlord's common system, subject to the
following provisions:
1. The one time connection fee one hundred thirty-five thousand
dollars ($135,000.00), payable to Landlord within 30 days of the connection
or within six months of the Commencement Date of the Lease Term, whichever
occurs first.
2. In addition to the connection fee, all engineering, permits,
installation and connection costs shall be at Tenant's expense. Tenant
shall not make any connection to Landlord's common electrical system
without Landlord's prior written approval of engineering and installation
specifications, which consent is subject to such conditions and building
standards as Landlord deems appropriate.
3. In addition to Monthly Base Rent, Other Charges and all other
amounts due from Tenant under this Lease, Tenant shall pay its pro rata
share of all costs and expenses associated with the electrical system,
including but not limited to maintenance, repair and replacement expenses.
Tenant's pro rata share for purposes of this section shall be based on the
connected load of Tenant compared to the total connected capacity of the
electrical system. Payment must be made within ten days of receipt of
invoice.
Except as expressly provided herein, all other provisions of the Lease and
the Exhibits and Addenda thereto, shall remain as set forth therein. In the
event of a conflict between this Addendum and the Lease proper, the provisions
of the Addendum shall prevail.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engg. & Net Imptn.
<PAGE>
Addendum
To
Pittock Block Lease
Emergency Generator Connection Fee
This Addendum to the Pittock Block Lease is entered into between the
Landlord and Tenant executing this Addendum for the purpose of amending such
Lease as provided herein.
Tenant shall have the right and hereby agrees to connect 400 amps at 480
volt three phase emergency generator service capacity to Landlord's common
system, subject to the following provisions:
1. The one time connection fee is four hundred thousand dollars
($400,000.00). Tenant has elected to make an initial payment of one hundred two
thousand, five hundred dollars ($102,500.00) at the time of connection which the
parties agree with occur on July 1, 2000. The remaining balance of the
connection fee is two hundred ninety-seven thousand, five hundred dollars
($297,500.00) and shall be fully amortized over forty-two (42) months at the
annualized interest rate of ten percent (10.0%). Therefore, in addition to the
initial connection fee of one hundred two thousand, five hundred dollars
($102,500.00), the Monthly Base Rent and all other amounts due under the Lease,
Tenant shall pay as additional Monthly Base Rent the amount of six thousand,
eight hundred sixty-four dollars ($6,864.00) per month commencing on July 1,
2000 and continuing each month thereafter until December 1, 2003.
2. In addition to the connection fee, all engineering, permits,
installation and connection costs shall be at Tenant's expense. Tenant shall not
make any connection to Landlord's common emergency generator system without
Landlord's prior written approval of engineering and installation
specifications, which consent is subject to such conditions and building
standards as Landlord deems reasonably appropriate.
3. In addition to Monthly Base Rent, Other Charges and all other amounts
due from Tenant under this Lease, Tenant shall pay its pro rata share of all
costs and expenses associated with the emergency generator system, including but
not limited to maintenance, repair and replacement expenses. Tenant's pro rata
share for purposes of this section shall be based on the connected load of
Tenant compared to the total connected capacity of the emergency generator
system. Payment must be made within 30 days of receipt of invoice.
Except as expressly provided herein, all other provisions of the Lease and
the Exhibits and Addenda thereto, shall remain as set forth therein. In the
event of a conflict between this Addendum and the Lease proper, the provisions
of the Addendum shall prevail.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engineering &
Network Implementation
<PAGE>
Addendum
To
Pittock Block Lease
Connectivity Right
This Addendum to the Pittock Block Lease is entered into between the Landlord
and Tenant executing this Addendum for the purpose of amending such Lease as
provided herein.
1. Cross Connect Facility. Tenant shall have the right to share usage of
Landlord's common telecommunication Cross Connect Facility ("CCF') only in
accordance with the following provisions:
a. All cabling shall be provided by Tenant at Tenant's expense.
Landlord shall supervise the maintenance and use of the CCF.
b. Tenant shall abide by the regulations, specifications and
standards established by Landlord from time to time governing the use
of the CCF.
c. Tenant shall pay cross connect fees to Landlord pursuant to
the following schedule:
Copper CCF Fiber CCF
---------- --------
One time entry fee: $1000.00 $1000.00
One time per panel fee: 375.00 200.00
Monthly per panel fee: 75.00 100.00
(1) The above fees are based on Landlord's current building
standard equipment schedule with the following cross
connect capacities:
DS1 cross connect panels are 56 position
DS3 cross connect panels are 24 position
Fiber cross connect panels are 6 fiber
In the event Landlord changes the building standard
equipment specification, the monthly panel fee shall be
modified, if necessary, to maintain the same fee per
position.
d. Cross connect fees shall be adjusted to Landlord's then rates
in the Building at the beginning of the sixth year of the Lease Term
and at each renewal option period, but shall in no event be less than
the greater of (i) the amounts set forth above, or (ii) the amounts
determined in any previous adjustment.
2. Cabling Right of Way. Landlord gives Tenant the right of way to install
cable from the Leased Premises to the Cross Connect Facility subject to the
following provisions:
a. Such installation is at Tenant's expense and subject to the
regulations, specifications and standards established by Landlord.
b. Such installation must be coordinated with and approved by the
Pittock Block Building engineer.
c. Tenant shall pay its pro rata share of common conduit attachment
structures or pathway improvements provided by Landlord.
3. Direct Tenant to Tenant Connection Not Allowed. Tenant is not allowed to make
or accept direct connections to other telecommunication, internet and present or
future equivalent tenants' Leased Premises within the Building. All connections
between telecommunications tenants within the Building must occur in the CCF as
defined above.
<PAGE>
Page Two
Connectivity Right Addendum
Except as expressly provided herein, all other provisions of the Lease and the
Exhibits and other Addenda thereto shall remain as set forth therein. In the
event of a conflict between this Addendum and the Lease proper, the provisions
of this Addendum shall prevail.
LANDLORD: TENANT:
- -------- --------
ALCO INVESTMENT COMPANY ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Douglas C. Rosen By: /s/ Satish C. Timari
------------------------------ ------------------------------
Douglas C. Rosen (Print Name) Satish C. Timari
Its Secretary Its Vice President, Engineering &
Network Implementation
<PAGE>
ADDENDUM
TO
PITTOCK BLOCK LEASE
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be posted or
affixed on or to any part of the outside of the Building or the Premises without
the prior written consent of Landlord, and Landlord shall have the right to
remove any sign, placard, picture, advertisement, name or notice posted in
violation of this rule, without notice to and at the expense of Tenant.
2. The directory of the Building will be provided exclusively for the display of
the name and location of tenants and Landlord reserves the right to exclude any
other names therefrom. Landlord reserves the right to restrict the amount of
directory space utilized by any Tenant.
3. The sidewalks, halls, passages, exits, entrances, elevators and stairways
shall not be obstructed by any Tenant or used for any purpose other than for
ingress and egress from the Premises. The halls, passages, exits, entrances,
elevators, stairways, balconies and roof are not for the use of the general
public and the Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence in the judgement of the
Landlord shall be prejudicial to the safety, character, reputation and interests
of the Building and its tenants. No Tenant and no employees, invitees or
licensees of any Tenant shall enter the mechanical rooms, electrical closets,
janitorial closets, or similar area or go upon the roof of the Building without
the prior written consent of the Landlord.
4. The Landlord shall designate appropriate entrances and a "freight" elevator
for deliveries or other movement to or from the Premises of equipment,
materials, supplies, furniture and other bulky or heavy articles, and Tenant
shall not use any other entrances or elevators for such purposes. The freight
elevator shall be available for use by Tenants in the building, subject to such
reasonable scheduling as Landlord in its discretion shall deem appropriate. All
means or methods used to move equipment, materials, supplies, furniture or other
property in or out of the Building must be approved by Landlord prior to any
such movement. All floors must be properly protected including hallway, lobby
and elevator carpet. Landlord will not be responsible for loss of or damage to
any property during movement into or out of the Building or Premises, and all
damage to the Building during the course of moving any article of Tenant's
property shall be repaired at the expense of Tenant. Tenant shall move all
freight, supplies, furniture, fixtures and other personal property only at such
times as may be designed by Landlord. Unattended vehicles will be towed at the
owner's expense.
5. Tenant shall not place or keep furniture or other items on the terraces or
roof of the Building without first obtaining the written approval of the
Landlord. Tenant shall not place any item of any nature on any window sill.
6. Landlord reserves the right to exclude from the building between the hours of
5:30 p.m. and 7:00 a.m. and at all hours on Saturdays, Sundays and legal
holidays all persons who do not present identification acceptable to Landlord.
Each Tenant shall provide Landlord with a list of all persons authorized by
Tenant to enter its Premises and shall be liable to Landlord for any loss or
injury to the property of the Landlord or other tenants caused by such persons.
Landlord shall in no case be liable to anyone for any error with regard to the
admission to or exclusion from the Building of any person. In the case of
invasion, mob, riot, public excitement or other circumstances rendering such
action advisable in Landlord's opinion, Landlord reserves the right to prevent
access to the Building during the continuance of the same by such action as
Landlord may deem appropriate, including closing doors.
7. The restrooms and the fixtures and equipment contained therein shall not
be used for any purpose other than that for which they were constructed.
Restroom fixtures shall not be used for the disposal of foreign substances
(e.g. coffee grounds) and the expense of any
<PAGE>
breakage, stoppage or damage resulting from violation of this rule shall be
borne by the responsible Tenant.
8. Except with the prior written consent of Landlord, no person other than those
employed by Landlord shall be permitted to enter the Building for the purpose of
cleaning the same or providing janitorial services. Tenant shall exercise due
care to preserve the good order and cleanliness of the Premises.
9. Tenant shall not permit the Premises to be occupied or used in a manner
offensive or objectionable to the other occupants of the building, persons
having business therein, or the occupants of neighboring buildings.
Specifically, tenants shall not use, keep or permit to be used or kept any
noxious gas or odorous substance in the Premises. Tenant shall not allow any
animals of any kind to be brought into or kept in or about the Premises of the
Building. Tenant shall not make or permit to be made any loud or disturbing
noises, whether by any musical instrument, radio, phonograph, appliance, or in
any other way. Tenant shall not install any radio or television antenna,
loudspeaker, or other device on the roof or exterior walls or windows of the
Building.
10. Tenants shall not use or keep in the Premises or the Building any kerosene,
gasoline, combustible fluid, toxic chemical, radioactive substance or other
dangerous material.
11. Tenant shall not disturb, solicit, or canvass any occupant of the
building and shall cooperate to prevent same.
12. All keys to offices, rooms and restrooms shall be obtained from Landlord's
building management office. Tenant shall not duplicate keys or have keys made.
Tenant, upon termination of the tenancy, shall deliver to the Landlord all keys
which shall have been furnished to Tenant by the Landlord. In the event that
Tenant or Tenant's employees or visitors lose a key, Tenant shall pay Landlord
the cost of replacing same or of changing the lock or locks opened by such lost
key if Landlord deems it necessary to make such change.
13. Tenant shall not lay linoleum, tile, carpet or other similar floor covering
so that the same shall be affixed to any floor of the Premises in any manner
except as approved by the Landlord. The expense of repairing any damage
resulting from a violation of this rule or of removing any floor coverings
affixed in violation of this rule shall be borne by the Tenant.
14. Before leaving the Building, Tenant and Tenant's employees shall (1) see
that the doors of the Premises are closed and securely locked; (2) shut off all
water faucets and water-using appliances so as to prevent waste or damage.
Tenant shall indemnify the Landlord and other tenants for any injuries sustained
by any of them as a result of any violation of this rule.
15. Landlord reserves the right to exclude or expel from the Building any person
who, in the judgement of Landlord, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of any of
the Rules and Regulations of the Building.
16. The requirements of Tenant will be attended to only upon application at the
Building management office. Employees of Landlord shall not perform any work or
do anything outside of their regular duties unless under special instructions
from the Landlord, and no employee will admit any person (Tenant or otherwise)
to any office without specific instruction from the Landlord.
17. Landlord shall have the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building of
which the Premises are a part.
18. Without the prior written consent of Landlord, Tenant shall not use the name
of the Building to promote or advertise the business of Tenant except as
Tenant's address.
19. Tenant agrees to comply with all fire and security regulations that may
be issued from time to time by Landlord. Tenant shall also provide Landlord
with the name of a
<PAGE>
designated responsible employee to represent Tenant in all matters pertaining to
fire or security regulations.
20. Tenant shall not utilize electrical extension cords unless such cords are
equipped with a built in circuit breaker.
21. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hanging or decorations shall be attached to, hung or placed in, or
used in connection with any window of the Building without the prior written
consent of Landlord. Such window coverings as the Landlord does approve shall be
installed on the office side of Landlord's standard window covering and shall in
no way be visible from the exterior of the Building.
22. Except with the prior written consent of Landlord, Tenant shall not sell any
retail merchandise in or on the Premises, including but not limited to the sale
to the public of newspapers, magazines, periodicals, theater or travel tickets
or any other goods or merchandise. Tenant shall not carry on or permit any
employee or other person to carry on the business of stenography, typewriting,
printing or photocopying or any similar business in or from the Premises for the
service or accommodation of other occupants in the Building, nor shall the
Premises of Tenant be used for manufacturing of any kind, for lodging of any
kind, or for any business or activity other than that specified in the Tenant's
Lease Agreement.
23. Tenant shall store all its trash and garbage within its Premises. No
material shall be placed in the hallways or left for disposal by the Landlord.
All garbage and refuse disposal shall be made only through entryways and
elevators provided for such purposes and at such times as Landlord shall
designate.
24. Tenant shall not mark, paint, drive nails or drill into, cut, string wires
within, or in any way deface any part of the Building or the Premises, without
the prior written consent of Landlord and as Landlord may direct. Should
Landlord grant approval, Tenant agrees to assume full responsibility and
warrants that Tenant's contractor will strictly abide by Landlord's guidelines
for work contracted directly by Tenant. Upon removal of any and all decorations
or installations of floor covering by Tenant, any damage to walls or floor shall
be repaired by Tenant at Tenant's sole cost and expense. This paragraph shall
apply to all work performed in the Building, including without limitation
installation of telephone or computer equipment, electrical devices and
attachments and installations of any nature affecting floors, walls, woodwork,
trim, windows, ceilings, equipment or any other portion of the Building. Plans
and specifications for such work, prepared at Tenant's sole expense, shall be
submitted to Landlord and shall be subject to Landlord's prior written approval
in each instance before the commencement of work. All installations,
alterations, and additions shall be constructed by Tenant in a good and
workmanlike manner and only good grades of materials shall be used in connection
therewith. Tenant shall obtain any and all necessary or required permits for any
such work at its sole cost and expense.
25. Landlord reserves the right to rescind, alter or waive, by written notice to
Tenant, any rule or regulation prescribed for the Building when, in Landlord's
judgement, it is necessary, desirable or proper to take such action in the best
interest of the Building and its tenants. The waiver of a rule or regulation for
the benefit of a particular tenant or tenants shall not be construed as a waiver
of such rule or regulation in favor of any other tenant or tenants, nor shall
any such waiver prevent Landlord from thereafter enforcing the rules or
regulation in question against any or all tenants of the building.
26. These Rules and Regulations supplement and shall not be construed to modify
or amend the provisions of the Lease Agreement or other agreement between
Landlord and Tenant. In the event of any conflict between these Rules and
Regulations and the Lease Agreement and any agreement executed by Landlord and
Tenant, the Lease Agreement shall prevail.
27. Smoking of any kind is prohibited in all common areas within the Building
including but not limited to the lobby, hallways, passageways, exits, entrances,
elevators, stairways, restrooms and within thirty (30) feet of exterior Building
entryways. Cigar and pipe smoking is prohibited throughout the entire Building.
<PAGE>
Exhibit 10.1.11
OFFICE LEASE
SOFI-IV SIM OFFICE INVESTORS II, LIMITED PARTNERSHIP
Landlord
and
Advanced Telecommunications, Inc. a Delaware corp.
Tenant
Dated: December 1, 1999
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS
ARTICLE 1 SUMMARY OF BASIC TERMS
ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION
2.1 Term
2.2 Memorandum
2.3 Area Measurement
2.4 Condition
ARTICLE 3 USE OF PREMISES
3.1 Permitted Uses
3.2 Insurance Restrictions
3.3 Improvements
3.4 Prohibitions
3.5 Common Areas
3.6 Rules and Regulations
3.7 Compliance with Law
3.8 Audit
3.9 Parking
3.10 Keys, Locks and Access Cards
ARTICLE 4 SECURITY DEPOSIT AND GUARANTIES
ARTICLE 5 RENT
5.1 Base Rent
5.2 Late Charges and Interest
5.3 Excise Taxes
5.4 Obligations are Rent
5.5 Proration
ARTICLE 6 OPERATING COSTS
6.1 Tenant's Share
6.2 Estimates
6.3 Annual Reconciliation
6.4 Partial Year Proration, Variable Cost Adjustment
6.5 Operating Costs
6.6 Exclusions
ARTICLE 7 TAXES
ARTICLE 8 INSURANCE AND INDEMNITY
8.1 Insurance Policies
8.2 Policy Requirements
8 3 Evidence of Coverage
8 4 Indemnity and Exculpation
8.5 Landlords Policies
ARTICLE 9 FIRE AND CASUALTY
9.1 Termination Rights
9.2 Restoration
9.3 Abatement
9.4 Demolition of Project
9.5 Agreed Remedies
ARTICLE 10 CONDEMNATION
10.1 Automatic Termination
10.2 Optional Termination
10.3 Award
i
<PAGE>
ARTICLE 11 MAINTENANCE
11.1 By Tenant
11.2 By Landlord
ARTICLE 12 UTILITIES
ARTICLE 13 LANDLORD RIGHT OF ENTRY
ARTICLE 14 SIGNS
ARTICLE 15 TENANT ALTERATIONS
15.1 Tenant Alterations
15.2 Tenant Installations
15.3 Mechanics Liens
ARTICLE 16 ASSIGNMENT AND SUBLETTING
16.1 Consent Required
16.2 Requests for Approval
16.3 Continued Responsibility
16.4 Excess Proceeds
16.5 Limitations
16.6 No Waiver
16.7 Transfer by Landlord
ARTICLE 17 SUBORDINATION AND A1TORNMENT
17.1 Subordination
17.2 Lender Protection
17.3 Documentation
17.4 Other Transactions
ARTICLE 18 ESTOPPEL CERTIFICATES
ARTICLE 19 QUIET ENJOYMENT
ARTICLE 20 SURRENDER AND HOLDOVER
20.1 Surrender
20.2 Holdover
ARTICLE 21 BREACH, DEFAULT, AND REMEDIES
21.1 Default
21.2 Remedies
21.3 Subtenancies
ARTICLE 22 LANDLORD LIABILITY
ARTICLE 23 NOTICES
ARTICLE 24 BROKERAGE
ARTICLE 25 RELOCATION
ARTICLE 26 GENERAL
26.1 Severability
26.2 No Waiver
26.3 Effect of Payment
26.4 Delay
26.5 Lender Notice
26.6 No Offer
ii
<PAGE>
26.7 Successors
26.8 Integration
26.9 Waiver of Jury Trial
26.10 Governing Law
26.11 Deadlines Enforceable
26.12 Counterparts
26.13 Additional Provisions
ARTICLE 27 SERVICES
A. Landlord's Obligations
B. Electrical Service
C. Restoration of Service/Tenant Self-Help Remedy
D. Generator & HVAC Access
ARTICLE 28 RISERS & CONDUIT ACCESS
ARTICLE 29 BATTERY INSTALLATION
ARTICLE 30 GROUNDING RISER
ARTICLE 31 ANTENNAE
ARTICLE 32 FIRE PROTECTION & LIFE SAFETY
ARTICLE 33 HAZARDOUS SUBSTANCES
ARTICLE 34 EXPRESS WAIVER OF LANDLORD'S LIEN
ARTICLE 35 ALLOWABLE USE OF CERTAIN HAZARDOUS MATERIALS
EXHIBITS
EXHIBIT A - THE PREMISES
EXHIBIT A-1 - FLOOR PLAN
EXHIBIT B - CONSTRUCTION PROVISIONS
EXHIBIT C - RULES AND REGULATIONS
iii
<PAGE>
OFFICE LEASE
SOFI-IV SIM OFFICE INVESTORS II LIMITED PARTNERSHIP, an Delaware limited
partnership ("Landlord"), hereby leases the Premises described below, for the
Term and on the terms and conditions set forth in this Lease, to:
Advanced Telecommunications, Inc. a Delaware corp.
("Tenant").
ARTICLE I SUMMARY OF BASIC TERMS
1.1 The Premises: Suite #500 in the Building consisting of approximately 6,028
square feet of rentable area as illustrated on the attached Exhibit A. A
floor plan for the floor(s) on which the Premises is located is attached as
Exhibit A-1.
1.2 The Building: The building is located at 2600 North Central Avenue,
Phoenix, Arizona.
1.3 "Project" means the Building identified in Section 1.2, and all lands and
facilities used in connection with the Building as reasonably determined
from time to time by Landlord. The Project consists of approximately
322,000 square feet of rentable area.
1.4 Names of Guarantor & None
1.5 Security Deposit: $12,000.00.
1.6 The Term: Ten (10) years and four (4) months, beginning on the Commencement
Date and ending on the Expiration Date.
1.7 Commencement and Expiration Dates: January 15, 2000, and May 15, 2010,
respectively, subject to the provisions of Exhibit
B.
1.8 Base Rent:
- --------------------------------------------------------------------------------
Lease Year Annual Base Rent Base Rent Per Square Foot Monthly Base Rent
- --------------------------------------------------------------------------------
1 $120,560.00 $20.00/sq. ft. $ 10,046.67
- --------------------------------------------------------------------------------
2 $124,176.80 $20.60/sq. ft. $10,348.07
- --------------------------------------------------------------------------------
3 $127,914.16 $21.22/sq. ft. $10,659.51
- --------------------------------------------------------------------------------
4 $131,772.08 $21.86/sq. ft. $10,981.01
- --------------------------------------------------------------------------------
5 $135,750.56 $22.52/sq. ft. $11,312.55
- --------------------------------------------------------------------------------
6 $139,849.60 $23.20/sq. ft. $11,654.13
- --------------------------------------------------------------------------------
7 $144.069.20 $23.90/sq. ft. $12,005.77
- --------------------------------------------------------------------------------
8 $148,409.36 $24.62/sq. ft. $12,367.45
- --------------------------------------------------------------------------------
9 $152,870.08 $25.36/sq. ft. $12,739.17
- --------------------------------------------------------------------------------
10 $157,451.36 $26.12/sq. ft. $13,120.95
- --------------------------------------------------------------------------------
1.9 Tenant's Proportionate Share: 1.87%, consisting of the proportion that the
rentable area of the Premises bears to the rentable area of the Project.
1
<PAGE>
1.10 Base Year: 2000.
1.11 Description of Tenant's Business: Executive and general office use, the
installation, operation and maintenance of equipment and facilities in
connection with Tenant's telecommunication business, including but nor limited
to telecommunications switch.
1.12 Normal Business Hours: 7:00 a.m. to 6:00 p.m., Monday through Friday, 8 00
a.m. to 1:00 p.m. on Saturday.
1.13 Tenant Improvement Allowance: $5.OO per rentable square foot ($30,140 00).
1.14 Tenant's Address for Pre-occupancy Notices: 730 2nd Ave. South
# 1200
Minneapolis. MN 55402
1.15 Landlord's Notice Address: c/o Scottsdale Property Management 97, L.L.C
9495 E. San Salvador, Suite 100
Scottsdale, AZ 85258
1.16 Tenant's designated broker: Eric Ham, TELECOM Real Estate Services
11.7 Landlord's designated broker: Scottsdale Property Management 97, L.L.C.
ARTICLE 2 DELIVERY, TERM AND CONSTRUCTION
2.1 Term. The Term of this Lease, and the dates of commencement and expiration
of the Term, are set forth in Sections 1.6 and 1.7
2.2 Memorandum. At the request of either party at any time following initial
occupancy of the Premises by Tenant, Landlord and Tenant shall execute a written
memorandum reflecting the date of initial occupancy and confirming the
Commencement Date and Expiration Date
2.3 Area Measurement. "Rentable Area" means area measured in accordance with
American National Standard Z65.1-1980, as published by BOMA International.
2.4 Condition. Landlord shall have no obligation to make any improvements or
alterations to the Premises or the Building whatsoever, and Tenant accepts the
Premises in an AS IS condition, with all faults. Notwithstanding the foregoing,
if an Exhibit C is attached to this Lease, Landlord shall cause improvements to
be constructed and alterations to be made in the Premises in accordance with the
provisions of Exhibit B
ARTICLE 3 USE OF PREMISES
3.1 Permitted Uses. Tenant may use and occupy the Premises for the purposes set
forth in Section 1.11 and for no other purpose whatsoever without Landlord's
prior written consent. Tenant shall not use the Premises for any purpose in
violation of exclusive rights granted by Landlord from time to time to any other
Tenant; provided, however, that Landlord shall not grant any exclusive right
that would prevent Tenant from conducting its business as described in Section
1.11.
3.2 Insurance Restrictions. Tenant shall not perform any act which would cause
the cancellation of any insurance policies related to the Project. Tenant shall
reimburse Landlord for any increases in insurance premiums paid by Landlord
directly related to the nature of Tenant's use of the Premises or the nature of
Tenant's business.
3.3 Improvements. If solely due to the nature of Tenant's use of the Premises,
improvements or alterations are necessary to comply with any requirements
imposed by Law or with the requirements of insurance carriers, Tenant shall pay
the entire cost of the improvements or alterations.
3.4 Prohibitions. Tenant shall not cause or maintain any nuisance in or about
the Premises and shall keep the Premises free of debris, rodents, vermin and
anything of a dangerous, noxious or offensive nature or which would create a
fire hazard (through undue
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load on electrical circuits or otherwise) or undue vibration, noise or heat.
Tenant shall not cause the safe floor loading capacity to be exceeded. Tenant
shall not disturb or interfere with the quiet enjoyment of the premises of any
other tenant
3.5 Common Areas. All of the portions of the Project made available by Landlord
for use in common by tenants and their employees and invitees ("Common Areas")
at all times shall remain subject to Landlord's exclusive control and Landlord
shall be entitled to make such changes in the Common Areas as it deems
appropriate. Landlord shall have the right at any time to change the arrangement
and/or locations of entrances, or passageways, doors and doorways, and
corridors, windows, elevators, stairs, toilets or other public parts of the
Building and to change the name, number or designation by which the Building or
the Project is commonly known.
3.6 Rules and Regulations. Tenant shall comply and shall cause its employees to
comply with the rules and regulations for the Project. The current rules and
regulations are attached as Exhibit C. Landlord from time to time by notice to
Tenant may amend the rules and regulations and establish other reasonable
non-discriminatory rules and regulations for the Project
3.7 Compliance with Law. Without in any manner limiting any other provision of
this Lease, Tenant hereby represents and warrants and agrees for the full term
of any obligations under this Lease:
(a) to comply fully with all federal, state and local laws, rules, orders,
or regulations pertaining to health or the environment ("Environmental Laws"),
including, without limitation, the comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended ("CERCLA") and the Resource
Conservation and Recovery Act of 1987, as amended ("RCRA").
(b) that Tenant will not dispose of nor permit or acquiesce in the disposal
of any waste (including, but not limited to, and paints, solvents, or paint
thinners) products on, under or around the Premises.
(c) to defend, indemnify and hold harmless Landlord for any and all costs,
claims, demands, damages including attorneys' fees and court costs and
investigatory and laboratory fees, related to any breach of this Lease,
including, without limitation, any adverse health or environmental condition
(including without limitation any violation of Environmental Laws) occurring
during the term of this Lease. This indemnification to Landlord shall survive
the termination of the Lease.
(d) comply with all reporting obligations imposed under the Federal
Emergency Planning and Community Right to Know Act of 1986 and any similar state
or local laws, rules or regulations.
(e) comply with all pretreatment requirements imposed by law with respect
to the disposal of waste or effluent into the sanitary sewer system;
(f) prevent any dumping, spillage, leakage or runoff of substances
regulated by Environmental Laws ("Regulated Substances") into dry wells, storm
drains, water retention areas, Common Areas or any areas where such substances
could be absorbed into the soil;
(g) obtain and maintain all permits required by federal, state or local
laws, rules or regulations;
(h) prepare, and upon request provide a copy to Landlord of, all response
plans required by applicable law, and
(i) not keep, store, or use within the Premises any Regulated Substances
except small quantities that are reasonably necessary for Tenant's business and
customarily associated with office usage, such as copier supplies.
3.8 Audit. At any time and from time to time, Landlord may retain an
environmental consultant or engineer to conduct an audit or environmental
assessment of the Premises and Tenant's compliance with applicable laws, rules
and regulations. Tenant shall extend its full cooperation with the audit or
investigation If Tenant is found not to be substantially in compliance with
applicable law, all reasonable costs associated with the audit or assessment
shall be paid by Tenant to Landlord upon demand; otherwise all costs shall be
borne by Landlord. In addition, Tenant, at Landlord's request from time to time,
shall complete such questionnaires and provide such information with respect to
Tenant's activities and operations on the Premises as Landlord shall reasonably
require.
3.9 Parking . Tenant shall lease the following parking spaces:
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- --------------------------------------------------------------------------------
# of Spaces Parking Area Price per Space Total Price
- --------------------------------------------------------------------------------
Up to 6 open unreserved @ then current
bldg rates
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3.10 Keys, Locks and Access Cards.
(a) Landlord shall furnish Tenant two keys for each corridor door entering
the Premises. Additional keys will be furnished at a charge by Landlord on an
order signed by Tenant or Tenant's authorized representative. All such keys
shall remain the property of Landlord No additional locks shall be allowed on
any door of the Premises without Landlord's permission. and Tenant shall not
make, or permit to be made any duplicate keys. Upon termination of this Lease,
Tenant shall surrender to Landlord all keys of the Premises, and give to
Landlord the combination of all locks for safes, safe cabinets and vault doors,
if any, in the Premises
(b) Landlord shall furnish tenant with security access cards for the
Building ("Access Cards"). Access Cards will be furnished at a reasonable charge
by Landlord on an order signed by Tenant or Tenant's authorized representative.
A portion of the charge for the Access Cards may constitute a deposit, the
balance of which shall compensate Landlord for costs, record keeping and other
administrative items in respect of the Access Cards. All such orders shall be
treated as confidential. All such cards shall remain the property of Landlord.
Replacement Access Cards shall be subject to a reasonable charge. Landlord shall
charge Tenant a reasonable transfer fee in connection with a change in the
registration of an Access Card Tenant shall promptly notify Landlord of a lost
Access Card, UNDER NO CIRCUMSTANCES shall tenant label, or in any other way
identify, any Access Cards as to the name of the Building, address of the
Building, or include tenant's personal or company name. Upon termination of any
officer, employee, or any other authorized representative of Tenant, any Access
Card to said person shall be surrendered to Tenant immediately. It shall be the
Tenant's obligation to notify Landlord of all terminated access privileges as
soon as possible following such action. Upon termination of this Lease, Tenant
shall surrender to Landlord all registered Access Cards. The card deposit
portion of the charge paid by Tenant, if any, will be refunded by Landlord
within thirty days, provided all Access Cards are in a reusable condition.
ARTICLE 4 SECURITY DEPOSIT
Upon execution of this Lease Tenant shall deposit with Landlord a security
deposit in the amount set forth in Section 1.5 to secure Tenant's performance of
this Lease. The deposit shall not bear interest, shall not be required to be
maintained in a separate account, and shall be returned, less any unpaid claims
against Tenant, upon the expiration of this Lease and the surrender of
possession of the Premises, to Tenant or the last assignee of Tenant's interest
If Tenant has not been in default under the terms of this Lease for the first
thirty-sixth (36th) months of the lease term, then Landlord shall apply the
Security Deposit towards the rental due for the thirty-seventh (37th) month. If
a Tenant default occurs after the thirty-sixth (36th) month, then upon written
notice from Landlord, Tenant will deposit with Landlord, within thirty days of
said notice, a "new" security deposit of S 12,000.00
ARTICLE 5 RENT
5.1 Base Rent. Tenant shall pay to Landlord, in advance, on the first day of
each calendar month, beginning on the first day of the fourth full calendar
month following the Commencement Date ("Rent Commencement Date"), Base Rent in
the amount set forth in Section 1.8.
5.2 Late Charges and Interest. Tenant shall pay to Landlord a late charge equal
to ten percent (10%) of the amount due if any installment of Base Rent or if any
other amount payable under this Lease is not received by Landlord within five
(5) days after the due date therefor. The parties agree that such late charge
represents a fair and reasonable estimate of the costs Landlord will incur by
reason of such late payment and that such late charge constitutes liquidated
damages to compensate Landlord for costs and inconveniences of special handling
and disruption of cash flow. The assessment or collection of a late charge shall
not constitute the waiver of a default and shall not bar the exercise of other
remedies for nonpayment. In addition to the late charge, all amounts not paid
within ten days after the date due shall bear interest from the date due (i)
until the happening of an Event of Default, at the rate of 12% per annum and
(ii) thereafter, at the rate set forth in Section 2.1.2.
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5.3 Excise Taxes. Tenant shall pay to Landlord all rental, sales, use,
transaction privilege, or other excise tax levied or imposed upon, or measured
by, any amount payable by Tenant under this Lease.
5.4 Obligations Are Rent. All amounts payable to Landlord under this Lease
constitute rent and shall be payable without notice, demand, deduction or offset
to such person and at such place as Landlord may from time to time designate by
written notice to Tenant
5.5 Proration. Base Rent payable with respect to a period consisting of less
than a full calendar month shall be prorated.
ARTICLE 6 OPERATING COSTS
6.1 Tenant's Share. Tenant shall pay to Landlord Tenant's Proportionate Share of
Operating Costs for each calendar year in excess of the Operating Costs for the
Base Year as set forth in Section 1.10.
6.2 Estimates. From time to time Landlord shall by written notice specify
Landlord's estimate of Tenant's obligation under Section 6.1. Tenant shall pay
one-twelfth of the estimated annual obligation on the first day of each calendar
month.
6.3 Annual Reconciliation. Within 120 days after the end of each calendar year,
Landlord shall provide to Tenant a written summary of the Operating Costs for
the calendar year, determined on an accrual basis and broken down by principal
categories of expense. The statement also shall set forth Tenant's Proportionate
Share of Operating Costs and shall show the amounts paid by Tenant on account.
Any difference between Tenant's obligation and the amounts paid by Tenant on
account shall be paid or refunded, as the case may be, within fifteen days after
the statement is provided. Late delivery of the annual statement of Operating
Costs shall not relieve Tenant of any obligation with respect to payment of
Tenant's Proportionate Share of the Operating Costs
6.4 Partial Year Proration; Variable Cost Adjustment. During the first and last
years of the Term, Tenant's responsibility for Operating Costs shall be adjusted
in the proportion that the number of days of that calendar year during which the
Lease is in effect bears to 365. Tenant's obligations under this Article 6 for
the payment of Operating Costs during the Lease Term, including the payment of
any deficiency following receipt of the annual statement under Section 6.3,
shall survive the expiration or termination of this Lease.
6.5 "Operating Costs" consist of all costs of operating, maintaining and
repairing the Project, including, without limitation, the following:
(a) Premiums for property, casualty, liability, rent interruption or other
insurance.
(b) Salaries, wages and other amounts paid or payable for personnel
including the Project manager, superintendent, operation and maintenance staff,
and other employees of Landlord involved in the maintenance and operation of the
Project, including contributions and premiums towards fringe benefits,
unemployment and workers compensation insurance, pension plan contributions and
similar premiums and contributions and the total charges of any independent
contractors or managers engaged in the repair, care, maintenance and cleaning of
any portion of the Project.
(c) Cleaning, including sweeping of parking areas and removal of snow and
ice.
(d) Landscaping, including irrigating, trimming, mowing, fertilizing,
seeding, and replacing plants.
(e) Utilities, including fuel, gas, electricity, water, sewer, telephone,
and other services.
(f) Maintaining, operating, repairing and replacing equipment.
(g) Other items of repair or maintenance of the Project.
(h) Policing and security.
(i) The cost of the rental of any equipment and the cost of supplies used
in the maintenance and operation of the Project.
(j) Audit fees and the cost of accounting services incurred in the
preparation of statements referred to in this Lease and financial statements,
and in the computation of the rents and charges payable by tenants of the
Project.
(k) Costs of capital expenditures incurred for the purpose of reducing
Operating Costs, and costs of improvements, repairs, or replacements which
otherwise constitute Operating Costs under this Article but which are properly
charged to capital
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accounts shall not be included in Operating Costs in a single year but shall
instead be amortized over their useful lives, as determined by the Landlord in
accordance with generally accepted accounting principles, and only the annual
amortization amount shall be included in Operating Costs.
(l) A fee for the administration and management of the Project appropriate
to the nature of the Project as reasonably determined by the Landlord from time
to time.
(m) Costs of alterations or modifications to the Project necessary to
comply with requirements of applicable law; and
(n) General and special real and personal property taxes and assessments
for the Project and expenses incurred in efforts to reduce taxes or assessments.
6.6 Exclusions. Notwithstanding anything to the contrary in Section 6.5,
"Operating Costs" shall not include:
(a) Amounts reimbursed by other sources, such as insurance proceeds,
equipment warranties, judgments or settlements.
(b) Utilities or other expenses paid directly by tenants to suppliers or
paid by tenants to Landlord for separately metered or special services such as
after-hours air conditioning services.
(c) Ground rents.
(d) Payments on any mortgage or other encumbrance.
(e) Construction of tenant improvements.
(f) Replacements (but not repairs) of structural elements.
(g) Leasing commissions.
(h) General overhead and administrative expenses of Landlord not directly
related to the operation of the Project
ARTICLE 7 TAXES
7.1 Landlord shall pay before delinquent all general and special real property
taxes assessed or levied on the Project, subject to reimbursement under Article
6.
7.2 Tenant shall pay before delinquent all taxes levied or assessed upon,
measured by, or arising from (a) the conduct of Tenant's business; (b)
Tenant's leasehold estate; or (c) Tenant's property.
ARTICLE 8 INSURANCE AND INDEMNITY
8.1 Insurance Policies. Tenant shall, at its expense, take out and keep in full
force and effect the following insurance:
(a) All-risk property insurance including sprinkler leakage in an amount
equal to the full replacement cost of all property owned by Tenant
(b) Business interruption insurance with a limit sufficient to insure not
less than a six month loss of income.
(c) Plate glass insurance coverage
(d) Comprehensive liability insurance applying to the use and occupancy of
the Premises and the business operated by Tenant, including coverage for
"premises/operations", "products and completed operations", and "blanket
contractual" liabilities, written on an occurrence basis with limits not less
than $1,000,000, naming Landlord, its agents, affiliates and contract property
manager as additional insureds.
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(e) At all times during the Lease Term, Tenant shall procure and
maintain workers' compensation insurance in accordance with applicable law and
employer's liability insurance with a limit not less than $1,000,000 bodily
injury each accident; $1,000,000 bodily injury by disease - each person; and
$1,000,000 bodily injury by disease - policy limit.
8.2 Policy Requirements. Tenant's insurance policies shall:
(a) where applicable, contain the mortgagee's standard mortgage clause and
in any event a waiver of any subrogation rights which Tenant's insurers may have
against Landlord and against those for whom the Landlord is in law responsible;
(b) be taken out with insurers reasonably acceptable to Landlord and be in
a form satisfactory from time to time to Landlord;
(c) be non-contributing and apply as primary and not as excess to, any
other insurance available to the Landlord;
(d) not be invalidated with respect to the interests of the Landlord and
the holder of any encumbrance on the Project by reason of any breach or
violation by Tenant of any warranties, representations, declarations or
conditions contained in the policies;
(e) contain an undertaking by the insurers to notify the Landlord, and the
holder of any encumbrance on the Project designated by Landlord, in writing not
less than thirty days prior to any material change, cancellation or termination;
and
(f) be satisfactory in form, substance, limits, deductibles and retentions
to Landlord
8.3 Evidence of Coverage. Tenant shall deliver to Landlord certificates of
insurance or, if required by Landlord, certified copies of each such insurance
policy: (a) as soon as practicable after the placing of the required insurance
and (b) periodically thereafter before expiration, renewal or replacement of the
policies then in force. No review or approval of any such insurance certificate
by Landlord shall derogate or diminish Landlord's rights or Tenant's
obligations. Tenant shall not take possession of the Premises without having
complied with the requirements of this Section.
8.4 Indemnity and Exculpation. Tenant shall defend, indemnify and hold Landlord
harmless, regardless of any negligence imputed to Landlord as owner of the real
property involved in an injury, from and against any and all loss, claims,
actions, damages, liability and expense in connection with loss of life,
personal injury, damage to property' or any other loss or injury whatsoever
arising directly or indirectly from or out of this Lease, or any occurrence in,
upon or at the Premises, or the occupancy or use by the Tenant of the Premises,
or any act or omission of Tenant, its agents, servants, employees or invitees.
Tenant shall not be required, however, to indemnify Landlord against a claim
arising from Landlord's active negligence or willful misconduct Landlord shall
not be liable and Tenant hereby waives all claims for any damage to any property
in or about the Premises or the Project or injury or inconvenience to Tenant's
business, by or from any cause whatsoever (including without limiting the
foregoing, rain or water leakage of any character from the roof, windows, walls,
basement, pipes, plumbing works or appliances). Tenant acknowledges that it is
protecting itself against loss by maintaining appropriate insurance coverage.
8.5 Landlord's Policies. No insurable interest is conferred upon Tenant under
any policies of insurance carried by Landlord, and Tenant shall not be entitled
to share or receive proceeds of any insurance policy carried by Landlord.
ARTICLE 9 FIRE AND CASUALTY
9.1 Termination Rights. If all or part of the Premises is rendered untenantable
by damage from fire or other casualty which in Landlord's opinion cannot be
substantially repaired (employing normal construction methods without overtime
or other premium) under applicable laws and governmental regulations within 180
days from the date of the fire or other casualty, then either Landlord or Tenant
may elect to terminate this Lease as of the date of such casualty by written
notice delivered to the other not later than ten days after notice of such
determination is given by Landlord.
9.2 Restoration. If in Landlord's opinion the damage caused by the fire or
casualty can be substantially repaired (employing normal construction methods
without overtime or other premium) under applicable laws and governmental
regulations within 180 days from the date of the fire or other casualty, or if
neither party exercises its right to terminate under Section 9.1, Landlord
shall, but only to the extent that insurance proceeds are available therefor,
repair such damage other than damage to furniture, chattels or trade fixtures
which do not belong to the Landlord, which shall be repaired forthwith by Tenant
at its own expense.
9.3 Abatement. During any period of restoration, the Base Rent payable by Tenant
shall be proportionately reduced to the extent that the Premises are thereby
rendered untenantable from the date of casualty until completion by Landlord of
the repairs to the
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Premises (or the part thereof rendered untenantable) or until Tenant again uses
the Premises (or the part thereof rendered untenantable) in its business,
whichever first occurs.
9.4 Demolition of Project. Notwithstanding anything to the contrary in Section
9.1, if all or a substantial part (whether or not including the Premises) of the
Building is rendered untenantable by damage from fire or other casualty to such
a material extent that in the opinion of Landlord the Project must be totally or
partially demolished, whether or not to be reconstructed in whole or in part,
Landlord may elect to terminate this Lease as of the date of the casualty (or on
the date of notice if the Premises are unaffected by such casualty) by written
notice delivered to Tenant not more than sixty days after the date of the fire
or casualty.
9.5 Agreed Remedies. Except as specifically provided in this Article, there
shall be no reduction of rent and Landlord shall have no liability to Tenant
by reason of any injury to or interference with Tenant's business or property
arising from fire or other casualty, howsoever caused, or from the making of
any repairs resulting therefrom in or to any portion of the Project or the
Premises. Tenant waives any statutory or other rights of termination by
reason of fire or other casualty, it being the intention of the parties to
provide specifically and exclusively in this Article for the rights of the
parties with respect to termination of this Lease as a result of a casualty.
ARTICLE 10 CONDEMNATION
10.1 Automatic Termination. If during the Term all or any part of the Premises
is permanently taken for any public or quasi-public use under any statute or by
right of eminent domain, or purchased under threat of such taking, this Lease
shall automatically terminate on the date on which the condemning authority
takes possession of the Premises.
10.2 Optional Termination. If during the term any part of the Project is taken
or purchased by right of eminent domain or in lieu of condemnation, whether or
not the Premises are directly affected, then if in the reasonable opinion of
Landlord substantial alteration or reconstruction of the Project is necessary or
desirable as a result thereof, or the amount of parking available to the Project
is materially and adversely affected, Landlord shall have the right to terminate
this Lease by giving Tenant at least thirty days written notice of such
termination.
10.3 Award. Landlord shall be entitled to receive and retain the entire award
or consideration for the affected lands and improvements and Tenant shall not
have or advance any claims against Landlord for the value of its property or
its leasehold estate or the unexpired term of this Lease or for costs of
removal or relocation or business interruption expense or any other damages
arising out of the taking or purchase. Nothing herein shall give Landlord any
interest in or preclude Tenant from seeking and recovering on its own account
from the condemning authority any award of compensation attributable to the
taking or purchase of Tenant's chattels or trade fixtures or attributable to
Tenant's relocation expenses provided that any such separate claim by Tenant
shall not reduce or adversely affect the amount of Landlord's award. If any
such award made or compensation paid to Tenant specifically includes an award
or amount for Landlord, Tenant shall promptly account therefor to Landlord.
ARTICLE 11 MAINTENANCE
11.1 By Tenant. Tenant shall maintain equipment, alterations or other
improvements whether constructed for Tenant's initial occupancy or made
subsequently pursuant to Article 15, such as supplemental or special cooling
systems not consistent with building standard tenant improvements as established
by the Landlord. If Tenant does not comply with its obligations under this
Article, Landlord may, but need not, make such repairs and replacements or
obtain such service contracts, and Tenant shall pay Landlord the cost thereof
upon demand. Tenant also shall make such repairs and alterations necessary to
comply with the requirements of any governmental or quasi-governmental
authority' having jurisdiction
11.2 By Landlord. Landlord shall maintain the Premises and the improvements
thereon (including all doors, plate glass, and heating, air conditioning,
ventilation, electrical and plumbing systems serving the Premises), in good
condition and repair. Landlord shall provide janitorial services to the Premises
five nights per week. Landlord shall maintain the Project and all Common Areas
in good condition and repair in accordance with standards then prevailing for
comparable properties of like age and character. Landlord shall repair
structural defects in roof or walls and any common utility facilities in the
Common Areas. Landlord shall not be liable or responsible for breakdowns or
temporary interruptions in access or utilities nor for interference with
Tenant's business or Tenant's access to the Premises during the course of
repairs or remedial work.
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ARTICLE 12 UTILITIES
Landlord shall supply the following services to assure Tenant's operations in
the Premises 24 hours/day, 365 days/year:
A. Electrical. Landlord shall provide 800 amps of 480 volt three phase
electrical power for Tenant's suite (#500) Said power will brought into one
of the Project's electrical rooms, as shown on Exhibit "E", and it is
Tenant's responsibility and cost to distribute said power from the
electrical room to and throughout their suite. Tenant shall obtain its
electricity directly from Landlord, which shall be separately metered by a
meter installed by Landlord at its cost, with no mark up.
B. Heat and air conditioning: SEE ARTICLE 27(D)
C. Hot and cold water from the regular building outlets for lavatory and
restrooms and for drinking purposes.
D. Passenger elevator service in common with other tenants to be provided by
automatic elevators. Landlord shall have the right to restrict to use of
elevators for freight purposes to the freight elevator and to hours to be
reasonably determined by Landlord so long as elevator is reasonably
available (24 hours/day, 7 days/week), without charge, for Tenant's
construction purposes. Landlord shall have the right to limit the number of
elevators to be in operation on Saturdays, Sundays and holidays.
E. Maintenance in good order, condition and repair of the parking facilities
and all driveways leading thereto. Landlord shall keep and maintain the
landscaped area and parking facilities in a neat and orderly condition.
Landlord reserves the right to designate areas, in a non-discriminatory
manner, of the appurtenant parking facilities where Tenant, its agents,
employees and invitees shall park and may exclude Tenant and its agents,
employees and invitees from parking in other areas as designated by
Landlord; provided, however, Landlord shall not be liable to Tenant for the
failure of any tenant or its invitees, employees and invitees from parking
in other areas as designated by Landlord, provided, however, Landlord shall
not be liable to Tenant for the failure of any tenant or its invitees,
employees, agents or customers to abide by Landlord's designations or
restrictions. Tenant is aware that Landlord may be required to designate
certain parking stalls due to governmental request or order to accommodate
car or van poolers.
Landlord acknowledges that Tenant's operations require 24-hour/day, 7/days/week
operation. As a consequence thereof, Landlord shall give to Tenant reasonable
advance notice of any planned shut downs of any Building system for scheduled
routine maintenance and/or of repairs, alterations, additions or improvements in
or to the Building Landlord shall make every effort to minimize inconvenience to
Tenant by rescheduling the times for the performance of such work upon
reasonable request of Tenant, provided that any increase in costs incurred by
Landlord as a result of such rescheduling shall be paid for by Tenant within
thirty (30) days after Tenant's receipt of Landlord's written statement and
supporting documentation.
ARTICLE 13 LANDLORD RIGHT OF ENTRY
Upon reasonable notice to Tenant, Landlord shall have access to the Premises for
purposes of showing the Premises to current or prospective lenders, to
prospective purchasers of the Project, and, during the twelve-month period
preceding the expiration of the term of this Lease, to prospective tenants
Landlord shall at all times have access to the Premises for purposes of
inspection and performing Landlord's obligations and exercising its rights under
this Lease.
ARTICLE 14 SIGNS
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Tenant shall not place or permit to be placed any sign, picture, advertisement,
notice, lettering or decoration on any part of the outside of the Premises or
anywhere in the interior of the Premises which is visible from the outside of
the Premises without Landlord's prior written approval. All of Tenant's signs
shall be subject to Landlord's prior approval.
ARTICLE 15 TENANT ALTERATIONS
15.1 Tenant Alterations. Tenant may from time to time at its own expense make
changes, additions and improvements in the Premises, provided that any such
change, addition or improvement shall:
(a) comply with the requirements of any governmental or quasi-governmental
authority having jurisdiction (including, without limitation, the Americans with
Disabilities Act), with the requirements of Landlord's insurance carriers, and
with Landlord's safety and access requirements, including restrictions on
flammable materials and elevator usage;
(b) not be commenced until Landlord has received satisfactory evidence
that all required permits have been obtained;
(c) be made only with the prior written consent of Landlord (which may be
withheld in Landlord's sole discretion, to the extent it relates in Landlord's
opinion to the structure or electrical, HVAC, plumbing or sprinkler systems of
the Building, but which otherwise shall not be unreasonably withheld);
(d) be constructed in good workmanlike manner and conform to complete
working drawings prepared by a licensed architect and submitted to and approved
by Landlord;
(e) be of a quality that equals or exceeds the then current standard for
the Project and comply with all building, fire and safety codes;
(f) be carried out only during hours approved by Landlord by licensed
contractors selected by Tenant and approved in writing by Landlord, who shall
deliver to Landlord before commencement of the work performance and payment
bonds as well as proof of workers' compensation and general liability insurance
coverage, including coverage for completed operations and contractual liability,
with Landlord and its agents and designees named as additional insureds, in
amounts, with companies, and in form reasonably satisfactory to Landlord, which
shall remain in effect during the entire period in which the work shall be
carried out. Notwithstanding the foregoing, only subcontractors selected or
designated by Landlord may be used to make connection with the Project's main
electrical, plumbing or HVAC systems, except connections to circuit panels,
pipes or ducts within the Premises; and
(g) upon completion, be shown on accurate "as built" reproducible drawings
in the form of reverse sepia transparencies or mylars delivered to Landlord.
15.2 Tenant Installations. Tenant may install in the Premises its usual trade
fixtures and personal property in a proper manner, provided that no installation
shall interfere with or damage the mechanical or electrical systems or the
structure of the Building. Landlord may require that any work that may affect
structural elements or mechanical, electrical, heating, air conditioning,
plumbing or other systems be performed by Landlord at Tenant's cost or by a
contractor designated by Landlord.
15.3 Mechanics Liens. Tenant shall pay before delinquency all costs for work
done or caused to be done by Tenant in the Premises which could result in any
lien or encumbrance on Landlord's interest in the Project or any part thereof,
shall keep the title to the Project and every part thereof free and clear of any
lien or encumbrance in respect of such work, and shall indemnify and hold
harmless Landlord and Landlord's agents and employees against any claim, loss,
cost, demand or legal or other expense, whether in respect of any lien or
otherwise, arising out of the supply of material, services or labor for such
work. Tenant shall immediately notify Landlord of any such lien, claim of lien
or other action of which it has or reasonably should have knowledge and that
affects the title to the Project or any part thereof, and shall cause the same
to be removed by bonding or otherwise within five days, failing which Landlord
may take such action as Landlord deems necessary to remove same and the entire
cost thereof shall be immediately due and payable by Tenant to Landlord. If
provided by applicable law, Tenant shall cause such postings to be made and
notices given as shall prevent any mechanics' lien for work done for Tenant from
attaching to the Project.
ARTICLE 16 ASSIGNMENT AND SUBLETTING
16.1 Consent Required. Tenant shall not assign its interest under this Lease or
sublet all or any part of the Premises without Landlord's prior written consent,
which shall not be unreasonably withheld. Tenant shall not at any time pledge,
hypothecate, mortgage or otherwise encumber its interest under this Lease as
security for the payment of a debt or the performance of a contract.
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Tenant shall not permit its interest under this Lease to be transferred by
operation of law. Any purported assignment or sublease made without Landlord's
consent shall be void.
16.2 Requests for Approval. Landlord shall be under no obligation to decide
whether consent will be given or withheld unless Tenant has first provided to
Landlord: (a) the name and legal composition of the proposed assignee or
subtenant and the nature of its business: (b) the use to which the proposed
assignee or subtenant intends to put the Premises; (c) the terms and conditions
of the proposed assignment or sublease and of any related transaction between
Tenant and the proposed assignee or subtenant; (d) information related to the
experience, integrity and financial resources of the proposed assignee or
subtenant; (e) such information as Landlord may request to supplement, explain
or provide details of the matters submitted by Tenant pursuant to subparagraphs
(a) through (d); and (f) reimbursement for all costs incurred by Landlord,
including attorneys' fees, in connection with evaluating the request and
preparing any related documentation.
16.3 Continued Responsibility. Tenant shall remain fully liable for performance
of this Lease, notwithstanding any assignment or sublease, for the entire Lease
Term.
16.4 Excess Proceeds. If consent to an assignment or sublease is given, Tenant
shall pay to Landlord, as additional rent, all amounts received from the
assignee or subtenant in excess of the amounts otherwise payable by Tenant to
Landlord with respect to the space involved, measured on a per square foot
basis.
16.5 Limitations. Without limiting appropriate grounds for withholding consent,
it shall not be unreasonable for Landlord to withhold consent if the proposed
assignee or subtenant is a tenant in another building owned by Landlord or by an
affiliate of Landlord or of any of Landlord's constituent partners or principals
or if the use by the proposed assignee or subtenant would contravene this Lease
or any restrictive use covenant or exclusive rights granted by Landlord or if
the proposed assignee or subtenant does not intend to occupy the Premises for
its own use or if the nature of the proposed assignee or subtenant is not
compatible with the Project.
16.6 No Waiver. No consent shall constitute consent to any further assignment or
subletting.
16.7 Transfer by Landlord. Upon a sale or other transfer of the Project (or a
portion thereof containing the Premises) by Landlord, Landlord's interest in
this Lease shall automatically be transferred to the transferee, the transferee
shall automatically assume all of Landlord's obligations under this Lease
accruing from and after the date of transfer, and the transferor shall be
released of all obligations under this Lease arising after the transfer. Tenant
shall upon request attorn in writing to the transferee.
ARTICLE 17 SUBORDINATION AND ATTORNMENT
17.1 Subordination. This Lease is and shall be subject and subordinate in all
respects to all existing and future mortgages or deeds of trust now or hereafter
encumbering the Project or any part hereof. The holder of any mortgage or deed
of trust may elect to be subordinate to this Lease.
17.2 Lender Protection. Upon a transfer in connection with foreclosure or
trustee's sale proceedings or in connection with a default under an encumbrance,
whether by deed to the holder of the encumbrance in lieu of foreclosure or
otherwise, Tenant, if requested, shall in writing attorn to the transferee, but
the transferee shall not be:
1 subject to any offsets or defenses which Tenant might have against
Landlord; or
2 bound by any prepayment by Tenant of more than one month's
installment of rent;
3 or subject to any liability or obligation of Landlord except those
arising after the transfer.
17.3 Documentation. The subordination provisions of this Article shall be
self-operating and no further instrument shall be necessary. Nevertheless
Tenant, on request, shall execute and deliver any and all instruments further
evidencing such subordination.
17.4 Other Transactions. Landlord may' at any time and from time to time grant,
receive, dedicate, relocate, modify, surrender or otherwise deal with easements,
rights of way, restrictions, covenants, equitable servitudes or other matters
affecting the Project without notice to or consent by Tenant.
ARTICLE 18 ESTOPPEL CERTIFICATES
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Tenant shall at any time within ten days after written request from Landlord
execute, acknowledge and deliver to Landlord a statement in writing: (a)
certifying that this Lease is unmodified and in full force and effect (or, if
modified, stating the nature of such modification and certifying that this
Lease, as so modified, is in full force and effect) and the date to which the
rent and other charges are paid in advance, if any; (b) confirming the
commencement and expiration dates of the term; (c) confirming the amount of the
security deposit held by Landlord; (d) acknowledging that there are not, to
Tenant's knowledge, any uncured defaults on the part of Landlord hereunder, or
specifying such defaults if any are claimed; and (e) confirming such other
matters as to which Landlord may reasonably request confirmation. Any such
statement may be conclusively relied upon by a prospective purchaser or
encumbrancer of the Premises or the Project. If Landlord desires to finance or
refinance the Project, Tenant hereby agrees to deliver to any lender designated
by Landlord such financial statements of Tenant as may be reasonably required by
such lender. Such statement shall include the past three years' financial
statements of Tenant. All such financial statements shall be received by
Landlord in confidence and shall be used only for the purposes herein set forth.
ARTICLE 19 QUIET ENJOYMENT
If Tenant pays the rent and observes and performs the terms, covenants and
conditions contained in this Lease, Tenant shall peaceably and quietly hold and
enjoy the Premises for the Term without hindrance or interruption by Landlord,
or any other person lawfully claiming by, through or under Landlord unless
otherwise permitted by the terms of this Lease. Tenant acknowledges that the
exercise by the Landlord of any of the rights conferred on Landlord under this
Lease and the entry upon the Premises for or in connection with such purposes
shall not be deemed to be a constructive or actual eviction of the Tenant and
shall not be considered to be a breach of Landlord's covenant of quiet
enjoyment.
ARTICLE 20 SURRENDER AND HOLDOVER
20.1 Surrender. Upon the expiration or termination of this Lease or of Tenant's
right to possession. Tenant shall surrender the Premises in a clean undamaged
condition and shall remove all of Tenant's equipment, fixtures and property and
repair all damage caused by the removal. Such removal shall include, without
limitation, the removal of all telephone wire located within the Premises and
from the Premises to the central telephone box for the Building. Tenant shall
not remove permanent improvements that were provided by Landlord at the
commencement of this Lease and shall not remove permanent improvements later
installed by Tenant unless directed to do so by Landlord.
20.2 Holdover. If Tenant holds over without Landlord's consent, Tenant shall, at
Landlord's election, be a tenant at will or a tenant from month-to-month. In
either case rent shall be payable monthly in advance at a rate equal to one and
one-half (150%) times the rate in effect immediately before the holdover began.
A holdover month-to-month tenancy may be terminated by either party as of the
first day of a calendar month upon at least ten days' prior notice. A holdover
tenancy at will is terminable at any time by either party without notice,
regardless of whether rent has been paid in advance. Upon a termination under
this Section, unearned rent shall be refunded following the surrender of
possession provided Tenant is not otherwise in breach of this Lease.
ARTICLE 21 BREACH. DEFAULT. AND REMEDIES
21.1 Default. The following shall constitute "Events of Default":
(a) Tenant's failure to pay rent or any other amount due under this Lease
within five days after notice of nonpayment; or
(b) Tenant's failure to execute, acknowledge and return a subordination
agreement under Article 17 or an estoppel certificate under Article 18 within
ten days after request; or
(c) Tenant's failure to perform any other obligation under this Lease
within fifteen days after notice of nonperformance; provided, however, that if
the breach is of such a nature that it cannot be cured within fifteen days, no
Event of Default shall be deemed to have occurred by reason of the breach if
cure is commenced promptly and diligently pursued to completion within a period
not longer than ninety days; and provided further, that in the event of a breach
involving an imminent threat to health or safety, Landlord may in its notice of
breach reduce the period for cure to such shorter period as may be reasonable
under the circumstances; or
(d) Tenant vacates, abandons, or otherwise ceases to use the Premises on a
substantial continuing basis except temporary absence excused by reason of fire,
casualty, failure of services or other cause wholly beyond Tenant's control; for
these purposes, absence for five consecutive business days shall conclusively be
deemed an abandonment.
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21.2 Remedies. Upon the occurrence of an Event of Default, Landlord, at any time
thereafter without further notice or demand may exercise any one or more of the
following remedies concurrently or in succession:
(a) Terminate Tenant's right to possession of the Premises by legal
process or otherwise, with or without terminating this Lease, and retake
exclusive possession of the Premises.
(b) From time to time relet all or portions of the Premises, using
reasonable efforts to mitigate Landlord's damages. In connection with any
reletting, Landlord may relet for a period extending beyond the term of this
Lease and may make alterations or improvements to the Premises without releasing
Tenant of any liability. Upon a reletting of all or substantially all of the
Premises, Landlord shall be entitled to recover all of its then prospective
damages for the balance of the Lease Term measured by the difference between
amounts payable under this Lease and the anticipated net proceeds of reletting.
(c) From time to time recover accrued and unpaid rent and damages arising
from Tenant's breach of the Lease, regardless of whether the Lease has been
terminated, together with applicable late charges and interest at the rate of
18% per annum or the highest lawful rate, whichever is less.
(d) Enforce the statutory Landlord's lien on Tenant's property.
(f) Recover all costs, expenses and attorneys' fees incurred by Landlord
in connection with enforcing this Lease, recovering possession. reletting the
Premises or collecting amounts owed, including, without limitation, costs of
alterations, brokerage commissions, and other costs incurred in connection with
any reletting.
(g) Perform the obligation on Tenant's behalf and recover from Tenant,
upon demand, the entire amount expended by Landlord plus 20% for special
handling, supervision, and overhead.
(h) Pursue other remedies available at law or in equity.
21.3 Subtenancies. Upon a termination of Tenant's right to possession, whether
or not this Lease is terminated: (a) subtenancies and other rights of persons
claiming under or through Tenant shall be terminated or (b) Tenant's interest in
such subleases or other arrangements shall be assigned to Landlord. Landlord may
separately elect termination or assignment with respect to each such subtenancy
or other matter.
ARTICLE 22 LANDLORD LIABILITY
Notwithstanding anything to the contrary in this Lease, neither Landlord nor
Landlord's directors, officers, shareholders, employees, agents, constituent
partners, beneficiaries, trustees, representatives, successors or assigns
(collectively, "Landlord's Affiliates") shall be personally responsible or
liable for any representation, warranty, covenant, undertaking or agreement
contained in the Lease, and the sole right and remedy of the Tenant or any
subsequent sublessee or assignee shall be against Landlord's interest in the
Project. Neither Tenant nor any subsequent sublessor or assignee shall seek to
obtain any judgment imposing personal liability against Landlord, Landlord's
Affiliates, or their successors or assigns nor execute upon any judgment or
place any lien against any property other than Landlord's interest in the
Project.
ARTICLE 23 NOTICES
Any notice from one party to the other shall be in writing and shall be deemed
duly served: (a) if delivered personally to a responsible employee of Tenant, if
sent by facsimile with receipt acknowledged, or if mailed by registered or
certified mail addressed to Tenant at the Premises or (b) if mailed by
registered or certified mail to Landlord at the address set forth in Section 1.
15 or such other address as Landlord may designate. Any notice to Tenant prior
to Tenant's taking possession of the Premises, however, shall instead be sent to
the address set forth in Section 1.14. Any notice shall be deemed to have been
given when mailed, if mailed, when faxed, if faxed, and when delivered, if
personally delivered.
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ARTICLE 24 BROKERAGE
Tenant warrants and represents that no broker or other person is entitled to
claim a commission, broker's fee or other compensation in connection with this
Lease except: (i) brokers or other persons that Landlord may have retained or
employed directly, and (ii) brokers whom Tenant has previously specifically
designated in writing to Landlord as Tenant's representative as listed in
Section 1.16. Tenant shall defend, indemnify and hold Landlord harmless from all
claims or liabilities arising from any breach of the foregoing representation
and warranty.
ARTICLE 25 RELOCATION
INTENTIONALLY DELETED
ARTICLE 26 GENERAL
26.1 Severability. If any term, covenant or condition of this Lease, or the
application thereof, is to any extent held or rendered invalid, it shall be and
is hereby deemed to be independent of the remainder of the Lease and to be
severable and divisible therefrom, and its invalidity, unenforceability or
illegality shall not affect, impair or invalidate the remainder of the Lease or
any part thereof.
26.2 No Waiver, The waiver by Landlord of any breach of any term, covenant or
condition contained in this Lease shall not be deemed to be a waiver of such
term, covenant or condition or of any subsequent breach of the same or of any
other term, covenant or condition contained in this Lease. The subsequent
acceptance of rent by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of rent. No term, covenant or condition of this Lease shall be deemed
to have been waived by Landlord unless such waiver is in writing by Landlord.
26.3 Effect of Payment. No payment by Tenant or receipt by Landlord of a lesser
amount than the monthly payment of rent herein stipulated is deemed to be other
than on account of the earliest stipulated rent, nor is any endorsement or
statement on any check or any letter accompanying any check or payment of rent
deemed an acknowledgment of full payment or accord and satisfaction, and
Landlord may accept and cash any check or payment without prejudice to
Landlord's right to recover the balance of the rent due and pursue any other
remedy provided in this Lease.
26.4 Delay. If either party is delayed or hindered in or prevented from
the performance of any term, covenant or act required hereunder by reasons
of strikes, labor troubles, inability to procure materials or services,
power failure, restrictive governmental laws or regulations, riots,
insurrection, sabotage, rebellion, war, act of God, or other reason
whether of a like nature or not that is beyond the control of the party
affected, financial inability excepted, then the performance of that term,
covenant or act is excused for the period of the delay and the party
delayed shall be entitled to perform such term, covenant or act within the
appropriate time period after the expiration of the period of such delay.
Nothing in this Section, however, shall excuse Tenant from the prompt
payment of any amount payable under this Lease nor from the consequences
of Tenant Delay as provided in Exhibit C (if attached).
26.5 Lender Notice, In the event of a material default by Landlord of a
sufficiently serious nature that Tenant considers the utility of the
Premises to Tenant to be significantly impaired, Tenant shall give written
notice of the default to Landlord and shall simultaneously send a copy of
the notice to the holder of any encumbrance, the name and address of whom
has previously been furnished in writing to Tenant. If Landlord fails to
cure the default within a reasonable time, Tenant shall send a second
notice to that effect to the holder of the encumbrance, with a copy to
Landlord, and the holder of the encumbrance then shall have a reasonable
time, not less than thirty days, to cause the default to be remedied.
26.6 No Offer. The submission of this Lease for examination does not
constitute a reservation of an option to lease the Premises, and this
Lease becomes effective as a lease only upon its execution and delivery by
Landlord and Tenant.
26.7 Successors. All rights and liabilities under this Lease extend to and
bind the successors and assigns of Landlord and permitted successors and
assigns of Tenant. No rights, however, shall inure to the benefit of any
transferee of the Tenant unless the transfer has been consented to by the
Landlord in writing as provided in Section 16.1. If there is more than one
Tenant, they are all bound jointly and severally by the terms, covenants
and conditions of this Lease.
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26.8 Integration. This Lease and the Exhibits hereto attached, set forth all the
covenants, promises, agreements, conditions and understandings between Landlord
and Tenant concerning the Premises and there are no other covenants, promises,
agreements, conditions or understandings, either oral or written, between them.
No alteration, amendment or addition to this Lease shall be binding upon
Landlord or Tenant unless in writing and signed by Tenant and Landlord.
26.9 WAIVER OF JURY TRIAL. IN ANY LITIGATION BETWEEN LANDLORD AND TENANT, THE
MATTER SHALL BE DECIDED BY A JUDGE SITTING WITHOUT A JURY, AND TENANT
ACCORDINGLY WAIVES ITS RIGHT TO A JURY TRIAL.
26.10 Governing Law. This Lease shall be construed in accordance with and
governed by the laws of the State of Arizona.
26.11 Deadlines Enforceable. Time is of the essence of this Lease and of every
part hereof
26.12 Counterparts. This Lease may be executed in counterparts, which together
shall constitute a single instrument.
26.13 Additional Provisions:
1. Tenant's Option to Renew
(A) Provided that this Lease is then in full force and effect and
Tenant is not in default, on the date of exercise of this
Option, hereunder after notice and the expiration of any
applicable grace period, Tenant shall have the option to
extend the Term for two (2) additional periods of five (5)
years each (the "Extension Term(s)"). The Extension Term(s)
shall commence on the day after the initial Lease term and the
prior Extension Term (if any) expires ("Expiration Date(s)")
and shall expire on the fifth (5th) anniversary of the
Expiration Date(s) unless the Extension Term(s) shall sooner
end pursuant to this Lease.
(B) The terms and conditions shall be identical to those in the
primary lease except for the rental rate, which shall be the
market rental rate determined by Landlord and Tenant based on
the rental rate allowances and concessions for comparable
buildings in the same immediate geographic area. Landlord
shall provide Tenant a proposed rental rate at least nine (9)
months but not more than twelve (12) months prior to the
termination of the Lease term. Tenant will accept/reject such
offer no less than six (6) months prior to the termination of
the Lease. If Landlord and Tenant are unable to agree on a
market rental rate, allowances and concessions, each shall
hire a licensed commercial real estate broker with at least
ten (10) years of experience in the local commercial real
estate market and those brokers will hire a third licensed
commercial real estate broker with the same experience in the
local commercial real estate market to all determine a market
rate, allowances and concessions. The average rate, allowances
and concessions determined by these three (3) brokers will be
considered the market rental rate and improvement allowance
for the purposes of the Renewal Option.
(C) Promptly after the rent has been determined, Landlord and
Tenant shall execute, acknowledge and deliver an agreement
setting forth the rent for the Extension Term(s). as finally
determined, provided that the failure of the parties to do so
shall not affect their respective rights and obligations under
the Lease.
Nowithstanding any provisions in Sections 1-26 of the Lease, Landlord and Tenant
hereby agree as follows:
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27. Services.
A. Landlord's Obligations. Landlord shall use all reasonable efforts to
furnish to Tenant (I) water at those points of supply provided for
general use of tenants of the Building in the common areas thereof;
(2) heated and refrigerated air conditioning ("HVAC") as appropriate
to the common areas of the Building, at such temperatures and in
such amounts as are standard for comparable buildings in the
vicinity of the Building; (3) janitorial service to the common areas
of the Building on weekdays, other than holidays, for
Building-standard installations and such window washing as may from
time to time be reasonably required; and (4) elevator(s) for ingress
and egress to the floor on which the Premises are located, in common
with other tenants, provided that Landlord may reasonably limit the
number of operating elevators during non-business hours and
holidays. Landlord shall maintain the common areas of the Building
in reasonably good order and condition.
B. Electrical Service. All electrical power for the Premises and for
the operation of Tenant's equipment shall be submetered by Landlord,
and be furnished, installed and maintained at Tenant's sole expense.
Without limiting the generality of the foregoing, Tenant, at its
sole cost and expense, shall pay the cost of all equipment, meters,
switches, transformers, feeders, risers, and wiring required to
provide electrical service to the Premises. The installation of all
electrical equipment shall be done only in substantial accordance
with plans and specifications that have been previously submitted to
and approved by Landlord in writing. Whenever Tenant is required to
pay' the cost of any electrical equipment under the foregoing
provisions, the cost thereof shall include the cost of installation,
operation, use and maintenance of such electrical equipment. If
electrical service to the Premises is submetered, the submeter shall
be read by Landlord and Tenant shall pay to Landlord, within ten
(10) days after Tenant's receipt of an invoice therefore the actual
cost of such electrical service based on rates charged for such
service by the utility company furnishing such service, including
all fuel adjustment charges, demand charges and taxes.
C. Restoration of Services/Tenant Self-Help Remedy. Landlord shall use
good faith best efforts to restore any service described in Section
27(a) that becomes unavailable interrupted, discontinued or
insufficient; however, such unavailability shall not render Landlord
liable for any damages caused thereby, be a constructive eviction of
Tenant, constitute a breach of any implied warranty, or, except as
provided in the next sentence, entitle Tenant to any abatement of
Tenant's obligations hereunder. If, however, Tenant is prevented
from using the Premises for more than 4 consecutive business days
because of the unavailability of any such service, then Tenant
shall, as its exclusive remedy be entitled to a reasonable abatement
of Rent for each consecutive day that Tenant is so prevented from
using the Premises. Tenant Self-Help Remedy: if the Landlord shall
fail to restore said service within five (5) days of its
interruption, then Tenant may make perform such obligation and
offset the amount of the reasonable cost of such performance against
any base rent, additional rent or any other amounts payable be
Tenant under this Lease.
D. Generator & HVAC Access. Landlord will install its own generator system,
Tenant shall be granted the right to purchase up to 500 KW of power from the
Building's generator based on the initial fee and monthly charges specified
below. Tenant shall have the right to install a minimum of 2-4" conduits to
connect the Premises to the generator power connection point. Tenant shall have
the right to utilize up to 60 tons of capacity from the Building's chilled water
system based on the monthly charges specified below. Landlord shall "stub" the
chilled water lines to a mutually determined location. Landlord shall provide
chilled water at approximately 55 degrees fahrenheit, and such chilled water
shall be provided 24 hours a day/7 days a week/365 days a year throughout the
Term of the Lease. Landlord shall use all possible efforts to ensure that the
chilled water is provided to Tenant continuously, and at the correct
temperature. Tenant shall have the right to review the maintenance procedures of
the generator and chilled water system and shall have the periodic right to
review such records.
Generator/HVAC Fees:
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Initial charge: $175,000.00
Monthly access: $1,500.00
Monthly fuel service: Proportionate share of actual fuel costs
THE FOLLOWING SECTIONS (28-35) ALL REQUIRE AND ARE SUBJECT TO LANDLORD'S
PRIOR WRITTEN APPROVAL. SAID APPROVAL WILL NOT BE UNREASONABLY WITHHELD,
CONDITIONED, OR DELAYED.
28. Risers & Conduit Access Landlord shall provide Tenant with rights to
install four (4) four-inch (4") conduits ("Main Conduit") which
shall run from the Basement to the Premises and which shall run the
entire length of the building to connect Tenant's telecommunications
facility to other tenants in the building and to connect to the
point of entry or "hand off point/meet me room" in the building for
all fiber carriers. Tenant shall also have the right to run feeder
conduit stemming from the Main Conduit to connect each tenant on
each floor of the building. All conduit will be installed at
Tenant's sole cost and Landlord shall not charge any fees for said
conduit access.
29. Battery Installation Tenant shall have the right to install wet cell
batteries with the necessary seismic racks and spill containment.
30. Grounding Riser Tenant, at no additional rental cost, shall have the
right to install a separate electrical ground and/or tie into the
Building's primary ground system in accordance with equipment
requirements and applicable laws.
31. Antennae
(a) Tenant shall have the right to install a GPS antenna in a
location to be mutually agreed upon by both Landlord and
Tenant. Tenant shall be granted sufficient conduit space for
such installation and not be charged for such conduit or roof
space.
(b) Tenant shall be granted access to the roof 24 hours per day
via escort by a Building engineer or security guard. During
normal business hours, Landlord shall make arrangements for
immediate access and after normal business hours and on
weekends, Landlord shall provide a telephone number for Tenant
to contact to arrange immediate access.
32. Fire Protection & Life Safety. Tenant shall have the right to convert any
existing sprinkler system or install a preaction or FM 200 system. Tenant
shall install such system subject to local codes and ordinances.
33. Hazardous Substances To the best of Landlord's knowledge, no part of the
Premises or the Building including without limitation, the walls,
ceilings, structural steel, flooring, pipes or boilers, is wrapped,
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insulated, fireproofed or surfaced with any asbestos-containing materials.
Landlord shall provide the Premises and all other areas of the Premises
where Tenant places equipment free of hazardous materials.
34. Express Waiver of Landlord's Lien. Landlord hereby expressly waives its
Landlord's lien and any and all rights granted by or under any present or
future laws to levy or distrain for rent, in arrears, in advance, or both,
upon any or all personalty, including, but not limited to [supporting
towers, antennas, satellite dish(es), Connecting Equipment] equipment,
trade fixtures, furniture and other personal property of Tenant or any
assignee or subtenant of Tenant in the Premises.
35. Allowable Use of Certain Hazardous Materials. Tenant may use and store the
following materials in the ordinary course of its business: fuel for the
generator(s) in order to supply an uninterrupted power source (UPS); acid
contained within batteries for back-up power; reasonable amounts of
standard cleaning fluid and materials customarily used in conjunction with
business machines; cleaning supplies in reasonable quantities; coolant for
any Tenant installed HVAC system, or other materials used in fire
suppression and any other materials deemed necessary to Tenant's business.
Landlord may use, but not store, on the Premises the following materials
in the ordinary course of business: cleaning supplies, insecticides,
fungicides, and rodenticides. Tenant shall not indemnify Landlord for
releases of any hazardous materials that exist on the Premises at the time
of execution of this Lease or are brought on the Premises, into the
building, or on, in or under the land upon which the Building is located
by anyone other than Tenant, its employees, agents, or third-party
contractors. This provision shall survive the expiration or sooner
termination of this Lease.
TENANT: Advanced Telecommunications Inc.
A Delaware corp.
By: _________________________________
Its: ________________________________
Date _____________________________________
LANDLORD:
SOFI-IV SIM OFFICE INVESTORS II, LP, an
Delaware limited partnership
By: Scottsdale Property Management 97,
L.L.C., an Arizona limited liability
company, Agent
By _________________________________
Authorized signatory
Date______________________________________
<PAGE>
EXHIBIT A
THE PREMISES
A-1
<PAGE>
EXHIBIT A-1
FLOOR PLAN
A-2
<PAGE>
EXHIBIT B
CONSTRUCTION PROVISIONS
1 Preliminary Space Plan. Attached to this Lease as Exhibit A is a preliminary
space plan approved by Landlord and Tenant showing the size, nature and location
of the improvements to be constructed in the Premises (the "Improvements").
Promptly following execution of this Lease, Tenant shall meet with Landlord's
architect and shall provide such information and make such selections as may be
necessary for the expeditious completion of the planning process.
2 Working Drawings. Based upon the preliminary space plan and the information
provided and selections made by Tenant, Landlord shall cause working drawings
and specifications (collectively, the "Plans") to be prepared for the
Improvements. The Plans shall be subject to Tenant's reasonable approval. Tenant
shall respond with all of its specific objections or comments to the proposed
Plans within five days after receipt, and the Plans shall be modified to satisfy
any reasonable objection of Tenant. Tenant shall promptly give its written
approval of the revised Plans or indicate specific changes required to be made.
Any revisions of the Plans after the revisions to the initial draft of the
proposed Plans shall be made at Tenant's sole expense, payable on demand.
3 Cooperation, During the entire course of the process described above, both
Landlord and Tenant shall review and respond to submissions by the other party
with reasonable dispatch. Tenant shall respond with its approval or comments
within five days after receipt of initial drawings, specifications, or other
materials requiring Tenant's review and within three days after receipt of
revised versions of such documents or materials. From time to time at the
request of either party Landlord and Tenant shall devise, and revise as
necessary, working schedules for the preparation of the Plans and the
construction of the Improvements. Tenant shall not permit any supplier,
installer, contractor, or other person employed by Tenant to interfere in any
way with the progress of the work. Access by Tenant's suppliers, contractors and
installers shall be subject to (i) scheduling by Landlord upon at least ten
days' prior notice by Tenant, and (ii) compliance with all requirements imposed
by Landlord with respect to insurance, cooperation, permits, licenses, bonding,
hours of work, safety and use of flammable substances.
4 Redesign Option. If after the Plans are completed and Landlord's contractor
has submitted a price for the work, the estimated costs of construction exceed
the Tenant Improvement Allowance, Tenant may elect within three days after
receipt of the cost estimate to attempt to reduce the associated cost by
reducing the scope of the work to be done. The changes, which shall be subject
to Landlord's prior approval, shall be incorporated in revised Plans. Any
redesign and rebidding shall be completed within seven days after receipt of the
initial cost estimate.
5 Cost. Prior to commencement of construction, Tenant shall pay to Landlord the
amount, if any, by which the estimated costs of construction exceed the Tenant
Improvement Allowance as set forth in Section 1.13. Any difference between
actual and estimated costs shall be paid or refunded, as the case may be, within
ten days after receipt of Landlord's statement calculating the amount due.
Landlord shall prepare and deliver the statement within a reasonable time after
completion of punchlist items. "Costs of construction" of the Improvements as
used in this Article means all costs and expenses incurred to design and build
the improvements, including, without limitation, permit and inspection fees,
management and supervision fees, taxes, amounts paid to contractors,
subcontractors, and suppliers, architects' fees, engineering costs, premiums for
bonds and insurance, utilities, equipment rental, demolition, labor, materials,
and supplies.
6 Punchlist. Within ten days after taking possession of the Premises, Tenant
shall deliver to Landlord a written punchlist specifying all defects in
materials or workmanship in the Improvements. Any defects not specified in the
punchlist, except latent defects not readily discoverable by inspection, are
waived. Landlord shall promptly cause all matters appearing on the punchlist to
be corrected.
7 Delay. If completion of construction of improvements within the Premises or
delivery of possession of the Premises is delayed by Tenant Delay, then the
Commencement Date shall be deemed to have occurred and rent shall begin to
accrue as of the date when they would have done so but for the Tenant Delay.
"Tenant Delay" means delay as a result of: (a) Tenant's failure to meet with the
architect and to provide all required information and make necessary selections
for the expeditious development of Plans; (b) Tenant's failure to provide
comments on proposed Plans in a timely manner; (c) Tenant's request for
materials, finishes or installations requiring more time to obtain, construct or
install than Landlord's standard; or (d) Tenant's change in any Plans after the
revisions to the initial draft; or, (e) performance or completion by a party
employed by Tenant. Landlord shall not be liable for any direct or consequential
damages resulting from delayed delivery of the Premises (by reason of delayed
construction, failure or refusal of a prior tenant of the space to vacate the
Premises in accordance with its lease, or otherwise) and the scheduled
Commencement Date and the Expiration Date shall be postponed by an amount equal
to the period of delay.
C-1
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1 Any sign, lettering, picture, notice or advertisement installed within
Lessee's premises which is visible to the public from within the Building shall
be installed at Tenant's cost and in such manner, character and style as
Landlord may approve in writing. No sign, lettering, picture, notice or
advertisement shall be placed on any outside window or in a position to be
visible from outside the Building. Any object violating this paragraph may be
removed by Landlord, at Tenant's expense.
2 In advertising or other publicity, without Landlord's prior written
consent, Tenant shall use neither the name of the Building, except as the
address of its business, nor pictures of the Building.
3 Tenant, its customers, invitees, licensees and guests shall not obstruct
the sidewalks, entrances, passages, courts, corridors, vestibules, halls,
elevators or stairways of the Building. The sashes, sash doors, skylights,
windows and doors that reflect or admit light and air into lobbies, halls,
passageways or other public places in the Building shall not be covered or
obstructed. Tenant shall not place objects against glass partitions or doors or
windows which would be unsightly from Building corridors, lobbies, passageways,
or other public places, or from the exterior of the Building, and will promptly
remove same upon notice from Landlord. This provision does not apply to window
coverings, chosen by Tenant and approved by Landlord.
4 Tenant shall not make noises, cause disturbances or vibrations, or use
or operate any electrical or electronic device or other device that emits sound
or other waves or disturbances, any of which may be offensive to other tenants
and occupants of the Building or which may interfere with the operation of any
device or equipment or radio or television broadcasting or reception from or
within the Building or elsewhere, and shall not place or install any
projections, antennae, aerials or similar devices inside or outside of the
Premises.
5 Tenant shall not make any room-to-room canvass to solicit business from
other tenants in the Building and shall not exhibit, sell or offer to sell, use,
rent or exchange any item or service in or from the Premises unless ordinarily
embraced within Tenant's use of the Premises specified in the Lease.
6 Tenant shall not waste electricity or water and agrees to cooperate
fully with Landlord to assure the most effective operation of the Building's
heating and air conditioning and shall refrain from attempting to adjust any
controls other than room thermostats installed for Tenant's use. Tenant shall
keep windows and public corridor doors closed.
7 Door keys, not to exceed two, for doors in the Premises will be
furnished at the commencement of the Lease by Landlord. Tenant shall not fix
additional locks on doors and shall purchase duplicate keys only from Landlord
at Tenant's expense. When the Lease is terminated, Tenant shall return all keys
to Landlord and will disclose to Landlord the combination of any safes, cabinets
or vaults left in the Premises.
8 Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage. Such protection shall include keeping doors locked where
appropriate and other means of entry to the Premises closed and secured.
9 Peddlers, solicitors and beggars shall be reported to Landlord or as
Landlord otherwise requests.
10 Tenant shall not install or operate machinery or any mechanical device
of a nature not directly related to Tenant's ordinary use of the Premises as
general office space without the written permission of Landlord. Wherever
heat-generating machines or equipment are used in the Premises which affect the
temperature otherwise maintained by the air conditioning system, Landlord
reserves the right to install supplementary air conditioning units to cool the
Premises, and Tenant shall pay to Landlord upon demand the cost thereof,
including the cost of installation, operation and maintenance. Tenant will not,
without Landlord's prior written consent, use any apparatus or device using
electric current in excess of 110 volts, or which increases the amount of
electricity, water or other utility otherwise furnished or supplied for use of
the Premises as general office space, nor connect to the electric current or the
water supply except through existing electrical outlets or water taps in the
Premises. If Tenant requires water, electric current or other utilities in
excess of those otherwise furnished for use of the Lease Premises as general
office space, Tenant shall first procure Landlord's written consent to the use
thereof, which consent Landlord may refuse for any reason, and Landlord may
cause metering devices to be installed in the Premises or Building for the
purpose of measuring the amount of water, electric current or other utilities
consumed for any such purpose. Tenant shall pay to Landlord upon demand the cost
of any such meters and the installation, maintenance and repair thereof and the
cost of all water, electric current or other utilities consumed as shown by said
meters, at the rates charged for such services by the suppliers thereof.
D-1
<PAGE>
11 No person or contractor not employed or approved by Landlord shall be
used to perform window washing, cleaning, decorating, repair or other work in
the Premises, Building or Project.
12 In no event shall any person bring into the Project inflammables, such
as gasoline, kerosene, naphtha and benzene, or explosives, or any other article
of intrinsically dangerous nature. If by reason of the failure of Tenant to
comply with the provisions of this paragraph, any insurance premium payable by
Landlord for all or any part of the Project shall at any time be increased above
normal insurance premiums for insurance not covering the items aforesaid,
Landlord shall have the option to resort to one or more of the following:
terminate this Lease, require Tenant to make immediate payment for the whole of
the increased insurance premium and exercise any other remedy or combination of
remedies set forth in the Lease.
13 Water, toilet and other plumbing fixtures shall not be used for any
purpose other than those for which they were constructed, and no sweeping,
rubbish, rags or other substance shall be thrown therein. All damage resulting
from any misuse of said fixtures by Tenant or its servants, employees, agents,
visitors or licensees shall be borne by Tenant.
14 Tenant shall not mark, paint, drill into or in any way de face any part
of the Premises or the Building. No boring, cutting or stringing of wires or
laying of linoleum or other similar floor covering shall be permitted except
with the prior written consent of Landlord and as Landlord may direct.
15 Except with Landlord's prior written consent, no bicycles, similar
vehicles or animals of any kind shall be brought into or kept in or about the
Premises or Project. Except for a tenant whose business in the Building is the
preparation of food for on-premises public sale and consumption, no cooking
shall be done or permitted by Tenant in the Building except that the use of
microwave ovens for the warming of prepared foods and the preparation of coffee,
tea, hot chocolate and similar items for Tenant and its employees, clients and
guests shall be permitted. Tenant shall not cause or permit any unusual or
objectionable odors to be produced or permeate the Project, Building or
Premises.
16 The Premises shall not be used for manufacturing or for the storage of
merchandise except such storage as may be incidental to the use of the Premises
for general office purposes and any additional use specifically set forth in the
Lease. Tenant shall not occupy or permit any portion of the Premises to be
occupied as an office for a public stenographer or typist or for the manufacture
or sale of liquor, narcotics or tobacco in any form or as a medical office or as
a barber or manicure shop or as an employment bureau. Tenant shall not engage or
pay any employees on the Premises except those actually working for Tenant on
the Premises, or advertise for laborers giving an address at the Premises. The
Premises shall not be used for lodging or sleeping or for any immoral or illegal
purposes.
17 There shall not be used by Tenant in any space or in the public halls
of the Building any hand trucks except those equipped with rubber tires and side
guards.
18 Tenant shall not conduct any auction or permit any fine or bankruptcy
sale to be held in the Premises or store goods, wares or merchandise in the
Premises or at the Project.
19 All freight, furniture and equipment must be moved into, within and out
of the Building under Landlord's supervision and according to such regulations
as Landlord may promulgate. All moving of freight, furniture or equipment into
or out of the Building by Tenant shall be done at such time and in such manner
as directed by Landlord or its agent. Landlord shall have the right to prescribe
the allowable weight, size, and placement details for all sales and other heavy
equipment brought into the Building. Landlord will not be responsible for loss
of, or damage to, any such safe or property from any cause, and all damage done
to the Building by moving or maintaining any such property shall be repaired at
the expense of Tenant. No office equipment, furnishings or fixtures shall be
removed from the Building during hours when the Building is closed without
obtaining Landlord's prior written permission and Landlord's security personnel
shall have the right to demand evidence of such permission from any person.
20 Requirements of Tenant for building services, maintenance and repairs
shall be attended to only upon application to Landlord. Employees of the
Building are not permitted to perform any work or do anything outside of their
regular duties unless under special instructions from Landlord. No employees of
the Building shall admit any person, Tenant or otherwise, to any office without
specific instructions from Landlord.
21 Tenant shall promptly notify Landlord of any accidents to or defects in
plumbing, electrical fixtures, heating apparatus and/or air conditioning
equipment so that the same may be attended to properly.
22 Landlord reserves the right to close and keep locked all entrance and
exit doors of the Project at all times which are not ordinary business hours.
For purposes of this paragraph, "Ordinary business hours" in the Building shall
be from 7:00 a.m. to 6:00 p.m. on Mondays through Fridays but excluding any day
which is a legal holiday.
D-2
<PAGE>
23 On Saturdays, Sundays, legal holidays and other days during the hours
the Building may be closed after ordinary business hours, access to the Project
or Building or to the halls, corridors, elevators or stairways will be
controlled by Landlord through the use of security personnel or access cards.
Such personnel will have the right to demand of any and all personal seeking
access to the Building proper identification to determine if they have right of
access to the Project. Landlord shall in no case be liable for damages wherein
admission to the Building has been refused during the hours the Building may be
closed after ordinary business hours by reason of a tenant's failing to properly
identify himself or herself to the security personnel, or because the Building
was locked and closed to access by a tenant, a tenant's employees and the
general public.
24 A directory in the main lobby of the Building shall be provided to
display the name and location of Building tenants only. Landlord reserves the
right to exclude any other name therefrom and also to make a reasonable charge
for each name, in addition to Tenant's name, placed upon such directory at
Tenant's request.
25 Tenant shall not be entitled, by virtue of this Lease, to use or
patronize any service, business or facility located in the Building, but may
become entitled to use or patronize the same by satisfactory arrangements with,
and subject to all of the terms and conditions imposed by, the operator of such
business or facility.
26 Landlord reserves the right to exclude or expel from the Building any
person who, in the Landlord's judgment, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner violate any of the rules and
regulations contained herein.
27 Landlord reserves the right at any time and from time to time to waive
any of the Building rules and regulations.
28. There shall be no smoking anywhere in the Building. Tenant shall
cooperate with Landlord and landlord's agents to enforce this rule.
D-3
<PAGE>
F-4
<PAGE>
insulated, fireproofed or surfaced with any asbestos-containing materials.
Landlord shall provide the Premises arid all other areas of the Premises
where Tenant places equipment free of hazardous materials
34. Express Waiver of Landlord's Lien. Landlord hereby expressly waives its
Landlord's lien and any and all rights granted by or under any present or
future laws to Levy or distrain for rent, in arrears, in advance, or both,
upon any or all personalty, including, but not limited to [supporting
towers, antennas, satellite dish(es). Connecting Equipment] equipment,
trade fixtures, furniture and other personal property at Tenant or any
assignee or subtenant of Tenant in the Premises.
35. Allowable Use of Certain Hazardous Materials. Tenant may use and store the
following materials in the ordinary course of its business: fuel for the
generator(s) in order to supply an uninterrupted power source (UPS); acid
contained within batteries for back-up power; reasonable amounts of
standard cleaning fluid and materials customarily used in conjunction with
business machines; cleaning supplies in reasonable quantities; coolant for
any Tenant installed HVAC system, or other materials used in fire
suppression and any other materials deemed necessary to Tenant's business.
Landlord may use, but not store, art the Premises the following materials
in the ordinary course of business: cleaning supplies, insecticides,
fungicides, and rodenticides. Tenant shall not indemnify Landlord for
releases of any hazardous materials that exist on the Premises, at the
time of execution of this Lease or are brought on the Premises, into the
building, or on, in or under the land upon which the Building is located
by anyone other than Tenant, its employees, agents, or third-party
contractors. This provision shall survive the expiration or sooner
termination of this Lease.
TENANT: Advanced Telecommunications Inc.
A Delaware corp.
By: /s/ S. C. Tivari
SATISH C. TIVARI ---------------------------------
V.P. ENGINEERING AND
NETWORK IMPLEMENTATION Its:
ADVANCED TELECOMMUNICATIONS, INC. ---------------------------------
720 2ND AVE S. SUITE 1200
MINNEAPOLIS, MN 55402 Date 12/27/99
-------------------------------------
LANDLORD:
SOFI-IV SIM OFFICE INVESTORS II, LP, an
Delaware limited partnership
By: Scottsdale Property Management 97,
L.L.C., an Arizona limited liability
company, Agent
By /s/ [ILLEGIBLE]
---------------------------------
Authorized signatory
Date 12-30-99
-------------------------------------
Subject to Landlord's
Receipt of:
- -- Security deposit
- -- 1st Month's Rent
- -- Generator/HVAC Fee
<PAGE>
Exhibit 10.1.12
LEASE AGREEMENT
BETWEEN
SEATTLE TELECOM LLC
A Limited Liability Company of the State of Delaware
AND
Advanced Telecommunications, Inc.
A Delaware Corporation
DATED: December ___, 1999
PREPARED BY:
SCHUMANN, HANLON, DOHERTY, McCROSSIN & PAOLINO
30 MONTGOMERY STREET - 15TH FLOOR
JERSEY CITY, NEW JERSEY 07302
201-434-2000
<PAGE>
THIS LEASE dated December ___, 1999 made by and between SEATTLE
TELECOM LLC, a limited liability company of the State of Delaware, having
offices at 750 Lexington Avenue, 28th Floor, New York, New York 10022
("Landlord") and ADVANCED TELECOMMUNICATIONS, INC., a Delaware Corporation
having an office at 730 Second Avenue South, Suite 1200, Minneapolis, Minnesota
55402 ("Tenant").
ARTICLE 1
DEFINITIONS
1.01. As used in this Lease (including in all Exhibits and any
Riders attached hereto, all of which shall be deemed to be part of this Lease)
the following words and phrases shall have the meanings indicated:
A. Advance Rent: One (1) month's Fixed Rent.
B. Additional Rent: All amounts that become payable by the Tenant to
Landlord hereunder other than the Fixed Rent.
C. Broker: Grubb & Ellis Company, 600 University, 1 Union Square,
Suite 1800, Seattle, Washington 98101-4159.
D. Building: 1200 Third Avenue, Seattle, Washington 98101,
consisting of approximately 151,070 square feet ("s.f.").
E. Business Days: All days except Saturdays after 1:00 P.M.,
Sundays, days observed by the federal or state government as legal holidays and
such other days as shall be designated as holidays by the applicable operating
engineer. union or building service employees union contract, if any.
F. Business Hours: Generally customary daytime business hours but
not before 8:00 A.M. or after 6:00 P.M. and Saturdays 9:00 A.M. to 1:00 P.M.,
Pacific Time.
G. Calendar Year: Any consecutive twelve-month period commencing on
January 1.
H. Commencement Date: January 1, 2000
I. Common Areas: All areas, spaces and improvements in the Building
and on the Land which Landlord makes available from time to time for the common
use and benefit of the tenants and occupants of the Building and which are not
exclusively available for use by a single tenant or occupant, including, without
limitation, parking areas, roads, walkways, landscaped and planted areas,
community rooms, if any, the managing agent's office, if any, and public rest
rooms, if any.
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J. Demised premises: 12,645 s.f. located on the tenth (10th) floor
of the Building as shown on Exhibit B but excluding certain riser space,
available exclusive to US West Communications, Inc. under the US West Lease, as
further depicted on Exhibit B. The Demised Premises shall also mean any portion
of the interior or exterior of the Building or any facilities of the Building,
utilized by Tenant pursuant to the provisions of this Lease, including (without
limitation) any roof areas, interior or exterior generator or battery areas, and
riser and shaftway spaces.
K. Expiration Date: The date that is the day before the tenth (10th)
anniversary of the Commencement Date if the Commencement Date is the first day
of a month, or the tenth (10th) anniversary of the last day of the month in
which the Commencement Date occurs if the Commencement Date is not the first day
of a month. However, if the Term is extended by Tenant's effective exercise of
Tenant's rights, if any, to extend the Term, the "Expiration Date" shall be
changed to the last day of the latest extended period as to which Tenant shall
have effectively exercised its right to extend the Term. For the purposes of
this definition, the earlier termination of this Lease shall not affect the
"Expiration Date."
L. Fixed Rent:
(i) $34.00 per square foot or Four Hundred Twenty Nine
Thousand Nine Hundred Thirty & 00/100 ($429,930.00) Dollars per year for the
period commencing on the Commencement Date and ending on the day before the
fifth (5th) anniversary of the Commencement Date, payable at the rate of
Thirty-Five Thousand Eight Hundred Twenty-Seven & 50/100 ($35,827.50) Dollars
per month as hereinafter provided; and
(ii) $37.00 per s.f. or Four Hundred Sixty-Seven Thousand
Eight Hundred Sixty-Five & 00/100 ($467,865.00) Dollars per year for the period
commencing with the fifth (5th) anniversary of the Commencement Date and ending
on the Expiration Date, payable at the rate of Thirty-Eight Thousand Nine
Hundred Eighty-Eight & 75/100 ($38,988.75) Dollars per month as hereinafter
provided.
M. Insurance Requirements: Rules, regulations, orders and other
requirements of the applicable board of underwriters and/or the applicable fire
insurance rating organization and/or any other similar body performing the same
or similar functions and having jurisdiction or cognizance over the Land and
Building, whether now or hereafter in force.
N. Land: The land described in Exhibit A, upon which the Building is
located.
O. Legal Requirements: Laws and ordinances of all federal, state and
local governments, and rules, regulations, orders and
2
<PAGE>
directives of all departments, subdivisions, bureaus, agencies or offices
thereof, and of any other governmental, public, quasi-public authorities having
jurisdiction over the Land and Building now in force or which may be in force
hereafter during the Term of this Lease.
P. Mortgage: A mortgage and/or a deed of trust.
Q. Mortgagee A holder of a mortgage or a beneficiary of a deed of
trust.
R. Operating Expenses: All costs and expenses, and taxes thereon, if
any, paid or incurred by Landlord in connection with the Building, the Building
utility and service systems, the sidewalks, curbs, plazas and other areas
adjacent to the Building, and with respect to the services provided tenants,
including, without limitation: (i) salaries, wages and bonuses paid to, and the
cost of any hospitalization, medical, surgical, union and general welfare,
benefits (including group life insurance), any pension, retirement or life
insurance plan or any other benefit or similar expense relating to employees of
Landlord engaged exclusively in the operation, cleaning, repairs, safety,
management, security or maintenance of the Land and/or the Building or in
providing services to tenants; (ii) social security, unemployment and other
payroll taxes, the cost of providing disability and worker's compensation
coverage imposed by any requirements of law, union contract or otherwise with
respect to said employees; (iii) the cost of casualty, rent, liability, steam
boiler explosion, electrical arcing, systems breakdown, fidelity, plate glass
and any other insurance; (iv) the cost of repairs, replacements, maintenance and
painting; (v) expenditures for improvements and equipment which are made by
reason of Legal Requirements or Insurance Requirements; (vi) the cost or rental
of all building and cleaning supplies, tools, materials and equipment; (vii) all
costs, charges and expenses incurred by Landlord in connection with any change
of any company providing electricity service, including, without limitation,
maintenance, repair, installation and service costs associated therewith: (viii)
the cost of uniforms, work clothes and dry cleaning; (ix) window cleaning,
concierge, guard, watchman or other security personnel, service or system, if
any; (x) management fees calculated at the rate of three (3%) percent per annum
of Rent; (xi) charges of independent contractors performing work included within
this definition of operating Expenses; (xii) telephone and stationery; (xiii)
legal, accounting and other professional fees and disbursements incurred in
connection with the operation and management of the Building and Land; (xiv)
association fees and dues; (xv) depreciation of movable equipment used in the
operation, cleaning, repair, safety, management, security or maintenance of the
Building; (xvi) the cost of painting and/or decorating and/or other maintenance
of the public or common areas of the Building and Land; (xvii) the cost of all
interior and exterior gardening and landscaping of the Building and Land;
(xviii) the cost of maintenance, repair and/or replacement of the Building
facade; (xix) the cost of pest
3
<PAGE>
and vermin extermination for the common areas of the Building and the Land; and
(xx) Utility Costs (as hereinafter defined). Operating Costs which are capital
in nature shall be amortized over their useful life and allocated over the
balance of the Term at the prime interest rate, as declared by Chase Bank, NA in
New York, New York plus two (2%) percent per annum. However, that Operating
Expenses shall exclude or have deducted from them, as the case may be the
following:
(a) amounts actually received by Landlord through insurance
proceeds, condemnation awards, warranties and service
contracts, or otherwise, to the extent they are compensation
for sums previously included in Operating Expenses hereunder;
(b) brokerage commissions;
(c) Real Estate Taxes;
(d) the cost of electricity furnished to the Demised Premises or
any other space leased to tenants as reasonably estimated by
Landlord;
(a) financing and refinancing costs, rents payable under the
Master Lease or any Superior Lease, and mortgage interest and
mortgage payments due under any Mortgage,
(f) depreciation except as otherwise expressly herein provided;
(g) cost and expenses incurred in connection with the enforcement
of leases and disputes with tenants in the Building, including
without limitation, court costs, attorney's fees and
disbursements;
(h) cost and expenses incurred in connection with leasing or
re-leasing space in the Building such as space planning,
architectural, engineering, attorneys' fees and advertising
and promotional expenses unless due to Tenant's default;
S. Permitted Use: Executive and general office use, installation,
operation, modification and maintenance of equipment and facilities in
connection with Tenant's Telecommunications business including, but not limited
to, a Telecommunications switch.
T. Person: A natural person or persons, a partnership, a
corporation, or any other form of business or legal association or entity.
4
<PAGE>
U. Real Estate Taxes: The real estate taxes, assessments and special
assessments imposed upon the Building and Land by any federal, state, municipal
or other governments or governmental bodies or authorities and any alternative
or substitute charges. Any expenses incurred by Landlord in contesting such
taxes or assessments and/or the assessed value of the Building and Land, which
expenses shall be allocated to the period of time to which such expenses relate.
Tenant shall not be obligated or required to pay any tax on the income or
receipts of Landlord. If at any time during the Term the methods of taxation
prevailing on the date hereof shall be altered so that in lieu of, or as an
addition to or as a substitute for, the whole or any part of such real estate
taxes, assessments and special assessments now imposed on real estate there
shall be levied, assessed or imposed (a) a tax, assessment, levy, imposition,
license fee or charge wholly or partially as a capital levy or otherwise on the
rents received therefrom, or (b) any other such additional or substitute tax,
assessment, levy, imposition or charge, then all such taxes, assessments,
levies, impositions, fees or charges or the part thereof so measured or based
shall be deemed to be included within the term "Real Estate Taxes" for the
purposes hereof.
V. Rent: The Fixed Rent and Additional Rent.
W. Rules and Regulations: The reasonable rules and regulations that
may be promulgated by Landlord from time to time, as same may be reasonably
changed by Landlord from time to time. The Rules and Regulations now in effect
are attached hereto as Exhibit C.
X. Security Deposit: Two Hundred Fourteen Thousand Nine Hundred
Sixty-Five & 00/100 ($214,965.00) Dollars, i.e. six (6) months Fixed Rent.
Y. Successor Landlord: As defined in Section 9.03.
Z. Superior Lease: Any lease to which this Lease is, at the time
referred to, subject and subordinate.
AA. Superior Lessor: The lessor of a Superior Lease or its successor
in interest, at the time referred to.
BB. Superior Mortgage: Any Mortgage to which this Lease is, at the
time referred to, subject and subordinate.
CC. Superior Mortgagee: The Mortgagee of a Superior Mortgage at the
time referred to.
DD. Tenant's Fraction: 8.3703%
If the size of the Demised Premises or the Building shall be changed
from the initial size thereof, due to any taking, any construction or alteration
work, exercise of an expansion option hereunder or otherwise, the Tenant's
Fraction shall be automatically
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adjusted to the fraction the numerator of which shall be the square footage of
the Demised Premises and the denominator of which shall be the square footage of
the Building;
EE. Tenant's Initial Improvements: The facilities, materials and
work undertaken pursuant to Article V.
FF. Tenant's Property: As defined in Section 16.02.
GG. Term: The period commencing on the Commencement Date and ending
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
HH. Unavoidable Delays: A delay arising from or as a result of a
strike, lockout, or labor difficulty, explosion, sabotage, riot or civil
commotion, act of war, fire or other catastrophe or any other cause beyond the
reasonable control of either party, provided that the party asserting such
Unavoidable Delay has exercised its best efforts to minimize such delay.
II. Utility costs: Landlord's cost (incurred directly or through
independent contractors) for all electricity (to the extent Landlord is not
directly reimbursed therefor by individual tenants), steam, water, gas or other
fuel and utilities supplied to the Building or the Land, including in each case,
any surcharges, fuel adjustments and taxes payable by Landlord in connection
therewith.
JJ. US West Lease: Lease agreement, dated September 24, 1999,
between Landlord and US West Communications, Inc. for a portion of 1200 Third
Avenue, Seattle, Washington.
ARTICLE 2
DEMISE AND TERM
2.01. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, the Demised Premises, for the Term. Promptly following the
Commencement Date, at the option of the Landlord, the parties hereto shall enter
into an agreement in form and substance satisfactory to Landlord and Tenant
setting forth the Commencement Date.
ARTICLE 3
RENT
3.01. Tenant shall pay the Fixed Rent in equal monthly installments
in advance on the first day of each and every calendar month during the Term. If
the Commencement Date occurs on a day other than the first day of a calendar
month, the Fixed Rent for the partial calendar month at the commencement of the
Term shall be prorated. Upon execution of the Lease, Tenant shall pay the
Advance Rent which shall be applied to the first month's Fixed Rent following
the Commencement Date.
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3.02. The Rent shall be paid in lawful money of the United States to
Landlord or Landlord's agent at its office, or such other place, as Landlord
shall designate by notice to Tenant. Tenant shall pay the Rent promptly when due
without notice or demand therefor and without any abatement, deduction or setoff
for any reason whatsoever, except as may be expressly provided in this Lease. If
Tenant makes any payment to Landlord by check, same shall be by check of Tenant
and Landlord shall not be required to accept the check of any other person, and
any check received by Landlord shall be deemed received subject to collection.
If any check is mailed by Tenant, Tenant shall post such check in sufficient
time prior to the date when payment is due so that such check will be received
by Landlord on or before the date when payment is due.
3.03. No payment by Tenant or receipt or acceptance by Landlord of a
lesser amount than the correct Rent shall be deemed to be other than a payment
on account, nor shall any endorsement or statement on any check or any letter
accompanying any check or payment be deemed an accord and satisfaction, and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance or pursue any other remedy in this Lease or at law
provided.
3.04. If Tenant is in arrears in payment of Rent, Tenant waives
Tenant's right, if any, to designate the items to which any payments made by
Tenant are to be credited, and Landlord may apply any payments made by Tenant to
such items as Landlord sees fit, irrespective of and notwithstanding any
designation or request by Tenant as to the items to which any such payments
shall be credited. Notwithstanding the foregoing, in the event Tenant in good
faith disputes a liability asserted by Landlord, Tenant may designate the
item(s) to which its payments should be credited provided Tenant's designation
does not prejudice Landlord's position with respect to the dispute.
3.05. Any payment due Landlord under this Lease which is not paid
within five (5) days of written notice of non-payment shall, from the due date
until such payment is received by Landlord, bear interest at the prime rate of
Chase Bank, NA, in New York plus 6% per annum (the "Late Payment Rate"),
provided however, the aforesaid interest shall not be imposed unless Landlord
fails to receive an overdue payment within five (5) days of Landlord's written
notice to Tenant thereof.
ARTICLE 4
USE OF DEMISED PREMISES
4.01. Tenant shall use and occupy the Demised Premises for the
Permitted Use, and Tenant shall not use or permit or suffer the use of the
Demised Premises or any part thereof for any other purpose.
4.02. If any governmental license or permit, other than a
Certificate of Occupancy, shall be required for the proper and lawful conduct of
Tenant's business in the Demised Premises or any part thereof, Tenant shall duly
procure and thereafter maintain such license
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or permit, and submit the same to Landlord for inspection. Tenant shall at all
times comply with the terms and conditions of each such license or permit.
Tenant shall not at any time use or occupy, or suffer or permit anyone to use or
occupy the Demised Premises, or do or permit anything to be done in the Demised
Premises, in any manner which (a) violates the Certificate of occupancy for the
Demised Premises or for the Building; (b) causes or is liable to cause injury to
the Building or any equipment, facilities or systems therein; (c) constitutes a
violation of the Legal Requirements or Insurance Requirements; (d) impairs or
tends to impair the character, reputation or appearance of the Building as a
first-class building; (e) impairs the proper and economic maintenance,
operation and repair of the Building and/or its equipment facilities or
systems; or (f) interferes with the Quiet Enjoyment rights of the other tenants
in the Building.
ARTICLE 5
CONDITION OF THE DEMISED PREMISES
5.01. Landlord acknowledges that following execution of the Lease,
Tenant may be required to perform certain construction ("Tenant's Initial
Improvements") in the Demised Premises. Tenant, at its sole cost and expense,
shall prepare complete construction drawings and specifications including
architectural, mechanical, engineering, electrical and life safety drawings
("Tenant's Plans") sufficient to obtain a building permit. Tenant's Plans shall
be subject to Landlord's prior written approval. Tenant shall manage the
construction bidding process and engage a contractor mutually acceptable to
Landlord and Tenant to perform Tenant's Initial Improvements. As an express
condition precedent to construction of Tenant's Initial Improvements, Tenant
shall (i) provide Landlord with a Certificate of Insurance in the amount and
under the terms set forth in Article 13 hereof and shall comply with all of the
insurance and indemnity provisions Set forth therein and (ii) a full payment and
performance bond, issued by a surety company satisfactory to Landlord and in
form and substance satisfactory to Landlord in favor of Landlord for the
construction of Tenant's Initial Improvements. Landlord shall not be entitled to
any construction management fee, but shall be entitled to recover from Tenant
the out-of-pocket or the actual cost of architectural, engineering and legal
review of Tenant's plans. Any work performed by Tenant hereunder shall comply
with any and all governmental rules and regulations including, but not limited
to, rules and regulations pertaining to the Americans with Disabilities Act.
5.02. Tenant has inspected the Demised Premises and accepts the same
"as is" in their presently existing condition, and Landlord shall have no
obligation to perform any work in order to prepare the Demised Premises for
Tenant's occupancy, except that Landlord shall, on or prior to the commencement
date, insure that the Demised Premises in other areas of the Building that will
be used by Tenant, shall be free of asbestos containing material and other
hazardous materials.
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5.03. Tenant shall occupy and take possession of the Demised
Premises promptly on the Commencement Date. Except as expressly provided to the
contrary in this Lease, the taking of possession by Tenant of the Demised
Premises shall be conclusive evidence as against Tenant that the Demised
Premises and the Building were in good and satisfactory condition at the time
such possession was taken.
5.04. Tenant shall have the right to install conduits and cables
within the vertical risers of the building to the demised premises required for
Tenant's Permitted Use pursuant to Tenant's Riser Plan (the "Riser Plan"),
approved by Landlord. Such right is expressly subject to (i) delivery of plans
and specifications indicating in specific detail the amount, location, size and
other information requested by Landlord relating to the installation of such
conduits; (ii) Landlord's prior written approval of such plans and
specifications, which approval shall be in Landlord's sole reasonable
discretion, and (iii) the approval of any and all governmental authorities
having jurisdiction over such work. Tenant shall be responsible for any and all
costs associated with the performance of such work. Landlord will have the
absolute right to be present during the course of the performance of any such
work, to halt such work in the event that Tenant fails to comply with Landlord's
approved plans and specifications and to inspect such work from time to time as
Landlord deems fit. Tenant shall be responsible for any and all costs,
associated with Landlord's inspection or approval of Tenant's Plans, the Riser
Plan or the performance of Tenant's Initial Improvements. In the event that such
work requires the penetration of surfaces within the Building, Tenant shall use
its best efforts to conceal such work and the surface finish shall be returned
to the same condition as it was at the time that Tenant commenced the work.
Future additional Riser space may be provided to Tenant subject to the
conditions set forth above as to the Riser Plan and subject further to (i) the
availability of additional Riser space in Landlord's sole and absolute
discretion; (ii) the Building rules and regulations; and (iii) payment of Riser
fees as determined by Landlord in its sole and absolute discretion. There shall
be no charges for Tenant's use of the Riser space pursuant to the Riser Plan.
5.05 Tenant shall, at its sole cost and expense, install a life
safety system for the Demised Premises (including, without limitation, fire
detection and fire suppression system, consisting of a pre-action sprinkler or
FN200) which life safety system shall be connected to the life safety system for
the Building.
5.06. Landlord reserves the right, at any time and from time to
time, to increase, reduce or change the number, type, size, location, elevation,
nature and use of any of the Common Areas of the Building and any other
buildings and other improvements on the Land, including without limitation the
right to move and/or remove same, provided same shall not unreasonably block or
interfere with Tenant's means of ingress or egress to and from the Demised
Premises.
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ARTICLE 6
TAX AND OPERATING EXPENSE PAYMENTS
6.01. Tenant shall pay, as Additional Rent, to Landlord, as
hereinafter provided, Tenant's share of the Real Estate Taxes. Tenant's share of
the Real Estate Taxes shall be the Real Estate Taxes for the Building and Land
for the period in question. multiplied by the Tenant's Fraction. The Real Estate
Taxes for the Building and Land shall be calculated as if the full amount of
such Real Estate Taxes is payable by tenants occupying 95% of the square footage
of the Building. By way of illustration and not by way of limitation, if the
Real Estate Taxes for the Building and Land amount to $100,000.00 and, further,
if Tenant's Real Estate Fraction is 7%, then Tenant's proportionate share of
Real Estate Taxes would be $7,368.42, i.e. $100,000.00 .95 x 7%. If any portion
of the Building shall be exempt from all or any part of the Real Estate Taxes,
then for the period of time when such exemption is in effect, the rentable space
on such exempt portion shall be excluded when making the above computations in
respect of the part of the Real Estate Taxes for which such portion shall be
exempt. Landlord shall estimate the annual amount of Tenant's proportionate
share of the Real Estate Taxes (which estimate may be changed by Landlord at any
time and from time to time), and Tenant shall pay to Landlord 1/12th of the
amount so estimated on the first day of each month in advance. Tenant shall also
pay to Landlord on demand from time to time the amount which, together with said
monthly installments, will be sufficient in Landlord's estimation to pay
Tenant's proportionate share of any Real Estate Taxes thirty (30) days prior to
the date when such Real Estate Taxes shall first become due. When the amount of
any item comprising Real Estate Taxes is finally determined for a real estate
fiscal tax year, Landlord shall submit to Tenant a statement in reasonable
detail of the same, and the figures used for computing Tenant's proportionate
share of the same, and if Tenant's proportionate share so stated is more or less
than the amount theretofore paid by Tenant for such item based on Landlord's
estimate, Tenant shall pay to Landlord the deficiency, or Landlord shall refund
to Tenant the excess, within ten (10) Business Days after submission of such
statement provided Tenant is not then in default of the Lease. Any Real Estate
Taxes for a real estate fiscal tax year, a part of which is included within the
Term and a part of which is not so included, shall be apportioned on the basis
of the number of days in the real estate fiscal tax year included in the Term,
and the real estate fiscal tax year for any improvement assessment will be
deemed to be the one-year period commencing on the date when such assessment is
due, except that if any improvement assessment is payable in installments, the
real estate fiscal tax year for each installment will be deemed to be the
one-year period commencing on the date when such installment is due.
6.02. Tenant shall pay, as Additional Rent, to Landlord, as
hereinafter provided, Tenant's share of the Operating Expenses. Tenant's share
of the Operating Expenses shall be the Operating Expenses for the period in
question, multiplied by Tenant's Fraction. Operating Expenses shall be
calculated as if the full amount of such Operating
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Expenses is payable by tenants occupying 95% of the square footage of the
Building. By way of illustration and not by way of limitation, if the Operating
Expenses amount to $l00,000.00 and further if Tenant's Operating Fraction is 7%,
then Tenant's proportionate share of Operating Expenses would be $7,368.42, i.e.
$100,000.00 / .95 x 7%. Landlord shall estimate Tenant's annual proportionate
share of the Operating Expenses (which estimate may be reasonably changed by
Landlord from time to time), and Tenant shall pay to Landlord 1/12th of the
amount so estimated on the first day of each month in advance. If at any time
Landlord changes its estimate of Tenant's proportionate share of the Operating
Expenses for the then current Calendar Year or partial Calendar Year, Landlord
shall give notice to Tenant of such change and within ten (10) Business Days
after such notice Landlord and Tenant shall adjust for any overpayment or
underpayment during the prior months of the then current Calendar Year or
partial Calendar Year. After the end of each Calendar Year, including any
partial Calendar Year at the beginning of the Term, and after the end of the
Term, Landlord shall submit to Tenant a statement in reasonable detail stating
Tenant's proportionate share of the Operating Expenses for such Calendar Year,
or partial Calendar Year in the event the Term shall begin on a date other than
a January 1st and/or end on a date other than a December 31st, as the case may
be, and stating the Operating Expenses for the period in question and the
figures used for computing Tenant's proportionate share, and if Tenant's
proportionate share so stated for such period is more or less than the amount
paid for such period, Tenant shall pay to Landlord the deficiency, or Landlord
shall refund to Tenant the excess, within ten (10) Business Days after
submission of such statement of Tenant's proportionate share provided Tenant is
not then in default of the Lease.
6.03. Each such statement given by Landlord pursuant to Section 6.01
or Section 6.02 shall be conclusive and binding upon Tenant unless within one
(1) year after the receipt of such statement Tenant shall notify Landlord that
it disputes the correctness of the statement, specifying the particular respects
in which the statement is claimed to be incorrect. If such dispute is not
settled by agreement, either party may submit the dispute to arbitration as
provided in Article 36. Pending the determination of such dispute by agreement
or arbitration as aforesaid, Tenant shall, within ten (10) Business Days after
receipt of such statement, pay the Additional Charges in accordance with
Landlord's statement, without prejudice to Tenant's position. If the dispute
shall be determined in Tenant's favor, Landlord shall within ten (10) Business
Days pay to Tenant the amount of Tenant's overpayment resulting from compliance
with Landlord's statement.
ARTICLE 7
COMMON AREAS
7.01. Landlord will operate, manage, equip, light, repair and
maintain, or cause to be operated, managed, equipped, lighted, repaired and
maintained, the Common Areas for their intended purposes. Landlord reserves the
right, at any time and from time do time, to
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construct within the Common Areas kiosks and to install vending machines,
telephone booths, benches and the like, provided same shall not unreasonably
block or interfere with Tenant's means of ingress or egress to and from the
Demised premises; provided however, Landlord shall not cause a material adverse
impact on the conduct of Tenant's business.
7.02. Tenant, its subtenants and concessionaires, and their
respective officers, employees, agents, customers and invitees, shall have the
non-exclusive right to use the Common Areas, in common with Landlord and all
others to whom Landlord has granted or may hereafter grant such right, but
subject to the Rules and Regulations. Landlord reserves the right, at any time
and from time to time, to close temporarily all or any portions of the Common
Areas when in Landlord's reasonable judgment any such closing is necessary or
desirable (a) to make repairs or changes or to effect construction, (b) to
prevent the acquisition of public rights in such areas, or (c) to protect or
preserve natural persons or property. Landlord may do such other acts in and to
the Common Areas as in its judgment may be desirable to improve or maintain
same. In connection with the foregoing, Landlord shall make reasonable efforts
to avoid a material adverse impact on the conduct of Tenant's business and shall
provide adequate ingress and egress to the Demised Premises.
ARTICLE 8
SECURITY
8.01. Upon execution of this Lease, Tenant shall deposit with
Landlord the security Deposit for the full and faithful payment and performance
by Tenant of Tenant's obligations under this Lease. Such Security Deposit shall
be by certified funds or an irrevocable, evergreen letter of credit issued (in
favor of Superior Mortgagee) by a federally chartered bank in Seattle,
Washington or such other location approved by Landlord. If Tenant defaults in
the full and prompt payment and performance of any of its obligations under this
Lease, including, without limitation, the payment of Rent, Landlord may use,
apply or retain the whole or any part of the Security Deposit so deposited to
the extent required for the payment of any Rent or any other sums as to which
Tenant is in default or for any sum which Landlord may expend or may be required
to expend by reason of Tenant's default in respect of any of Tenant's
obligations under this Lease, including, without limitation, any damages or
deficiency in the reletting of the Demised Premises, whether such damages or
deficiency accrue before or after summary proceedings or other re-entry by
Landlord. If Landlord shall so use, apply or retain the whole or any part of the
Security Deposit, Tenant shall, upon demand, immediately deposit with Landlord a
sum equal to the amount so used, applied and retained as the Security Deposit.
If Tenant shall fully and faithfully pay and perform all of Tenant's obligations
under this Lease, the Security Deposit or any balance thereof to which Tenant is
entitled shall be returned or paid over to Tenant, without interest, after the
date on which this Lease shall expire or sooner end or terminate, and after
delivery to Landlord of
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entire possession of the Demised Premises. In the event of any sale or leasing
of the Building and/or the Land, Landlord shall have the right to transfer the
Security Deposit to which Tenant is entitled to the vendee or lessee and
Landlord shall thereupon be released by Tenant from all liability for the return
or payment thereof and Tenant shall look solely to the new Landlord for the
return or payment of the same. The provisions hereof shall apply to every
transfer or assignment made of the same to a new Landlord. The Tenant shall not
assign or encumber or attempt to assign or encumber the monies deposited herein
as security, and neither Landlord nor its successors or assigns shall be bound
by any such assignment, encumbrance, attempted assignment or attempted
encumbrance. Notwithstanding the foregoing, provided Tenant's net worth, as
certified by a reputable accounting firm, exceeds $10,000,000.00, then
commencing on the fifth (5th) anniversary of the Commencement Date and for each
anniversary date thereafter for so long as Tenant's net worth continues to
exceed $10,000,000.00 the security Deposit shall be reduced at the rate of
twenty (20%) percent per year.
ARTICLE 9
SUBORDINATION
9.01. This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to all Mortgages affecting the Land and/or Building,
whether or not such Mortgages shall also cover other lands and/or buildings, to
each and every advance made or hereafter to be made under such Mortgages, to all
renewals, modifications, replacements and extensions of such Mortgages and
spreaders and consolidations of such Mortgages, to all present or future ground
leases and grants of term of the Building, Land or parts thereof. The provisions
of this Section 9.01 shall be self-operative and no further instrument of
subordination shall be required. In confirmation of such subordination, Tenant
shall promptly execute, acknowledge and deliver any instrument that Landlord or
the Mortgagee of any such Mortgage or any of their respective successors in
interest may reasonably request to evidence such subordination; and if Tenant
fails to execute, acknowledge or deliver any such instruments within ten (10)
Business Days after request therefor, Tenant hereby irrevocably constitutes and
appoints Landlord as Tenant's attorney-in-fact, coupled with an interest, to
execute and deliver any such instruments for and on behalf of Tenant. Landlord
hereby agrees to obtain a Non-disturbance Agreement ("Non-disturbance
Agreement") from all Superior Mortgagees with respect to Superior Mortgages
heretofore given by Landlord on the standard forms provided by such Superior
Mortgagees. The Non-disturbance Agreement shall provide, among other matters,
that should such Superior Mortgagee succeed to the rights of the Landlord under
this Lease, this Lease and the rights of Tenant hereunder shall not be
disturbed, but shall continue in full force and effect so long as no default
hereunder shall have occurred.
9.02. If any act or omission of Landlord would give Tenant the
right, immediately or after lapse of a period of time, to cancel or terminate
this Lease, or to claim a partial or total eviction, Tenant
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shall not exercise such right (a) until it has given written notice of such act
or omission to Landlord, and each Superior Mortgagee and each Superior Lessor
whose name and address shall previously have been furnished to Tenant, and (b)
until a reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice and following the time when such Superior
Mortgagee, or superior Lessor shall have become entitled under such Superior
Mortgage, or Superior Lease, as the case may be, to remedy the same (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled under this Lease or otherwise, after similar notice, to effect
such remedy), provided such Superior Mortgagee, or Superior Lessor shall elect
to remedy with due diligence give Tenant notice of intention to, and commence
and continue to, remedy such act or omission.
9.03. If any Superior Lessor or Superior Mortgagee shall succeed to
the rights of Landlord under this Lease, whether through possession or
foreclosure action or delivery of a new lease or deed, then at the request of
such party so succeeding to Landlord's rights ("Successor Landlord") and upon
such Successor Landlord's written agreement to accept Tenant's attornment,
Tenant shall attorn to and recognize such Successor Landlord as Tenant's
Landlord under this Lease and shall promptly execute and deliver any instrument
that such Successor Landlord may reasonably request to evidence such attornment.
Upon such attornment this Lease shall continue in full force and effect as a
direct lease between the Successor Landlord and Tenant upon all of the terms,
conditions and covenants as are set forth in this Lease except that the
Successor Landlord shall not (a) be liable for any previous act or omission of
Landlord under this Lease; (b) be subject to any offset, not expressly provided
for in this Lease, which theretofore shall have accrued to Tenant against
Landlord; or (c) be bound by any previous modification of this Lease or by any
previous prepayment of more than one month's Fixed Rent or Additional Rent,
unless such modification or prepayment shall have been expressly approved in
writing by the Successor Landlord.
9.04. If any then present or prospective Superior Mortgagee shall
require any modification(s) of this Lease, Tenant shall promptly execute and
deliver to Landlord such instruments effecting such modification(s) as Landlord
shall request, provided that such modification(s) do not adversely affect in any
material respect any of Tenant's rights under this Lease, for example, and not
by way of limitation, changes to the Term, Fixed Rent, Additional Rent and
location of the Demised Premises.
ARTICLE 10
QUIET ENJOYMENT
10.01. So long as Tenant pays all of the Rent and performs all of
Tenant's other obligations hereunder, Tenant shall peaceably and quietly have,
hold and enjoy the Demised premises without hindrance, ejection or molestation
by Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to Superior Leases and
Mortgages.
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ARTICLE 11
ASSIGNMENT, SUBLETTING AND MORTGAGING
11.01. Tenant shall not, whether voluntarily, involuntarily, or by
operation of law or otherwise, (a) assign or otherwise transfer this Lease or
offer or advertise to do so, (b) sublet the Demised Premises or any part
thereof, or offer or advertise to do so, or allow the same to be used, occupied
or utilized by anyone other than Tenant, or (c) mortgage, pledge, encumber or
otherwise hypothecate this Lease in any manner whatsoever, without in each
instance obtaining the prior written consent of Landlord, which consent shall
not be unreasonably withheld.
11.02. Any proposed assignee, sublessee or transferee, whether or
not Landlord's consent is required hereunder, shall in any event:
(a) demonstrate financial responsibility reasonably
necessary to fulfill its obligations hereunder; and
(b) occupy the Demised Premises for the Permitted Use and
only the Permitted Use, as described in this Lease; and
(c) in the reasonable opinion of Landlord, be a tenant whose
occupancy will be in keeping with the dignity and
character of a commercial building, including, without
limitation, telecommunications facilities, office,
retail and other lawful uses and the use and occupancy
of the Building and whose occupancy will not be more
objectionable or more hazardous than that of Tenant
herein or impose any additional burden upon Landlord in
the maintenance and operation of the Building and shall,
in the reasonable opinion of the Landlord, be eligible,
suitable and qualified as a tenant in the Building in
accordance with the provisions of this Lease.
In connection with any proposed assignment, sublease or transfer,
Tenant shall pay to the Landlord on demand the reasonable costs (including
attorney's fees and costs) that may be incurred by the Landlord, including,
without limitation, the reasonable costs of making investigations as to the
acceptability of the proposed assignee or sublessee.
11.03. An assignment of this Lease as to which Landlord's consent
shall be required shall be deemed to include: (i) if Tenant is a corporation not
listed on a recognized security exchange, one or more
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sales or transfers of stock, by operation of law or otherwise, or creation of
new stock, by which an aggregate of more than 50% of Tenant's stock shall be
vested in a party or parties who are non-stockholders as of the date hereof
(except in the case of an Initial Public Offering issued through a nationally
recognized securities exchange); and (ii) if Tenant is a sole owner,
partnership, limited liability company or joint venture the transfer of any
interest in the Tenant, whether by sale, exchange, merger, consolidation or
otherwise.
Subject to Section 11.02, Landlord shall grant its consent to
assignments of this Lease pursuant to transactions with a corporation into which
the Tenant may be merged or consolidated or to any corporation which shall be an
affiliate, subsidiary, parent or successor of Tenant, or of a corporation into
which or with which Tenant may be merged or consolidated, or to a partnership1
the majority interest in which shall be owned by stockholders of Tenant.
For the purposes of this Article, a "subsidiary" or "affiliate" or
"successor" of Tenant shall mean the following:
(a) an "affiliate" shall mean any corporation which, directly or
indirectly, controls or is controlled by or is under common control with Tenant.
For this purpose "control" shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of
such corporation, whether through the ownership of voting securities or by
contract or otherwise;
(b) a "subsidiary" shall mean any corporation, not less than 50% of
whose outstanding stock shall, at the time, be owned directly or indirectly by
Tenant; and
(c) a "successor" of Tenant shall mean:
(i) a corporation in which or with which Tenant, its corporate
successors or assigns, is merged or consolidated, in accordance with applicable
statutory provisions for merger or consolidation of corporations, provided that
by operation of law or by effective provisions contained in the instruments of
merger or consolidation, the liabilities of the corporations participating in
such merger or consolidation are assumed by the corporation surviving such
merger or created by such consolidation, or
(ii) a corporation acquiring this Lease and the terms hereby
demised and a substantial portion of the property and assets of Tenant, its
corporate successors or assigns, or
(iii) a corporate successor to a successor corporation
becoming such either by the methods described in (i) or (ii) provided that in
the completion of such merger, consolidation, acquisition or assumption, the
successor shall have a net worth of no less than that of Tenant.
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11.04. If this Lease is assigned, whether or not in violation of
this Lease, Landlord may collect Rent from the assignee. If the Demised premises
or any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default collect
Rent from the subtenant or occupant. In either event, Landlord may apply the net
amount collected to the Rent, but no such assignment, subletting, occupancy or
collection shall be deemed a waiver of any of the provisions of Section 11.01 or
Section 11.02, or the acceptance of the assignee, subtenant or occupant as
tenant, or a release of Tenant from the performance by Tenant of Tenant's
obligations under this Lease. The consent by Landlord to any assignment,
mortgaging, subletting or use or occupancy by others shall not in any way be
considered to relieve Tenant from obtaining the express written consent of
Landlord to any other or further assignment, mortgaging or subletting or use or
occupancy by others not expressly permitted by this Article 11. References in
this Lease to use or occupancy by others (that is, anyone other than Tenant)
shall not be construed as limited to subtenants and those claiming under or
through subtenants but shall be construed as including also licensees and others
claiming under or through Tenant, immediately or remotely.
11.05. Any permitted assignment or transfer, whether made with
Landlord's consent or without Landlord's consent, shall be made only if, and
shall not be effective until, the assignee or transferee shall execute,
acknowledge and deliver to Landlord an agreement in form and substance
satisfactory to Landlord whereby the assignee or transferee shall assume
Tenant's obligations under this Lease from and after the effective date of the
assignment or transfer and whereby the assignee or transferee shall agree that
all of the provisions in this Article 11 shall, notwithstanding such assignment
or transfer, continue to be binding upon it in respect to all future assignments
and transfers. notwithstanding any assignment or transfer, whether or not in
violation of the provisions of this Lease, and notwithstanding the acceptance of
Rent by Landlord from an assignee, transferee, or any other party, the original
Tenant and any other person(s) who at any time was or were Tenant shall remain
fully liable for the payment of the Rent and for Tenant's other obligations
under this Lease.
11.06. The liability of the originally named Tenant and any other
Person(s) who at any time was or were Tenant for Tenant's obligations under this
Lease shall not be discharged, released or impaired by any agreement or
stipulation made by Landlord extending the time of, or modifying any of the
obligations of, this Lease, or by any waiver or failure of Landlord to enforce
any of the obligations of this Lease.
11.07. The listing of any name other than that of Tenant, whether on
the doors of the Demised Premises or the Building directory, or otherwise, shall
not operate to vest any right or interest in this Lease or in the Demised
Premises, nor shall it be deemed to be the consent of Landlord to any assignment
or transfer of this Lease or to any sublease of the Demised Premises or to the
use or occupancy thereof by others.
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11.08. In the event of any assignment or sublease of the Demised
Premises which requires the payment of Fixed Rent, Additional Rent and other
charges in excess of the amounts payable to the Landlord as set forth in this
Lease, then the "net excess or profit" shall be divided and paid equally to
Landlord and Tenant. In the event the Tenant fails to make payment of such
excess or profit in violation of this Lease, Landlord may collect such rent
directly from the assignee or subtenant. The "net excess or profit" shall mean
the amount remaining after payment of Fixed Rent, Additional Rent and other
standard, customary, and reasonable charges, marketing, brokerage and other
professional fees and expenses reasonably incurred by Tenant.
ARTICLE 12
COMPLIANCE WITH LAWS
12.01. Tenant shall comply with all Legal Requirements which shall,
in respect of the Demised Premises or the use and occupation thereof, or the
abatement of any nuisance in, on or about the Demised Premises, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
cost, expenses, fines, penalties and damages which may be imposed upon Landlord
or any Superior Lessor by reason of or arising out of Tenant's failure to fully
and promptly comply with and observe the provisions of this Section 12.01.
However, Tenant need not comply with such law or requirement of any public
authority so long as Tenant shall be contesting the validity thereof, or the
applicability thereof to the Demised Premises, in accordance with Section 12.02.
12.02. Tenant may contest by appropriate proceedings prosecuted
diligently and in good faith, the validity, or applicability to the Demised
Premises, of any Legal Requirement, provided that (a) Landlord shall not be
subject to criminal penalty or to prosecution for a crime, and neither the
Demised Premises nor any part thereof shall be subject to being condemned or
vacated by reason of non-compliance or otherwise by reason of such contest; (b)
before the commencement of such contest, Tenant shall furnish to Landlord either
(i) the bond of a surety company satisfactory to Landlord, which bond shall be,
as to its provisions and form, satisfactory to Landlord and shall be in an
amount at least equal to 125% of the cost of such compliance (as estimated by a
reputable contractor designated by Landlord) and shall indemnify Landlord
against the cost thereof and against all liability for damages, interest,
penalties and expenses (including reasonable attorney's fees and expenses),
resulting from or incurred in connection with such contest or non-compliance,
or (ii) other security in place of such bond satisfactory to Landlord; (c) such
non-compliance or contest shall not constitute or result in any violation of
any Superior Lease or Superior Mortgage, or if any such Superior Lease and/or
Superior Mortgage shall permit such non-compliance or contest on condition of
the taking of action or furnishing of security by Landlord, such action shall be
taken and such security shall be furnished at the expense of Tenant; and (d)
Tenant shall keep Landlord advised as to the status of such proceedings. Without
limiting the application of the above, Landlord shall be deemed subject to
prosecution for a crime if Landlord, or its managing agent,
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or any officer, director, partner, shareholder or employee of Landlord or its
managing agent, as an individual, is charged with a crime of any kind or degree
whatsoever, whether by service of summons or otherwise, unless such charge is
withdrawn before Landlord or its managing agent, or such officer, director,
partner, shareholder or employee of Landlord or its managing agent (as the case
may be) is required to plead or answer thereto.
12.03. Landlord shall comply with all then existing Legal
Requirements and shall pay all the cost, expenses, fines, penalties and damages
which may be imposed upon Tenant for any violation by Landlord of the Legal
Requirements existing at the time of the completion of Tenant's Initial
Improvements. Landlord shall comply with all Legal Requirements applicable to
the Building (other than the Demised Premises) during the Term.
ARTICLE 13
INSURANCE AND INDEMNITY
13.01. Landlord shall maintain or cause to be maintained All-Risk
insurance in respect of the Building and other improvements on the Land normally
covered by such insurance (except for the property Tenant is required to cover
with insurance under Section 13.02 and similar property of other tenants and
occupants of the Building and except for buildings and other improvements which
are on land neither owned by nor leased to Landlord) for the benefit of
Landlord, any Superior Lessors, any Superior Mortgagees and any other parties
Landlord may at any time and from time to time designate, as their interests may
appear, but not for the benefit of Tenant, and shall maintain rent insurance as
required by any Superior Lessor or any Superior Mortgagee. The All-Risk
insurance will be in the amounts required by the Superior Lessor or any Superior
Mortgagee but not less than the amount sufficient to avoid the effect of the
coinsurance provisions of the applicable policy or policies. Landlord may also
maintain any other forms and types of insurance which Landlord shall deem
reasonable in respect to the Building and Land. Landlord shall have the right to
provide any insurance maintained or caused to be maintained by it under blanket
policies.
13.02. Tenant shall maintain the following insurance: (a)
comprehensive general public liability insurance in respect of the Demised
Premises and the conduct and operation of business therein, with limits of not
less than $6,000,000 for bodily injury or death and $3,000,000 for property
damage, including water damage, sprinkler leakage legal liability, independent
contractors, premises operation, products and completed operations, (b)
All-Risk insurance in respect to Tenant's stock in trade, fixtures, furniture,
furnishings, removable floor coverings, equipment, signs, and all other property
of Tenant in the Demised Premises, in any amounts required by any Superior
Lessor or any Superior Mortgagee but not less than 90% of the full insurable
value of the property covered and not less than the amount sufficient to avoid
the effect of the coinsurance provisions of the applicable policy or
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policies; (c) workers' compensation insurance; (d) rental insurance in an amount
equal to not less than one (1) year's Fixed Rent and Additional Rent, which
shall be automatically renewable annually; (e) Business Loss insurance and (f)
any other insurance required for compliance with the Insurance Requirements.
Landlord, any manager of the Building and any Superior Lessors or Superior
Mortgagees shall be named as insureds in all said policies of insurance and
shall be protected against all liability occasioned by an occurrence insured
against. All such policies of insurance shall be: (i) written as "occurrence"
policies; (ii) written as primary policy coverage and not contributing with or
in excess of any coverage which Landlord or any Superior Mortgagee or Superior
Lessor may carry; and (iii) issued by insurance company reasonably satisfactory
to Landlord. Tenant shall deliver to Landlord and any other insured(s)
certificates for such fully paid-for policies at least ten (10) days before the
Commencement Date. Tenant shall procure and pay for renewals of such insurance
from time to time before the expiration thereof, and Tenant shall deliver to
Landlord and any other insured(s) certificates therefor at least thirty (30)
days before the expiration of any existing policy. All such policies shall be
issued by companies of recognized responsibility licensed to do business in the
State of Washington and all such policies shall contain a provision whereby the
insurer shall provide written notice to Landlord and any additional insured(s)
at least twenty (20) days prior to cancellation or modification of such
policies.
13.03. Tenant shall not do, permit or suffer to be done any act,
matter, thing or failure to act in respect of the Demised Premises or use or
occupy the Demised Premises or conduct or operate Tenant's business in `any
manner objectionable to any insurance company or companies whereby the fire
insurance or any other insurance then in effect in respect to the Land and
Building or any part thereof shall become void or suspended or whereby any
premiums in respect of insurance maintained by Landlord shall be higher than
those which would normally have been in effect for the occupancy contemplated
under the Permitted Use. Landlord shall give Tenant written notice in the event
Landlord becomes aware of Tenant's breach of the provisions of this Section
13.03. In case of a breach of the provisions of this Section 13.03, in addition
to all other rights and remedies of Landlord hereunder, Tenant shall (a)
indemnify Landlord, Superior Lessors and the Superior Mortgagees, and hold
Landlord, Superior Lessors and Superior Mortgagees harmless from and against any
loss which would have been covered by insurance which shall have become void or
suspended because of such breach by Tenant and (b) pay to Landlord any and all
increases of premiums on any insurance, including, without limitation, rent
insurance1 resulting from any such breach.
13.04. Subject to Section 13.03 and to the extent not covered by
Tenant's insurance, Tenant shall indemnify, defend and hold harmless Landlord,
Superior Mortgagee and all Superior Lessors and their respective partners, joint
venturers, directors, officers, agents, servants and employees from and against
any and all claims arising from or in connection with (a) the conduct or
management of the Demised Premises or of any business therein or any work or
thing whatsoever
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done, or any condition created (other than by Landlord) in the Demised Premises
during the Term or during the period of time, if any, prior to the Commencement
Date that Tenant may have been given access to the Demised Premises, caused by
Tenant, or any of its subtenants or licensees or its or their partners, joint
venturers, directors, officers, agents employees representatives or contractors:
(b) any act, omission or negligence of Tenant or any of its subtenants or
licensees or its or their partners, joint venturers, directors, officers,
agents, employees or contractors: (c) any accident, injury or damage whatever
(unless and to the extent caused by Landlord's negligence) occurring in the
Demised Premises, caused by Tenant, or any of its subtenants or licensees or its
or their partners, joint venturers, directors, officers agents, employees or
contractors; and (d) any breach or default by Tenant in the full and prompt
payment and performance of Tenant's obligations under this Lease. Tenant's
obligation to indemnify shall also include all costs, expenses and liabilities
incurred in or in connection with each such claim or action or proceeding
brought thereon, including without limitation, all attorney's fees, expert fees
and expenses. In case any action or proceeding is brought against Landlord,
Superior Mortgagee and/or any Superior Lessor and/or its or their partners,
joint venturers, directors, officers, agents and/or employees by reason of such
claim, Tenant upon notice from Landlord, Superior Mortgagee and/or such Superior
Lessor, shall resist and defend such action or proceeding by counsel reasonably
satisfactory to Landlord.
13.05. Landlord, Superior Mortgagee or any Superior Lessor, shall
not be liable to or responsible for, and Tenant hereby releases Landlord,
Superior Mortgagee and Superior Lessor from all liability and responsibility to
Tenant and any person claiming by, through or under Tenant, by way of
subrogation, for any injury, loss or damage to any person or property in the
Demised Premises or to Tenant's business irrespective of the cause of such
injury, loss or damage. This release shall apply to the extent that such injury,
loss or damage to person or property is covered and actually paid by insurance,
regardless of whether such insurance is payable to or protects Landlord, Tenant
or both. Nothing herein shall be construed to impose any other or greater
liability upon Landlord than would have existed in the absence of this
provision. Further, Tenant shall require its insurers to include in all of
Tenant's insurance policies which could give rise to a right of subrogation
against Landlord, Superior Mortgagee and Superior Lessor a clause or endorsement
whereby the insurer waives any rights of subrogation against Landlord, Superior
Mortgagee and such Superior Lessor or permits the insured, prior to any loss, to
agree with a third party to waive any claim it may have against said third party
without invalidating the coverage under the insurance policy. The release in
favor of Landlord, Superior Mortgagee and Superior Lessors, contained herein, is
in addition to, and not in substitution for, or in diminution of the hold
harmless and indemnification provisions contained in this Article and in Article
23.
13.06. Except as provided herein, Tenant shall not be liable or
responsible for and Landlord hereby releases Tenant from all liability and
responsibility to Landlord and any person claiming by,
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through or under Landlord by way of subrogation for any injury, loss or damage
to any person or property in the Demised Premises irrespective of the cause of
such injury, loss or damage. This release shall apply to the extent that such
injury, loss or damage to person or property is covered by insurance, regardless
of whether such insurance is payable to or protects Landlord, Tenant or both.
Nothing herein shall be construed to impose any other or greater liability upon
Tenant than would have existed in the absence of this provision. Further,
Landlord shall require its insurers to include in all of Landlord's insurance
policies which could give rise to a right of subrogation against Tenant, a
clause or endorsement whereby the insurer waives any right of subrogation
against Tenant or permits the insured, prior to any loss, to agree with a third
party to waive any claim against said third party without invalidating the
coverage under the insurance policy.
ARTICLE 14
RULES AND REGULATIONS
14.01. Tenant and its employees and agents shall faithfully observe
and comply with the Rules and Regulations (attached hereto as Exhibit C) and
such reasonable changes therein (whether by modification, elimination or
addition) as Landlord at any time or times hereafter may make and communicate to
Tenant, which, in Landlord's reasonable judgment, shall be desirable or
necessary for the reputation, safety, care or appearance of the Land and
Building, or the preservation of good order therein or the operation or
maintenance of the Building or its equipment and fixtures, or the Common Areas,
and which do not unreasonably affect the conduct of Tenant's business in the
Demised Premises; provided, however, that in case of any conflict or
inconsistency between the provisions of this Lease and any of the Rules and
Regulations, the provisions of this Lease shall control. Nothing contained in
this Lease shall be construed to impose upon Landlord any duty or obligation to
enforce the Rules and Regulations against any other tenant or any employees or
agents of any other tenant, and Landlord shall not be liable to Tenant for
violation of the Rules and Regulations by any other tenant or its employees,
agents, invitees or licensees. Landlord shall give Tenant notice of any change
in the Rules and Regulations. Landlord shall not enforce the Rules and
Regulations against Tenant in an arbitrary or discriminatory manner. Tenant
shall further comply with any rules, regulations, instructions or directions
posted in, on or about the Building.
ARTICLE 15
ALTERATIONS
15.01. Except with respect to Tenant's Initial Improvements, Tenant
shall not make any alterations or additions to the Demised Premises, or make any
holes or cuts in the walls, ceilings, roofs or floors thereof, or change the
architectural treatment of the Demised Premises without the Landlord's prior
written consent, which consent shall not be unreasonably withheld. Tenant shall
submit to Landlord plans and specifications for such work at the time notice is
given to
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Landlord or at any time requested by Landlord, which plans and specifications
shall be subject to Landlord's prior written approval which shall not be
unreasonably withheld. Before proceeding with any alterations, Tenant shall
fully and promptly comply with and observe the Rules and Regulations then in
force in respect of the making of alterations. Any review or approval by
Landlord of any plans and/or specifications with respect to any alterations is
solely for Landlord's benefit, and without any representation or warranty
whatsoever to Tenant in respect to the adequacy, correctness or efficiency
thereof or otherwise. Tenant shall pay Landlord the actual cost of any
architectural, engineering, legal or other review of any alterations or
additions to the Demised Premises.
15.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance with all applicable Legal Requirements and Insurance
Requirements. Alterations shall be diligently performed in a good and
workmanlike manner, using new materials and equipment at least equal in quality
and class to the original installations of the Building. Alterations shall be
performed by Contractors subject to Landlord's reasonable approval. Alterations
shall be made in such manner as not to unreasonably interfere with or delay and
as not to impose any additional expense upon Landlord in the construction,
maintenance, repair, rental or operation of the Building; and if any such
additional expense shall be incurred by Landlord as a result of Tenant's making
of any alterations, Tenant shall pay any such additional expense upon demand.
Throughout the making of alterations, Tenant shall carry, or cause to be
carried, workmen's compensation insurance in statutory limits, a full payment
and performance bond in favor of Landlord and general liability insurance, with
completed operation endorsement, for any occurrence in or about the Building,
under which Landlord and its managing agent and any Superior Lessor whose name
and address shall previously have been furnished to Tenant shall be named as
parties insured, in such limits as Landlord may reasonably require, with
insurers reasonably satisfactory to Landlord. Tenant shall furnish Landlord with
reasonably satisfactory evidence that such insurance is in effect at or before
the commencement of alterations and on request at reasonable intervals
thereafter during the making of alterations.
ARTICLE 16
LANDLORD'S AND TENANT'S PROPERTY
16.01. All fixtures, equipment, improvements and appurtenances
attached to or built into the Demised Premises at the commencement of or during
the Term, whether or not by or at the expense of Tenant, shall be and remain a
part of the Demised Premises, shall be deemed to be the property of Landlord and
shall not be removed by Tenant, except as provided in Section 16.02. Further,
any carpeting or
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other personal property in the Demised Premises on the Commencement Date, unless
installed and paid for by Tenant, shall be and shall remain Landlord's property
and shall not be removed by Tenant. Notwithstanding the foregoing, any switch
equipment owned or leased by Tenant for use at the Demised Premises shall remain
Tenant's Property.
16.02. All movable partitions, business and trade fixtures,
machinery and equipment, communications equipment and office equipment, whether
or not attached to or built into the Demised Premises, which are installed in
the Demised Premises or the Building by or for the account of Tenant without
expense to Landlord and can be removed without structural damage to the Building
and all furniture, furnishings, and other movable personal property owned by
Tenant and located in the Demised premises (collectively, "Tenant's Property")
shall be and shall remain the property of the Tenant and may be removed by
Tenant at any time during the Term, provided that if any of the Tenant's
Property is removed, Tenant shall repair or pay the cost of repairing any damage
to the Demised Premises, the Building or the exterior Common Areas, resulting
from the installation and/or removal thereof. Any equipment or other property
for which Landlord shall have granted any allowance or credit to Tenant shall
not be deemed to have been installed by or for the account of Tenant without
expense to Landlord, shall not be considered as the Tenant's Property and shall
be deemed the property of Landlord.
16.03. In the event at or before the Expiration Date or the date of
any earlier termination of this Lease, or within thirty (30) days after the
Expiration Date or an earlier termination date, Tenant removes from the Demised
Premises all of the Tenant's Property (except such items thereof as Landlord
shall have expressly permitted to remain, which property shall become the
property of the Landlord if not removed), Tenant shall repair any damage to the
Demised Premises, the Building and the Common Areas resulting from any
installation and/or removal of the Tenant's Property. Any items of the Tenant's
Property which shall remain in the Demised Premises after the Expiration Date or
after a period of thirty (30) days following the Expiration Date or an earlier
termination date, may, at the option of the Landlord, be deemed to have been
abandoned, and in such case such items may be retained by Landlord as its
property or disposed of by Landlord, without accountability, in such manner as
Landlord shall determine at Tenant's expense.
ARTICLE 17
REPAIRS, MAINTENANCE AND CLEANING
17.01. Tenant shall, throughout the Term, take good care of the
Demised Premises, the fixtures, the equipment and appurtenances therein and any
and all equipment outside of the Demised Premises installed by Tenant. Tenant,
at its expense, shall be responsible for all repairs, interior and exterior,
structural and non-structural, ordinary and extraordinary, in and to the
Demised Premises, the premises of other tenants, the Building (including the
facilities and systems
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thereof), and the Common Areas the need for which arises out of (a) the
performance of alterations, (b) the installation, use or operation of the
Tenant's Property in the Demised Premises, (c) the moving of the Tenants
Property in or out of the Building, or (d) the act, omission, misuse or neglect
of Tenant or any of its subtenants or its or their employees, agents,
contractors or invitees. Tenant shall promptly replace all scratched, damaged or
broken doors and glass in and about the Demised Premises and shall be
responsible for all repairs, maintenance and replacement of wall and floor
coverings in the Demised Premises and for the repair and maintenance of all
sanitary and electrical fixtures and equipment therein. Tenant shall promptly
make all repairs in or to the Demised Premises for which Tenant is responsible.
Any repairs required to be made by Tenant to the mechanical, electrical,
sanitary, heating, ventilating, air-conditioning or other systems of the
Building within the Demised Premises shall be performed only by contractor(s)
designated by Landlord in its sole reasonable discretion. Any other repairs in
or to the Building, its facilities and Systems or the premises of other tenants
for which Tenant is responsible shall be performed by Landlord at Tenant's
expense; but Landlord may, at its option, before commencing any such work or at
any time thereafter, require Tenant to furnish to Landlord such security, in
form (including, without limitation, a bond issued by a corporate surety
licensed to do business in Washington) and amount, as Landlord shall deem
necessary to assure the payment for such work by Tenant. In the event that
Tenant's use or operation of any equipment installed either within the Demised
Premises or outside the Demised Premises for Tenant's use violates any
governmental law, rule, regulation or mandate, Tenant shall be fully
responsible, at its own cost and expense, for bringing the premises into
compliance with such governmental laws, rules, regulations or mandates.
17.02. Landlord shall be responsible for all repairs and maintenance
in and to the Building (including the facilities and systems and structure
thereof), except for those repairs and maintenance for which Tenant is
responsible pursuant to any of the provisions of this Lease and except for any
building systems installed by Tenant for Tenant's exclusive use. Tenant shall
give Landlord written notice of any repairs it believes Landlord should make. In
the event Landlord has not commenced making the repairs within ten (10) Business
Days subsequent to Landlord's receipt of this notice, Tenant may elect to give
Landlord written notice of Tenant's intention to do the repair. In the event
Landlord has not commenced the repair within ten (10) Business Days of
Landlord's receipt of such written notice, Tenant may do the repair and Landlord
shall reimburse Tenant for all reasonable costs in connection therewith. The
foregoing notwithstanding, Tenant shall at no time and in no event be entitled
to make, or cause to be made, any repairs or replacements to, or provide
maintenance for, the electrical (including, without limitation, electrical
generator systems), the heating, ventilating and air-conditioning systems in
the Building, or any conduits, cables, wiring or piping in the vertical risers
or other locations in the Building.
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17.03. Except as otherwise expressly provided in this Lease,
Landlord shall have no liability to Tenant, nor shall Tenant's covenants and
obligations under this Lease be reduced or abated in any manner whatsoever, by
reason of any inconvenience, annoyance, interruption or injury to business
arising from Landlord's doing any repairs, maintenance, or changes which
Landlord is required or permitted by this Lease, or required by law, to make in
or to any portion of the Building.
17.04 Landlord, at its cost and expense (but includable in Operating
Expenses), shall be responsible for furnishing cleaning services for the Common
Areas of the Building. Tenant, at is cost and expense, shall be responsible for
furnishing cleaning services for the Demised Premises. Tenant shall be
responsible for the disposal and removal of all of its garbage and waste at the
Demised Premises on a periodic basic (but not less than on three (3) occasions
per week) and shall utilize a waste or garbage contractor for such purpose
reasonably satisfactory to Landlord.
ARTICLE 18
ELECTRIC ENERGY
18.01. Landlord shall provide reasonably sufficient leads at an
electrical vault, located in the first floor of the Building for 800 amps at 480
volts electrical service dedicated to the Demised Premises. Tenant, at its sole
cost and expense, shall provide and install an electrical meter in order to
measure electrical usage by Tenant at the Demised Premises together with a
switch and bus duct to the Demised Premises. Prior to the installation of such
electrical service, Tenant shall have access to up to 400 amps at 480 volts of
electrical services and shall be at Tenant's sole cost and expense.
18.02. Landlord shall have the right at any time and from time to
time during the Term if permitted by the Legal Requirements, to contract for
service from a company or companies ("Electric Service Provider") different from
the company providing electrical service to the Building and the Demised
Premises as of the date of this Lease.
18.03. Landlord shall have full and unrestricted access to all
air-conditioning and heating equipment, and to all other utility installations
servicing the Building and the Demised Premises. Further, Tenant shall cooperate
with Landlord and the Electric Service Provider at all times and, as reasonably
necessary, shall allow Landlord and Electric Service Provider reasonable access
to the Building's electrical lines, feeders, risers, conduits, wiring and any
other machinery within the Demised Premises. Landlord reserves the right
temporarily to reasonably interrupt, curtail, stop or suspend electrical,
air-conditioning, heating service, and all other utility, or other services,
because of Landlord's inability to obtain, or difficulty or delay in obtaining,
labor or materials necessary therefor, or in order to comply with governmental
restrictions in connection therewith, or in order for the Landlord to perform
any preventive maintenance in connection with the Building or any Building
system, or to change the
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Electric Service Provider for the Building for any cause beyond Landlord's
reasonable control. No diminution or abatement of Fixed Rent, Additional Rent,
or other compensation shall be or will be claimed by Tenant, nor shall this
Lease or any of the obligations of Tenant hereunder be affected or reduced by
reason of such interruptions, stoppages or curtailments, the causes of which are
hereinabove enumerated, nor shall the same give rise to a claim in Tenant's
favor that such failure constitutes actual or constructive, total or partial
eviction from the Demised Premises, unless such interruptions, stoppages or
curtailments have been due to the intentional or willful misconduct of Landlord.
18.04. Landlord shall not be liable or responsible to Tenant in any
way for any loss, damage or expense which Tenant may sustain or incur as a
result of any (i) interruption, curtailment or failure (whether or not
temporary) or (ii) defect in the supply, character, quantity, availability or
suitability of electricity (including generator power) furnished to the Demised
Premises by reason of any requirement, act or omission of the Electric Service
provider or any other company servicing the Building with electricity or for the
performance of any maintenance or repair required hereunder or for any other
reason except if and to the extent the same is caused by or results from the
intentional or willful misconduct of Landlord.
18.05. If either the quantity or character of electrical service is
changed by the Electric Service Provider or other company supplying electricity
to the Building or is no longer available or suitable for Tenant's requirements,
no such change, unavailability or unsuitability shall constitute an actual or
constructive eviction, in whole or in part, or entitle Tenant to any abatement
or diminution in the payment of Fixed Rent, or relieve Tenant from any of its
obligations under this Lease, or impose any liability upon Landlord, or its
agents, by reason of inconvenience or annoyance to Tenant, or injury to or
interruption of Tenant's business, or otherwise.
18.06. Tenant shall pay, as and for Additional Rent, all charges
imposed by the Electric Service Provider servicing the Demised Premises and the
Building promptly when due based upon a submeter installed by Tenant at its sole
cost and expense. In the event that the Electric Service Provider servicing the
Demised Premises directly charges Tenant, Tenant shall make payment of such
charges promptly when due and shall pay all late payments, interest and other
charges should Tenant be delinquent in its payment to the Electric Service
Provider. In the event that Tenant does not pay the Additional Rent owing by
Tenant or pay the Electric Service Provider pursuant to this Article within ten
(10) Business Days after the request for same by Landlord, Landlord may, without
further notice and in addition to any other remedies Landlord may have,
discontinue the service of electricity to the Demised Premises without releasing
Tenant from any liability under this Lease and without Landlord incurring any
liability for any damage or loss sustained by Tenant as the result of such
discontinuance. If any tax is imposed upon Landlord's receipts from the sale or
resale of electric current to Tenant by any Federal, state or municipal
authority,
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Tenant agrees that, unless prohibited by law, Tenant's proportionate share of
such tax shall be passed on to, and included in the bill of, and paid by Tenant
to Landlord as Additional Rent. Tenant hereby agrees to indemnify, defend and
hold Landlord harmless from and against any claims, damages, lawsuits,
penalties, interest or other charges imposed by the Electric Service Provider as
a result of electrical energy utilized by the Tenant and directly charged to
Tenant by the Electric Service Provider.
18.07. Except as otherwise provided, Tenant will make no electrical
installations, alterations, additions or changes to electrical equipment or
appliances without the prior written consent of Landlord in each instance which
consent shall not be unreasonably withheld or delayed. Tenant will at all times
comply with the rules, regulations, terms and conditions applicable to service,
equipment, wiring and requirements of the Electric Service Provider supplying
electricity to the Building. Tenant covenants and agrees that at all times its
use of electric current will not exceed the capacity of existing feeders to the
Building or the risers or wiring installation and Tenant will not use any
electrical equipment which, in Landlord's reasonable judgment, will overload
such installations or interfere with the use thereof by other tenants of the
Building. In the event that, in Landlord's reasonable judgment, Tenant's
electrical requirements necessitate installation of an additional riser, risers
or other proper and necessary equipment, the same shall be installed by Landlord
at Tenant's sole expense and shall be chargeable and collectible as Additional
Rent and paid within ten (10) days after the rendition of a bill to Tenant
therefor.
18.08 Tenant, at Tenant's sole cost and expense, shall be permitted
to connect to Landlord's generators and fuel tank system at a cost of $750 per
amp of capacity, plus a pro rata share of the actual cost to maintain and
operate the generators. Tenant will be required to separate their panel and
install shunt trip breakers in order to shed any non-backed-up power. Tenant
shall be allowed, at its sole cost and expense, to install a plug for a roll-up
generator subject to all governmental codes, rules and regulations and subject
further to Landlord's prior written approval thereof.
ARTICLE 19
HEAT, VENTILATION AND AIR-CONDITIONING
19.01. Landlord shall maintain and operate the Building's heating,
ventilating and air-conditioning systems (hereinafter called the "Systems"),
and shall furnish heat, ventilating and air-conditioning (hereinafter
collectively called "HVAC services"), in the Demised Premises through the
Systems. Tenant shall pay as and for Additional Rent for the HVAC Services the
sum of $750 per ton for 60 tons, plus a pro rata share of the actual costs to
maintain and operate the Systems. Tenant shall have the use of up to 50 tons of
existing building water
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prior to the upgrade of the Systems. The cost to distribute and the cost of
actual use shall be at Tenant's sole cost and expense.
19.02. Landlord shall furnish necessary elevator service during
Business Hours and shall have an elevator subject to call at all other times.
Further, Landlord shall make available to Tenant a crane for the installation of
equipment in the Demised Premise or to perform Tenant's Initial Improvements. If
Landlord shall at any time have elected to furnish operator service for any
automatic elevators, Landlord shall have the right to discontinue furnishing
such service. If Tenant shall require the use of the Building's elevators or
crane, Tenant shall be responsible for and shall pay Landlord's costs and
expenses for the use thereof, as an Additional Rent, within ten (10) Business
Days after demand, including without limitation, any expense for operator
service for such elevator or crate which Landlord may deem necessary in
connection with Tenant's use of such elevator or crane. Landlord shall have the
right to change the operation or manner of operating any of the elevators in the
Building and shall have the right to discontinue, temporarily or permanently,
the use of any one or more cars in any of the banks of elevators.
ARTICLE 20
BROADCAST INTERFERENCE
20.01. Interference: As used in this Lease, "interference" with
broadcasting activity means:
(a) interference within the meaning of the provisions of the
recommended practices of the Electronics Industries Association and the rules
and regulations of the Federal Communications Commission ("FCC") as in effect
from time to time, or
(b) a material impairment of the quality of either sound or picture
signals on a broadcasting activity as may be defined by the FCC at any hour
during the period of operation of the activity, as compared with that which
would be obtained if no other broadcaster were broadcasting from the Building or
had any equipment on the building or in the Demised Premises.
Tenant shall take reasonable, prompt and diligent actions to prevent
and shall promptly remove or cause to be removed any interference with broadcast
activities of Landlord, other tenants of Landlord, or other occupants of the
Building caused by Tenant's use of the Demised Premises.
ARTICLE 21
ACCESS, CHANGES AND NAME
21.01. Except for the space within the inside surfaces of all
outside walls, ceilings, floors, windows and doors bounding the Demised
Premises, all of the Building, including, without limitation, exterior Building
walls, core corridor walls and doors and any core
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corridor entrance, and any space in or adjacent to the Demised Premises used for
shafts, risers, chaseways, stacks, pipes, conduits, fan rooms, ducts, electric
or other utilities, sinks or other Building facilities and the use thereof, as
well as access thereto in, on or through the Demised Premises for the purpose of
operating, maintenance, decoration and repair, are reserved to Landlord.
Landlord also reserves the right to install, erect, use and maintain pipes,
ducts and conduits in, on or through the Demised Premises, provided such are
properly enclosed.
21.02. Landlord and its agents shall have the right to enter and/or
pass through the Demised Premises at any time or times (a) to examine the
Demised Premises and to show them to actual and prospective Superior Lessors,
Superior Mortgagees, or prospective purchasers of the Building, and (b) to make
such repairs, alterations, additions and improvements in or to the Demised
premises and/or in or to the Building or its facilities and equipment as
Landlord is required or desires to make. Reasonable access upon ten (10) days
prior written notice shall also be provided to other tenants or occupants in the
Building for any repair or maintenance of risers or conduits in the Demised
Premises. Landlord shall be allowed to take all materials into and upon the
Demised Premises that may be required in connection therewith, without any
liability to Tenant and without any reduction of Tenant's obligations hereunder.
During the period of eighteen (18) months prior to the Expiration Date or the
date when Tenant has given Landlord notice of Tenant's intention to terminate
this Lease pursuant to the provisions herein, Landlord and its agents may
exhibit the Demised Premises to prospective tenants. Landlord shall give notice
to the Tenant reasonable under the circumstances and make reasonable efforts to
avoid a material adverse impact on the conduct of Tenant's business.
21.03 Tenant shall have access to the elevator lobby of the Building
and the Demised Premises twenty-four (24) hours per day, seven (7) days per
week throughout the Calendar Year.
21.04. If, during the last month of the Term, Tenant has removed all
or substantially all of the Tenant's Property from the Demised Premises,
Landlord may, without notice to Tenant, immediately enter the Demised Premises
and later, renovate and decorate the same, without liability to Tenant and
without reducing or otherwise affecting Tenant's obligations hereunder.
21.05. Landlord reserves the right, at any time and from time to
time, to make such changes, alterations, additions and improvements in or to the
Building and the fixtures and equipment thereof as Landlord shall deem necessary
or desirable, provided however, Landlord shall not cause a material adverse
impact on the conduct of Tenant's business, nor shall Landlord do anything
inconsistent with maintaining the Building as a commercial building, including,
without limitation, telecommunications facilities, office, retail and other
lawful uses.
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ARTICLE 22
MECHANICS' LIENS AND OTHER LIENS
22.01. Nothing contained in this Lease shall be deemed, construed
or interpreted to imply any consent or agreement on the part of Landlord to
subject Landlord's interest or estate to any liability under any mechanic's or
other lien law. If any mechanic's or other lien or any notice of intention to
file a lien is filed against the Land, or any part thereof, or the Demised
premises, or any part thereof, for any work, labor, service or materials claimed
to have been performed or furnished for or on behalf of Tenant or anyone holding
any part of the Demised Premises through or under Tenant, Tenant shall cause the
same to be canceled and discharged of record by payment, bond or order of a
Court of competent jurisdiction within fifteen (15) days after notice by
Landlord to Tenant.
23.01. None of Landlord, Superior Mortgagee, Superior Lessor, their
respective partners, joint venturers, directors, officers, agents, servants or
employees shall be liable to Tenant for any loss, injury or damage to Tenant or
to any other Person, or to its or their property, irrespective of the cause of
such injury, damage or loss, unless caused by or resulting from the intentional
or willful misconduct of Landlord, its agents, servants or employees in the
operation or maintenance of the Land or Building to the extent caused by such
intentional or willful misconduct. Further, Landlord, Superior Mortgagee,
Superior Lessor or their respective partners, joint venturers, directors,
officers, agents, servants or employees shall not be liable to Tenant (a) for
any such damage caused by other tenants or Persons in, upon or about the Land or
Building, or caused by operations in construction of any private work, performed
by someone other than Landlord or its employees, agents or contractors, or by
public or quasi-public work; or (b) even in the event of intentional or willful
misconduct, for consequential damages arising out of any loss of use of the
Demised Premises or any equipment or facilities therein by Tenant or any Person
claiming through, against or under Tenant.
23.02. Notwithstanding any provision to the contrary, Tenant shall
look solely to the estate and property of Landlord in and to the Land and
Building (or the proceeds received by Landlord on a sale of such estate and
property but not the proceeds of any financing or refinancing thereof) in the
event of any claim against Landlord arising out of or in connection with this
Lease, the relationship of Landlord and Tenant or Tenant's use of the Demised
Premises or the Common Areas, and Tenant agrees that the liability of the
Landlord arising out of or in connection with this Lease, the relationship of
Landlord and Tenant or Tenant's use of the Demised Premises or the Common Areas
shall be limited to such estate and property of Landlord (or sale proceeds). No
other properties or assets of Landlord or any partner, joint venturer, director,
officer, agent, servant or employee of Landlord shall be
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subject to levy, execution or other enforcement procedures for the satisfaction
of any judgment (or other judicial process) or for the satisfaction of any other
remedy of Tenant arising out of, or in connection with, this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas and if Tenant shall acquire a lien on or interest in any other
properties or assets by judgment or otherwise, Tenant shall promptly release
such lien on or interest in such other properties and assets by executing,
acknowledging and delivering to Landlord an instrument to that effect prepared
by Landlord's attorneys. Tenant hereby waives the right of specific performance
and any other remedy allowed in equity if specific performance or such other
remedy could result in any liability of Landlord for the payment of money to
Tenant or to any third party.
ARTICLE 24
DAMAGE OR DESTRUCTION
24.01. If the Building or the Demised Premises shall be partially
or totally damaged or destroyed by fire, earthquake or other casualty (and if
this Lease shall not be terminated as provided in this Article 24), Landlord
shall repair the damage and restore and rebuild the Building and/or the Demised
Premises (except for the Tenant's Property, Tenant's Initial Improvements or any
alterations or improvements to the Demised Premises requested or performed by
Tenant) with reasonable dispatch after notice to it of the damage or destruction
and the actual collection by Landlord of the insurance proceeds attributable to
such damage by Landlord, subject to the consent of the Superior Mortgagee under
any Superior Mortgage.
24.02. Subject to the provisions of Section 24.05, if all or part
of the Demised Premises shall be damaged or destroyed or rendered completely or
partially untenantable on account of fire, earthquake or other casualty, the
Rent shall be abated or reduced, as the case may be, in the proportion that the
untenantable area of the Demised Premises bears to the total area of the Demised
Premises, for the period from the date of the damage or destruction to (a) the
date the damage to the Demised Premises shall be substantially repaired, or (b)
if the Building and not the Demised Premises is so damaged or destroyed, the
date on which the Demised Premises shall be made tenantable; provided however,
should Tenant reoccupy a portion of the Demised Premises during the period the
repair or restoration work is taking place and prior to the date that the
Demised Premises are substantially repaired or made tenantable, the Rent
allocable to such reoccupied portion based upon the proportion which the area of
the reoccupied portion of the Demised Premises bears to the total area of the
Demised Premises, shall be payable by Tenant from the date of such occupancy.
24.03. If (a) the Building or the Demised Premises shall be totally
damaged or destroyed by fire, earthquake or other casualty, or (b) the Building
shall be so damaged or destroyed by fire, earthquake or other casualty (whether
or not the Demised Premises are damaged or
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destroyed) that its repair or restoration requires the expenditure, as estimated
by a reputable contractor or architect designated by Landlord, of more than
twenty (20%) percent (or ten (10%) percent if such casualty occurs during the
last two (2) years of the Term) of the full insurable value of the Building
immediately prior to the casualty, or (c) the Building shall be damaged or
destroyed by fire, earthquake or other casualty (whether or not the Demised
Premises are damaged or destroyed), and (i) the loss shall not be covered by
Landlord's insurance or (ii) Superior Mortgagee does not consent to make the
proceeds of any insurance available for restoration subject to the terms of any
Superior Mortgage, or (iii) the net insurance proceeds (after deducting all
expenses in connection with obtaining such proceeds) shall, in the estimation of
a reputable contractor or architect designated by Landlord, be insufficient to
pay for the repair or restoration work, then, in any such case Landlord may
terminate this Lease by giving Tenant notice to such effect within ninety (90)
days after the date of the fire, earthquake or other casualty and the Lease
shall terminate sixty (60) days thereafter.
24.04. Tenant shall not be entitled to terminate this Lease and no
damages, compensation or claim shall be payable by Landlord for inconvenience,
loss of business or annoyance arising from any repair or restoration of any
portion of the Demised Premises or of the Building pursuant to this Article 24.
Landlord shall use its best efforts to make such repair or restoration promptly
and in such manner as to not unreasonably interfere with Tenant's use and
occupancy of the Demised Premises, but Landlord shall not be required to do such
repair or restoration work except during Business Hours on Business Days.
Landlord shall not be required to restore fixtures, improvements or other
property of Tenant. The word "restore" as used in this Article shall include
repairs.
24.05. Notwithstanding any of the foregoing provisions of this
Article 24, if solely by reason of some intentional act or omission on the part
of Tenant or any of its subtenants or its or their partners, directors,
officers, servants, employees, agents or contractors, either (a) Landlord, any
Superior Lessor or any Superior Mortgagee shall be unable to collect all of the
insurance proceeds (including without limitation, rent insurance proceeds)
applicable to damage or destruction of the Demised Premises or the Building by
fire, earthquake or other casualty, or (b) the Demised Premises or the Building
shall be damaged or destroyed or rendered completely or partially untenantable
on account of fire, earthquake or other casualty, then without prejudice to any
other remedies which may be available against Tenant, there shall be no
abatement or reduction of Rent. Further, nothing contained in this Article 24
shall relieve Tenant from any liability that may exist as a result of any damage
or destruction by fire, earthquake or other casualty.
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24.06. Landlord will not carry insurance of any kind on the
Tenant's Property or Tenant's Initial Improvements, and, except as provided by
law or by reason of Landlord's breach of any of its obligations hereunder, shall
not be obligated to repair any damage or to replace the Tenant's Property or
Tenant's Initial Improvements
24.07. The provisions of this Article 24 shall be deemed an express
agreement governing any case of damage or destruction of the Demised Premises
and/or Building by fire, earthquake or other casualty, and any law providing for
such contingency in the absence of an express agreement, now or hereafter in
force, shall have no application in such case.
ARTICLE 25
EMINENT DOMAIN
25.01. If the whole of the Demised premises shall be taken by any
public or quasi-public authority under the power of condemnation, eminent domain
or expropriation, or in the event of conveyance of the whole of the Demised
Premises in lieu thereof, this Lease shall terminate as of the day possession
shall be taken by such authority. If 25% or less of the square footage of the
Demised Premises shall be so taken or conveyed, this Lease shall terminate only
in respect of the part so taken or conveyed as of the day possession shall be
taken by such authority. If more than 25% of the square footage of the Demised
Premises shall be so taken or conveyed, this Lease shall terminate only in
respect of the part so taken or conveyed as of the day possession shall be taken
by such authority, but either party shall have the right to terminate this Lease
upon notice given to the other party within thirty (30) days after such taking
of possession. If more than 25% of the square footage of the Building shall be
so taken or conveyed, Landlord, may, by notice to Tenant, terminate this Lease
as of the day possession shall be taken. If this Lease shall continue in effect
as to any portion of the Demised Premises not so taken or conveyed, the Rent
shall be computed as of the day possession shall be taken on the basis of the
remaining square footage of the Demised Premises. Except as specifically
provided herein, in the event of any such taking or conveyance there shall be no
reduction in Rent. If this Lease shall continue in effect. Landlord shall, at
its expense, but shall be obligated only to the extent of the net award or other
compensation (after deducting all expenses in connection with obtaining the
award or other compensation), available to Landlord for the improvements taken
or conveyed (excluding any award or other compensation for land or for the
unexpired portion of the term of any Superior Lease), make all necessary
alterations so as to constitute the remaining Building a complete architectural
and tenantable unit, except for the Tenant's Property, and Tenant shall make all
alterations or replacements to the Tenant's Property and decorations in the
Demised Premises. All awards and compensation for any taking or conveyance,
whether for the whole or a part of the Land or Building, the Demised Premises or
otherwise, shall be the property of Landlord, and Tenant hereby assigns to
Landlord all of Tenant's right, title and interest in and to any and all such
awards
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and compensation, including, without limitation, any award or compensation for
the value of the unexpired portion of the Term. Tenant shall be entitled to
claim, prove and receive in the condemnation proceeding such award or
compensation as may be separately awarded by the court for the Tenant's
non-depreciated leasehold improvements and for loss of business, goodwill, and
depreciation or injury to and cost of removal of the Tenant's Property.
25.02. This Lease shall be and remain unaffected by such taking and
Tenant shall continue to be responsible for all of its obligations hereunder
insofar as such obligations are not affected by such taking and shall continue
to pay the Rent in full when due.
ARTICLE 26
SURRENDER
26.01. On the Expiration Date, or upon any earlier termination of
this Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant
shall quit and surrender the Demised Premises to Landlord "broom-clean" and in
good order, condition and repair, except for ordinary wear and tear and such
damage or destruction as Landlord is required to repair or restore under this
Lease. Tenant shall also remove all of Tenant's Property therefrom at the
expiration or termination of the Lease, except as otherwise expressly provided
in this Lease.
26.02. If Tenant remains in possession of the Demised Premises
after the expiration of the Term, Tenant shall be deemed to be occupying the
Demised Premises as a tenant from month to month at the sufferance of Landlord
subject to all of the provisions of this Lease, except that the monthly Fixed
Rent shall be 150% of the then monthly Fixed Rent and Additional Rent in effect
during the last month of the Term or any Renewal Period.
26.03. No act or thing done by Landlord or its agents shall be
deemed an acceptance of or a surrender of the Demised Premises, and no agreement
to accept such surrender shall be valid unless in writing and signed by
Landlord.
ARTICLE 27
CONDITIONS OF LIMITATION
27.01. This Lease is subject to the limitation that whenever Tenant
or a guarantor, if any, (a) shall make an assignment for the benefit of
creditors, or (b) shall commence a voluntary case or have entered against it an
order for relief under any chapter of the Federal Bankruptcy Code (Title 11 of
the United States Code) or any similar order or decree under any federal or
state law, now in existence or hereafter enacted having the same general
purpose, and such order or decree shall have not been stayed or vacated within
30 days after entry, or (c) shall cause, suffer, permit or consent to the
appointment of a receiver, trustee, administrator, conservator, sequestrator,
liquidator or similar official in any federal, state or foreign judicial or
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nonjudicial proceeding, to hold, administer and/or liquidate all or
substantially all of its assets, and such appointment shall not have been
revoked, terminated, stayed or vacated and such official discharged of his
duties within 30 days of his appointments then Landlord, at any time after the
occurrence of any such event, may give Tenant a notice of intention to end the
Term at the expiration of five (5) days from the date of service of such notice
of intention, and upon the expiration of said five (5) day period, whether or
not the Term shall theretofore have commenced, this Lease shall terminate with
the same effect as if that day were the Expiration Date of this Lease, but
Tenant shall remain liable for damages as provided in Article 29.
27.02. This Lease is subject to the further limitations that: (a)
if Tenant shall default in the payment of any Rent, and such default shall
continue for ten (10) days after the due date, or (b) if Tenant shall, whether
by action or inaction, be in default of any of its obligations under this Lease
(other than a default in the payment of Rent) and such default shall continue
and not be remedied within thirty (30) days after Landlord shall have given to
Tenant a notice specifying the same, or, in the case of default which cannot
with due diligence be cured within a period of thirty (30) days and the
continuance of which for the period required for cure will not subject Landlord,
Superior Mortgagor or Superior Lessor to prosecution for a crime (as more
particularly described in the last sentence of Section 12.02.) or termination of
any Superior Lease or foreclosure of any Superior Mortgage, if Tenant shall not,
(i) within said ten (10) day period advise Landlord of Tenant's intention to
take all steps necessary to remedy such default, (ii) duly commence within said
ten (10) day period and thereafter diligently prosecute to completion all steps
necessary to remedy the default, and (iii) to complete such remedy within a
reasonable time after the date of said notice by Landlord, or (c) if any event
shall occur or any contingency shall arise whereby this Lease would, by
operation of law or otherwise, devolve upon or pass to any person, firm or
corporation other than Tenant, except as expressly permitted by Article 11, or
(d) if Tenant shall abandon the Demised Premises, then in any of said cases
Landlord may give to Tenant a notice of intention to end the Term at the
expiration of five (5) days from the date of the service of such notice of
intention, and upon the expiration of said five (5) days, whether or not the
Term shall theretofore have commenced, this Lease shall terminate with the same
effect as if that day were the Expiration Date of this Lease, but Tenant shall
remain liable for damages as provided in Article 29. The indemnity provisions
contained herein shall survive the expiration or earlier termination of this
Lease.
ARTICLE 28
RE-ENTRY BY LANDLORD
29.01. If Tenant shall default in the payment of any Rent, and such
default shall continue for ten (10) days after notice thereof, or if this Lease
shall terminate as provided in Article 27, Landlord or Landlord's agent and
employees may immediately or at any time thereafter
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re-enter the Demised Premises, or any part thereof, either by summary dispossess
proceedings or by any suitable action or proceeding at law, or otherwise,
without terminating the Lease and without being liable to indictment,
prosecution or damages therefor, and may repossess the same, and may remove any
Person therefrom, to the end that Landlord may have, hold and enjoy the Demised
Premises. The word "re--enter" as used herein, is not restricted to its
technical legal meaning. If this Lease is terminated under the provisions of
Article 27, or if Landlord shall re-enter the Demised Premises under the
provisions of this Article 28, or in the event of the termination of this Lease,
or of re-entry, by or under any summary dispossess or other proceedings or
action or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall thereupon pay to Landlord the Rent payable up to the time
of such termination of this Lease, or of such recovery of possession of the
Demised Premises by Landlord, as the case may be, and shall also pay to Landlord
damages as provided in Article 29.
28.02. In the event of a breach or threatened breach by a party of
any of its obligations under this Lease, the other party shall also have the
right of injunction.
28.03. If this Lease shall terminate under the provisions of
Article 27, or if Landlord shall re--enter the Demised Premises under the
provisions of this Article 28, or in the event of the termination of this Lease,
or re-entry, by or under any summary dispossess or other proceeding or action or
any provision of law by reason of default hereunder on the part of Tenant,
Landlord shall be entitled to retain all monies, if any, paid by Tenant to
Landlord whether as Advance Rent, Security Deposit (and interest thereon, if
any) or otherwise, but such monies shall be credited by Landlord against any
Rent due from Tenant at the time of such termination or re-entry or, at
Landlord's option, against any damages payable by Tenant under Article 29 or
pursuant to law.
ARTICLE 29
DAMAGES
29.01. If this Lease is terminated under the provisions of Article
27, or if Landlord shall re--enter the Demised Premises under the provisions of
Article 28, or in the event of the termination of this Lease, or of re-entry, by
or under any action to obtain possession in a summary manner or other proceeding
or action or any provision of law by reason of default hereunder on the part of
Tenant, Tenant shall pay an Additional Rent to Landlord as a condition precedent
to the dismissal of any action to obtain possession of the Demised Premises or
other proceeding or action for damages, at the election of Landlord, either:
(a) A sum which at the time of such termination of this Lease or at
the time of any such re--entry by Landlord, as the case may be,
represents the then present value, calculated utilizing the prime
interest rate declared by Chase Bank, N.A. in New York as of the
date of default, of the aggregate
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amount of the Rent which would have been payable by Tenant
(conclusively presuming the average monthly Additional Rent to be
the same as were the average monthly Additional Rent payable for
the year, or if less than 365 days have then elapsed since the
Commencement Date, the partial year, immediately preceding such
termination or re-entry) for the period commencing with such
earlier termination of this Lease or the date of any such re-entry,
as the case may be, and ending with the Expiration Date plus legal
and expert fees and costs for the bringing of any action to enforce
this provision. In exercising this remedy, Landlord shall be
entitled to accelerate all unpaid Rent and other amounts due
hereunder until the Expiration Date; or
(b) Sums equal to the Fixed Rent and the Additional Rent which
would have been payable by Tenant had this Lease not so terminated,
or had Landlord not so re--entered the Demised Premises, payable
upon the due dates therefor specified herein following such
termination or such re--entry and until the Expiration Date,
provided, however, that if Landlord shall relet the Demised
Premises during said period, Landlord shall credit Tenant with the
net rents received by Landlord from such reletting, such net rents
to be determined by first deducting from the gross rents as and
when received by Landlord from such reletting the expenses incurred
or paid by Landlord in terminating this Lease or in reentering the
Demised Premises and in securing possession thereof, as well as the
expense of reletting, including, without limitation, altering and
preparing the Demised Premises for new tenants, brokers'
commissions, legal fees, and all other expenses properly chargeable
against the Demised Premises and the rental therefrom, it being
understood that any such reletting may be for a period shorter or
longer than the period ending on the Expiration Date; but in no
event shall Tenant be entitled to receive any excess of such net
rents over the sums payable by Tenant to Landlord hereunder, nor
shall Tenant be entitled in any suit for the collection of damages
pursuant to this subdivision (b) to a credit in respect of any
rents from reletting, except to the extent that such net rents are
actually received by Landlord. If the Demised Premises or any part
thereof should be relet in combination with other space, then
proper apportionment on a square foot basis shall be made of the
rent received from such reletting and of the expenses of reletting.
If the Demised Premises or any part thereof be relet by Landlord
before presentation of proof of such damages to any Court, commission or
tribunal, the amount of rent reserved upon such reletting shall, prima facia, be
the fair and reasonable rental value for the Demised Premises, or part thereof,
to relet during the term of the reletting. Landlord shall have no obligation to
mitigate damages by reletting the Demised Premises and shall not be liable in
any way whatsoever for its failure or refusal to relet the Demised Premises or
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any part thereof, or if the Demised Premises or any part thereof are relet, for
its failure to collect the rent under such reletting, and no such failure or
refusal to relet or failure to collect the rent shall release or affect Tenant's
liability for damages or otherwise under this Lease. Landlord shall be under no
obligation in reletting the Demised Premises to give priority to the leasing
thereof over other vacant space in the Building.
29.02. Suit or suits for the recovery of any such damages, or any
installments thereof, may be brought by Landlord at any time and from time to
time at its election, and nothing contained herein shall be deemed to require
Landlord to postpone suit until the date when the Term would have expired if it
had not been so terminated under the provisions of Article 27 or under any
provision of law, or had Landlord not re-entered the Demised Premises. Nothing
herein contained shall be construed to limit or preclude recovery by Landlord
against Tenant of any sums or damages to which, in addition to the damages
particularly provided above, Landlord may lawfully be entitled by reason of any
default hereunder on the part of Tenant. Nothing herein contained shall be
construed to limit or prejudice the right of Landlord to prove and/or obtain as
damages by reason of the termination of this Lease or re--entry on the Demised
Premises for the default of Tenant under this Lease an amount equal to the
maximum amount permitted by any statute or rule of law in effect at the time
when the governing proceedings have been initiated, whether or not such amount
is greater than, equal to, or less than any of the sums referred to in Section
29.01.
29.03. In addition, if this Lease is terminated under the
provisions of Article 27, or if Landlord shall re--enter the Demised Premises
under the provisions of Article 28, Tenant covenants that: (a) the Demised
Premises then shall be in the same condition as that in which Tenant has agreed
to surrender the same to Landlord at the Expiration Date; (b) Tenant shall have
performed prior to any such termination any obligation of Tenant contained in
this Lease for the making of any alteration or for restoring or rebuilding the
Demised Premises or the Building, or any part thereof; and (c) for the breach of
any covenant of Tenant set forth above in this Section 29.03, Landlord shall be
entitled immediately without notice or other action by Landlord, to recover, and
Tenant shall pay as and for liquidated damages therefor, the cost of performing
such covenant (as estimated by an independent contractor selected by Landlord).
29.04. In addition to any other remedies Landlord may have under
this Lease, and without reducing or adversely affecting any of Landlord's rights
and remedies under this Article 29, if any Rent or damages payable hereunder by
Tenant to Landlord are not paid within five (5) days after notice therefor, the
same shall bear interest at the Late Payment Rate pursuant to Section 3.05 from
the due date thereof until paid, and the amount(s) of such interest shall be
Additional Charges hereunder.
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29.05. In addition to any remedies which Landlord may have under
this Lease, if there shall be a default hereunder by Tenant which shall not have
been remedied within the applicable grace period, Landlord shall not be
obligated to furnish to Tenant or the Demised Premises any HVAC services, or any
building services; and the discontinuance of any one or more of such services
shall be without liability by Landlord to Tenant and shall not reduce, diminish
or otherwise affect any of Tenant's covenants and obligations under this Lease.
ARTICLE 30
AFFIRMATIVE WAIVERS
30.01. Tenant, on behalf of itself and any and all persons claiming
through or under Tenant, does hereby waive and surrender all right and privilege
which it, they or them might have under or by reason of any present or future
law, to redeem the Demised Premises or to have a continuance of this Lease after
being dispossessed or ejected from the Demised Premises by process of Law or
under the terms of this Lease or after the termination of this Lease as provided
in this Lease.
30.02. Landlord and Tenant hereby waive trial by jury in any
action, proceeding or counterclaim brought by either against the other on any
matter whatsoever arising out of or in any way connected with this Lease, the
relationship of Landlord and Tenant, and Tenant's use or occupancy of the
Demised Premises and use of the Common Area, including without limitation, any
claim of injury or damage, and any emergency and other statutory remedy with
respect thereto. Tenant shall not interpose any counterclaim of any kind in any
action or proceeding commenced by Landlord to recover possession of the Demised
Premises.
ARTICLE 31
NO WAIVERS
31.01. The failure of the Landlord to insist in any one or more
instances upon the strict performance of any one or more of the obligations of
this Lease, or to exercise any election herein contained, shall not be construed
as a waiver or relinquishment for the future of the performance of such one or
more obligations of this Lease or of the right to exercise such election, but
the same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Rent with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 32
CURING TENANT'S DEFAULTS
32.01. If Tenant shall default in the performance of any of
Tenant's obligations under this Lease, Landlord, without thereby waiving such
default, may (but shall not be obligated to) perform the same for the account
and at the expense of Tenant, without notice in a case of
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emergency, and in any other case only if such default continues after the
expiration of ten (10) days from the date Landlord gives Tenant notice of the
default. Bills for any expenses incurred by Landlord in connection with any such
performance by it for the account of Tenant, and bills for all costs, expenses
and disbursements of every kind and nature whatsoever, including reasonable
attorney's fees and expenses, involved in collecting or endeavoring to enforce
any rights against Tenant or Tenant's obligations hereunder, under or in
connection with this Lease or pursuant to law, including any such cost, expense
and disbursement involved in instituting and prosecuting legal proceedings or in
recovering possession of the Demised Premises after default by Tenant or upon
the expiration of the Term or sooner termination of this Lease, including
attorneys fees and costs for any bankruptcy proceedings, and interest on all
sums advanced by Landlord under this Article at the interest rate provided in
Section 3.05 may be sent by Landlord to Tenant monthly, or immediately at
Landlord's option and such amounts shall be due and payable in accordance with
the terms of such bills.
ARTICLE 33
BROKER
33.01. Parties represent that no broker except the Broker was
instrumental in bringing about or consummating this Lease and that the parties
have had no conversations or negotiations with any broker except the Broker
concerning the leasing of the Demised Premises. Parties agree to indemnify and
hold harmless each other against and from any claims for any brokerage
commissions and all costs, expenses and liabilities in connection therewith,
including, without limitation, attorneys' fees and expenses, arising out of any
conversations or negotiations had by each with any broker other than the Broker.
Landlord and Tenant shall pay any brokerage commissions due the Broker for the
leasing of the Demised Premises as defined in Section 1.01(J) pursuant to a
separate agreement between Landlord, Tenant and the Broker.
ARTICLE 34
NOTICES
34.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given, rendered or made by either
party to the other, pursuant to this Lease or pursuant to any applicable Legal
Requirement, shall be in writing and shall be deemed to have been properly
given, rendered or made only if hand delivered, or delivered by any nationally
recognized over-night delivery service, or sent by United States registered or
certified mail, return receipt requested, addressed to the other party at the
following addresses;
As to Tenant: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, Minnesota 55402
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With a copy to: David L. Mitchell, Esq.
Robins, Kaplan, Miller & Ciresi, L.L.P.
2800 LaSalle Plaza
800 LaSalle Avenue
Minneapolis, Minnesota 55402-2015
As to Landlord: Seattle Telecom LLC
750 Lexington Avenue, 28th Floor
New York, NY 10022
Attn: Oskar Brecher, Manager
With a copy to: Eugene T. Paolino, Esq.
Schumann, Hanlon, Doherty,
McCrossin & Paolino
30 Montgomery Street -- 15th Floor
Jersey City, New Jersey 07302
Any such notices shall be deemed to have been given, rendered or
made on the date received if delivered by hand or the second day after the day
so mailed unless mailed outside the State of Washington, in which case it shall
be deemed to have been given, rendered or made on the third Business Day after
the day so mailed. Either party may, by notice as aforesaid, designate a
different address or addresses for notices, statements, demands, consents,
approvals or other communications intended for it.
ARTICLE 35
ESTOPPEL CERTIFICATES
35.01. Each party shall, at any time and from time to time, as
requested by the other party, upon not less than thirty (30) days' prior notice,
execute and deliver to the requesting party a statement certifying that this
Lease is not modified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
the modifications), certifying the dates to which the Fixed Rent and Additional
charges have been paid, stating whether or not, to the best knowledge of the
party giving the statement, the requesting party is in default in performance of
any of its obligations under this Lease, and, if so, specifying each such
default of which the party giving the statement shall have knowledge and stating
whether or not, to the best knowledge of the party giving the statement, any
event has occurred which with the giving of notice or passage of time, or both,
would constitute such a default of the requesting party, and, if so, specifying
each such event; and such statement delivered pursuant hereto shall be deemed a
representation and warranty to be relied upon by the party requesting the
certificate and by others with whom such party may be dealing, regardless of
independent investigation. Tenant also shall include in any such statement such
other information concerning this Lease as Landlord may reasonably request.
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ARTICLE 36
ARBITRATION
36.01. Landlord may at any time request arbitration, and Tenant may
at any time when not in default in the payment of any Rent request arbitration,
of any matter in dispute but only where arbitration is expressly provided for in
this Lease. Such dispute shall be submitted to the arbitration of three (3)
disinterested persons, one of whom shall be chosen by each of the parties
hereto, and the third by the two arbitrators so chosen; and the award and
finding of said arbitrators, or of any two of them, shall be final and
conclusive on any questions or matters so submitted to them. In case an
arbitration is not otherwise arranged, either party desiring such submission to
arbitration shall notify the other party in writing of the matter which it
desires to submit to arbitration, designating its arbitrator in such notice.
Within twenty (20) days thereafter, the party thus notified shall name its
arbitrator, and notify the other party of such selection. The arbitrators thus
selected shall immediately proceed to select the third arbitrator as aforesaid,
and with him to consider and determine all matters submitted. In case the party
notified of the desired submission to arbitration shall fail, upon due
notification, to name an arbitrator, the arbitrator selected by the other party
shall have the right to proceed alone and determine the matters thus submitted,
and his award shall be final and conclusive upon the parties hereto. In the
event that the two arbitrators first selected shall be unable to agree upon the
third arbitrator within twenty (20) days after the selection of the second
arbitrator, either party hereto, upon giving ten (10) days' notice in writing to
the other party, or to the arbitrator selected by such other party, may apply to
the Courts of the State of Washington for the appointment of a third arbitrator,
and any arbitrator appointed by such Court upon such application shall have the
same powers and duties as if appointed by the two arbitrators first selected as
hereinbefore provided. The award in such arbitration may be enforced on
application of either party by the order or judgment of a Court of competent
jurisdiction.
36.02. If any delay in complying with any requirement of this Lease
by Landlord might subject Tenant to any fine or penalty, or to prosecution for a
crime, or materially interfere with Tenant's use and enjoyment of the Demised
Premises or its access thereto, of if it would constitute a default by Tenant
under any permitted mortgage, or of any of the foregoing, Tenant shall have the
right to remedy such default and in such event the sole question to be
determined by the arbitrators shall be whether Landlord is liable for Tenant's
costs and expenses of curing such default.
36.03. Each party to the arbitration shall pay the costs or fees of
the arbitrator selected by it and all further costs and fees, including Court
costs in connection with the arbitration, shall be shared equally by the two
parties to the arbitration. Each party shall bear the cost of its own attorneys
and experts and the additional expenses of presenting its own proofs. Any
arbitration under this Article shall be governed and controlled, except as
otherwise provided
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herein, by the rules of the American Arbitration Association in the city of
Seattle, Washington.
ARTICLE 37
RENEWAL OPTION
37.01 Tenant shall have the option to renew this Lease for two (2)
additional periods ("the First Renewal Period" and "the Second Renewal Period")
for a further period of five (5) years for each such Renewal Period provided
Tenant is not in default under any terms of this Lease. Tenant shall give
written notice to the Landlord ("Renewal Notice") at least 270 days prior to the
Expiration Date with respect to the First Renewal Period or twelve 270 days
prior to the expiration of the First Renewal Period with respect to the Second
Renewal Period. Except for this Article 37 and, further except for the amount of
Fixed Rent as set forth in Article 1, all other terms and conditions of this
Lease shall continue during the First Renewal Period and the Second Renewal
Period. The Fixed Rent shall be the fair market rental for comparable space
within the Building. In the event that the parties are unable to agree as to the
fair market rent within sixty (60) days after the date of the Renewal Notice,
then the Fixed Rent shall be determined by an independent appraiser selected by
Landlord in its sole reasonable discretion which appraiser shall have at least
fifteen (15) years experience in the real estate industry of Seattle, Washington
and shall be familiar with the real estate requirements of the
telecommunications industry. The determination of such appraiser shall be
binding on the parties; however, in no event shall Fixed Rent for any Renewal
Period be less than the Fixed Rent for the Initial Term of the Lease or the
immediately prior Renewal Period, as the case may be.
ARTICLE 38
BUILDING NAME
38.01. The Building may be designated and known by any name or
address Landlord may choose from time to time in Landlord's sole discretion.
Tenant agrees not to refer to the Building by any name or address other than as
designated by Landlord. The Building may be named after any person, firm, or
otherwise, whether or not such name is, or resembles, the name of a tenant of
the Building. In no event shall Tenant use, in connection with its business or
otherwise, any photographic or other type of representation of the Building. In
the event the Building is named after any person, firm or otherwise, Tenant, in
connection with its business or otherwise, shall not refer to the Building by
such name but shall only use the street address of the Building.
38.02. Subject to Landlord's sole reasonable approval, Tenant shall
have the right to place a sign on or around the Building provided same does not
denigrate the character of the Building and is aesthetically suitable. Any sign
placed on the Building by Tenant shall not be equal to or larger than any sign
on the Building placed by U.S. West. Tenant shall be responsible for and shall
pay all costs and
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expenses for the installation and, upon termination of the Lease or when
exterior maintenance is to be performed on the Building, for removal of any such
sign (including, without limitation, restoring the points of affixation).
ARTICLE 39
ENVIRONMENTAL LAWS
39.01. Tenant acknowledges the existence of federal, state and
local environmental laws, rules and regulations including, without limitation,
the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) 42 U.S.C. 9601-9657, the Resource Conservation and Recovery Act (RCRA)
42 U.S.C. 6901-6987, laws, rules and regulations of the State of Washington,
governing environmental matters, all of which, together with any successor
Legislation, are collectively referred to hereinafter as the "Environmental
Laws". Tenant agrees, from and after the date hereof, to act in compliance with
the Environmental Laws and that it shall not perform any acts in violation of
the Environmental Laws.
39.02. Upon the occurrence of any event requiring Tenant's
compliance with Environmental Laws or if Landlord by reason of any act or
omission or failure to act or not act on the part of Tenant, shall be required
to comply with Environmental Laws, Tenant shall make all necessary filings with
the appropriate governmental agency and any other relevant federal, state,
county or municipal legal authority and, at its own expense, shall cause all
necessary tests and studies to be performed. Landlord shall complete such
documents and otherwise cooperate (provided such cooperation does not subject
Landlord to any fee, cost, expense or liability or require performance by
Landlord of Tenant's obligation hereunder) as may be reasonably requested by
Tenant or required by the Environmental Laws. In the event an environmental
clean-up is required, the Landlord shall have an unrestricted right to inspect,
as often as it deems necessary in its sole discretion, during and after such
clean-up.
39.03. Tenant hereby agrees to execute such documents and provide
such information as Landlord reasonably requires to assure compliance with the
Environmental Laws, and rules or regulations of any other relevant federal,
state, county or municipal legal authority. Tenant shall bear all costs and
expenses incurred by Landlord associated with any such compliance resulting from
Tenant's use of the Demised Premises or any acts and/or omissions which Tenant,
its agents, employees, invitees or independent contractors initiate, including,
without limitation, state agency fees, engineering fees, clean-up costs, filing
fees and suretyship expenses. Tenant agrees to indemnify, defend and hold
Landlord harmless from and against any fines, suits, proceedings, claims and
actions and any other cost, expense or liability of any kind arising under the
Environmental Laws, rules or regulations resulting from Tenant's failure to
comply with this Article 39 or Tenant's failure to provide all information, make
all submissions and take all actions required by any legal authority, including
reasonable attorney's fees.
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39.04. Tenant shall immediately provide Landlord with copies of all
correspondence, reports, notices, orders, findings, declarations and other
materials pertinent to Tenant's compliance hereunder or any other environmental
enforcement requirements under any Environmental Laws as they are issued or
received by Tenant. More specifically, but not limiting the foregoing, Tenant
shall promptly provide Landlord with any notices, correspondence and submissions
made by Tenant to the United States Environmental Protection Agency, the United
States Occupational Safety and Health Administration, or any other legal
authority which requires submission of any information concerning environmental
matters of hazardous wastes or substances, and any notices, correspondence,
documents and directives received by Tenant from any of said authorities.
39.05. In addition to any other remedies of Landlord pursuant to
this Lease, Tenant's failure to abide by the terms of this Article 39 shall
survive the Expiration Date or earlier termination of the Term of this Lease.
Tenant's failure to abide by the terms of this Article shall be restrainable by
injunction.
39.06. Tenant shall indemnify, defend and hold Landlord, Superior
Lessors and Superior Mortgagees harmless from and against all claims,
liabilities, losses, damages and costs, foreseen or unforeseen, including
without limitation, reasonable attorney's fees, engineering and other
professional and expert fees and costs, which Landlord or such other indemnified
parties may incur by reason of Tenant's action or non-action with regard to
Tenant's obligations under this Article.
39.07. The parties agree that the Americans with Disabilities Act,
Hazardous Materials, tax and Y2K disclosure forms shall be completed by both
parties to this transaction.
ARTICLE 40
MISCELLANEOUS
40.01. Tenant understands and acknowledges that this Lease is a
triple net or absolute net Lease. Tenant further expressly acknowledges and
agrees that Landlord has not made and is not making, and Tenant, in executing
and delivering this Lease, is not relying upon, any warranties, representations,
promises or statements, except to the extent that the same are expressly set
forth in this Lease or in any other written agreement(s) which may be made
between the parties concurrently with the execution and delivery of this Lease.
All understandings and agreements heretofore had between the parties are merged
in this Lease and any other written agreement(s) made concurrently herewith,
which alone fully and completely express the
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agreement of the parties and which are entered into after full investigation.
Neither party has relied upon any statement or representation not embodied in
this Lease or in any other written agreement(s) made concurrently herewith. The
provisions of this Lease set forth the enumerated rights of Tenant. Any rights
not specifically provided for herein shall not be deemed or inferred to be given
to Tenant. Any actions taken by Tenant not specifically permitted herein shall
be prohibited.
40.02. No agreement shall be effective to change, modify, waive,
release, discharge, terminate or effect an abandonment of this Lease in whole or
in part, unless such agreement is in writing, refers expressly to this Lease and
is signed by the party against whom enforcement or the change, modification,
waiver, release, discharge, termination or effectuation of abandonment is
sought.
40.03. Subject to the Rules and Regulations, Tenant shall be
provided vehicular access for trucks delivering or removing equipment to and
from the Building for the Demised Premises and provided further that any such
vehicular access does not materially impair access to the Building by other
tenants. Landlord may at any time alter or suspend vehicular access to the
Building.
40.04. If Tenant shall at any time request Landlord to sublet or
let the Demised Premises for Tenant's account, Landlord or its agent is
authorized to receive keys for such purposes without releasing Tenant from any
of its obligations under this Lease, and Tenant hereby releases Landlord from
any liability for loss or damage to any of the Tenant's Property in connection
with such subletting or letting.
40.05. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to; provided, however, that (a) no violation
of the provisions of Article 11 shall operate to vest any rights in any
successor or assignee of Tenant and (b) the provisions of this Section 40.04
shall not be construed as modifying the conditions of limitation contained in
Article 27.
40.06. Except for Tenant's obligations to pay Rent, the time for
Landlord or Tenant, as the case may be, to perform any of its respective
obligations hereunder shall be extended if and to the extent that the
performance thereof shall be prevented due to any Unavoidable Delays. Except as
expressly provided to the contrary, the obligations of Tenant hereunder shall
not be affected, impaired or excused, nor shall Landlord have any liability
whatsoever too Tenant, (a) because Landlord is unable to fulfill, or is delayed
in fulfilling, any of its obligations under this Lease due to any of the matters
set forth in the first sentence of this Section 40.05, or (b) because of any
failure or defect in the supply, quality or character of electricity, water or
any other utility or service furnished to the Demised Premises for any reason
beyond the Landlord's reasonable control.
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40.07. Any liability for payments hereunder (including, without
limitation, Additional Rent) shall survive the expiration or earlier termination
of this Lease.
40.08. Tenant shall not exercise its rights under Article 15 or any
other provision of this Lease in a manner which would violate Landlord's union
contracts or create any work stoppage, picketing, labor disruption or dispute or
any interference with the business of Landlord or any tenant or occupant of the
Building.
40.09. Tenant shall give prompt notice to Landlord of (a) any
occurrence in or about the Demised Premises for which Landlord might be liable,
(b) any fire, earthquake or other casualty in the Demised Premises, (c) any
damage to or defeat in the Demised Premises, including the fixtures and
equipment thereof, for the repair of which Landlord might be responsible, and
(d) any damage to or defect in any part of the Building's sanitary, electrical,
heating, ventilating, air--conditioning, elevator or other systems located in,
on or passing through the Demised Premises or any part thereof.
40.10. This Lease shall be governed by and construed in accordance
with the laws of the State of Washington. If any provision of this Lease shall
be invalid or unenforceable, the remainder of this Lease shall not be affected
and shall be enforced to the extent permitted by law. The table of contents,
captions, headings and titles in this Lease are solely for convenience of
reference and shall not affect its interpretation. Each covenant, agreement,
obligation or other provision of this Lease on Tenant's part to be performed,
shall be deemed and construed as a separate and independent covenant of Tenant,
not dependent on any other provision of this Lease. All terms and words used in
this Lease, regardless of the number or gender in which they are used, shall be
deemed to include any other number and any other gender as the context may
require.
40.11. If deemed necessary by Landlord, no person will be allowed
access to the Building without a security pass which shall be issued by Landlord
upon written request of Tenant. Tenant shall be fully liable for the acts of all
persons for whom a security pass is requested. All security passes shall be
returned to Landlord in the event the persons to whom they were issued are no
longer employed by Tenant or are otherwise not entitled to access to the
Building. In no event shall Landlord be liable for its refusal to allow access
to the Building to any person who does not have a security pass.
40.12. With respect to any provisions of this Lease which provide,
in effect, the Landlord shall not unreasonably withhold or unreasonably delay
any consent or approval, Tenant in no event shall be entitled to make, nor shall
Tenant make, any claim and Tenant hereby waives any claim, for money damages;
nor shall Tenant claim any money damages by way of set-off, counterclaim or
defense, based upon any claim or assertion by Tenant that Landlord has
unreasonably withheld or unreasonably delayed any consent or approval: but
Tenant's sole remedy
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shall be an action or proceeding to enforce any such provision, or for specific
performance, injunction or declaratory judgment.
40.13. To the extent that Landlord, its agents, employees or
licensees have access to the Demised Premises pursuant to the provisions of this
Lease or otherwise, Landlord agrees to indemnify, defend and save harmless
Tenant from and against all bodily harm and personal injury, loss, claim and
damage to or of any person or property of whatever nature arising from any act,
omission, fault, misconduct or negligence of Landlord, or Landlord's
contractors, licensees, agents, servants or employees, unless caused by the
Tenant's negligence or willful misconduct. This indemnity and hold harmless
clause shall include indemnity against all costs, expense and liabilities paid
or incurred in or in connection with any such claim or proceeding brought
thereon and the defense thereof, and shall include reasonable attorney's fees.
40.14. (a) If Tenant is a corporation, each person executing this
Lease on behalf of Tenant hereby covenants, represents and warrants that Tenant
is a duly incorporated or duly qualified, if a foreign corporation, corporation
and is authorized to do business in the State of Washington (a copy of evidence
thereof shall be supplied by Tenant to Landlord upon request); and that each
person executing this Lease on behalf of Tenant is an officer of Tenant and is
duly authorized to execute, acknowledge and deliver this Lease to Landlord (a
copy of resolution to such effect shall be supplied by Tenant to Landlord upon
request).
(b) If Tenant is a partnership (or is comprised of two (2) or more
persons, individually, or as joint venturers or as copartners of a partnership),
or if Tenant's interest in this Lease shall be assigned to a partnership (or to
two (2) or more persons, individually, or as joint venturers or as co-partners
of a partnership) (any such partnership and such persons are referred to in this
Article as the "Partnership Tenant"), the following shall apply: (i) the
liability of each of the parties comprising the Partnership Tenant shall be
joint and several (ii) each of the parties comprising the Partnership Tenant
hereby consents in advance to, and agrees to be bound by, any modifications,
termination, discharge or surrender of this Lease which may hereafter be made,
and by any notices which may hereafter be given, by the Partnership Tenant or by
any of the parties comprising the Partnership Tenant, (iii) any notices given or
rendered to the Partnership Tenant or to any of the parties comprising the
Partnership Tenant shall be deemed given or rendered to the Partnership Tenant
and to all such parties and shall be binding upon the Partnership Tenant and all
parties, (iv) if the Partnership Tenant shall admit new partners, all such new
partners shall, by their admission to the Partnership Tenant, be deemed to have
assumed performance of all of the terms of this Lease on Tenants part to be
performed and (v) the Partnership Tenant shall give prompt notice to Landlord of
the admission of any such new partners, and upon demand of Landlord, shall cause
each such new partner to execute and deliver to Landlord and agreement in form
satisfactory to Landlord, wherein each such new partner shall assume
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performance of all of the terms of this Lease on Tenant's part to be performed
(but neither Landlord's failure to request any such agreement nor the failure of
any such new partner to execute or deliver any such agreement to Landlord shall
vitiate the provisions of this Section).
40.15. All Exhibits to this Lease are hereby incorporated into this
Lease, and references to "this Lease" shall include all Exhibits.
40.16. Tenant shall not place a load upon any floor that exceeds
the floor load per square foot that such floor was designed to carry or which is
allowed by any laws.
40.17. Tenant acknowledges that there may be noise, dust,
vibrations and other effects from construction work occurring near or about the
Building and that Tenant shall have no claims against Landlord for any
disruption caused by same or interruption or interference with Tenant's business
resulting from same and that Landlord shall have no liability otherwise to
Tenant therefor.
40.18. In the event Tenant is in arrears in the payment of Rent,
Tenant waives Tenant's right, if any, to designate the items against which any
payments made by or refunds payable to Tenant are to be credited and Landlord
may apply any payments made by Tenant to any items Landlord sees fit,
irrespective of and notwithstanding any designation or requests by Tenant as to
the items against which any such payments shall be credited.
40.19. In the event Landlord incurs legal, investigative and/or
other professional fees and expenses in connection with any and all attorneys,
expert, or investigative fees and costs incurred by the Landlord in order to
enforce any provision of this Lease or in connection with any request to
Landlord by Tenant for any action, other than that specifically required of the
Landlord pursuant to the provisions of the Lease, then, in that event, the
reasonable cost of such attorneys, investigative and/or other professional fees
and expenses, incurred by the Landlord, shall be paid on demand by Tenant to the
Landlord.
40.20. The person signing this Lease on behalf of Tenant personally
represents and warrants to Landlord that (i) all action necessary to be taken
and all consents necessary to be obtained to fully authorize the execution,
delivery and performance of this Lease by Tenant has been duly taken or
obtained, as the case may be and (ii) he or she is a duly authorized officer of
Tenant who has full power and authority to execute and deliver this Lease on
behalf of Tenant and bind Tenant to all of the terms and conditions hereof.
50
<PAGE>
40.21. Except as otherwise provided herein, Landlord shall only be
deemed to be in default under the terms of this Lease if Landlord shall violate,
neglect, or fail to observe, keep or perform any covenant or agreement which is
not observed, kept or performed by Landlord within forty-five (45) days after
receipt by Landlord of written notice by Tenant of such breach which notice
shall specifically set forth the nature of the breach. Landlord shall not be
considered in default so long as Landlord commences to cure the breach in a
diligent and prudent manner and is allowed such additional time as is reasonably
necessary to correct the breach.
40.22. This Lease may be executed in one or more counterparts, each
of which shall be original, and all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
LANDLORD:
SEATTLE TELECOM LLC
BY: GATEWAY REALTY SEATTLE, LLC.,
a Delaware limited liability
ATTEST: company,
a Managing Member
/s/ Kevin A. Booth
- -------------------------------------
Name: Kevin A. Booth BY: /s/ Kamran Hakim, Manager
-------------------------------- --------------------------------
Title: Director of Finance Kamran Hakim, Manager
-------------------------------
ATTEST: TENANT:
ADVANCED TELECOMMUNICATIONS, INC.,
a Delaware corporation
- -------------------------------------
Name:
--------------------------------
Title: BY:
------------------------------- --------------------------------
Name: Satish Tiwari
83
<PAGE>
40.21. Except as otherwise provided herein, Landlord shall only be
deemed to be in default under the terms of this Lease if Landlord shall violate,
neglect, or fail to observe, keep or perform any covenant or agreement which is
not observed, kept or performed by Landlord within forty-five (45) days after
receipt by Landlord of written notice by Tenant of such breach which notice
shall specifically set forth the nature of the breach. Landlord shall not be
considered in default so long as Landlord commences to cure the breach in a
diligent and prudent manner and is allowed such additional time as is reasonably
necessary to correct the breach.
40.22. This Lease may be executed in one or more counterparts, each
of which shall be original, and all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this
Lease as of the day and year first above written.
LANDLORD:
SEATTLE TELECOM LLC
BY: GATEWAY REALTY SEATTLE, LLC.,
a Delaware limited liability
ATTEST: company,
a Managing Member
BY:
- ------------------------------------- --------------------------------
Name: Kamran Hakim, Manager
--------------------------------
Title:
-------------------------------
TENANT:
ATTEST:
ADVANCED TELECOMMUNICATIONS, INC.,
a Delaware corporation
/s/ J. Oxlay BY:
- ------------------------------------- --------------------------------
Name: J. Jutters Oxlay Name: Satish Tiwari
-------------------------------- ------------------------------
Title: Director of Regulatory Affairs Title: Vice President/Engineering
------------------------------- -----------------------------
and Network Implementation
-----------------------------
51
<PAGE>
STATE OF MINNESOTA )
)ss:
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 20th day
of December, 1999, by Satish Tiwari, the Vice President/Engineering and Network
Implementation of Advanced Telecommunications, Inc., a Delaware corporation, on
behalf of the corporation.
[DAVID L. MITCHELL David L. Mitchell
NOTARY PUBLIC STAMP] --------------------------
Notary Public
STATE OF )
)ss.:
COUNTY OF )
BE IT REMEMBERED, that on _________, 1999 before me, the
subscriber, a Notary Public of the State of ________________ personally appeared
___________________________ who, being by me duly sworn on his oath, deposed and
made proof to my satisfaction, that he is the __________________ of
________________ a ____________________ corporation, the entity that executed
the within instrument; that deponent knows that __________________________ is
the _________________ of said corporation.
The execution as well as the making of this instrument has been
duly authorized by a proper resolution of the Board of Directors of the said
corporation; that the deponent well knows the corporate seal of said
corporation; that the seal affixed to the said instrument is the proper
corporate seal and was thereto affixed and said instrument signed and delivered
by said _______________________ as and for the voluntary act and deed of said
corporation in the presence of the deponent who thereupon subscribed his name
thereto as attesting witness.
___________________________
Name: ___________________________
Sworn to and subscribed
before me on the date
aforesaid
- ---------------------------
Notary Public
[Notarial Seal]
52
<PAGE>
EXHIBIT A
DESCRIPTION OF THE LAND
<PAGE>
EXHIBIT B
DESCRIBED OF THE DEMISED PREMISES
<PAGE>
EXHIBIT C
RULES AND REGULATIONS
1. Sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any tenant or used for any purpose other than for ingress or egress from the
Building and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Landlord.
There shall not be used in any space, or in the public hall of the Building,
either by any tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and
sideguards.
2. The water and wash closets and plumbing fixtures shall not be used for
any purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No tenant shall sweep or throw or permit to be swept or thrown from
the Demised Premises any dirt or other substances into any of the corridors or
halls, elevators, or out of the doors or stairways of the Building and Tenant
shall not use, keep or permit to be used or kept any foul or noxious gas or
substance in the Demised Premises, or permit or suffer the Demised Premises to
be occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors, and/or vibrations, or
unreasonably interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be kept in or about the Demised Premises
or the Building. Smoking or carrying lighted cigars or cigarettes in the
elevators of the Building is prohibited.
4. No awnings or other projections shall be attached to the outside walls
of the Building without the prior written consent of Landlord.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any tenant on any part of the outside of the
Demised Premises if the same is visible from the outside of the Demised Premises
without the prior written consent of Landlord, except that the name of Tenant or
any subtenant may appear on the entrance door of the Demised Premises. In the
event of the violation of the foregoing by Tenant, Landlord may remove same
without any liability, and may charge the expense incurred by such removal to
tenant(s) violating this rule. Interior signs on doors and a directory tablet,
if any, shall be subject to the prior written approval of Landlord.
<PAGE>
6. No tenant shall mark, paint, drill into, or in any way deface any part
of the Demised Premises or the Building of which they form a part. No boring,
cutting or installation of electrical wiring shall be permitted, except with the
prior written consent of Landlord, and as Landlord may direct.
7. No additional locks or bolts of any kind shall be placed upon any of
the doors or windows by any tenant, nor shall any changes be made in existing
locks or mechanisms thereof. Each tenant must, upon the termination of his
tenancy, restore the Landlord all keys of stores, offices and toilet rooms, and
passes to the Building, either furnished to, or otherwise procured by, such
tenant, and in the event of the loss of any keys so furnished, such tenant shall
pay to Landlord the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of
any description shall be delivered to and removed from the Demised Premises only
on the freight elevators and through the service entrances and corridors, and
only during Business Hours, and in a manner approved by Landlord. Landlord
reserves the right to inspect all freight to be brought into the Building and to
exclude from the Building all freight which violates any of these Rules and
Regulations of the Lease of which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the Building are prohibited and
each tenant shall cooperate to prevent the same.
10. Landlord reserves the right to exclude from the Building at all hours
all persons who do not present a pass to the Building signed by Landlord.
Landlord will furnish passes to persons for whom any tenant requests same in
writing. Each tenant shall be responsible for all persons for whom he requests
such passes and shall be liable to Landlord for all acts of such persons.
11. Landlord shall have the right to prohibit any advertising by any
tenant which, in Landlord's opinion, tends to impair the reputation of the
Building, or its desirability as a commercial building, including, without
limitation, telecommunications facilities, office, retail and other lawful uses
and upon written notice from Landlord, Tenant shall refrain from or discontinue
such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the
Demised Premises, any inflammable, combustible or explosive fluid, material,
chemical or substance (other than chemicals used in ordinary office use in
quantities customary therefor) without the express prior written approval of
Landlord, or cause or permit any odors of cooking or other processes, or any
unusual or other objectionable odors to permeate in or emanate from the
premises.
13. Tenant agrees to abide by all reasonable rules and regulations issued
by the Landlord with respect to services for heating, ventilating and
air-conditioning.
<PAGE>
14. Tenant shall not move any safe, heavy machinery, heavy equipment,
bulky matter, or fixtures into or out of the Building without Landlord's prior
written consent which shall not be unreasonably withheld. If such safe,
machinery, equipment, bulky matter or fixtures requires special handling, all
work in connection therewith shall comply with all laws and regulations
applicable thereto and shall be done during such hours as Landlord may
designate.
15. No Tenant shall use, or permit the use of, fire exits for ingress to
or egress from the Demised Premises. No tenant shall invite to the Demised
premises, or permit the visit of, persons in such numbers or under such
conditions as to interfere with the use and enjoyment of any of the plazas,
entrances, corridors, elevators and other facilities of the Building by the
ground floor tenants. No tenant shall encumber or obstruct, or permit the
encumbrance or obstruction of any of the Retail Premises, or the sidewalks,
plazas, entrances, corridors, elevators, fire exits or stairways of the
Building. Landlord reserves the right to control and operate the public portions
of the Building, the public facilities, as well as facilities furnished for the
common use of tenants, in such manner as Landlord deems best for the benefit of
tenants generally and consistent with a first-class office building with retail
tenants.
16. The cost of repairing any damage to the public portions of the
Building or the public facilities or to any facilities used in common with other
tenants, caused by a tenant or the employees, licensees or invitees of such
tenants, shall be paid by such tenant as provided in the Lease.
17. All entrance doors in the Demised Premises shall be left locked when
the Demised Premises are not in use. Entrance doors shall not be left open at
any time.
18. No bicycles, mopeds or vehicles of any kind shall be kept in or about
the Building or permitted therein.
19. The exterior windows and doors that reflect or admit light and air
into any premises or the halls, passageways or other public places in the
Building, shall not be covered or obstructed by any tenant, nor shall any
articles be placed on the windowsills.
20. No acids, vapors or other materials shall be discharged or permitted
to be discharged into the waste lines, vents or flues of the Building which may
damage them.
<PAGE>
Exhibit 10.1.13
OFFICE LEASE
between
PARKSIDE SALT LAKE CORPORATION
Landlord
and
ADVANCED TELECOMMUNICATIONS, INC.
Tenant
PARKSIDE TOWER BUILDING
215 South State Street
Salt Lake City, Utah
<PAGE>
TABLE OF CONTENTS
Section
- -------
Page
----
1. Rentable Area of Premises .............................................. 6
2. Term - Commencement Date and Expiration Date ........................... 6
3. Rent and Other Payments ................................................ 6
4. Security Deposit ....................................................... 8
5. Personal Property Taxes ................................................ 9
6. Use of Premises ........................................................ 9
7. Condition of Premises: Repairs, Maintenance and Construction ........... 9
8. Mechanics' Liens .......................................................10
9. Building Services ......................................................10
10. Common Areas ...........................................................11
11. Landlords Right of Access ..............................................11
12. Indemnification and Waiver .............................................12
13. Insurance ..............................................................12
14. Damage or Destruction of Building or Premises ..........................14
15. Eminent Domain .........................................................14
16. Assigning - Mortgaging - Subletting - Change in Ownership ..............15
17. Subordination - Attornment .............................................16
18. Default ................................................................17
19. Remedies ...............................................................17
20. Rules and Regulations ..................................................18
21. Surrender of Premises ..................................................18
22. Holding Over ...........................................................19
23. Notices ................................................................19
24. Estoppel Certificates ..................................................19
25. Liability of Landlord ..................................................19
26. Landlord's Inability to Perform ........................................19
2
<PAGE>
27. Attorneys Fees 20
28. General Provisions 20
Exhibit "A" Legal Description of Property 23
Exhibit "B" Drawings of Premises 24
Exhibit "C" Memorandum of Commencement Date Rentable Area 25
Exhibit "D" Tenant Work Letter 26
Exhibit "E" Rules and Regulations 39
Exhibit "F" Tenant's Estoppel Certificate 42
Exhibit "G" Parking Provisions 43
3
<PAGE>
OFFICE LEASE
THIS OFFICE LEASE (this "Lease") is made this 28th day of December 1999,
between, PARKSIDE SALT LAKE CORPORATION, a Delaware corporation ("Landlord "),
and, ADVANCED TELECOMMUNICATIONS, INC., a Delaware corporation ("Tenant").
LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, on the
terms and conditions hereinafter set forth, those premises (the Premises") set
forth in Item 2 of the Basic Lease Provisions and shown in the drawing attached
hereto as Exhibit "B", which Premises are a part of that office building (the
"Building") identified in Item 1 of the Basic Lease Provisions and situated on
that certain real property described in Exhibit "A" attached hereto (the
"Property").
BASIC LEASE PROVISIONS
<TABLE>
<S> <C>
1. Building Name and Address: Parkside Tower Building
215 South State Street
Salt Lake City, Utah 84111
2. Premises: The space on the 3rd, suite 380, as shown on
Exhibit "B".
-----------
Rentable Area: Approximately 6,744 square feet.
Usable Area: Approximately 5,796 square feet.
3. Basic Annual Rent: Basic Annual Rent Monthly Installments
----------------- --------------------
Year 1: $l14,648.00 $9,554.00
Year 2: $116,334.00 $9,694.50
Year 3: $119,706.00 $9,975.50
Year 4: $123,078.00 $10,256.50
Year 5: $124,764.00 $10,397.00
Year 6: $128,136.00 $10,678.00
Year 7: $129,822.00 $10,818.50
Year 8: $131,508.00 $10,959.00
Year 9: $133,194.00 $11,099.50
Year 10: $134,880.00 $11,240.00
Based on a beginning rate of $17.00 per year
per square foot of Rentable Area.
4. Tenant's Percentage: 3.6%
Base Year: 2000
5. Scheduled Commencement Date: On or about February 1, 2000.
6. Expiration Date: January 31, 2010
7. Tenant Improvement Allowance: $10.00/usable square foot or $57,960.00
8. Security Deposit: $20,000.00
9. Guarantor(s): None
10. Tenant's Broker: Tres Telecom Real Estate Services and CB
Landlord's Broker: Richard Ellis NAI Utah Commercial Real
Estate - Collin Perkins
</TABLE>
<PAGE>
AGENCY DISCLOSURE: At the signing of this Lease, the listing agent
represents Landlord, and the leasing agent represents Tenant. Landlord and
Tenant each confirm that prior to signing this Lease, this agency
disclosure was acknowledged by both parties. ( ) Landlords Initials
[ILLEGIBLE] Tenant's Initials
11. Use of premises: General office purposes.
12. Address for Payments and Notices:
Landlord: Payments and Local Notices
Cottonwood Management
215 S. State, Suite 805
Salt Lake City, UT 84111
Attention: Lorrie Ostlind
Tenant: Notices
Advanced Telecommunications, Inc.
730 2nd Avenue South, Suite 1200
Minnesota, MN 55402
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing provisions and Sections 1 through 28 of the
Additional Lease Provisions which follow, together with Exhibits "A" through "I"
incorporated herein by this reference, as of the date first above written.
LANDLORD: TENANT:
PARKSIDE SALT LAKE CORPORATION ADVANCED TELECOMMUNICATIONS, INC.
PLEASE SIGN
& DATE
By: /s/ [ILLEGIBLE] RM By: /s/ Satish C. Tiwari
------------------------------- ----------------------------------
Its: Asset Manager Its: SATISH C. TIWARI
------------------------------ V.P. ENGINEERING AND
NETWORK IMPLEMENTATION
ADVANCED TELECOMMUNICATIONS, INC.
730 2ND AVE S. SUITE 1200
MINNEAPOLIS, MN 55402
Date: 1-11-2000 Date: 12/30/1999
----------------------------- --------------------------------
5
<PAGE>
ADDITIONAL LEASE PROVISIONS
SECTION 1. RENTABLE AREA OF PREMISES
The Rentable Area of the Premises is provided in Item 2 of the Basic
Lease Provisions. For the purpose of this Lease, "Rentable Area" is calculated
pursuant to the Standard Method for Measuring Floor Area of Office Buildings,
ANSI 265.1-1980, commonly known as the "BOMA standard."
SECTION 2. TERM -- COMMENCEMENT DATE AND EXPIRATION DATE
The term of this Lease shall commence on the date on which Tenant
first takes possession of the Premises. If Landlord is unable to deliver
possession of the Premises to Tenant on or before the Scheduled Commencement
Date, this Lease shall not be void or voidable, but rather, shall remain in full
force and effect except as otherwise provided in this Section 2. Landlord shall
not be subject to any liability to Tenant for any loss or damage resulting from
such non-delivery and Tenant's obligations hereunder shall not be affected
thereby. If Landlord is unable to deliver possession of the Premises to Tenant
within thirty (30) days after the Scheduled Commencement Date, Tenant shall have
the option to terminate this Lease, and Landlord shall not, by reason thereof,
be subject to any liability except that Landlord shall return to Tenant all
monies which Landlord has theretofore received from Tenant as prepaid rent or as
a security deposit, without interest; provided, however, Tenant's occupancy of
the Premises at any time shall conclusively be deemed a waiver of this
provision. The term of this Lease shall, unless this Lease is terminated sooner
as provided herein, end on the "Expiration Date" as provided in Item 6 of the
Basic Lease Provisions and shall not be extended by any such delay. The date
upon which the term of this Lease actually commences shall hereafter be referred
to as the "Commencement Date." The period from the Commencement Date through the
Expiration Date is the "Lease Term," unless it is sooner terminated as provided
herein. Within thirty (30) days after the Commencement Date, Landlord and Tenant
shall execute the memorandum attached hereto as Exhibit "C", but failure to do
so shall not affect Tenant's obligations under this Lease.
SECTION 3. RENT AND OTHER PAYMENTS
3.1 Basic Annual Rent. Tenant shall pay to Landlord rent for the
Premises in an amount equal to the Basic Annual Rent set forth in Item 3 of the
Basic Lease Provisions for each year and a pro rata portion thereof for each
partial year during the Lease Term (the "Basic Annual Rent"). Basic Annual Rent
shall be paid in equal monthly installments in the amount set forth in Item 3 of
the Basic Lease Provisions, in advance and without prior notice, invoice or
demand, on the first day of each month commencing on the Commencement Date.
Basic Annual Rent payable for any period of less than one (1) month shall be
prorated based upon a thirty (30) day month.
3.2 Additional Rent.
3.2.1 Tenant's Share. In addition to Basic Annual Rent, Tenant shall
pay to Landlord, as additional rent ("Additional Rent"), the amount, if any, by
which Tenant's Share of Direct Expenses for each Expense Year exceeds Tenant's
Share of Direct Expenses for the Base Year. If the Lease Term falls partially
within an Expense Year, Tenant's share of Direct Expenses shall be equitably
prorated based upon a 360-day year consisting of twelve 30 day months, in
calculating the amount of Tenant's Additional Rent for such Expense Year.
Landlord may estimate Direct Expenses and Tenant's Additional Rent ("Estimated
Additional Rent") periodically, and after notice from Landlord of Estimated
Additional Rent for an Expense Year, Tenant shall pay Landlord, with each
installment of Basic Annual Rent, an amount equal to one-twelfth (1/12) of such
Estimated Additional Rent (or, if the Estimated Additional Rent is for a period
of less than twelve months, Tenant shall pay such Estimated Additional Rent on a
monthly basis ratably over the period to which such Estimated Additional Rent
relates).
3.2.2 Definitions: As used in this Section 3.2, the following terms
have the meaning hereinafter set forth:
(i) "Base Year" is the calendar year or other period described in
Item 4 of the Basic Lease Provisions. The Base Year is an Expense
Year.
6
<PAGE>
(ii) "Tenant's Share of Direct Expenses" for a given Expense Year is
an amount equal to the Tenant's Percentage set forth in Item 4 of
the Basic Lease Provisions multiplied by the amount of Direct
Expenses for such Expense Year. If the Rentable Area of the Premises
and/or the Rentable Area of the Building is changed, Tenant's
Percentage shall be appropriately adjusted.
(iii) "Expense Year" shall mean each twelve (12) consecutive month
period commencing January 1st of each year.
(iv) "Direct Expenses" shall mean "Operating Expenses" plus "Tax
Expenses." If during any Expense Year the Building is on a monthly
average less than ninety-five percent (95%) occupied, the Direct
Expenses shall be increased to reflect the Direct Expenses which
Landlord reasonably determines it would have so incurred had the
Building been ninety-five percent (95%) occupied and the Additional
Rent shall be based upon the Direct Expenses so adjusted.
(v) "Operating Expenses" shall mean any and all costs and expenses
paid or incurred by Landlord in connection with the operation,
maintenance, management and repair of the Building and Property. By
way of illustration but not limitation, Operating Expenses shall
include the following: (A) the cost of supplying all utilities
(unless Landlord elects to separately meter any utilities to the
Premises, in which case Tenant shall pay directly the charges for
those utilities and Operating Expenses shall not include similar
utilities furnished to other tenants' premises), the cost of
operating, maintaining, repairing and managing the utility systems,
mechanical and heating systems, ventilation and air conditioning
systems, sanitary and storm drainage systems, and escalator and
elevator systems, the cost of environmental and energy surcharges
imposed by any governmental entity, and the cost of supplies and
equipment and maintenance and service contracts in connection
therewith; (B) the cost of landscape maintenance, all supplies, and
relamping; (C) the cost of parking area maintenance, including
resurfacing, repainting and restriping, if applicable, (D) the cost
of fire, extended coverage, all-risk, boiler, sprinkler, public
liability, property damage, workmen's compensation, loss of rent,
earthquake (only if available at commercially reasonable rates) and
other or additional insurance that Landlord purchases for the
Building and Property, including such endorsements thereto as
Landlord may desire, all in such amounts as Landlord may reasonably
determine; (E) wages, salaries and other labor costs, including
payroll and employment taxes, and employee medical, welfare, pension
and other fringe benefits for persons whose services are exclusively
devoted to on-site management, security and maintenance of the
Building and Property; (F) fees, charges and other costs, including
(but not limited to) management fees, consulting fees, legal fees,
accounting fees and security service fees, of all independent
contractors engaged by Landlord (including any affiliates of
Landlord) or reasonably incurred by Landlord in connection with the
management, operation, maintenance and repair of the Building and
Property; (G) the cost of licenses, permits and inspections and the
cost of contesting the validity or applicability of any government
enactments which may affect Operating Expenses; (H) the fair market
rental value of the property manager's office in the Property; (I)
depreciation of the cost of acquiring or the rental expense of
personal property used in the maintenance, operation and repair of
the Building and Property; and (J) the cost of any reasonable
capital improvements made to the Building or Property as a
labor-saving device or to effect other economies in the operation or
maintenance of the Building or Property, or as required under any
governmental law or regulation that was not applicable to the
Building or Property at the time that permits for the construction
thereof were obtained, or as periodically required to maintain the
appearance of the Property and its first-class, competitive quality,
such costs to be amortized over such reasonable period as Landlord
shall determine, together with interest on the unamortized balance
at a market rate. For purposes of this Lease, Operating Expenses
shall not include "Tax Expenses"; principal or interest expense,
except as provided in clause (J) above; leasing commissions and
other costs related to leasing to, improvements for, disputes with
or eviction of tenants in the Building; depreciation on the
improvements contained in the Building or Property, except as
provided in clause (I) above; or the cost of capital expenditures
not included in clause (J) above. Additionally, for purposes of
computing Tenant's Base Year, excluded from this calculation are all
one-time expenses incurred by Landlord which are attributable to
repair or replacement of deferred items noted during due
7
<PAGE>
diligence and acquisition of the Property. The computation of
Operating Expenses shall be made in accordance with generally
accepted accounting principles.
(vi) "Tax Expenses" shall include real property taxes, current
installments of any general or special assessments, license fees,
commercial rental taxes, in lieu taxes, levies, charges, penalties
or similar impositions, imposed by any authority having the direct
power to tax against or attributable to any legal or equitable
interest of Landlord in the Property, including tenant improvements
and Changes (as hereafter defined) to the extent not paid directly
by tenants, which are paid or incurred by Landlord, and which shall
include, but not be limited to, the following:
(A) Any tax on Landlord's rent from the Property or as against
Landlord's business of leasing any of the Property, but specifically
excluding Landlord's federal, state or city income, franchise,
inheritance or estate taxes;
(B) Any assessment, tax, fee, levy or charge imposed by
governmental agencies for such services as fire protection, street,
sidewalk and road maintenance, refuse removal and for other
governmental services; and
(C) Any assessment, tax, fee, levy or charge, upon this
transaction evidenced by this Lease or any document to which Tenant
is a party, creating or transferring an interest or an estate in the
Premises.
3.2.3 Statement of Actual Direct Expenses. Landlord shall give to
Tenant on or before the end of each Expense Year falling in whole or in part
during the Lease Term, a statement (the "Statement") which shall state the
Direct Expenses incurred or accrued for such preceding Expense Year, and which
shall indicate the amount, if any, of Tenant's Additional Rent for such
preceding Expense Year. Upon receipt of the Statement for each Expense Year
falling in whole or in part during the Lease Term, if Tenant's Additional Rent
exceeds the amount of Estimated Additional Rent paid by Tenant for such Expense
Year, Tenant shall pay, with its next installment of Basic Annual Rent due, or,
if the Lease Term has ended, within thirty (30) days after the Statement is
rendered, the full amount of such deficiency. If payments of Estimated
Additional Rent made by Tenant for such Expense Year exceed the actual amount of
Tenant's Additional Rent, then Tenant shall receive a credit against future
payments of Additional Rent; provided, if any such credit has not been applied
as of the end of the Lease Term, Landlord shall pay Tenant an amount equal to
such unapplied credit on or before the last to occur of: (i) the thirtieth
(30th) day following the last day of the Lease Term; or (ii) the thirtieth
(30th) day following the delivery to Tenant of the Statement setting forth such
credit. The failure of Landlord to timely furnish the Statement for any Expense
Year shall not prejudice Landlord from enforcing its rights under this Section
3.
3.3 Payment of Rent. All amounts payable by Tenant to Landlord under
this Lease shall be deemed to be rent and, except as expressly provided in this
Lease, shall be payable to Landlord without abatement, deduction or offset, at
Landlord's address as provided in Item 13 of the Basic Lease Provisions or to
such other persons or at such other places as Landlord designates in writing. If
Tenant's obligation to pay any rent accrues prior to the expiration or earlier
termination of this Lease, then such obligation shall survive such expiration or
termination, even if the amount is not then due or calculated.
SECTION 4. SECURITY DEPOSIT
Tenant has deposited with Landlord the amount indicated in Item 8 of
the Basic Lease Provisions as security for the full and faithful performance of
each and every provision of this Lease to be performed by Tenant. If Tenant
defaults with respect to any provision of this Lease, Landlord may (but shall
not be required to) use, apply or retain all or any part of this security
deposit for the payment of any rent or any other sum in default, or for the
payment of any other amount which Landlord may spend or become obligated to
spend by reason of Tenant's default or to compensate Landlord for any other loss
or damage which Landlord may suffer by reason of Tenant's default. If any
portion of said deposit is so used or applied, Tenant shall, within five (5)
days after written demand therefor, deposit cash with Landlord in an amount
sufficient to restore the security deposit to its original amount. Prior to the
time when Tenant is entitled to any return of the security deposit, Landlord may
intermingle such deposit with its own funds and use such sum for such purposes
as Landlord may determine. Tenant shall not be entitled to any interest on the
security deposit.
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SECTION 5. PERSONAL PROPERTY TAXES
With respect to Tenant's trade fixtures, furnishings, equipment and
all other personal property located in the Premises, and any improvements made
to the Premises in excess of Landlord's building standard tenant improvements,
(i) Tenant shall be liable for and pay at least ten (10) days prior to
delinquency all taxes assessed against or levied thereon ("Tenant's Taxes") and
(ii) when possible, Tenant shall cause Tenant's Taxes to be assessed and billed
separately from the taxes on the Property of Landlord; but if Tenant's Taxes
shall be assessed and taxed with the Property, Tenant shall pay them to Landlord
within ten (10) days after Landlord's delivery to Tenant of a statement in
writing setting forth the amount of Tenant's Taxes.
SECTION 6. USE OF PREMISES
6.1 Limitation of Use. Tenant shall use and occupy the Premises
solely for the purpose stated in Item 11 of the Basic Lease Provisions and shall
not use or occupy the Premises or permit the same to be used or occupied for any
other purpose without the prior written consent of Landlord. Tenant agrees that
it will not do or permit anything to be done in or about the Premises which will
in any way obstruct or interfere with or infringe upon the rights of other
tenants or occupants of the Building or Property, or to injure or annoy them, or
use or allow the Premises to be used for any improper, immoral, unlawful or
objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance
in, on or about the Premises.
6.2 Compliance With Governmental and Insurance Regulations. Tenant
shall not do or permit to be done anything that will invalidate or increase the
cost of any fire, extended coverage or other insurance policy covering the
Building, and Tenant shall promptly upon demand reimburse Landlord for any
additional premium charges for such policy or policies caused by reason of
Tenant's failure to comply with the provisions of this Section 6.2. Tenant shall
not bring or permit to remain on the Premises any Hazardous Substances, except
usual office supply products used and stored in usual quantities and manner. As
used in the preceding sentence, the term "Hazardous Substances" means any
hazardous or toxic substances, materials or wastes, including, but not limited
to, those substances, materials, and wastes listed in the United States
Department of Transportation Hazardous Materials Table (49 CFR ss. 172.101) or
by the Environmental Protection Agency as hazardous substances (40 CFR Part 302)
and amendments thereto, or such substances, materials and wastes which are or
become regulated under any applicable local, state or federal law including,
without limitation, any material, waste or substance which is (i) petroleum,
(ii) asbestos, (iii) polychlorinated biphenyls, (iv) defined as a "hazardous
waste," under Section 19-6-102 of the Utah Code Annotated, Solid and Hazardous
Waste Act, or any rule promulgated thereunder, (v) designated as a "hazardous
substance" pursuant to Section 311 of the Clean Water Act, 33 U.S.C. ss. 1251,
et seq. (33 U.S.C. ss. 1321) or listed pursuant to Section 307 of the Clean
Water Act (33 U.S.C. ss. 1317), (vi) defined as a "hazardous waste" pursuant to
Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901,
et seq. (42 U.S.C. ss. 6903) or (vii) defined as a "hazardous substance"
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation, and Liability Act, (42 U.S.C. ss. 9601).
SECTION 7. CONDITION OF PREMISES: REPAIRS, MAINTENANCE AND CONSTRUCTION
7.1 Condition of Premises. Tenant acknowledges that neither Landlord
nor any agent of Landlord has made any representation or warranty with respect
to the Building or the Premises or with respect to the suitability of either for
the conduct of Tenant's business. Tenant hereby agrees to take the Premises in
their "as is" condition, subject to the provisions of Section 7.2.2 and Exhibit
"D" attached hereto. The taking of possession of the Premises by Tenant shall
conclusively establish that the Premises and the Building were at such time in
good sanitary order, condition and repair.
7.2 Maintenance and Repair.
7.2.1 Tenant Repairs and Maintenance. Tenant shall at its sole cost
and expense keep and maintain in good and tenantable condition and repair, the
Premises and every part thereof, including, without limitation, the floor
coverings, interior walls, ceiling, doors, drapes and other window treatments,
plumbing, fixtures and equipment therein. Tenant shall not commit or suffer to
be committed any waste in or upon the Premises, nor effect any Changes, nor do
anything in or on the Premises that, in Landlord's sole opinion, detracts
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from the quality or appearance of the Building. All damage or injury to the
Premises, caused by the act or negligence of Tenant, its employees, agents,
invitees, permittees, licensees or contractors shall be promptly repaired by
Tenant, at its sole cost and expense, to the satisfaction of Landlord, and
subject to such requirements respecting construction that Landlord shall
reasonably impose. Landlord may but shall not be obligated to make any repairs
that are not promptly made by Tenant and to charge Tenant for the cost thereof.
Tenant hereby expressly and irrevocably waives the benefit or applicability of
any statute or law now or hereafter in effect that would otherwise afford Tenant
the right to make repairs at Landlord's expense or to terminate this Lease
because of Landlord's failure to comply with the provisions of Section 7.2.2.
7.2.2 Landlord Repairs and Maintenance. Landlord shall maintain and
repair the structural, mechanical and utility elements and Common Areas of the
Building and Property. Any restriction on or interference with Tenant's access
to the Premises shall be limited to the minimum amount necessary to accomplish
the maintenance or repair work. Rent under this Lease shall not be abated as a
result of any such activities unless Tenant's access to the Premises is
prevented for more than 48 hours in which case, except as provided in the next
sentence, the rent shall abate for the balance of such obstruction. If the need
for repairs was caused by any act or negligence of Tenant or its employees,
agents, invitees, permittees, licensees or contractors, then such repairs shall
be performed at Tenant's expense and no abatement of rent shall occur.
7.3 Construction of Improvements to the Premises. Except for
alterations, additions, modifications or improvements (collectively, "Changes")
expressly required or permitted by this Lease, Tenant shall not make any Changes
to the Premises or any part thereof without Landlord's prior written consent,
which consent shall not be unreasonably withheld or delayed. To the extent
permitted or consented to hereunder, any construction undertaken in or to the
Premises shall be performed in accordance with this Section and any reasonable
requirements then imposed by Landlord. All Changes made in or to the Premises
shall become the property of Landlord and a part of the realty. All initial
tenant improvements to the Premises, and all later Changes to the Premises that
are non structural that cost in excess of twenty thousand dollars ($20,000)
shall, at Landlord's option, be performed by Landlord or its contractor. Any
later Changes to the Premises costing less than twenty thousand dollars
($20,000), or later Changes that cost $20,000 or more which Landlord elects not
to construct may be constructed by Tenant, subject to reasonable construction
and other requirements then imposed by Landlord, including the right to
reasonably approve all plans and specifications and charge Tenant a supervision
fee equal to five percent (5%) of the cost of such work. Landlord shall pay for
the cost of initial improvements to the Premises in accordance with the
provision of Exhibit "D" attached hereto up to the amount of the "Tenant
Improvement Allowance" specified in Item 7 of the Basic Lease Provisions, if
any, and the balance shall be paid by as provided for in Exhibit "D". Unless
otherwise expressly provided in this Lease, Tenant shall pay all costs of any
later Changes to the Premises.
SECTION 8. MECHANICS' LIENS
Tenant hereby agrees to keep the Property free from any liens
arising out of any work performed, materials furnished or obligations incurred
by or on behalf of Tenant and to promptly notify Landlord if it learns of any
such liens.
SECTION 9. BUILDING SERVICES
9.1 Provision of Services. So long as Tenant is not in default
hereunder, Landlord agrees, subject to the terms and conditions hereinafter set
forth, to furnish or provide for the furnishing to the Premises (i) air
conditioning, heat, lighting, and elevator service only during the hours of 7:30
a.m. to 6:00 p.m. Monday through Friday, except legal holidays, and 8:00 a.m. to
1:00 p.m. Saturdays, in such quantity and of such quality as Landlord determines
in its sole judgment is reasonably necessary for Tenant's comfortable use and
enjoyment of the Premises for general office purposes and, at all other times,
to provide air conditioning, heating and lighting at Landlord's prevailing rate,
and one elevator; (ii) on the same floor as the Premises, water for lavatory and
drinking purposes at all times when the Premises are occupied; (iii) routine
janitorial services five (5) days per week (except for legal holidays); and (iv)
maintenance of the Common Areas. No gas shall be provided to or permitted in the
Premises. Electricity service and costs therefor, except electricity used for
before or after hours lighting or electricity that is separately metered, are
the obligations and expense of Landlord, as Operating Expenses, provided
Landlord is entitled to reimbursement therefor to the extent such costs are
included in Additional Rent. Tenant shall arrange for and shall pay the entire
cost and expense of all materials and services
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relating to or used on the Premises not expressly required to be provided and
paid for by Landlord pursuant to this Lease.
9.2 Interruption of Services. Landlord shall under no circumstances
be liable in damages or otherwise for any failure or interruption of, or
reduction in any utility service or Building service being furnished to the
Premises by Landlord or otherwise and no such failure or interruption shall
under any circumstances entitle Tenant to withhold, reduce or abate any rent or
terminate this Lease, regardless of whether caused by riot, strike, lockout,
labor disputes, breakage, breakdowns, accidents, repairs, governmental
regulation or moratorium, any act or omission of Tenant or its employees,
agents, invitees, licensees, customers or visitors or any other cause.
9.3 Additional Building Service Demands. Tenant shall not install
any computers, copiers or other electrical office equipment in the Premises
without Landlord's prior written approval. Should any equipment installed by
Tenant produce any significant amount of heat or cause any significant
additional usage or draw on the electrical or other utility system, Landlord
shall not be responsible for the adequacy of any air conditioning, electric
current or other utilities affected thereby, and to the extent Tenant uses or
requests additional utilities or Building services as a result thereof, Tenant
shall pay to Landlord an amount reasonably estimated by Landlord to be the
additional costs incurred thereby. If and where heat generating machines or
devices are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves the right to
install additional or supplementary air conditioning units for the Premises or
other affected areas of the Building, and the entire cost of installing,
operating, maintaining and repairing the same shall be paid by Tenant to
Landlord promptly after demand by Landlord.
SECTION 10. COMMON AREAS
The term "Common Areas" as used herein shall mean all areas and
facilities outside the Premises or premises leased to other tenants of the
Property and within the exterior boundaries of the Property which are provided
and designated from time to time by Landlord for the general use and convenience
of Tenant and other tenants of the Property and their respective employees,
invitees or other visitors. Common Areas include, without limitation, walkways,
sidewalks, service quarters, hallways, restrooms (if not part of the premises),
stairways, elevators and walls, except to the extent situated entirely within
the Premises or premises leased to other tenants of the property. Tenant, its
employees and invitees shall have the nonexclusive right to use the Common Areas
along with others entitled to use same, subject to Landlord's rights and duties
as hereinafter set forth. Landlord shall have the right to temporarily close or
obstruct the Common Areas or any part thereof for maintenance, alteration,
addition or improvement purposes, or to protect Landlord's legal rights, and to
change the size, use, shape or nature of any such Common Areas and remove
portions of the Common Areas from Tenant's use, provided such change does not
deprive Tenant of the substantial benefit and enjoyment of the Common Areas or
its Premises.
SECTION 11. LANDLORD'S RIGHT OF ACCESS
Landlord reserves for itself at any and all times the right to enter
the Premises and to take materials and equipment therein, as necessary, for
purposes of (i) providing janitorial services and any other service to be
provided by Landlord to Tenant hereunder; (ii) examining or inspecting the
Premises; (iii) serving or posting notices of non- responsibility; (iv) showing
the same to prospective tenants or mortgagees of the Premises or purchasers of
the Building; (v) emergency entry, by force if necessary; (vi) entry by security
personnel during non-business hours to make security checks; or (vii) making
such Changes or repairs to the Premises or to any other portion of the Building
as Landlord may deem necessary or desirable, including the installation of
sprinklers in the Premises and Building, all without being deemed guilty of an
eviction of Tenant and without abatement of rent. Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and about
the Premises, excluding Tenant's vaults and safes. Landlord shall have the right
to place, maintain, and repair all utility equipment of any kind in, upon, and
under the premises as may be necessary for the servicing of the premises or
other portions of the Building.
SECTION 12. INDEMNIFICATION
12.1 Indemnification. To the extent not prohibited by law, Landlord,
its partners, trustees ancillary trustees, and their respective officers,
directors, shareholders, members, beneficiaries, agents, servants, employees,
and independent contractors (collectively, "Landlord Persons") shall not be
liable for any damage,
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claims, or loss either to person or property, or resulting from the loss of use
thereof, which damage is sustained by Tenant or by other persons claiming
through Tenant; provided, however, nothing herein is intended to limit the
liability of each of the Landlord Persons for damage arising solely from his,
her or its own gross negligence or intentional misconduct, which gross
negligence or intentional misconduct of Landlord Persons other than Landlord
itself, shall not be imputed to Landlord. Tenant agrees to indemnify, defend,
and hold Landlord harmless from all claims, costs, expenses, losses, damages,
and liabilities, including attorney's fees, except those caused solely by
Landlord's negligence, gross negligence or intentional misconduct, arising or
resulting from (a) any accident, injury, death, loss, or damage to any person or
to any property, including without limitation, the person and property of the
Tenant and its partners, trustees, officers, directors, shareholders, members,
beneficiaries, licensees, invitees, or any subtenants or subtenants' agents,
employees, contractors, or invitees, servants, guests, or independent
contractors ("Tenant Persons"), and all other persons at any time in the
building or the Premises or the Common Areas, (b) the occupancy or use of the
Premises by the Tenant, or (c) any act or omission or negligence of Tenant
Persons. The indemnification obligations of Tenant under this Lease shall
survive the expiration or earlier termination of this Lease.
12.2 Tenants Compliance with Landlord's Fire and Casualty Insurance.
Tenant shall, at Tenant's expense, comply as to the Premises with all insurance
company requirements pertaining to the use of the Premises. If Tenant's conduct
or use of the Premises causes any increase in the premium for such insurance
policies, then Tenant shall pay Landlord for nay such increase. Tenant, at
Tenant's expense, shall comply with all rules, orders, regulations or
requirements of the American Insurance Association (formerly the National Board
of Fire Underwriters) and with any similar body.
SECTION 13. INSURANCE
13.1 Tenant's Insurance. Tenant shall maintain the following
coverages in the following amounts.
13.1.1 Commercial General Liability Insurance covering the
insured against claims of bodily injury, personal injury, and property damage
arising out of Tenant's operations, assumed liabilities, or use of the Premises,
including a Broad Form Commercial General Liability endorsement covering the
insuring provisions of this Lease and the performance by Tenant of the indemnity
agreements set forth in Section 12.1 of this Lease, for limits of liability not
less than:
Property Injury and $2,000,000 each occurrence
Property Damage Liability $2,000,000 annual aggregate
Personal Injury Liability $2,000,000 each occurrence
$2,000,000 annual aggregate
13.1.2 Physical Damage Insurance covering (i) all office
furniture, trade fixtures, office equipment, merchandise, and all other items of
Tenant's property on the Premises installed by, for, or at the expense of
Tenant, (ii) the Tenant Improvements, including any Tenant Improvements which
Landlord permits to be installed above the ceiling of the Premises or below the
floor of the Premises, and (iii) all other improvements, alterations, and
additions to the Premises, including any improvements, alterations, or additions
installed at Tenant's request above the ceiling of the Premises or below the
floor of the Premises. Such insurance shall be written on an "all risks" of
physical loss or damages basis, for the full replacement cost value new without
deduction for deprecation of the covered items and in amounts that meet any
co-insurance clauses of the policies of insurance and shall include a vandalism
and malicious mischief endorsement, and sprinkler leakage coverage.
13.1.3 Loss-of-income and extra-expense insurance in such
amounts as will reimburse Tenant for direct or indirect loss of earnings
attributable to all perils commonly insured against prudent tenants or
attributable to prevention of access to the Premises or to the Building as a
result of such perils.
13.1.4 The minimum limits of policies of insurance required of
Tenant under this Lease shall in no event limit the liability of Tenant under
this Lease. Such insurance shall (i) name Landlord, and any other party it so
specifies, as an additional insured; (ii) specifically cover the liability
assumed by Tenant under this Lease, including, but not limited to, Tenant's
obligations under Section 12.1 of this Lease; (iii) be
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issued by an insurance company having a rating of not less than A-X in Best's
Insurance Guide or which is otherwise acceptable to Landlord and licensed to do
business in the state in which the Building is located; (iv) be primary
insurance as to all claims thereunder and provide that any insurance carried by
Landlord is excess and is non-contributing with any insurance requirement of
Tenant; (v) provide that said insurance shall not be canceled, expire, or
coverage changed unless thirty (30) days' prior written notice shall have been
given to Landlord and any mortgagee or ground or underlying lessor of Landlord;
and (vi) contain a cross-liability endorsement or severability of interest
clause acceptable to Landlord. Tenant shall deliver said policy or policies or
certificates thereof to Landlord on or before the Commencement Date and at least
thirty (30) days before the expirations dates thereof. In the event Tenant shall
fail to procure such insurance, or to deliver such policies or certificate,
Landlord may, at its option, procure such policies for the account of Tenant,
and the cost thereof shall be paid to Landlord as additional Rent within five
(5) days after delivery to Tenant of bills thereof.
13.2 Subrogation. Landlord and Tenant agree to request that their
respective insurance companies issuing property damage insurance waive any
rights of subrogation that such companies may have against Landlord or Tenant,
as the case may be, so long as the insurance carried by Landlord or Tenant,
respectively, is not invalidated thereby. As long as such waivers of subrogation
are contained in their respective insurance policies, and subject to Section 14,
Landlord and Tenant hereby waive any right that either may have against the
other on account of any loss or damage to their respective property to the
extent such loss or damage is actually insured under policies of insurance for
fire, all risk coverage, theft, public liability, or other similar insurance.
13.3 Additional Insurance Obligations. Tenant shall carry and
maintain during the entire Lease Term, at Tenant's sole cost and expense the
insurance required to be carried by Tenant pursuant to this Section 13, and such
other reasonable types of insurance coverage and in such reasonable amounts
covering the Premises and Tenant's operations therein, as may be reasonably
requested by Landlord. Tenant shall not do or permit to be done anything which
shall cause the cancellation of, invalidate, increase the rate of, or otherwise
adversely affect, the insurance policies referred to in this Section 13.
13.4 No Gap In Coverage. All insurance provided by Tenant under this
Lease shall be coordinated with any preceding, concurrent or subsequent,
occurrence or claims made in insurance, in such a manner as to avoid any gap in
coverage against claims arising out of occurrences, conduct or events which take
place during the period beginning on the Lease Date and ending on termination of
this Lease.
13.5 No Landlord Representation. Landlord makes no representation
that the insurance coverage required of Tenant provides adequate coverage for
Tenant's needs or for its obligations under this Lease. Nothing in this Lease is
intended to make Tenant an insured party in any manner under any insurance
policy carried by Landlord.
13.6 No Waiver of Insurance Requirements. Landlord shall not be
deemed to have waived or reduced any of the insurance coverage requirements for
Tenant except by an express written agreement to that effect. The receipt by
Landlord or its contractors or agents of insurance policies, certificates,
letters, or other correspondence, documents or information which do not conform
to the insurance requirements of this Lease, or the failure of Landlord to
receive policies, certificates, or other documentation requires by this Section
13, shall not be deemed to be Landlord's consent to a waiver or reduction of any
such requirements, despite any failure by landlord to object to same at the time
of receipt (or lack of receipt), or thereafter. Any reduction, modification, or
waiver of any of Tenant's insurance requirements under this Lease may be made
only by written document signed by Landlord and Tenant which expressly amends
the pertinent described portions of this Lease.
SECTION 14. DAMAGE OR DESTRUCTION OF BUILDING OR PREMISES
14.1 Partial Damage. Except as provided in Section 7.2, if the
Premises or the Building is damaged by fire or other insured casualty and the
insurance proceeds have been made available therefor by the holder or holders
of any mortgages or deeds of trust covering the Property, the damage shall be
repaired by Landlord; provided, if (a) such repairs cannot, in Landlord's sole
opinion, be made within ninety (90) days after the occurrence of such damage
without the payment of overtime or other premiums; (b) such repairs cannot be
made at a cost equal to or less than the amount of insurance proceeds available
therefor; (c) the Premises by reason
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of such damage are rendered wholly untenantable; (d) the Premises are damaged in
whole or in part during the last six (6) months of the Lease Term; or (e) the
Premises or the Building (whether the Premises are damaged or not) should be
damaged to the extent of fifty percent (50%) or more of the then-monetary value
thereof, then Landlord shall not be required to make such repairs but may, at
its discretion, elect to do so. Landlord's election to make such repairs must be
evidenced by written notice to Tenant within ninety (90) days of Landlord's
learning of the occurrence of the damage. Any reconstruction or repair of the
Premises Landlord is required or elects to make in accordance with the
provisions of this Section 14.1 shall be substantially to the condition that
existed immediately prior to the damage or destruction. If Landlord is not
required to make such repairs and does not elect to make them then either party
may, by written notice to the other, cancel this Lease as of the date of the
occurrence of such damage, provided, Tenant may not elect to terminate this
Lease if the damages to the Premises were due to the act, omission, fault or
neglect of Tenant or its employees, agents or visitors. If any policy of
insurance required to be obtained by Tenant under this Lease covers any damage
or loss which Landlord is required or elects to repair under this Section 14.1,
Tenant shall take such action as may be necessary to collect the proceeds of
such insurance relating to such damage or loss and shall pay such proceeds to
Landlord.
14.2 Tenant Reconstruction Obligation. Tenant shall be required to
repair or replace at its sole cost and expense Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
14.3 Rent Abatement. In the event of any repair, reconstruction and
restoration as provided in Sections 14.1, Tenant's rent shall be equitably
abated proportionately with the degree to which Tenant's use of the Premises is
impaired commencing from the date of destruction and continuing during the
period of such repair, reconstruction or restoration, provided, however, that
there shall be no rent abatement whatsoever if either (i) the damage is due to
the act, omission, fault or neglect of Tenant or its employees, agents or
visitors or (ii) if the use and enjoyment of the Premises is not affected for
more than two (2) business days of operation.
14.4 Notice of Casualty. Tenant shall give prompt notice to Landlord
of any casualty or accident of which Tenant is aware occurring in the Premises
or in the Building and any defects therein or damages thereto or in any fixtures
or equipment.
SECTION 15. EMINENT DOMAIN
15.1 Partial Taking. If there is a taking of or damage to less than
the entire Premises, then with respect to that portion of the Premises not taken
or damaged, this Lease shall continue in effect and the Basic Annual Rent and
Tenant's Share shall be reduced or adjusted proportionately. Landlord shall, as
promptly as possible, restore, repair and replace that portion of the Premises,
Building or Common Areas not so taken or damaged to a complete architectural
unit or units for the use and occupancy of Tenant and other tenants and, as
nearly as possible, to the condition existing prior to the taking or damaging.
Landlord shall not be required to expend for such work an amount in excess of
the amount received by Landlord as damages for the part of the Property so taken
less amounts required to be paid by Landlord to mortgage lenders.
Notwithstanding the foregoing, Landlord or Tenant may elect, within thirty (30)
days after the taking or damaging, to terminate this Lease if (i) twenty percent
(20%) or more of the Premises or Building are taken or damaged, or (ii) so much
of the parking areas of the Property are taken or damaged that Tenant cannot be
assured the use of the number of parking spaces required by municipal code,
considering the similar usage of other tenants at the Property. In order to
terminate this Lease, Landlord shall deliver written notice to Tenant, which
notice shall specify a termination date at least thirty (30) days and not more
than ninety (90) days from the date thereof. In such event, Landlord shall not
be required to repair, restore or reconstruct the Premises.
15.2 Allocation of Award. The entire award or compensation,
including interest, whether for a total or partial taking or damaging or for a
diminution in the value of Tenant's leasehold or Landlord's fee or other
interest, shall belong to and be the property of Landlord, and Tenant hereby
assigns to Landlord all of Tenant's interest in any award. Tenant shall have the
right to prove in the proceedings related to the taking or damaging loss of, and
to receive any separate award which may be made for damage to or condemnation
of, Tenant's equipment, trade fixtures, furniture and furnishings, and for
relocation costs and goodwill.
15.3 Definitions. As used in this Section 15, (i) the term "taking
or damaging" shall include inverse condemnation, or any transfer made in
avoidance of the power of eminent domain; and (ii) the "award"
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shall include all monies awarded for a taking or damaging occurring before or
after the commencement of litigation proceedings.
SECTION 16. ASSIGNING - MORTGAGING - SUBLETTING - CHANGE IN OWNERSHIP
16.1 No Transfer or Sharing Without Consent. Tenant shall not
assign, sublet, enter into a license or concession agreement for, hypothecate or
otherwise divest itself of this Lease or any of its rights hereunder
(collectively, a "transfer of rights") or permit any third party or parties
other than Tenant, its authorized agents, employees, invitees and visitors to
occupy the Premises or any portion thereof (collectively, a "sharing of the
Premises") without Landlord's prior written consent, which consent may be
withheld in Landlord's sole discretion. Unless Landlord expressly agrees
otherwise, Tenant shall not be relieved of any of its duties or obligations
under this Lease as a result of any transfer of rights or sharing of the
Premises, regardless whether consented to by Landlord. Such prohibition against
the transfer of rights shall include any transfer of rights by operation of law.
Any attempted transfer of rights or sharing of the Premises without Landlord's
advance written consent shall constitute a default hereunder and shall be void
ab initio so as not to confer any rights upon any third person. Consent to any
transfer of rights shall not operate as a waiver of the necessity for consent to
any subsequent transfer of rights, and the terms of such consent shall be
binding upon any person holding by, under, or through Tenant. The provisions of
Section 16.2 hereof constitute the sole means by which such consent may be
requested. If a transfer of rights occurs or if there is a sharing of the
Premises, Landlord may collect rent and other charges from such assignee or
other party, and apply the amount collected to the rent and other charges
reserved hereunder, but such collection shall not constitute consent or waiver
of the necessity of consent to such transfer or sharing of the Premises, nor
shall such collection constitute the recognition of such assignee, sublessee, or
other party as the Tenant hereunder or a release of tenant from the further
performance of all of the covenants and obligations of Tenant herein contained.
Any transfer of this Lease or of Tenant's rights hereunder by
merger, consolidation, transfer of assets or liquidation shall constitute a
transfer of rights. In the event that Tenant is a corporation, an unincorporated
association, or a partnership, the transfer, assignment or hypothecation of any
stock or interest in such corporation, association or partnership in the
aggregate in excess of 49% of the total outstanding stock or interest shall be
deemed a transfer of rights.
Related Entity: Notwithstanding the provisions of Section 16.1
above, Tenant may assign this Lease or sublet the Premises, or any portion
thereof, without Landlord's consent to any entity resulting from a merger or
consolidation of Tenant with any other entity, (ii) any entity purchasing all or
substantially all of the stock or assets of Tenant, (iii) any entity succeeding
to all or substantially all of the business and all or substantially all of the
assets of Tenant, or (iv) any entity which controls, is controlled by or is
under common control with Tenant, provided that (a) the assignee or sublessee
assumes, in full, the obligations of Tenant under this Lease, (b) Tenant remains
fully liable under this Lease, (c) the use of the Premises under Section 6
remains unchanged, and (d) Landlord shall have received an executed copy of the
assignment or sublease on or before its effective date (e) the net worth of the
entity is equal or greater than Tenant as of the effective date. No change of
stock ownership or control or partnership change, assignment, transfer or
hypothecation of any partnership or other ownership interest in Tenant shall
constitute an assignment hereunder.
16.2 Procedure for Requesting Consent. If Tenant desires at any time
to effect a transfer of rights or sharing of the Premises it must first notify
Landlord in writing of its desire to do so and shall submit in writing to
Landlord (i) the name of the third party concerned; (ii) the nature of the third
party's business proposed to be carried on in the Premises; (iii) the terms and
provisions of the proposed transfer of rights or sharing of the Premises; and
(iv) such financial and business information as Landlord may reasonably request
concerning the third party. Submission to Landlord by Tenant of an executed
sublease or other document purporting to make a transfer of rights or sharing of
the Premises subject to Landlord's approval shall constitute a request for
Landlord's consent under this Section 16.2.
16.3 Conditions of Authorization. As conditions precedent to
Landlord's consent to Tenant's transfer of rights or sharing of the Premises,
Landlord may require, without limitation, any or all of the following:
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(a) Tenant shall reimburse Landlord for Landlord's reasonable
attorneys' fees incurred in connection with the review,
processing and documentation of such request;
(b) If Tenant's transfer of rights or sharing of the Premises
provides for the receipt by, on behalf or on account of Tenant
of any consideration of any kind whatsoever (including, but
not by way of limitation, a premium rental for a sublease or
lump sum payment for an assignment) in excess of the rental
and other charges due Landlord under this Lease, Tenant shall
pay one hundred percent (100%) of said excess to Landlord when
such consideration is received by Tenant;
(c) In the event of a sublease or sharing of the Premises, the
third party shall agree in writing that in the event Landlord
gives such third party notice that Tenant is in default under
this Lease, such third party shall thereafter make all
payments otherwise due Tenant directly to Landlord, which
payments will be received by Landlord without any liability of
Landlord except to credit such payment against those due under
the Lease, and any such third party shall agree to attorn to
Landlord or its successors and assigns should this Lease be
terminated for any reason; provided however that in no event
shall Landlord or its successors or assigns be obligated to
accept such attornment;
(d) In the case of an assignment of this Lease, the assignee shall
agree in writing to assume, be bound by and perform all of the
terms, covenants and conditions of this Lease;
(e) Tenant shall not then be in default hereunder in any respect;
and
(f) Tenant shall deliver to Landlord one executed copy of any and
all written instruments evidencing or relating to Tenant's
transfer of rights or sharing of the Premises.
16.4 Right of Termination. Notwithstanding any other provision
hereof, in lieu of giving such consent, Landlord may at its election, elect to
(i) construe such proposed transfer of rights or sharing of the Premises as an
offer to Landlord on the same terms and conditions as with the third party,
which offer may be accepted at any time within thirty (30) days after receipt
thereof, and if so accepted, such transfer of rights to or sharing of the
Premises with Landlord shall automatically be deemed consummated on all the
terms and provisions set forth in such proposed transfer (except that Landlord
may further assign or otherwise transfer such interest without Tenant's review
or consent) or (ii) terminate this Lease (or in the case of a proposed
subletting or assignment of a portion of the Premises, elect to terminate this
Lease as respects that portion) upon thirty (30) days' prior notice and release
Tenant from any liability under this Lease (as to that portion of the Premises
involved) accruing after the effective date of such termination.
SECTION 17. SUBORDINATION - ATTORNMENT
17.1 Subordination. At Landlord's request, Tenant agrees to
subordinate this Lease to the lien of any mortgages or deeds of trust in any
amount hereafter placed on or against the Property and if Landlord elects to
make any such lien subordinate to this Lease, Tenant hereby consents and agrees
to such election. Tenant agrees that at the request of Landlord at any time and
from time to time Tenant shall execute and deliver to Landlord an instrument, in
form reasonably acceptable to Landlord, evidencing such subordination. Tenant
shall not subordinate this Lease to any such lien except at the request or with
the written consent of Landlord. Tenant, at the written request of any person
that acquires Landlord's interest in this Lease by sale, assignment, transfer,
foreclosure, termination of a ground lease or otherwise, shall attorn to such
person and its successors and assigns.
17.2 Quiet Enjoyment. Upon Tenant paying the Basic Annual Rent and
all Additional Rent and performing all of Tenant's obligations under this Lease,
Tenant may peacefully and quietly enjoy the Premises during the Lease Term as
against all persons or entities lawfully claiming by or through Landlord,
subject, however, to the provisions of this Lease and to any mortgages
encumbering the Property.
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SECTION 18. DEFAULT
The occurrence of any of the following shall constitute Tenant's
breach of and default under this Lease:
(a) The failure by Tenant to make any payment of Basic Annual
Rent, Additional Rent or pay other sums, taxes and insurance
premiums as and when due.
(b) Failure by Tenant in the prompt and complete performance and
observance of any other express or implied covenant, agreement
or obligation of Tenant contained in this Lease and the
continuation of such failure for a period of twenty (20) days
after notice thereof from Landlord to Tenant, provided,
however, that if the nature of Tenant's default is such that
more than twenty (20) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if
Tenant shall commence such cure within said twenty (20) day
period and thereafter diligently prosecute such cure to
completion.
(c) Any attachment or levy of execution or similar seizure of the
Premises or Tenant's fixtures or other property at the
Premises or any foreclosure, repossession or sale under any
chattel mortgage, security agreement or conditional sales
contract covering Tenant's fixtures or other property at the
Premises; or the filing by Tenant or any guarantor of this
Lease of, or consent to, any petition under any chapter of the
Bankruptcy Code or any state proceeding relating to insolvency
or protection from creditors, or the adjudication of Tenant or
of any guarantor of this Lease as a bankrupt or insolvent; or
the appointment of a receiver or trustee to take possession of
all or substantially all of the assets of Tenant or of any
guarantor of this Lease or a general assignment by Tenant or
of any guarantor of this Lease for the benefit of creditors;
or any other action taken or consented to by Tenant or by any
guarantor of this Lease under any state or federal insolvency
or bankruptcy act; or the involuntary filing of a bankruptcy
petition or state insolvency action by Tenant or any guarantor
of this Lease or appointment of a trustee or receiver for
Tenant or any guarantor of this Lease, and the same is not
dismissed or stayed within thirty (30) days.
(d) The vacation or abandonment of the Premises by Tenant.
SECTION 19. REMEDIES
19.1 Landlord's Remedies. In the event of default by Tenant under
this Lease, Landlord may, at its option: (1) Terminate Tenant's right to
possession of the Premises because of such breach and recover from Tenant all
damages it may incur by reason of Tenant's default, including, without
limitation, the worth at the time of the award of the amount by which the unpaid
rent for the balance of the Lease Term after the time of award exceeds the
amount of such rental loss that Tenant proved could be reasonably avoided; or
(2) Not terminate Tenant's right to possession because of such breach, but
continue this Lease in full force and effect, in which event Landlord may
enforce all rights and remedies hereunder, including without limitation the
right to recover the Basic Annual Rent and Additional Rent as such becomes due.
In either event Landlord may reenter the Premises and remove all persons and
property from the Premises, storing said property in a public place, warehouse,
or elsewhere at the cost of, and for the account of, Tenant, all without service
of notice or resort to legal process and without being deemed guilty of or
liable in trespass. No such reentry or taking possession of the Leased Premises
by Landlord shall be construed as an election on its part to terminate this
Lease unless a written notice of such intention is given by landlord to Tenant.
No such action by Landlord shall be considered or construed to be a forcible
entry. In addition to, and not in lieu of, any of the remedies provided in this
Section 19.1, Landlord shall be entitled to take any other action and pursue any
other remedy provided at law, in equity or under this Lease. No reentry to,
taking possession of the Premises or other action by Landlord upon or following
the occurrence of any breach or default by Tenant shall be construed as an
election by Landlord to terminate this Lease unless Landlord provides Tenant
written notice of such termination.
Should Landlord reenter, as provided above, or should it take
possession pursuant to legal proceedings or pursuant to any notice provided for
by Law, and whether or not it terminates this Lease, it may be necessary to
relet the Leased Premises. Landlord may relet the same or any part thereof for
such term or terms
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(which may be for a term extending beyond the term of this Lease) and at such
rental or rentals and upon such other terms and conditions as Landlord in its
sole discretion may deem advisable. Upon each such reletting all rentals
received by the Landlord from such reletting shall be applied, first, to the
payment of any costs and expenses of such reletting, including brokerage fees
and attorney's fees and costs of any alterations and repairs; second, to the
payment of any indebtedness other than rent due hereunder from Tenant to
Landlord; third, to the payment of rent due and unpaid hereunder, and the
residue, if any, shall be held by Landlord and applied in payment of future rent
as the same may become due and payable hereunder. If such rentals received from
such reletting during any month shall be less than that to be paid during such
month by Tenant hereunder, Tenant shall pay any such deficiency to Landlord.
Such deficiency shall be calculated and paid monthly.
19.2 Assignment of Subrents. As additional security for Tenant's
performance of its obligations hereunder, Tenant hereby assigns to Landlord the
right to receive the rents, issues, profits or other payments received under a
transfer of rights or sharing of the Premises by Tenant, reserving unto Tenant
the right prior to any breach or default hereunder to collect and retain said
rents, issues and profits as they become due and payable. Nothing in this
Section 19.2 shall be construed as permitting any transfer of rights or sharing
of the Premises contrary to Section 16.
19.3 Landlord's Cure of Tenant's Default. If at any time during the
term hereof Tenant fails, refuses or neglects to do any of the things herein
provided to be done by Tenant, Landlord shall have the right but not the
obligation to do the same, but at the cost and for the account of Tenant. The
amount of any money so expended or obligations so incurred by Landlord together
with interest thereon at the lesser of eighteen percent (18%) per annum or the
maximum interest rate permitted by law shall be repaid to Landlord immediately
upon demand therefor, and unless so paid shall be added to the next monthly
payment coming due hereunder and shall be payable as rent.
19.4 Interest and Charges on Past Due Obligations. Any amount due
from Tenant to Landlord hereunder which is not paid when due shall bear interest
at the lesser of eighteen percent (18%) per annum or the maximum lawful rate of
interest from the due date until paid, unless otherwise specifically provided
herein. In addition to such interest, if an installment of Basic Annual Rent is
not paid within five (5) days after the same is due, a late charge equal to four
percent (4%) of the amount overdue or One Hundred Dollars ($100), whichever is
greater, shall be assessed.
SECTION 20. RULES AND REGULATIONS
Tenant shall faithfully observe and strictly comply with the rules
and regulations set forth in Exhibit "E" hereto. Said rules and regulations may
be deleted, amended or supplemented by Landlord from time to time with such
other rules and regulations as Landlord may reasonably adopt for the safety,
care, and cleanliness of the Building and the Property and the facilities
thereof, or the preservation of good order therein. Landlord shall not be liable
to Tenant for violation by any other tenant in the Building of any such rules
and regulations, or for breach of any covenant or condition in any lease.
Landlord has not represented and is not hereby representing that all tenants in
the Building are or shall be bound to any part or all of such rules and
regulations.
SECTION 21. SURRENDER OF PREMISES
Upon the expiration or sooner termination of the term of this Lease,
Tenant shall surrender the Premises in as good condition as when received,
reasonable wear and tear excepted, broom clean and free of trash and rubbish,
and free from all tenancies or occupancies by any person. Tenant shall remove
all trade fixtures, furniture, equipment and other personal property installed
in the Premises prior to the expiration or earlier termination of this Lease.
Tenant shall, at its own cost, completely repair any and all damage to the
Premises and the Building resulting from or caused by such removal. If Tenant
fails to remove such items upon the expiration of this Lease, the same shall be
deemed abandoned and shall become the property of Landlord. Landlord shall not
be deemed to have accepted any surrender of the Premises to Landlord prior to
the end of the Lease Term, unless Landlord has agreed and acknowledged, in
writing, that it has accepted such surrender.
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SECTION 22. HOLDING OVER
Should Tenant, with or without Landlord's written consent, hold over
after the expiration of this Lease, Tenant shall pay, in advance, monthly rent
at the rate of one hundred fifty percent (150%) of one month's Basic Annual
Rent, plus all Additional Rent provided by this Lease.
SECTION 23. NOTICES
Any notice required or permitted to be given hereunder shall be in
writing and shall be deemed effective either upon personal delivery, or receipt
thereof when deposited in the United States mail, registered or certified
delivery, return receipt requested, addressed to the Tenant at the Premises or
to Landlord or Tenant at the location stated in Item 13 of the Basic Lease
Provisions. Either party may specify a different address for notice purposes in
the manner aforesaid. A copy of all notices to be given to Landlord hereunder
shall be concurrently transmitted by Tenant to any additional party hereafter
designated by a notice from Landlord to Tenant. Notwithstanding the foregoing,
if either party refuses to accept or sign the return receipt for any notice
tendered to it pursuant to this Section 23, such notice shall be deemed
effective when tendered.
SECTION 24. ESTOPPEL CERTIFICATES
Landlord or Tenant shall, at any time and from time to time, upon
not less than ten (10) days' prior notice from the other party, execute,
acknowledge and deliver to the party requesting a statement in substantially the
form and substance as the Estoppel Certificate attached hereto as Exhibit "F",
plus other information reasonably requested by a potential purchaser or
mortgagee. Landlord's or Tenant's failure to deliver such statement within such
time shall, at the option of Landlord or Tenant, constitute a default under this
Lease and, in any event, shall be conclusive upon Landlord or Tenant that this
Lease is in full force and effect without modification except as may be
represented by Landlord or Tenant in any such certificate prepare by Landlord or
Tenant and delivered to Landlord or Tenant for execution.
SECTION 25. LIABILITY OF LANDLORD
In the event of any transfer or transfers of Landlord's interest in
the Premises, other than a transfer for security purposes only, Landlord shall
be automatically relieved of any and all obligations and liabilities hereunder
from and after the date of such transfer, it being intended hereby that the
covenants and obligations contained in this Lease on the part of Landlord shall
be binding on Landlord only during and in respect of its ownership. The
transferee of Landlord's interest in this Lease shall be deemed automatically
without further agreement to have assumed all of Landlord's duties and
obligations hereunder. Tenant agrees to look solely to Landlord's estate and
interest in the Property for the satisfaction of any remedy of Tenant for the
collection of a judgment (or other judicial process) requiring the payment of
money by Landlord in the event of any default by Landlord hereunder, and no
other property or assets of Landlord or of any partner, officer, director,
shareholder, agent or employee of Landlord shall be subject to levy, execution
or other enforcement procedure for the satisfaction of Tenant's remedies under
or with respect to this Lease, the relationship of Landlord and Tenant
hereunder, or Tenant's use or occupancy of the Premises.
SECTION 26. LANDLORD'S INABILITY TO PERFORM
This Lease and the obligations of Tenant hereunder shall not be
affected or impaired because Landlord is unable to fulfill any of its
obligations hereunder or is delayed in doing so, if such inability or delay is
caused by reason of the unavailability of materials, strike or other labor
troubles or any other cause beyond the reasonable control of Landlord. Landlord
shall not be deemed to be in default in the performance of any obligation
required to be performed by it hereunder unless and until it has failed to
perform such obligation within thirty (30) days after notice by Tenant to
Landlord specifying wherein Landlord has failed to perform such obligation;
provided, however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for its performance, then Landlord shall not
be deemed to be in default if it shall commence such performance within such
thirty (30) day period and thereafter prosecute same to completion.
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SECTION 27. ATTORNEYS' FEES
If Landlord or Tenant initiates any action to enforce any provision
of this Lease as a result of any breach or default on the part of Landlord or
Tenant, the losing party shall pay to the prevailing party all costs and
expenses, including reasonable attorneys' fees, incurred therein by Landlord or
Tenant.
SECTION 28. GENERAL PROVISIONS
28.1 Headings and Definitions. The Section headings contained in
this Lease are for convenience of reference only and do not in any way govern
the construction thereof. The terms "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular, and the neuter shall include the
masculine and feminine genders. The words "person" and "persons" whenever used
shall include individuals, firms, associations and corporations.
28.2 Covenants and Agreements - Time of the Essence. Each of
Tenant's covenants and agreements herein contained are independent and not
dependent on Landlord's performance of its obligations hereunder, and the time
of the performance of each is of the essence of this Lease.
28.3 Successors and Assigns. All of the covenants, conditions and
provisions of this Lease shall be binding upon and shall inure to the benefit of
the parties hereto and their respective heirs, personal representatives,
successors and assigns, subject to Section 16 hereof.
28.4 Interpretation. The language in all parts of this Lease shall
be in all cases construed simply according to its fair meaning, and not strictly
for or against Landlord or Tenant. Any provision of this Lease which shall prove
to be invalid, void or illegal shall in no way affect, impair or invalidate any
other provision hereof and such other provisions shall remain in full force and
effect. This Lease may be executed in any number of counterparts, each of which
shall be an original and all of which together shall constitute and be construed
as one and the same instrument. This Lease shall be governed by and construed in
accordance with the laws of the State of Utah. All Exhibits and addenda
referenced or attached hereto are incorporated herein by reference as though
fully set forth herein.
28.5 Waiver and Default. No waiver by Landlord of any provision of
this Lease shall be deemed to be a waiver of any other provision hereof or of
any subsequent breach by Tenant of the same or any other provision. No delay on
the part of Landlord in exercising any of its rights hereunder shall operate as
a waiver of such rights or of any other right of Landlord, nor shall any delay,
omission or waiver on any one occasion be deemed a waiver of the same or any
other right on any other occasion, nor shall Landlord's receipt from Tenant of
any sum with knowledge of any breach by Tenant of any of its covenants hereunder
be deemed to be a waiver of such breach. Neither Landlord's failure to bill
Tenant for any rent or other sum payable hereunder as it becomes due hereunder,
nor its error in such billing or failure to provide any other documentation in
connection therewith, shall operate as a waiver of Landlord's right to collect
any such rent or other sum payable hereunder which may have at any time become
due hereunder in the full amount to which Landlord is entitled pursuant to the
terms and provisions hereof. Landlord's consent to or approval of any act by
Tenant requiring Landlord's consent or approval, including approvals under
Section 16, shall not be deemed to render unnecessary the obtaining of
Landlord's consent to or approval of any subsequent act of Tenant whether or not
similar to the act so consented to or approved. None of Landlord's agents shall
have any power to accept the keys to the Premises prior to the termination of
this Lease, and the delivery of the keys to any such employee shall not operate
as a termination of this Lease or a surrender or Landlord's acceptance of the
Premises.
28.6 Entire Agreement: Amendments. This Lease and the exhibits and
any riders attached hereto constitute the entire agreement between the parties
hereto with respect to the subject matter hereof, and no prior agreement or
understanding pertaining to any such matter shall be effective for any purpose.
No provision of this Lease may be amended or supplemented except by an agreement
in writing signed by the party or parties to be bound thereby.
28.7 Building Name. Landlord reserves the right to change the name
of the Building from time to time during the term of this Lease. Tenant shall
not be allowed to use the name, picture or representation
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of the Building, or words to that effect, in connection with any business
carried on in the Premises or otherwise (except as Tenant's address) without the
prior written consent of Landlord.
28.9 Brokers. In connection with this Lease, Tenant warrants and
represents that it has had dealings only with the Brokers specified in Item 10
of the Basic Lease Provisions and that it knows of no other person who is or
might be entitled to a commission, finder's fee or other like payment in
connection herewith and does hereby indemnify and agree to hold Landlord
harmless from and against any and all loss, liability and expenses including any
attorneys' fees that Landlord may incur should such warranty and representation
prove incorrect.
28.10 No Option. The submission of this Lease by Landlord, its agent
or representative for examination or execution by Tenant does not constitute an
option or offer to lease the Premises upon the terms and conditions contained
herein or a reservation of the Premises in favor of Tenant, it being intended
hereby that this Lease shall only become effective upon the execution hereof by
Landlord and delivery of a fully executed counterpart hereof to Tenant.
28.11 Corporate and Partnership Tenant. In the event Tenant is a
corporation or a partnership, the parties executing this Lease on behalf of
Tenant hereby covenant and warrant, individually and on behalf of Tenant, that
Tenant is duly organized and in good standing in the state of its incorporation
or organization and that all steps have been taken prior to the date hereof to
qualify Tenant to do business in Utah, that Tenant has duly authorized this
Lease by all requisite corporate or partnership action and that the persons
executing this Lease have been duly authorized by Tenant to do so on its behalf.
28.12 Recordation of Lease. Neither this Lease nor any memorandum
hereof shall be recorded by Tenant.
28.13 Multiple Parties. If there is more than one person, firm,
corporation, partnership or other entity comprising Tenant, then (i) the term
Tenant, as used herein, shall include all of such persons, firms, corporations,
partnerships and other entities; (ii) each and every provision in this Lease
shall be binding on each and every one of them; (iii) each of them shall be
jointly and severally liable hereunder; (iv) Landlord shall have the right to
join one or all of them in any proceeding or to proceed against them in any
order; and (v) Landlord shall have the right to release any one or more of them
without in any way prejudicing its right to proceed against the others.
28.14 No Partnership. Landlord does not by this Lease, in any way or
for any purpose, become a partner or joint venturer of Tenant in the conduct of
its business or otherwise.
28.15 Telecommunications Equipment and HVAC. At any time during the
Lease Term, subject to availability, Tenant may install and maintain, at
Tenant's sole cost and expense, telecommunication equipment and/or an HVAC unit
("HVAC") upon the roof of the Building, subject to the payment of the prevailing
Building rates for the same. Upon thirty (30) days prior notice from Tenant to
Landlord, Landlord shall designate areas on the roof of the Building or other
areas of the Property which Tenant may lease for the purpose of installation,
operation and maintenance of (I) the HVAC and (ii) a satellite antenna or other
broadcasting and receiving device and the telecommunications conduits, devices,
fibreoptics and electrical, coaxial and other connections necessary to connect
the transmission devices to the Premises (collectively, the "Telecommunication
Devices"). Tenant shall have the right to use the Building utilities located on
the roof of the Building for the operation of the Telecommunication Devices and
HVAC at Tenant's sole cost and expense. Tenant shall have the right to access
the Telecommunication Devices and HVAC upon reasonable prior written notice to
Landlord, during business hours and subject to Landlord's reasonable rules and
regulations. Upon the expiration or earlier termination of this Lease, or at
such time as Tenant elects to stop paying for the use of space for the
Telecommunication Devices and/or HVAC, Tenant shall remove, at its own cost and
expense, the Telecommunications Devices and HVAC and all related facilities
thereof. If Tenant shall fail to complete such removal and/or fail to repair any
damage caused thereby, Landlord may do so and charge the cost thereof to Tenant
as Additional Rent. The physical appearance and size of the Telecommunication
Devices and HVAC shall be subject to Landlord's reasonable approval and Landlord
may require Tenant to install screening around such equipment, at Tenant's sole
cost and expense, as reasonably designated by Landlord. All Telecommunication
Devices and the HVAC must be compatible with the Building's systems and shall
not impair window washing or the use of chiller units, the cooling tower or
emergency generator, elevator machine rooms, helipads, ventilation
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shafts, if any, or any other parts of the Building. The plans and specifications
for the Telecommunication Devices and HVAC and all working drawings for the
installation of the Telecommunication Devices and HVAC shall be subject to the
reasonable prior written approval of Landlord and Tenant obtaining any and all
required permits and governmental approvals, at Tenant's sole cost and expense.
If Tenant elects to install Telecommunication Devices or HVAC, Tenant's
indemnity obligation and waiver set forth in Section 12 of this Lease shall also
cover the use and installation of the Telecommunication Devices and HVAC. In
addition, Tenant shall procure and maintain at Tenant's sole cost and expense,
such insurance, in addition to the Qinsurance required to be maintained by
Tenant under this Lease, in connection with the Telecommunication Devices as
reasonably determined by Landlord. The Telecommunication Devices and the HVAC,
and the installation thereof shall comply with all applicable laws.
Notwithstanding the proceeding, Landlord hereby agrees to provide upon the
commencement of this Lease, a suitable location for Tenant's back-up generator,
HVAC and conduit allowing Tenant to cross connect with the fiberoptic providers
on the Property.
LANDLORD: TENANT:
PARKSIDE SALT LAKE CORPORATION ADVANCED TELECOMMUNICATIONS, INC.
PLEASE SIGN
& DATE
By: /s/ [ILLEGIBLE] RM By: /s/ Satish C. Tiwari
------------------------------- ----------------------------------
Its: Asset Manager Its: SATISH C. TIWARI
------------------------------ V.P. ENGINEERING AND
NETWORK IMPLEMENTATION
ADVANCED TELECOMMUNICATIONS, INC.
730 2ND AVE S. SUITE 1200
MINNEAPOLIS, MN 55402
Date: 1-11-2000 Date: 12/30/1999
----------------------------- --------------------------------
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EXHIBIT "A"
LEGAL DESCRIPTION OF PROPERTY
PARCEL NO. 1
Beginning at the northwest corner of Lot 5, Block 56, Plat "A", Salt Lake City
Survey, and running thence east 231.00 feet; thence south 231.00 feet; thence
west 66.00 feet; thence south 99.00 feet; thence west 66.00 feet; thence north
50.33 feet; thence west 99.00 feet; thence north 279.67 feet to the point of the
beginning.
Contains 64,713.33 sq. ft.
or 1.4856 Acres
PARCEL NO. 2
Beginning at a point east 51.00 feet and south 154.00 feet from the northwest
corner of Lot 7, Block 56, Plat "A" Salt Lake City Survey, and running thence
south 64.83 feet; thence west 51.00 feet; thence south 61.67 feet; thence west
81.00 feet; thence 126.50 feet; thence east 132.00 feet to the point of
beginning.
Contains 13.552.83 sq. ft
or 0.3111 Acres
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EXHIBIT "B"
AS-BUILT DRAWING OF PREMISES
Floor(s): 3rd
Suite Number: 380
[GRAPHIC OMITTED]
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EXHIBIT "C"
MEMORANDUM OF COMMENCEMENT DATE AND RENTABLE AREA
Commencement Date: _________________________________
Rentable Area: ____________________________________________ square feet
Basic Annual Rent: $_______________________________________ Year 1
$_______________________________________ Year 2
$_______________________________________ Year 3
$_______________________________________ Year 4
$_______________________________________ Year 5
$_______________________________________ Year 6
$_______________________________________ Year 7
$_______________________________________ Year 8
$_______________________________________ Year 9
$_______________________________________ Year 10
(LANDLORD AND TENANT HEREBY AGREE that, upon execution of this Exhibit "C", the
determination of "Rentable Area" set forth herein shall be binding upon the
parties throughout the term of the Lease, regardless of any discrepancies which
may be shown by subsequent measurements.)
LANDLORD: TENANT:
PARKSIDE SALT LAKE CORPORATION ADVANCED TELECOMMUNICATIONS, INC.
By:___________________________ By:______________________________
Its:__________________________ Its:_____________________________
Date:_________________________ Date:____________________________
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EXHIBIT "D"
TENANT WORK LETTER
PARKSIDE TOWER
215 SOUTH STATE
SALT LAKE CITY, UTAH
This "Work Letter Agreement" shall set forth the terms and conditions relating
to the construction of certain tenant improvements in the Premises. All
references in this Work Letter Agreement to Sections of the Lease shall mean the
relevant portion of Sections 1 through 28 of that certain Office Building Lease
to which this Work Letter Agreement is attached as Exhibit "D" and of which this
Work Letter Agreement forms a part, and all references in this Work Letter
Agreement to Sections of "this Work Letter Agreement" shall mean the relevant
portion of Sections 1 through 6 of this Work Letter Agreement.
SECTION 1
BASE BUILDING
1.1 Base Building. Landlord owns and, through its advisors, agents,
representatives and employees, operates the base building in which the Premises
is located (collectively, the "Base Building"). Except as otherwise specifically
provided in this Lease, Tenant shall and does hereby accept the Base Building in
its presently existing, as-is condition.
SECTION 2
TENANT IMPROVEMENTS
2.1 Tenant Improvement Allowance. Tenant shall be entitled to a one-time
tenant improvement allowance (the "Tenant Improvement Allowance") in the amount
of $10.00 per usable square foot of the Premises or $57,960.00 for the costs
relating to improvements made to the Premises (collectively, the "Tenant
Improvements"). In no event, however, shall Landlord be obligated to make
disbursements pursuant to this Work Letter Agreement in a total amount which
exceeds the Tenant Improvement Allowance. To the extent the Tenant Improvement
Allowance exceeds the cost of the Tenant Improvements, Landlord shall be
entitled to keep and retain that portion of the Tenant Improvement Allowance
that exceeds the Tenant Improvements and Tenant shall not be entitled to the
same. Additionally, all cost over and above the Tenant Improvement Allowance
shall be the sole responsibility of Tenant.
2.2 Disbursement of the Tenant Improvement Allowance. Except as otherwise
set forth in this Work Letter Agreement and subject to Section 2.1 of this Work
Letter Agreement, the Tenant Improvement Allowance shall be disbursed by
Landlord upon the following: (i) substantial completion of the Tenant
Improvements, (ii) presentment of invoice(s) from Tenant, and (iii) lien waivers
from all contractors and/or subcontractors. The Tenant Improvement Allowance
shall be for costs related to the Tenant Improvements and for the "Landlord
Supervision Fee," as that term is defined in Section 4.3.2 of this Work Letter
Agreement (collectively, the "Tenant Improvement Allowance Items").
SECTION 3
CONSTRUCTION DRAWINGS
3.1 Selection of Architect/Construction Drawings. Tenant shall retain the
architect/space planner designated by Landlord (the "Architect") to prepare the
"Construction Drawings," as that term is defined in this Section 3.1. Tenant
shall retain the engineering consultants designated by Landlord (the
"Engineers") to prepare all plans and engineering working drawings relating to
the structural, mechanical, electrical, plumbing, HVAC, lifesafety, and
sprinkler work of the Tenant Improvements. The plans and drawings to be prepared
by Architect and the Engineers hereunder shall be known collectively as the
"Construction Drawings." All Construction Drawings shall comply with the drawing
format and specifications as determined by Landlord, and shall be subject to
Landlord's approval, which shall not be unreasonably withheld or delayed. Tenant
and Architect shall verify, in the field, the dimensions and conditions as shown
on the relevant portions of the base Building
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plans, and Tenant and Architect shall be solely responsible for the same, and
Landlord shall have no responsibility in connection therewith. Landlord's review
of the Construction Drawings as set forth in this Section 3, shall be for its
sole purpose and shall not imply Landlord's review of the same, or obligate
Landlord to review the same, for quality, design, Code compliance or other like
matters. Accordingly, notwithstanding that any Construction Drawings are
reviewed by Landlord or its space planner, architect, engineers and consultants,
and notwithstanding any advice or assistance which may be rendered to Tenant by
Landlord or Landlord's space planner, architect, engineers, and consultants,
Landlord shall have no liability whatsoever in connection therewith and shall
not be responsible for any omissions or errors contained in the Construction
Drawings, and Tenant's waiver and indemnity set forth in this Lease shall
specifically apply to the Construction Drawings.
3.2 Final Space Plan. Tenant and the Architect shall prepare the final
space plan for Tenant Improvements in the Premises (collectively, the "Final
Space Plan"), which Final Space Plan shall include a layout and designation of
all offices, rooms and other partitioning, their intended use, and equipment to
be contained therein, and shall deliver the Final Space Plan to Landlord for
Landlord's approval, which shall not be unreasonably withheld or delayed
3.3 Final Working Drawings. Tenant, the Architect and the Engineers shall
complete the architectural and engineering drawings for the Premises, and the
final architectural working drawings in a form which is complete to allow
subcontractors to bid on the work and to obtain all applicable permits
(collectively, the "Final Working Drawings") and shall submit the same to
Landlord for Landlord's approval, which shall not be unreasonably withheld or
delayed
3.4 Permits. The Final Working Drawings shall be approved by Landlord (the
"Approved Working Drawings") prior to the commencement of the construction of
the Tenant Improvements. "Contractor" as identified in Section 1 above and as
that term is defined in Section 4.1 below, shall immediately submit the Approved
Working Drawings to the appropriate municipal authorities for all applicable
building permits necessary to allow Contractor, to commence and fully complete
the construction of the Tenant Improvements (the "Permits") and, in connection
therewith, Contractor shall coordinate with Landlord in order to allow Landlord,
at its option, to take part in all phases of the permitting process and shall
supply Landlord, as soon as possible, with all plan check numbers and dates of
submittal and obtain the Permits. Notwithstanding anything to the contrary set
forth in this Section 3.4, Tenant hereby agrees that neither Landlord nor
Landlord's consultants shall be responsible for obtaining any building permit or
certificate of occupancy for the Premises and that the obtaining of the same
shall be Contractor's responsibility; provided however that Landlord shall, in
any event, cooperate with Contractor in executing permit applications and
performing other ministerial acts reasonably necessary to enable Contractor to
obtain any such permit or certificate of occupancy. No changes, modifications or
alterations in the Approved Working Drawings may be made without the prior
written consent of Landlord, which shall not be unreasonably withheld or delayed
SECTION 4
CONSTRUCTION OF THE TENANT IMPROVEMENTS
4.1 Contractor. Tenant shall select one (1) or more contractors (the
"Bidding Contractors") from the list of approved contractors provided Tenant by
Landlord, to bid or quote on the construction of the Tenant Improvements.
4.2 Cost Proposal. Tenant shall solicit bids or quotes from the Bidding
Contractors for the construction of the Tenant Improvements, which cost
proposals or quotations shall include, as nearly as possible, the cost of all
Tenant Improvement Allowance Items to be incurred by Tenant in connection with
the construction of the Tenant Improvements. Tenant shall approve and select the
cost proposal(s) or quotations (collectively, "Cost Proposal(s)") of the Bidding
Contractor(s) whom Tenant elects to retain to construct the Tenant Improvements
("Contractor(s)") and Tenant shall deliver originals or copies of the selected
Cost Proposal(s) and notice of its selection of the Contractor(s) to Landlord
within five (5) business days of the receipt of the cost proposals. Thereafter,
Tenant shall be released to purchase the items set forth in the Cost Proposal(s)
and to commence the construction relating to such items.
4.3.2 Tenant's Retention of Contractor. Tenant shall
independently retain the Contractor(s), to construct the Tenant Improvements and
Landlord shall supervise the construction by the Contractor(s), and Tenant
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shall pay (and/or the Tenant Improvement Allowance shall be charged) a
construction supervision and management fee ("Landlord Supervision Fee") to
(and/or for) Landlord in an amount equal to the product of (i) five (5%) percent
of the Tenant Improvements.
Contractor's Warranties and Guaranties. Tenant hereby waives all claims against
Landlord relating to, or arising out of the construction of, the Tenant
Improvements.
4.3.4 Tenant's Covenants. Tenant hereby indemnifies Landlord
for any loss, claims, damages or delays arising from the actions of Architect on
the Premises or in the Building. Within ten (10) days after completion of
construction of the Tenant Improvements, Tenant shall cause Contractor and
Architect to cause a Notice of Completion to be recorded in the office of the
County Recorder of the county in which the Building is located in accordance
with any successor statute and furnish a copy thereof to Landlord upon
recordation, failing which, Landlord may itself execute and file the same on
behalf of Tenant as Tenant's agent for such purpose. In addition, immediately
after the Substantial Completion of the Premises, Tenant shall have prepared and
delivered to the Building a copy of the "as built" plans and specifications in
reproducible form (including all working drawings) for the Tenant Improvements.
SECTION 5
MISCELLANEOUS
6.1 Tenant's Lease Default. Notwithstanding any provision to the contrary
contained in this Lease, if an event of default as described in Section 18 of
the Lease, or a default by Tenant under this Work Letter Agreement, has occurred
at any time, then (i) in addition to all other rights and remedies granted to
Landlord pursuant to the Lease, Landlord shall have the right to withhold
payment of all or any portion of the Tenant Improvement Allowance and/or
Landlord may cause the Contractor(s) to cease the construction of the Premises,
and (ii) all other obligations of Landlord under the terms of this Work Letter
Agreement shall be forgiven until such time as such default is cured pursuant to
the terms of the Lease.
LANDLORD: TENANT:
PARKSIDE SALT LAKE CORPORATION ADVANCED TELECOMMUNICATIONS, INC.
PLEASE SIGN
& DATE
By: /s/ [ILLEGIBLE] RM By: /s/ Satish C. Tiwari
------------------------------- ----------------------------------
Its: Asset Manager Its: SATISH C. TIWARI
------------------------------ V.P. ENGINEERING AND
NETWORK IMPLEMENTATION
ADVANCED TELECOMMUNICATIONS, INC.
730 2ND AVE S. SUITE 1200
MINNEAPOLIS, MN 55402
Date: 1-11-2000 Date: 12/30/1999
----------------------------- --------------------------------
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Standard Building Specifications/Finishes
I. PARTITIONS
A. Demising Partitions:
1. 3 5/8" - 25 gauge metal studs at 16" on center.
2. 5/8" drywall, one layer each side from floor slab to underside
of structure. (One hour fire rated assembly.)
3. 3 1/2" - Batt insulation in wall cavity (R11 rating).
4. Partition to be taped and finished smooth to receive paint.
Penetrations through walls shall be sealed and openings shall
be fire rated as required by local building codes.
5. The end of the demising walls must occur at a building column
or at a vertical window mullions sealed off as detailed.
B. Interior Partitions:
1. 3 5/8" - 25 gauge metal studs at 16" on center.
2. 5/8" drywall, one layer each side floor to ceiling.
3. Partition to be taped and finished smooth ready to paint.
4. Interior partitions that end into glazing or vertical mullion
are to be finished as shown.
5. Partition height from floor to lay-in ceiling.
6. Options:
a. Insulation - fiberglass, batt
b. Insulation - sound attenuation, bat
II. DOORS/FRAMES/HARDWARE
A. Corridor Door Assembly
1. Doors - Premium Grade - 3'-0" x 8'-4" x 1 3/4", 1/3 hour
rated.
a. solid core, plain sliced red oak, matching hardwood
vertical edges.
b. 5-ply, 1/50" (min.) veneer, pre-machined
c. Manufacturers: Algoma Hardwoods, Eggers. and Weyerhauser
2. Frames - 18 gage, 1/3 hour rated, hollow metal frames painted
to match stain finish color.
3. Side light - 2' wide per door leaf.
4. Glazing -
a. 1/4" wired glass. (Diamond or square pattern subject to
availability.)
b. Size of glass as selected from standard door types.
5. Hinges -
a. Two pairs of 4 1/2" x 4 1/2" ball bearing, butt hinges.
b. Finish to match locksets.
c. Hager 1279 or Stanley FBB 179.
6. Locksets -
a. Schlage - Series "D"
(1) Finish - (Choose one)
(a) Satin chromium 626.
(b) Bright Brass 605
(2) Trim - (Choose one)
(a) Knob - Orbit
(b) Lever trim - Athens
7. Stops - Quality - Walls, 302 series, floor #431ES, finish to
match lockset
8. Door closer -
a. Type Parallel arm.
b. Finish - to match locksets
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c. Manufacture:
(1) Sargent 1251-UO
(2) Norton 7400 series.
9. OPTIONS:
a. Additional corridor doors same as above, minimum. (Door
lite not required.)
b. Dead bolts - Schlage Series "B400" 6-pin cylinder
B. Interior Door Assembly
1. Doors - Premium Grade, 3'-0" x 8'-4" x 1 3/4".
a. Solid core, plain sliced red oak, matching hardwood
vertical edges
b. 5-ply 1/50" (mn.) veneer, pre-machined
c. Manufactures: Algoma Hardwoods, Eggers, and Weyerhausers
2. 1" (nominal) oak frame and casing stained and finished to
match doors.
3. Hinges -
a. Two pairs of 4 1/2" x 4 1/2" butt hinges.
b. Finish - to match lockset finish.
c. Hager 1279 or Stanley FBB 179.
4. Latch/Trimset -
a. Schlage - "MD" Designer series (Passage only - Roma)
(1) Finish - Bright Brass 605
(2) Locking function: Dead bolt
5. Stops - as manufactured by, Quality
a. Walls - 302 series.
b. Floor #431ES.
c. Stainless steel finish.
6. Side Lite - 2' wide per door
7. OPTIONS:
a. Door Closers
(1) Type Parallel arm
(2) Finish - to match lockset.
(3) Sargent 125l-UO or Norton 7400 series.
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III. FINISHES:
A. Painting -
1. One coat of interior wall primer, tinted to match finish
color.
2. Two coats of satin interior alkyd paint applied with a roller.
3. Building standard colors. (Pratt & Lambert, Accolade interior
Semi-Gloss Latex, Calibrated Colors IV or equal).
B. Clear Finish Over Stained Wood -
1. Polyurathane, two coats on stained hardwood.
C. OPTIONS:
1. Wall Coverings
a. Paneling - Solid wood stained to match color scheme.
b. Vinyl Wall Covering - 13/oz/sq. yd. minimum.
c. Fabric wall covering
(1) 100% Marquesa Lana.
(2) 13.2 oz/sq. yd. minimum.
d. Others as approved by owner.
IV. FLOOR COVERING
A. Carpet -
1. Weight - 36 oz minimum.
2. Style - Cut pile, 100% Techni-lon nylon.
3. 10 year wear warranty.
4. Manufacturer - Charleston Carpets
a. Belvedere.
b. Harcourt.
5. Colors - See samples for Building Standard Colors Allowance:
B. Floor tile - (Reception, Lobby areas.)
1. 12 x 12 x 3/8 marble, ceramic, or stone tiles.
C. Vinyl Composition Tile -
1. Manufacturer - Armstrong.
a. Imperial
D. Option:
1. Carpet border
a. Manufacturer and choices same as above.
2. Pad - 5.16" Steiner-Liff "Nova" pad, 6.5# per cubic foot.
3. Hardwood flooring - Type and color as approved.
4. Carpet accents or upgrades must meet or exceed minimum
requirement of standard as approved by owner.
V. Base
A. Corridor -
1. 4" stained hardwood to match elevator lobby stain color
2. 4" cast stone to match elevator, Dal-Tile Granite
B. Tenant Space -
1. 4" coved rubber by Roppe - continuous with pre-molded exterior
corners.
2. 3 1/2" stained hardwood. (Corridors, conference rooms, etc.)
3. Options:
a. 4" marble or cast stone base.
VI. ACOUSTIC CEILING
A. Ceiling height 8'-6".
B. Ceiling tile -
1. Omni Fissured.
2. 5/8" X 2'x 2' mineral lay-in tiles.
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3. Celotex or USG.
C. Acoustical suspension system -
1. Flat white by Donn Corp or equal.
D. OPTIONS:
1. Ceiling tile -
a. Natural issured cast product.
b. 3/4" x 2' x 2' mineral lay-in tiles.
c. Celotex or USG.
2. Sound attenuation tile blankets -
VII. WINDOW COVERING
A. Levelor 1" Mini-Blinds, Color black.
B. OPTIONS:
1. Interior window covering.
a. Mini-blinds - Levelor 1"
b. Vertical - Levelor 4"
c. Curtain Hardware -
(1) "Super Fine" Kirsch Co.
(2) 601 Sanes Graber Industries, Inc.
VIII. CABINETS
A. OPTIONS:
1. Shelving and brackets. (Exposed to View)
a. Stained hardwood plywood with solid hardwood edge.
2. Counter tops.
a. Wilsonart horizontal grade color as approved by Owner.
b. Edging shall be a manufactured hardwood edge as approved
by Owner.
3. Kitchen type cabinets.
a. Interiors -
(1) Prefinished plastic coated high density particle
board. (Kortron or approved equal.)
(2) Stained plywood.
(3) Parts exposed to view to match doors.
b. Doors -
(1) Stained solid hardwood.
(2) Plastic laminate faced millwork.
IX. PLUMBING
A. OPTIONS:
1. Toilet Room.
a. Fixtures - shall be stainless steel.
2. Kitchen/Break Rooms
a. Sinks - shall be stainless steel.
b. Refrigerator
c. Microwave oven
d. Dishwasher
3. Piping -
a. Supply lines - as per state and local building codes.
b. Waste and vent lines - as per state and local building codes.
X. FIRE SPRINKLERS
A. Chrome semi-recessed heads. Installed per state and local codes.
B. Escutcheons and trim shall be chrome to match existing.
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XI. HEATING & AIR CONDITIONING DISTRIBUTION
A. Supply Air Diffusers - Slot type, clear anodized.
B. Return Air Grille - 2'x 2' perforated grille, white.
C. Thermostats, Distribution Duct Work - as per building standards
throughout.
XII. LIGHTING
A. Light Fixtures
1. Corridors - Day-Brite, 2'x 2' fluorescent, 2 tube,
Catalog #PGC222-P16S22-ESB, 277 Volts 100 Watts, energy efficient
lamps
F4OUT12WMII, lay in, return air troffer, 3" 16 cell paralouver
lens. (Match existing fixtures.)
2. Interior space - Day-Brite, 2'x 4' fluorescent, 4 tube,
Catalog #PGC424-ESB, 277 Volts 100 Watts, energy efficient
lamps F4OTI2WMII, lay in, return air troffer, 3" 32 cell
parlouver lens. (Match existing fixtures.)
3. Emergency lighting: Emergency generator system.
B. Accent Lighting
1. Down Light - Recessed down light with aluminum reflector with
black baffle, PL-13 double twin lamp, 277V, 6.5 aperture as
manufactured by - Halo H275-409P, Marco FM13-63-277 or
Prescolite CFX TO-76S-277.
2. Recessed down - Recessed 75W PAR38/3, gimbal ring adjustable,
as manufactured by Prescolite PBX-TA-72, or equal Halo, Marco.
C. Switch Assembly
1. Pass & Seymour 20AC series or equal, with smooth plastic
cover.
2. Color- Ivory.
D. Motion Detector
1. Hubbel - H-MOSS 1000 Wall Switch, WSS-1277, with off override
and 12 minute delay. (Model 257-151 SA for ceiling
applications.)
2. Use in lieu of standard switch assembly.
E. Exit Lights
1. Emergency generator system.
F. Installation - Contractor shall install electrical system as
required per state and local codes.
G. Smoke Detection, Alarm & Communication Systems
1. Modify existing building systems per as per requirements of
the U.B.C. Section 1807 and ANS1A117.1-1996.
H. OPTIONS:
1. Track Lighting
a. Two circuit track by Halo or Lightolier.
b. Heads - Halo or Lightolier style as selected by tenant.
XII. POWER -
A. Outlets
1. Duplex receptacle - Series 5342 (20 Amp) by Pass & Seymour or
equal with smooth plastic cover plate.
2. Color - Ivory.
B. OPTIONS:
1. Isolated Circuits. - Pass & Seymour 2091 (20 Amp) or equal,
orange, with ivory smooth plastic cover plate.
2. Floor Outlets - Model RC-700A as manufactured by Raceway
Components Inc., 208 19th avenue, Paterson, NJ 07524.
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XIV. TELEPHONE
A. Telephone Outlets - Empty single gang box with 3/4" conduit stubbed
into ceiling space with blank ivory cover plate.
B. Service -
1. 3/4" conduit from outlet to centrally located pull box or
telephone board.
C. OPTIONS:
1. Telephone equipment board - 3/4" plywood edges filled and
finished. Painted to match wall.
2. Communication cables must be plenum rated or be in conduit.
3. Standard modular telephone outlets as needed.
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EXHIBIT "F"
RULES AND REGULATIONS
1. The sidewalks, entrances, passages, courts, elevators, stairways, corridors
or halls shall not be obstructed or used for any purpose other than ingress or
egress.
2. No awnings or other projections shall be attached to the outside walls of the
Building.
3. The sashes, sash doors, skylights, windows and doors that reflect or admit
light and air into the halls, passageways or other public places in the Building
shall not be covered or obstructed, nor shall any bottles, parcels or other
articles be placed on the windowsills. If Tenant desires window curtains, the
same must be of such uniform shape, color, material and make as may be
prescribed by Landlord. Neither the interior nor the exterior of any windows
shall be coated or otherwise sunscreened without Landlord's prior written
consent.
4. No sign, advertisement or notice shall be exhibited, painted or affixed by
Tenant on any part of, or so as to be seen from the outside of, its Premises or
the Building without Landlord's prior written consent. In the event of Tenant's
violation of the foregoing, Landlord may remove the same without any liability
and may charge the expense incurred in such removal to Tenant. All signs,
whether on doors, directory tablets or elsewhere, shall be inscribed, painted or
affixed for Tenant by Landlord at the expense of Tenant, and shall be of a size,
color and style acceptable to Landlord. Landlord may prescribe a design standard
for all such signs.
5. The bulletin board or directory of the Building will be provided exclusively
for the display of the name and location of Tenant only; and Landlord reserves
the right to exclude any other names therefrom, and each and every name in
addition to the name of Tenant placed upon such bulletin board or directory,
shall be subject to Landlord's prior written consent (and if approved by
Landlord, all costs therefor shall be paid by Tenant). Any such listings or
representations, once installed, shall be subject to relocation or removal upon
Landlord's written request for any reason (except that any such relocations or
removals at Landlord's request, unless such request is based upon Tenant's
breach of the Lease, of which these Rules and Regulations are a part, shall be
paid for by Landlord), and Tenant shall pay for the removal of any such listings
or representations upon its departure from its Premises.
6. All doors opening into public corridors shall be kept closed, except when
being used for ingress and egress.
7. Tenant shall not mark, paint, drill or bore into, cut or string wires in, lay
linoleum or other floor coverings in, or in any way deface any part of its
Premises or the Building, except with Landlord's prior written consent and as
Landlord may direct.
8. All keys shall be obtained from Landlord and neither Tenant, its agents or
employees shall have any duplicate keys made. No additional locks or bolts of
any kind shall be placed upon any of the doors or windows by Tenant, nor shall
any changes be made in existing locks or the mechanisms thereof. Tenant must,
upon the termination of its tenancy, give to Landlord all keys pertaining to the
Premises and the Building, and in the event of the loss of any keys so
furnished, Tenant shall pay Landlord the cost of replacing same or of changing
the lock or locks opened by such lost key(s) if Landlord shall deem it necessary
to make such change.
9. No window or other air conditioning or heating units or other similar
apparatus shall be installed or used by Tenant without Landlord's prior written
consent. Tenant shall not be permitted upon the roof at any time.
10. The water and wash closets and other plumbing fixtures shall not be used for
any purpose other than those for which they were constructed and no sweepings,
rubbish, rags or other substances shall be thrown therein. All damages resulting
from any misuse of the fixtures by Tenant or its servants, employees, agents,
visitors or licensees shall be bone by Tenant.
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11. All removals from, or the carrying in or out of, the Building of any safes,
freight, furniture, heavy or bulky matter of any description, must take place
only between the hours of 9:00 and 11:00 A.M., and 2:00 and 4:00 P.M. of days
other than Saturdays, Sundays and holidays (no moving being permitted on
Saturdays, Sundays or holidays without special permission) and must be made upon
previous written notice to Landlord and under its supervision, and the persons
employed by Tenant for such work must be acceptable to Landlord. Landlord
reserves the right to inspect all safes or other heavy or bulky equipment or
articles to be brought into the Building and to exclude from the Building all
such heavy or bulky equipment or articles, the weight of which may exceed the
floor load for which the Building is designed, or such equipment or articles as
may violate any of the provisions of the Lease of which these Rules and
Regulations are a part. Tenant shall not use any machinery or other bulky
articles in the Premises, even though its installation may have been permitted,
which may cause any noise, or jar, or tremor to the floors or walks, or which by
its weight might injure the floor of the Building.
12. Neither Tenant nor its servants, employees, agents, visitors or licensees
shall at any time bring or keep upon the Premises any flammable, combustible or
explosive fluid, chemical or substance.
13. The Premises shall not be used for manufacturing or for the storage of
merchandise except as such storage may be incidental to the permitted use of the
Premises. Tenant shall not, without Landlord's prior written consent, occupy or
permit any portion of the Premises to be occupied or used for the manufacture or
sale of liquor or tobacco in any form, or as a barber or manicure shop, or as an
employment bureau. The Premises shall not be used for lodging or sleeping. No
sales or auctions shall be conducted from the Premises.
14. Tenant shall not make, or permit to be made, any unseemly or disturbing
noises, or disturb or interfere with occupants of the Building or neighboring
buildings or premises or these having business with it by the use of any musical
instrument, radio, phonographs or unusual noise, or in any other way. Neither
Tenant nor its servants, employees, agents, visitors or licensees shall throw
anything out of doors, windows or skylights or down the passageways.
15. No bicycles, vehicles, birds or animals of any kind shall be brought into or
kept in or about the Premises or the Building and no cooking shall be done or
permitted by Tenant in its Premises, except that the preparation of coffee, tea,
hot chocolate and similar items and items that can be heated in a microwave oven
for Tenant, its employees and visitors shall be permitted provided such
activities do not otherwise violate the Lease of which these Rules and
Regulations are part and provided power shall not exceed that amount which can
be provided by a 30 amp circuit. Tenant shall not cause or permit any unusual or
objectionable odors to be produced in or emanate from the Premises.
16. There shall not be used in any space, or in the public halls of the
Building, any hand truck except those equipped with rubber tires and side
guards.
17. No vending or coin operated machines shall be placed within the Premises
without Landlord's prior written consent.
18. No person shall be employed by Tenant to do janitorial work in any part of
said Building without Landlord's prior written consent. Any person employed by
Tenant to do janitorial, maintenance or similar work with Landlord's consent
shall, while in the Building, be subject to and under the control and direction
of Landlord or its agent or representative (but not as an agent or servant of
Landlord) and Tenant shall be responsible for all acts of such persons.
19. Landlord shall have the right to prohibit any advertising by Tenant which,
in Landlord's opinion, tends to impair the reputation of the Building or its
desirability as an office building, and upon written notice from Landlord,
Tenant shall refrain from or discontinue such advertising.
20. Canvassing, soliciting and peddling in the Building are prohibited and
Tenant shall cooperate to prevent same.
21. Landlord reserves the right to control access to the Building by all persons
after reasonable hours of generally recognized business days and at all hours on
Sundays and legal holidays. Tenant shall be responsible for all persons for whom
it requests after-hours access and shall be liable to Landlord for all acts of
such persons.
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Landlord assumes no responsibility and shall not be liable for any damage
resulting from the admission of any unauthorized person to the Building. Upon
request Tenant shall provide Landlord with a description and license plate
number of all its personnel's vehicles utilizing parking at the Building.
22. Landlord reserves the right to exclude or expel from the Building any person
who, in the judgment of Landlord, is intoxicated or under the influence of
liquor or drugs, or who shall in any manner do any act in violation of the Rules
and Regulations of the Building.
23. It is understood and agreed between Landlord and Tenant that no assent or
consent to any waiver or any part hereof by Landlord in spirit or letter shall
be deemed or taken as made except if same is done in writing and attached to or
endorsed hereon by Landlord.
24. Landlord reserves the right at any time to change or rescind any one or more
of these Rules or Regulations, or to make such other and further reasonable
Rules and Regulations as in Landlord's judgment may from time to time be
necessary for the management, safety, care and cleanliness of the Premises,
Building and Common Areas, and for the preservation of good order therein, as
well as for the convenience of other occupants and tenants therein. Landlord
shall not be responsible to Tenant herein or to any other person for the
nonobservance of the Rules and Regulations by any other tenant or other person.
Tenant shall be deemed to have read these Rules and Regulations and to have
agreed to abide by them as a condition to its occupancy of the Premises.
37
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EXHIBIT "F"
TENANT'S ESTOPPEL CERTIFICATE
The undersigned, as Tenant, under that certain Office Lease (the "Lease") dated
as of ________, 19__ made with Parkside Salt Lake Corporation, a Delaware
corporation, as Landlord, hereby certifies as follows (all initially capitalized
terms or phrases used herein shall have the same meanings as in the Lease):
1. The undersigned entered into occupancy of the Premises described
in the Lease on ______________________, 19__;
2. The undersigned opened for business in the Premises on _______,
19__;
3. The Lease (including all Exhibits) is in full force and effect
and has not been assigned, modified, supplemented or amended in any way, except
as follows: _______________________________________
4. The Lease, as affected by those changes set forth in Paragraph 3
above, represents the entire agreement between the parties as to the Premises;
5. The Commencement Date under the Lease was _________________;
6.The term of the Lease will expire on _______________________;
7. All conditions of the Lease to be performed by Landlord and
necessary to the enforceability of the Lease have been satisfied;
8. There are no uncured defaults by Landlord or Tenant under the
Lease and Tenant knows of no events or conditions which with the passage of time
or notice or both, would constitute a default by Landlord or Tenant under the
Lease, except as follows:
9. No rents have been prepaid, other than for the current month and
as expressly provided in the Lease;
10. As of the date hereof, the undersigned has no existing defenses
against or offsets of Basic Annual Rent or Additional Rent or the enforcement of
the Lease by Landlord;
11. The total amount of security deposit delivered to Landlord is
$_______ , and none of that amount has, to Tenant's knowledge, been applied by
Landlord to cure any default by Tenant; and
12. The current monthly installment of Basic Annual Rent is
_____________, and has been paid through _____________, 19__.
EXECUTED this ______ day of _________, 19__.
"TENANT"
By:____________________________________
Its:___________________________________
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EXHIBIT "G"
PARKING PROVISIONS
1. Capitalized terms used but not defined in this Exhibit shall have
the meanings ascribed to them in the Office Lease (the "Lease") to which this
Exhibit is attached.
2. Subject to the terms and conditions of this Exhibit, Landlord
shall issue Tenant parking passes (individually, a "Pass" and collectively, the
"Passes") for the parking facilities owned by Landlord in connection with the
Building (the "Facilities") in such numbers as Tenant may request, up to the
maximum number of thirteen (13) Passes for unreserved parking outstanding to
Tenant at any given time. Unreserved parking shall be designated as parking in
the parking garage rather or the surface parking lot both of which constitute
part of the Facility. Each Pass shall, during the time it is in effect, entitle
Tenant to park one vehicle in the type of parking stall designated in the Pass;
provided Passes for unreserved parking shall be subject to the availability of
parking spaces. Tenant acknowledges that in order for Landlord to fully utilize
the Facilities, and to facilitate the providing of parking to clients and
visitors of tenants of the Building, Landlord will make estimates and
predictions as to the numbers of Passes for unreserved parking that will be used
on each day and at any given time, and permit others to use the Facilities based
upon such estimates and predictions. On occasion, and from time to time,
unanticipated usage of the Facilities may result in parking spaces being
unavailable for the holders of Passes for unreserved parking. If, however, on a
frequent and recurring basis, there are no unreserved parking spaces available
to the holders of Tenant's Passes for unreserved parking, Landlord will, at
Tenant's written request, make reasonable adjustments to Landlord's parking
policies and practices in order to limit the occurrence of such problems to an
occasional basis.
3. Prior to the first day of each month, Tenant shall pay Landlord
the monthly parking fee of $55.00 per Pass for unreserved Passes, subject to
periodic market adjustments, for each Pass that will be outstanding to Tenant
during such month. If such fee is not paid when due with respect to any Pass,
such Pass shall immediately become null and void and Tenant shall promptly
return such Pass to Landlord. Landlord may, in its discretion, increase such
fees at any time and from time to time so long as the fees charged for the
Passes are reasonably competitive with rates being charged at the time for
similar parking in the general area of the Building.
4. Tenant's rights under this Exhibit shall terminate and Tenant
shall promptly return to Landlord all outstanding Passes issued to it upon the
occurrence of either of the following: (i) the last day of the Lease Term; or
(ii) any default or breach on the part of Tenant under the Lease or this
Exhibit.
5. The parking rights granted to Tenant under this Exhibit or under
the Passes shall be deemed a license only and nothing in this Exhibit or the
Passes shall be construed as granting to or vesting in Tenant any fee, leasehold
or other interest in the Facilities other than a license which is subject to
termination as provided in this Exhibit.
6. Landlord's inability to make parking available at any time to
holders of the Passes shall not be deemed to be a breach or default on the part
of Landlord under the Lease or under this Exhibit so long as such inability is
due to fire, flood, earthquake, strikes, riots, blackouts, condemnation and
other casualties or causes reasonably beyond Landlord's control. The abatement
of Tenant's obligation to pay parking fees for the Passes during any such period
for which parking is unavailable shall constitute Tenant's sole remedy in the
event of such unavailability.
7. Tenant may permit its personnel to use Passes issued to Tenant
pursuant to this Exhibit, provided Tenant shall maintain on file with Landlord
at all times a current list of each of Tenant's personnel permitted to use a
Pass. Only one of Tenant's personnel at any given time shall be assigned to a
given Pass and only that person may use such Pass. Tenant shall be fully
responsible to Landlord to assure that each of Tenant's personnel whom Tenant
permits to use a Pass fully complies with the terms and conditions of this
Exhibit and shall be liable to Landlord for any failure of any of Tenant's
personnel to so comply. Landlord may deal directly with those persons designated
by Tenant as authorized to use the Passes with regard to such matters as the
renewal of
39
<PAGE>
Passes and the collection of monthly parking fees, and no such direct dealings
shall relieve Tenant of any of its duties or obligation hereunder.
8. Except as provided in Section 7 above, Tenant shall not assign
any of its rights under this Exhibit other than in connection with a permitted
sublease or assignment under the Lease. Any assignment by Tenant contrary to the
terms of this Exhibit shall be of no force or effect.
9. In connection with the use of the Facilities, Tenant shall
observe and comply with, and shall cause each person who uses any Pass issued to
Tenant under this Exhibit to observe and comply with, all rules and regulations
promulgated by Landlord, as in effect from time to time with respect to the use
of the Facilities, including, without limitation, rules and regulations
regarding spaces or areas in which parking is restricted, limited or prohibited.
If Tenant or any person using any of Tenant's Passes fails to observe such rules
and regulations, Landlord, at its sole option, may, in addition to any other
remedy it may have, cancel Tenant's rights under this Exhibit and require Tenant
to relinquish all Passes issued to it.
10. By using the Facilities, Tenant and all persons using Passes
issued to it accept and assume all risk of injury caused by any other users of
the Facilities and of damage, loss or theft of any vehicle or other property
while in the Facilities.
11. Landlord, at its sole option, shall have the right to move the
locations of reserved parking stalls and to assign designated parking stalls
with respect to Passes for unreserved parking at any time during the term of
this Exhibit.
12. Tenant's use of the Facilities as herein set forth shall be in
common with other tenants of the Building and any other parties permitted by
Landlord to use the Facilities.
13. Any breach or default by Tenant under this Exhibit shall
constitute a default on the part of Tenant under the Lease and any breach or
default by Tenant under the Lease shall constitute a default on the part of
Tenant under this Exhibit. If Landlord elects to terminate the License pursuant
to Section 3 of this Exhibit because of a breach or default by Tenant under this
Exhibit, Landlord may, at its discretion, exercise any or all remedies allowed
under the Lease or applicable law.
14. Nothing in this Exhibit shall be deemed to alter, modify,
release, nullify or reduce, in any manner whatsoever, Tenant's obligations under
the Lease. Tenant shall comply with the Building Rules and Regulations attached
to the Lease in connection with the exercise of its rights under this Exhibit.
Except where the provisions of this Exhibit directly contradict the Lease, the
provisions of the Lease shall apply to this Exhibit and any provision of the
Lease which provides greater protection to Landlord than is provided under this
Exhibit may, at Landlord's discretion, be applied to any dispute or issue
regarding this Exhibit.
LANDLORD: TENANT:
PARKSIDE SALT LAKE CORPORATION ADVANCED TELECOMMUNICATIONS, INC.
PLEASE SIGN
& DATE
By: /s/ [ILLEGIBLE] RM By: /s/ Satish C. Tiwari
------------------------------- ----------------------------------
Its: Asset Manager Its: SATISH C. TIWARI
------------------------------ V.P. ENGINEERING AND
NETWORK IMPLEMENTATION
ADVANCED TELECOMMUNICATIONS, INC.
730 2ND AVE S. SUITE 1200
MINNEAPOLIS, MN 55402
Date: 1-11-2000 Date: 12/30/1999
----------------------------- --------------------------------
40
<PAGE>
STANDARD OFFICE LEASE AGREEMENT (GROSS)
THIS LEASE AGREEMENT (hereinafter called the "Lease Agreement") made as of the
3rd day of March, 1999, by and between TIMESHARE SYSTEMS INC., a Minnesota
corporation, having offices at 511 Eleventh Avenue South, Minneapolis,
Minnesota, 55415 (hereinafter called the "Landlord"), and Advanced
Telecommunications Inc., a Minnesota corporation (hereinafter called the
"Tenant").
WITNESSTH
FOR AND IN CONSIDERATION of the sum of One Dollar ($l.00) in hand paid by
each of the parties to each other, and other good and valuable consideration,
receipt and sufficiency of which is hereby acknowledged, Landlord does hereby
lease and let unto Tenant, and Tenant does hereby lease and let unto Tenant, and
Tenant does hereby hire, lease and take from Landlord, that area outlined in red
on Exhibit A-1 attached hereto, and by this reference incorporated herein, and
described as Suite 333, 340, 343, 348 and 367, collectively containing
approximately 5,071.5 rentable square feet of area (collectively referred to as
the "Five Suites"), Suite 334, containing approximately 1,046.5 rentable square
feet of area ("Suite 334"); the approximate East Half of Suite 325 (as shown on
Exhibit A-1) containing approximately 5,487.8 rentable square feet of area
("Suite 325E"), and the approximate West Half of 325 containing approximately
5,736.2 rentable square feet of area ("Suite 325W"), collectively the Five
Suites, Suite 334, Suite 325E; and Suite 325W shall constitute the "Premises"
provided such Suites shall not be deemed part of the Premises until the time
permits as set forth in Article 5 below. The Premises are all located within the
building at 511 11th Avenue South, (hereafter called the "Building") in the city
of Minneapolis, County of Hennepin, State of Minnesota. The term Building as it
is used herein shall consist of the land and the building(s) set forth in
Exhibit A-2 hereto. The Premises shall be measured from the outside of the
exterior or corridor walls and from the center of demising walls to obtain the
useable area of the Premises, which shall be multiplied by a factor of 1.15 to
arrive at the rentable area of the Premises. The parties may measure the
premises at any time, but unless the rentable area differs by more or less than
10% the rental amounts set forth below shall not be adjusted.
ARTICLE 1 - TERM AND PRIOR LEASE
A. To have and to hold said Premises for a term of ten (10) years,
commencing upon the earlier of: i) June 1, 1999; or ii) the date on which Tenant
occupies any portion of the Premises for the conduct of its business; and
terminating on May 31, 2009 (hereinafter called the "Term") upon the rentals
and subject to the conditions set forth in this Lease Agreement, and the
Exhibits attached hereto. The commencement and termination dates are
specifically subject to the provisions of Article 5 hereof.
B. Tenant shall have the right to renew the Term of the Lease Agreement for
two (2) periods of five (5) years each ("Renewal Terms"), subject to the
following terms, covenants or conditions: i) Tenant shall not be in default
beyond any applicable grace period in the performance of any of the terms,
covenants or conditions of this Lease Agreement, either at the time of the
exercise of the right to renew or at the commencement of the applicable Renewal
Term; ii) the Renewal Term(s) shall be on the same terms, covenants and
conditions as provided in this Lease Agreement, except the Minimum Rental during
the Renewal Term shall be at the rates as at forth in the table in Paragraph 3B
and there shall be no further renewal right after the commencement of the second
Renewal Term; and iii) Tenant shall exercise its right to renew by giving
written notice thereof to Landlord at least nine (9) calendar months prior to
the expiration of the initial Term or first Renewal Term, as the case may be,
time being of the essence. If Tenant fails to notify Landlord in the manner and
within the time as provided in this paragraph, Tenant's right to renew this
Lease Agreement shall expire and become null and void. If Tenant fails to
exercise the first Renewal Term, then the following Renewal Term shall also
terminate.
C. The parties acknowledge that Tenant currently has possession of
approximately 7061 rentable square feet of space on the 4th floor of the
Building denominated Suite 409 ("Suite 409"), pursuant to a lease dated March
3,1999 (the "Prior Lease"). The Parties agree that upon the commencement of the
Term of this Lease Agreement, the Prior Lease shall terminate and be of no
further force or effect without further act or deed of the parties, however,
notwithstanding the foregoing, all rentals due under the Prior Lease shall be
paid through June, 1999 and no rentals under this Lease Agreement shall commence
until July, 1999; and provided further any other obligations under the Prior
Lease which accrue prior to the commencement of the Term of this Lease sha11
continue until satisfied. As at the commencement of the term of this Lease
Agreement, Tenant shall surrender possession of Suite 409 in the condition
required by Article 19, "Surrender" of the Prior Lease. As of the commencement
of the Term of this Lease Agreement, Tenant shall and hereby does transfer,
convey, quitclaim and assign to Landlord all of its rights and interests in and
to Suite 409 and all improvements located therein; provided the foregoing does
not in any way relieve Tenant from its obligations under said Article 19, with
respect to Suite 409.
ARTICLE 2 - USE
A. The Premises shall be used by the Tenant solely for the following
purposes: General office purposes, including executive corporate and general
offices; In addition Tenant shall be entitled, subject to obtaining such
approvals as may be required from any governmental authorities which may have
jurisdiction thereof, to install, operate and maintain telecommunications
equipment, including telecommunication switching operations and related
facilities utilized in connection with Tenant's telecommunications business.
No other use of the Premises shall be allowed.
B. Landlord acknowledges that in connection with Tenant's use of the
Premises, it shall be installing specialized telecommunication equipment, and
various electrical equipment and facilities associated therewith
("Telecommunications Equipment"). Tenant shall be solely responsible for
ensuring that the Telecommunications Equipment can be operated consistent with
Landlord's current facilities and utilities and Tenant shall be solely
responsible for any special utility requirements created by the
Telecommunications Equipment (such as, but not limited to: all electrical power
utilized thereby, additional cooling requirements, uninterrupted power sources,
etc.) the installation of which shall be governed by Article 4 below. Tenant
shall also be solely responsible to ensure that any electrical/magnetic field
("EMF") is not emitted beyond the Premises at levels exceeding those acceptable
by the Food and Drug Administration for persons with pacemakers or other
electronic prosthetics (5 goss or 5,1000 miligoss). In all events, Tenant shall
indemnify, defend with counsel of Landlord's selection, and save Landlord
harmless from any claims for injury to a person or damage to property asserted
by any person against Landlord, its agents or employees by reason of any EMF
emitted from or created by the Telecommunications Equipment. In addition, Tenant
hereby assumes all risk in connection with the presence of all EMF within the
Premises and hereby releases Landlord from any and all liability or
responsibility to Tenant, its agents, employees, constructors or anyone claiming
through or under Tenant by way of subrogation or otherwise for the loss or
damage to property or injury to persons arising out of or relating to EMF.
C. Tenant and its "Affiliates" (as defined in Article 15 below) shall have
the right to provide telecommunication services to other tenants in the Building
on a non-exclusive basis with other providers of such services; provided all
such tenants shall be able to freely choose their telecommunications provider,
and Tenant shall not solicit such tenants (in person) except with Landlord's
prior approval.
ARTICLE 3 - RENTALS
A. Tenant agrees to pay to Landlord as minimum rental (hereinafter called
"Minimum Rental") for the Premises, without notice set-off or demand, during the
Term, and if properly exercised, each of the two Renewal Terms, at the rate as
set forth in the table in Paragraph 3B below. During any given period during the
Term the appropriate Rental Rate, as set forth below, shall be multiplied by the
number of actual rentable square feet of area as existing within the Premises,
and the resultant product shall be divided by 12 to arrive at the monthly
Minimum Rent installed to be payable during the corresponding time period in
which the Premises contains said same number of rentable square feet of area.
Said monthly installments to be due and payable by Tenant in advance on the
first day of each calendar month during the Term of this Lease Agreement, or any
extension or renewal thereof, at the office of Landlord set forth in the
preamble to this Lease Agreement or at such other place as Landlord may
designate. In the event of any fractional calendar month, Tenant shall pay for
each day in such partial month a rental equal to 1/30 of the Minimum Rental.
Tenant agrees to pay, as Additional Rent, which shall be collectible to the same
extent as Minimum Rental, all amount which may become due to Landlord hereunder
and any tax, charge or fee that my be levied, assessed or imposed upon or
measured by the rents reserved hereunder by any government authority
acting under any present or future law before any fine, penalty, interest or
costs may be added thereto for non-payment.
B. The scheduled Minimum Rentals to be paid by Tenant are as follows:
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B. The scheduled Minimum Rentals to be paid by Tenant are as follows:
Time Period Per Annum Minimum Monthly Minimum Rate
Rental Rate
per Rentable Square
Foot of Area Contained
within the Premises
Commencement Date until second $17.50 $10,297.30
anniversary thereof
second anniversary of Term until the $18 50 $10,885.70
fourth anniversary
fourth anniversary of Term until the sixth $19.50 $11,474.10
anniversary
sixth anniversary of Term until the $20.50 $12,062.50
eighth anniversary
eighth anniversary of Term until the $21.5O $l2.650.95
tenth anniversary
First Renewal Term, if applicable, until $22.50 $13,239.35
the twelfth anniversary
twelfth anniversary of Term until the $23.5O $13,827.75
fourteenth anniversary
fourteenth anniversary of Term until the $24.50 $14,416.20
fifteenth anniversary
Second Renewal Term, if applicable, until $25.50 $15,004.60
the sixteenth anniversary
sixteenth anniversary of Term until the $26.50 $15,593.00
eighteenth anniversary
eighteenth anniversary of Term until the $27.50 $16,181.45
end of the Second Renewal Term
ARTICLE 4 - CONSTRUCTION
A. Tenant has provided or shall provide Landlord with plans and/or a
description for permanent improvements to modify the Premises to accomodate
Tenant's intended use (hereafter called the "Preliminary Plans"), which
Preliminary Plans are subject to Landlords approval, which approval shall not
be unreasonably withheld or delayed. Subject to the further written approval of
Landlord, which approval also shall not be unreasonably withheld or delayed,
Tenant shall make such modifications to the Preliminary Plans as it shall
require (hereinafter called "Final Plans"). The Final Plans shall be deemed
approved by Landlord if Landlord fails to make objections thereto within the
later of five (5) days of receipt of such Final Plans from Tenant or the date of
execution of this Lease Agreement. Tenant agrees to make its architect and
engineers available to Landlord for purposes of responding to questions of
Landlord regarding the Preliminary and Final Plans and their impact upon the
Building. Upon receipt of the Final Plans, Tenant shall obtain bids from the
various contractors and subcontractors needed to perform the work contemplated
by the Final Plans ("Work"). The general contractor, construction manager and
major subcontractors contemplated by Tenant shall be first approved by
Landlord, which approval shall not be unreasonably withheld or delayed. Tenant
shall furnish to the Landlord a written statement certified by Tenant and the
general contractor who shall perform the Work listing all subcontractors and
suppliers regarding the Work. Upon submission of such certification, Tenant
shall have the right and license to enter the Premises to do the Work, subject
to all the provisions of this Lease Agreement, except that the Term and the
commencement of rentals shall not commence except pursuant to Paragraph 1A
above. Tenant shall be responsible for constructing the improvements as shown
on the Final Plans (hereafter called "Tenant Improvements") at Tenant's sole
cost and expense. Article 27 below, and Tenant's obligations thereunder shall
specifically be applicable to the Tenant Improvements and all Work performed
or to be performed by Tenant. Tenant acknowledges that the Work shall begin
with Premises in the current "as is" condition with the exception of the
following ("Landlord's Work"): the Premises shall be in broom-clean condition.
After completion of the Tenant Improvements, Tenant shall supply to Landlord
lien waivers from all suppliers, subcontractors and other entities listed on the
sworn construction statement, together with a blanket lien waiver from Tenant's
contractor for the full amount of the Work. Within ninety (90) days subsequent
to the commencement of the Term, Tenant, shall submit in writing to Landlord
a list ("Tenant's Equipment") of any equipment and/or fixtures it deems to be
"trade fixtures" and which Tenant shall be removing at the end of the Term (or
last Renewal Term, if applicable). In no event shall any Tenant Improvement
which alters any existing Building system or any Building equipment
servicing more than just the Premises be included as Tenant's Equipment. If no
list is so submitted to Landlord then none of the equipment and improvements
installed by Tenant shall be deemed trade equipment nor removable by Tenant at
the end of the Term, unless it is covered by a separate license agreement
between Landlord and Tenant. If Tenant desires to add equipment not shown on the
Final Plans (whether during the performance of Tenant's Work or subsequently
during the Term or any Renewal Term) then it shall supplement Tenant's Equipment
List prior to the installation of such equipment. Landlord, in connection with
its approval of the Final Plans, shall provide Tenant with a list of those
improvements which Landlord will require Tenant to remove at the end of the Term
(or last Renewal Term, if applicable) pursuant to Article 19 below. Any Tenant
Improvements not on such list, or if Landlord fails to supply such list to
Tenant prior to the completion of the Tenant Improvements, then Landlord shall
be deemed to have waived its sights under Article 19 to required Tenant to so
remove such Tenant Improvements.
B. The parties acknowledge that the Tenant's Work shall include the
following matters (whether or not included within the Final Plans):
1. the following electrical systems requirements:
(i) reconfiguring the power distribution system in connection with the
power to be distributed to the "Electrical Room" (as defined below) including
installation of electrical grounding facilities connected to the Building's
water main, provided the same does not violate any city ordinance and any
necessary consents from the City of Minneapolis are obtained by Tenant, at its
sole cost and expense;
(ii) providing of A/C electric capacity delivered to a pull box within
the Premises at a capacity for Tenant's needs (such electrical capacity may
exist, but Tenant is responsible for verifying same, as well as confirming that
such is sufficient for its needs, including the "Tenant Generator", as defined
below). If Tenant determines that its electrical requirements exceed the
existing service to the Premises, Tenant shall be entitled to, at its sole cost
and expense, increase such capacity, provided it obtains the necessary
governmental approvals and no additional costs for service fees are incurred by
Landlord. Landlord agrees to cooperate with any applications Tenant may be
required to make to any appropriate governmental agencies and/or public
utility providers in connection therewith, provided the same shall be without
cost to Landlord;
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<PAGE>
(iv) Tenant shall install for the Premises (including the Electric Room)
electric submeter for all electrical usage therein;
2. installation of the following:
(i) Tenant shall cause to be removed modular interior walls, from within
the Premises, if there are any, and store the same inside the Premises (or at
such other storage location as designated by Landlord) until the completion of
Tenant's Work, at which time said removed modular interior walls (together with
any additional modular interior walls Landlord may have in storage) shall be
made available by Landlord to Tenant for installation of offices and rooms
(including the Electrical Room) utilizing Landlord's modular walls, to the
extent Tenant so desires;
(ii) installation of floor covering and wall coverings pursuant to Final
Plan;
(iii) extension of the demising walls above the ceiling to the deck of the
roof, pursuant to Final Plan.
(iv) installation of cabling and conduit from the Premises to Tenant's
telecommunication antennae and related equipment on the roof of the Building
(which placement, location and maintenance of such equipment shall be governed
by a separate license agreement in the form of Exhibit B attached hereto and
incorporated herein by reference). Tenant agrees that at no time during the Term
shall it use, license or otherwise agree to utilize any space upon the Building
or land upon which it is located for antennae space, except pursuant to Exhibit
B, and in no event shall it use, license, utilize or rent space from other
tenants or licencees of the Building without the consent of Landlord, which
consent may be conditioned upon payment of reasonable fees to Landlord;
(v) use of the Building's existing conduit and riser space and in the event
existing conduit is not available, the installation of conduit and cabling from
the Electric Room to Tenant's network outside of the Building. In connection
therewith Landlord shall cooperate with Tenant to locate and utilize an
appropriate riser space from the Premises to other necessary levels of the
Building, such cooperation may include core drilling (subject to Paragraph 4C
below). Tenant shall also have the right to construct dual telecommunication
conduit entrances to the Building (as reasonably approved by Landlord), which
may include the removal and replacement of curbing and/or sidewalks, and
trenching and repairing portions of the parking lot and/or other common
areas, all subject to Paragraph 4C below. Tenant agrees to cooperate and
coordinate with other tenants of the Building desiring or constructing such dual
telecommunication conduit entrances. Notwithstanding anything contained in this
Lease Agreement to the contrary, all cabling and conduit, located on the
exterior of the Premises shall become the property of Landlord upon the
expiration of the Term and shall be surrendered with the Premises.
(vi) Tenant may remove any demising walls between or among the Five Suites
and/or Suite 334 and/or Suite 325E. At such time as possession to State 325E is
delivered to Tenant, Tenant shall construct a temporary demising wall to
separate Suite 325E from Suite 325W at the approximately location as shown by
the dotted line on Exhibit A-1. Said temporary demising wall shall be pursuant
to plans to be approval by Landlord, which approval shall not be unreasonably
withheld or denied.
3. installation of the following heating, ventilation, air conditioning
systems, equipment or facilities ("HVAC"):
(i) installation of such plumbing, cables, controls and accessory
equipment to connect the Electrical Room to the Building's chiller equipment
pursuant to the provisions of the license agreement set forth in Exhibit E
attached hereto and to which the parties hereby agree to be bound.
(ii) such equipment to provide Tenant's necessary HVAC capacity to the
Premises, including but not limited to, condensers on the exterior of the
Building, or on the roof of the Building, at such location as approved by
Landlord ("Cooling Equipment"). If such Cooling Equipment is necessary, it shall
be subject to availability of space and Tenant shall pay for such space at the
same per square foot as is set forth in the table of Article 3.
(iii) in connection with the Cooling Equipment or other forms of cooling,
such drains as Tenant deems necessary, subject to Paragraph 4C below.
(iv) Tenant shall have the right to modify the Building's heating system
servicing the Premises, subject to Paragraph 4C below.
(v) Tenant may modify the duct work and other modifications to the
Building's HVAC so as to service the office portions of the Premises.
4. subject to the prior approval of Landlord, which approval shall not be
unreasonably withheld or delayed, Tenant shall he entitled to reinforce the
floor load capacity of the Premises. Tenant shall be responsible for assuring
that its equipment and any of the Work performed within the Premises does not
exceed the floor capacities of the Building and/or Premises and Tenant shall
indemnify and hold Landlord harmless from all damage, liability and costs
(including reasonable attorneys' fees) in the event it over-loads the floor
capacity of the Premises, but only to the extent it exceeds 8O ppf live weight
and 20 ppf dead weight.
5. Tenant stall have the right to modify the Buildings sprinkler system
serving the Premises (including installation of a fire suppression system which
may be independent of the Buildings system or have the system servicing the
Premises modified to a dry pipe system), pursuant to Final Plans to be approved
by Landlord.
6. If Tenant desires to have the right to install an emergency generator
(the "Tenant Generator") either (at Landlord's election) in an enclosed pad on
the roof of the Building or at the exterior of the Building in a location
approved by Landlord, the same shall be subject to the following:
a. Tenant shall first obtain such governmental approval, authorizations
and permits as are required to install and operate the Tenant Generator.
b. All plans and specifications for the installation of the Tenant
Generator and its connection to the Premises must be approved, in
advance, by Landlord. The installation of the Tenant Generator shall be
performed in a manner approved by Landlord. The Tenant Generator may
consist of up to 350 KW diesel generator and up to a related 500 gallon
fuel tank.
c. Tenant shall pay the entire cost of installing the Tenant Generator,
including any modifications to the generator area required to
accommodate and screen the Tenant Generator.
d. Tenant shall maintain the Tenant Generator and any related equipment, at
its sole cost and expense, in good order and condition and will repair
any damage to the Building and/or any other equipment caused by the
Tenant Generator and/or its installation and/or removal. Landlord shall
not be liable to Tenant or to any other person for any loss or damage to
the Tenant Generator regardless of cause, other than the negligence or
acts of Landlord, its agents or employees.
e. Tenant shall have the right to install gas generator(s) in lieu of
diesel. In either event: (i) any fuel tank shall be located above ground
and within the frame of the generator, (ii) Tenant shall install such
spill protection and other tank monitoring devices as shall be required
by govennmental codes and regulations, (iii) Tenant shall provide
Landlord with copies of all warranties and
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evidence of any testing required by law, and (iv) Tenant shall indemnify
Landlord from and against any and all costs and liability arising from a
leak from such fuel tank, including, without limitation, any clean-up
costs.
f. Upon the termination of the Lease Agreement, Tenant will have the right
to remove the Tenant Generator, provided (i) the Tenant Generator is
removed within five (5) days following the termination of the Lease
Agreement, and (ii) Tenant shall repair all damage to the Building,
landscaping and/or any other equipment caused by the removal of the
Tenant Generator and shall restore the area to the condition as existing
prior to such installation.
g. The availability of appropriate exterior space, and Tenant shall pay for
such space at the same per square foot rate as is set forth in the table
of Article 3.
C. All of Tenant's Work shall be performed in a good and workmanlike manner
using first grade and new materials and to the extent any of such Work involves
alteration or replacement of any existing equipment or facilities of the
Building, Tenant shall use a standard and grade equal to or better than such
existing equipment and facilities. To the extent any of Tenant's Work involves
areas outside the Premises ("Exterior Work"), Tenant and its contractors shall
coordinate all such Work with Landlord and Landlord's Building Manager, on a
daily basis. All such Work, including the Exterior Work, shall be performed in a
manner so as to not unreasonably disturb or interfere with the operations of the
Building or other tenants of the Building; specifically, but not exclusively
including, the performance of all such Work which may involve loud and/or
instating noises, vibrations, dust and/or odors after normal business hours (as
defined in Paragraph 7D below). In all events, whenever the Tenant's Work
involves the alteration and/or interference with any of the Building's systems,
including, but not limited to, electrical, water, HVAC, sprinkler, plumbing and
life/health/safety systems, Tenant shall indemnify and hold Landlord harmless
with respect to any interruption of such systems to other portions of the
Building and/or other tenants and the continued operational integrity of such
systems as a result of the Work. In all events, Tenant, at is sole cost and
expense, shall obtain all applicable governmental approvals with respect to the
installation or doing of all Work including the Exterior Work. Tenant shall
cause its contractors and subcontractors to utilize only those parking areas
designated by Landlord, and to the extent such use utilizes parking spaces,
Tenant shall utilize its parking licenses (as set forth in Paragraph 14D and
Exhibit C below) for such purposes and Tenant shall be responsible for the
license fees due thereunder during such parking use by Tenant's contractors and
subcontractors. Landlord agrees to cooperate, at no cost to it, with respect to
the obtaining of any such governmental approvals, such cooperation, however,
shall not extend to providing any concessions to the governmental authority with
respect to zoning, parking or other restrictions relating to the Building.
D. Landlord agrees to make such alterations to the common area restroom
facilities on the first floor as necessary so as to put them in compliance with
Title III of the Americans with Disabilities Act of 1990 ("ADA"). Tenant shall
perform its Work so as to be in compliance with the ADA.
ARTICLE 5 - POSSESSION
Except as otherwise provided, Landlord shall deliver possession to Tenant
of the Five Suites on June 1, 1999. Landlord shall deliver to Tenant possession
of Suites 334 and 325E on or about July 1, 1999 and Landlord shall deliver to
Tenant possession of Suite 325W on or about September 1, 1999. Delivery of
possession prior to the foregoing dates shall not affect the expiration date of
this Lease Agreement. Failure of Landlord to deliver possession to any given
suite by the dates above provided, due to any cause beyond Landlord's control,
shall not affect the parties' obligations or liabilities hereunder, but such
delay shall simply delay the adding of such suite to and to become part of the
Premises until Landlord is able to so deliver possession of said suite to
Tenant.
Construction delays affecting Tenant's Work due to material shortages,
strikes, or acts of God, or otherwise shall in no event postpone the date of
commencement of the Term of this Lease Agreement nor of the payment of rentals.
By occupying any given Suite constituting the Premises as a Tenant, or to
install fixtures, facilities or equipment, or to perform the Work, Tenant shall
be conclusively deemed to have accepted the same, except for any latent defects
affecting the Building. Immediately after Tenant's completion of its Work for
the entire Premises, Landlord and Tenant shall execute a ratification agreement
which shall set forth the final Minimum Rental, the square footage of the
Premises, and delivery of the Premises in the condition required by this Lease
Agreement.
ARTICLE 6 - TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND OPERATING EXPENSES
ABOVE BASE
A. Commencing with the first full calendar year subsequent to the
commencement of the Term, during each full or partial calendar year during the
Term of this Lease Agreement, Tenant shall pay to Landlord, as Additional
Rental, the amounts by which actual Real Estate Taxes and Operating Expenses
(both as hereafter defined) per square foot of rentable area in the Building
multiplied by the number of square feet of rentable area in the Premises exceed
the Real Estate Tax Base and the Operating Expense Base, respectively (both as
hereafter defined) prorated for the period that Tenant occupied the Premises. In
the event that during all or any portion of any calendar year, the Building is
not fully rented and occupied Landlord may make any appropriate adjustment in
occupancy-related Operating Expenses for such year for the purpose of avoiding
distortion of the amount of such Operating Expenses to he attributed to Tenant
by reason of variation in total occupancy of the Building, by employing sound
accounting and management principles to determine Operating Expenses that would
have been paid or incurred by Landlord had the Building been 100% rented and
occupied, and the amount so determined shall be deemed to have been Operating
Expenses for such year. As used herein, the "Real Estate Tax Base" shall be
$l.ll per rentable square foot times the rentable square feet contained within
the Premises, and the "Operating Expense Base" shall be $3.84 per rentable
square foot times the rentable square feet contained within the Premises. If the
actual Real Estate Taxes or Operating Expenses per square foot times the
rentable square feet contained within the Premises are less than the Real Estate
Tax Base or Operating Expense Base, respectively, Tenant shall not be entitled
to any refund or credit.
B. Commencing with the first full calendar year subsequent to the
commencement of the Term, Landlord shall, each year during the Term of this
Lease Agreement, give Tenant an estimate of Operating Expenses and an estimate
of Real Estate Taxes payable per square foot of rentable area for the coming
calendar year. If either such estimate exceeds the respective Real Estate Tax
Base or Operating Expense Base (as defined above), Tenant shall pay, as
Additional Rental, along with its monthly Minimum Rental payments required
hereunder, one-twelfth (1/12) of such excess estimated Operating Expenses and/or
Real Estate Taxes and such Additional Rental shall be payable until subsequently
adjusted for the following year pursuant to this Article.
C. As soon as possible after the expiration of each calendar year beginning
with the first full calendar year subsequent to the commencement of the Term,
but in any event no later than ninety (90) days following the close of the
calendar year, Landlord shall determine and certify to Tenant the actual
Operating Expenses and Real Estate Taxes for the previous year per square foot
of rentable area in the Building and the amounts applicable to the Premises. If
such statement shows that Tenant's share of increases in Operating Expenses and
Real Estate Taxes over the Operating Expense Base and the Real Estate Tax Base,
respectively exceeds Tenant's estimated monthly payments for the previous
calendar year, then Tenant shall, within twenty (20) days after receiving
Landlord's certification, pay such deficiency to Landlord. In the event of an
overpayment by Tenant, such overpayment (not to exceed the amount of the
estimated payments) shall be refunded to Tenant, at the time of certification,
in the form of an adjustment in the Additional Rental next coming due, or if at
the end of the Term by a refund. By written notice given to Landlord no later
than six (6) months following delivery of the written certification of Landlord,
Tenant shall have the right to audit, or have audited the written certification
and the books and records from which such certification is derived. Tenant shall
pay the costs of any such audit, unless it is determined that Tenant's
overpayment was more than five percent (5%) of the actual amount in which case
Landlord shall reimburse Tenant for the reasonable cost of the audit.
D. For purposes of this Article, the term "Real Estate Taxes" means the
total of all taxes, fees, charges and assessments, general and special, ordinary
and extraordinary, foreseen or unforeseen, which become due and payable upon the
Building. All reasonable costs and expenses incurred by Landlord during
negotiations for or contests of the amount of Real Estate Taxes shall be
included within the term "Real Estate Taxes." For purposes of this Article, the
term "Operating Expenses" shall be deemed to mean all costs and expenses
directly related to the Building incurred by Landlord in the repair, operation,
management and maintenance of the Building including interior and exterior and
common area maintenance, management fees, cleaning expenses, energy expenses,
insurance premiums, and the amortization of capital investments made to reduce
operating costs (including reroofing costs) or that are necessary due to
governmental requirements, all in accordance with generally accepted accounting
principles. Notwithstanding the foregoing, the parties acknowledge and agree
that the janitorial services and electricity to the Premises shall be supplied
by Tenant at its costs and/or submetered and paid for by Tenant ("Tenant
Supplied Utilities") and Tenant acknowledges that it shall be given no credit
against Operating Expenses for those portions of the Premises being serviced by
Tenant Supplied Utilities. The following shall not be included in Operating
Expenses:
(1) real estate brokerage and leasing commissions;
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(2) cost of alterations of any tenant's premises;
(3) allowances or concessions provided to any tenant or occupant of the
Building;
(4) costs incurred to make major repairs or replacements of any defective
initial construction of the Building and related appurtenances regardless of how
such costs are characterized under generally accepted accounting principles;
(5) legal expenses incurred in connection with the preparation or
negotiation of leases, subleases, assignments or other lease-related documents
with current, prior or prospective tenants or occupants of the Building;
(6) marketing or advertising costs to solicit new tenants;
(7) wages, salaries, fees, and fringe benefits paid to executive personnel
or officers or partners of Landlord not having direct day to day responsibility
for operating or providing services to the Building;
(8) the cost, above any applicable deductible, of repairs or other work
occasioned by fire, windstorm or other casualty of an insurable nature or by the
exercise of eminent domain;
(9) costs incurred for alterations, replacements or improvements that would
be considered capital improvements under sound accounting and management
principles consistently applied, except current amortization (together with
interest of ten percent (10%) per annum on the unamortized amount) of the
capital improvement cost over the reasonable useful life of the improvement
where such capital improvement is reasonably necessary to improve the operation
or maintenance efficiency of the Building or as otherwise expressly permitted
above, provided that the amortization costs charged to direct costs for capital
improvements to improve the operation or maintenance efficiency of the Building
shall be limited to the estimated reduction in direct costs for the relevant
years resulting from such capital improvements;
(10) expenses in connection with services or other benefits of a type which
are not provided or available to Tenant but which are provided to another tenant
of the Building or to some other third party;
(11) costs incurred due to violation by Landlord or any tenant of the
Building of the terms or conditions of any lease;
(12) Landlord's general overhead except as it directly relates to the
management and operation of the Building;
(13) all items and services for which any tenant reimburses Landlord or
pays third persons;
(14) ground lease rentals, principal or interest payments, refinancing
charges or points, or penalties resulting from late payments by the Landlord, or
depreciation;
(15) costs incurred in connection with the cure or correction of latent
defects at the Building and cost incurred in connection with the clean-up of
Hazardous Substances from the Project or Building;
(16) Landlord's cost of services sold separately to tenants for which
Landlord is entitled to be reimbursed by such tenants as an additional charge;
(17) costs incurred in connection with negotiations or disputes with
tenants of the Building;
(18) costs incurred in connection with renovating or otherwise improving or
decorating leased space for other tenants or other occupants or vacant tenant
space, other than common areas;
(19) any particular item or service for which Tenant otherwise reimburses
Landlord by direct payment;
(20) any expense for which Landlord is compensated through proceeds of
insurance or agreements of indemnity or surety bonds or guaranties;
(21) any fines or penalties incurred due to actual or alleged violations by
Landlord of any governmental rule or authority,
(22) cost of legal, accounting and other professional services incurred by
Landlord in connection with leasing activities or other activities which are not
Operating Expenses, and costs of audits of any kind performed by tenants;
(23) any bad debt loss, rent loss, or reserves for bad debt or rent loss;
(24) Landlord's general corporate overhead and general administrative
expenses; and
(25) Costs arising from Landlord's charitable or political contributions.
E. Landlord may at any time designate a fiscal year in lieu of a calendar
year and in such event, at the time of such a change, there may be a billing for
the fiscal year which is less than 12 calendar months.
F. Landlord reserves, and Tenant hereby assigns to Landlord, the sole and
exclusive right to contest, protest, petition for review, or otherwise seek a
reduction in the Real Estate Taxes. In the event of any reductions in the Real
Estate Taxes due to Landlord's contesting the same which relate to taxes due
and payable for a year during the Term, such tax reduction, after payment of
Landlord's costs and expenses incurred in connection with effectuating such
reduction, shall be retroactively given effect, and Tenant shall be refunded its
Proportionate Share of said reduction (but not below the Real Estate Tax Base).
G. Landlord shall keep and maintain records of all Operating Expenses, Real
Estate Taxes for a period of not less than two (2) years, which records shall be
made available to Tenant at reasonable times at Landlord's offices for
inspection and copying by Tenant or its representatives, at Tenant's cost. If
Tenant in good faith disputes the accuracy of the total amount of Operating
Expenses or Real Estate Taxes, Tenant may audit Landlord's books and records by
Tenant's representative. If such audit establishes that any of the actual
Operating Expenses or Real Estate Taxes are less than Landlord's final
determination thereof by four percent (4%) or more, then Landlord shall pay the
cost of such audit. Any over-charged or under-paid amounts shall be reimbursed
by the responsible party with thirty (30) days following delivery of such audit
to Landlord, provided Landlord does not contest the same. Any amounts payable
pursuant to this Lease Agreement shall continue to be paid during the pendency
of any audit or dispute, but upon final determination or resolution of such
dispute, any amounts payable by one party to the other hereunder shall bear
interest at the rate of eight percent (8%) per annum.
ARTICLE 7 - UTILITIES AND SERVICE
A. Landlord agrees to provided water and sanitary sewer services to the
common area restrooms of the Building, together with janitorial supplies and
cleaning services to such restroom facilities.
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B. Landlord agrees to furnish heat during the usual heating season and air
conditioning during the usual air conditioning season (provided Tenant does not
remove and/or relocate the HVAC duct work serving the office areas of the
Premises), as well as electricity and janitorial services to the office areas of
the Premises (all specifically excluded from the Electrical Room), on a 24-hour
basis. Electricity to the Premises shall be by separate submeter.
C. No temporary interruption or failure of such services incidental to the
making of repairs, alterations or improvements, or due to accidents or strike or
conditions or events not under Landlord's control, shall be deemed as an
eviction of the Tenant or relieve the Tenant from any of the Tenant's
obligations hereunder. Notwithstanding the foregoing, if for any reason
whatsoever, except due to force majeure or by any negligent act or omission or
intentional misconduct of Tenant and as a result: (i) all or any portion of the
Premises shall become untenantable (the "Untenantable Premises") for the normal
conduct of Tenant's business for a period of three (3) consecutive days, (ii)
Tenant shall vacate the Untenantable Premises and cease doing business therein
(provided, however, that the continued presence of Tenant's security personnel
therein for the purposes of preservation of Tenant's property shall not
constitute a failure by Tenant to vacate the Untenantable Premises) and (iii)
Tenant shall give notice to Landlord of the facts set forth in clauses (i) and
(ii) above, then in such event, the portion of the Rents allocable to the
Untenantable Premises shall be fully abated for the period commencing on the day
that all the conditions set forth in (i), (ii ) and (iii) above shall first be
satisfied and ending on the date that the Untenantable Premises shall be
rendered usable for the normal conduct of Tenant's business and Landlord shall
have given notice thereof (or the date Tenant shall re-occupy the Untenantable
Premises for the normal conduct of its business, if earlier).
D. For the purposes of this Article 7, normal business hours shall be
deemed to mean the period of time between 8:00 a.m. and 6:00 p.m., Monday
through Friday, and 8:00 a.m. to 1:00 p.m. Saturdays, and specifically excluding
Sundays and legal holidays. Landlord agrees that Tenant shall have access to the
Premises 24 hours per day, 7 days per week, however, after normal business hours
such access may be subject to the use of security cards and other rules and
regulations which Landlord may adopt from time to time with respect to the
Building, provided the same are reasonable and are equally applicable to all
tenants of the Building.
E. Tenant shall have the right to place telecommunications equipment of its
customers within the Premises ("Co-Location") and such Co-Location shall not be
deemed an assignment or sublease under the terms of this Lease Agreement
regardless whether a written agreement exists between Tenant and its customers.
F. Tenant agrees prior to such time as it installs its own Tenant Generator
(and during such time after Tenant has so installed its own Tenant Generator)
that it elects to continue to have available to it access to the Landlord's
existing back-up emergency generator at no cost. Tenant shall pay to Landlord
its proportionate costs of all maintenance repairs and replacement of the
Building's back-up emergency generator. Such proportionate use shall be based on
electrical connected load hooked up to said generator as compared to electrical
connected load of other tenants within the Building hooked up to said generator.
G. If the Tenant installs its own Tenant Generator, Tenant shall cooperate
with the Landlord in load shedding and/or peak moving program when requested by
the electric utility supplier (Northern States Power Company). Tenant
acknowledges that compliance with Northern States Power Company's load shedding
program has resulted in lower electrical charges to Landlord and is expected to
result in lower electrical charges to Tenant.
ARTICLE 8 - NON-LIABILITY OF LANDLORD
Except in the event of negligence of Landlord, its agents, employees or
contractors, or as specifically provided herein, Landlord shall not be liable
for any loss or damage for failure to furnish heat, air conditioning,
electricity, elevator service, water, sprinkler system or janitorial service.
Landlord shall not be liable for personal injury, death or any damage from any
cause about the Premises or the Building except if caused by Landlord's
negligence or willful misconduct.
ARTICLE 9 - CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as they were in
at the time Tenant took possession of same, reasonable wear and tear and damage
from fire and other casualty for which insurance is normally procured excepted;
2. To keep the Premises in a clean and sanitary condition and to be
responsible for janitorial services for the switch room;
3. Not to commit any nuisance or waste on the Premises, overload the
Premises or the electrical, water and/or plumbing facilities in the Premises or
Building, throw foreign substances in plumbing facilities, or wastefully use any
of the utilities furnished by Landlord;
4. To abide by such rules and regulations as may from time to time be
reasonably promulgated by Landlord;
5. To obtain Landlord's prior approval (not to be unreasonably withheld)
of the interior design of any portion of the Premises visible from the common
areas or from the outside of the Building. "Interior design" as used in the
preceding sentence shall include but not be limited to floor and wall coverings,
furniture, office design, artwork and color scheme; and
6. Tenant shall maintain, repair and replace, if necessary any and all
equipment and/or facilities and/or trade fixtures which services, or is
dedicated, solely or exclusively to the Premises and/or Tenant, whether
initially installed by Landlord or Tenant, all at Tenant's sole cost and
expense.
B. If Tenant shall fail to keep and preserve the Premises in the state of
condition required by the provisions of this Article 9, the Landlord may at its
option put or cause the same to be put into the condition and state of repair
agreed upon, and in such case the Tenant, on demand, shall pay the cost thereof.
C. Landlord agrees to keep and maintain the common areas of the Building
consistent with other Class B buildings in the Minneapolis central business
district and to supply janitorial services for only the office and common areas.
ARTICLE 10 - NON-PERMITTED USE
A. Tenant agrees to use the Premises only for the purposes set forth in
Article 2 hereof. Tenant further agrees not to commit or permit any act to be
performed on the Premises or any omission to occur which shall be in violation
of any statute, regulation or ordinance of any governmental body or which will
increase the insurance rates on the Building or which will be in violation of
any insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to Tenant's particular use of the Premises and shall
promptly comply with all governmental orders, rulings and directives for the
correction, prevention and abatement of any violation upon, or in connection
with Tenant's particular use of the Premises, including the making of any
alterations or improvements to the Premises, all at Tenant's sole cost and
expense. The Tenant shall not disturb other occupants of the Building by making
any undue or unseemly noise and shall not do or permit to be done in or about
the Premises anything which will be dangerous to life or limb. In connection
with the foregoing provision, Tenant covenants and agrees that it shall not
store, process, produce or dispose of any flammables, explosives, radioactive
materials, ACM's, polychlorinated biphenyls (PCB's), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous waste,
toxic substances, petroleum and petroleum products, chloraflora carbons (CFC's)
and substances declared to be hazardous or toxic (collectively "Hazardous
Substances") in violation of any present or future federal, state or local
environmental law, ordinance or regulation ("Environmental Laws") upon the
Premises or any part thereof without first obtaining Landlord's written consent,
which consent may be withheld or denied in Landlord's sole discretion, provided
that Landlord hereby consents to Hazardous Substances in small quantities as are
typically used in an office building (such as, toner, cleaning fluids, etc.).
Tenant agrees to indemnify and defend and hold Landlord harmless from and
against all fines, suits, claims, actions, damages, liabilities, costs and
expenses (including reasonable attorneys' fees) asserted against Landlord
arising out of and in any way connected with Tenant's failure to comply with its
obligations of this Paragraph or arising from the consented to presence of
Hazardous Substances (specifically including any diesel fuel), which
indemnification shall survive the expiration of the termination of this Lease
Agreement
B. Landlord represents that it was not the owner of the Building during
construction, and makes no representations as to any Hazardous Substances but
Landlord shall make available that certain Phase I Environmental Report prepared
on behalf of the FDIC/RTC ("Environmental Report") to Tenant. Landlord hereby
covenants that if, at any time during the Term of the Lease Agreement, as the
same may be extended, "Hazardous Substances" are required to be removed,
encapsulated or otherwise remediated by any legal governmental authority having
jurisdiction over the Building, the presence for which Landlord is the
"responsible party" and Tenant is not a "responsible party" (as defined by
Environmental Laws) then Landlord shall so remediate the same as so required,
at Landlord's sole cost and expense and not as a part of Operating Expenses.
Landlord agrees to indemnify and defend and hold Tenant harmless from and
against all fines, suits, claims, actions, damages, liabilities, costs and
expenses (including attorneys' fees) asserted by such governmental authorities
against
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Tenant arising out of or in any way connected with Landlord's failure to comply
with its obligations in the preceding sentence, which indemnification shall
survive the expiration or the termination of this Lease Agreement.
ARTICLE 11 - INSPECTION
The Landlord or its employees or agents shall have the right without any
diminution of rent or other charges payable hereunder by Tenant to enter the
Premises at all reasonable times for the purpose of exhibiting the Premises to
prospective tenants or purchasers, inspection, cleaning, repairing, testing,
altering or improving the same or said Building, but nothing contained in this
Article shall be construed so as to impose any obligation on the Landlord to
make any repairs, alterations or improvements. Landlord's rights under this
section shall be exercised in such a manner as to create the least practicable
interference with Tenant's use and occupancy of the Premises. Except in the
case of an emergency which makes notice to Tenant impractical, any entry on the
Premises by Landlord shall be made at reasonable times after reasonable notice
to Tenant. In exercising Landlord's rights of entry, Landlord shall comply with
Tenant's reasonable security regulations of which Landlord has been advised of
in writing. Landlord hereby recognizes that Tenant is engaged in a business that
involves access to privileged and confidential matters and information and
agrees to take reasonable precautions as to not compromise such confidentiality.
Therefore Landlord agrees that Landlord may enter and pass through the Premises
only when accompanied by a representative of Tenant, provided that Tenant agrees
to make such representative available. Landlord agrees that it shall not enter
the Premises for the purpose of exhibiting the Premises to prospective tenants,
except during the last nine (9) months of any Term, or at any time when Tenant
is in default.
ARTICLE 12 - ALTERATIONS
Tenant will not make any alterations, additions or improvements in or to
the Premises or add, disturb or in any way change any plumbing, wiring,
life/safety or mechanical systems, locks, or structural portions of the Building
without the prior written consent of the Landlord as to the character of the
alterations, additions or improvements to be made, the manner of doing the work,
and the contractor doing the work. Such consent shall not be unreasonably
withheld or delayed, if such alterations, repairs additions or improvements are
required of Tenant or are the obligation of Tenant pursuant to this Lease
Agreement. All such work shall comply with all applicable governmental laws,
ordinances, rules and regulations. Tenant agrees to indemnify and hold Landlord
free and harmless from any liability, loss, cost, damage or expense (including
attorney's fees) by reasons of any said alteration, repairs, additions or
improvements.
ARTICLE 13 - SIGNS
Tenant agrees that no signs or other advertising materials shall be
erected, attached or affixed to any portion of the interior or exterior of the
Premises or the Building without the express prior written consent of Landlord.
Landlord, at its sole cost and expense, shall install Building standard tenant
graphics at the main entry to the Premises and an identification strip for
Tenant on the Building's lobby directory.
ARTICLE 14 - COMMON AREAS
A. Tenant agrees that the use of all corridors, passageways, elevators,
toilet rooms, parking areas and landscaped area in and around said Building, by
the Tenant or Tenant's employees, visitors or invitees, shall be subject to such
reasonable rules and regulations as may from tune to time be made by Landlord
for the safety, comfort and convenience of the owners, occupants, tenants and
invitees of said Building. Tenant agrees that no awnings, curtains, drapes or
shades shall be used upon the Premises except as may be approved by Landlord,
such approval not to be unreasonably withheld, delayed or conditioned.
B. In addition to the Premises, Tenant shall have the right of
non-exclusive use, in common with others, of (a) all unrestricted automobile
parking areas, driveways and walkways, and (b) loading facilities, freight
elevators and other facilities as may be constructed in the Building, all to be
subject to the terms and conditions of this Lease Agreement and to reasonable
rules and regulations for the use thereof as prescribed from time to time by
Landlord.
C. Landlord shall have the right to make changes or revisions in the site
plan and in the Building so as to provide additional leasing area. Landlord
shall also have the right to construct additional buildings on the land
described on Exhibit A-2 for such purposes as Landlord may deem appropriate.
Subject to Tenant's rights in respect of the Tenant Improvements, Landlord also
reserves all airspace rights above, below and to all sides of the Premises,
including the right to make changes, alterations or provide additional leasing
areas, provided the same do not interfere with Tenant's operations on or from
the Premises.
D. Landlord and Tenant agree that Landlord will not be responsible for any
loss, theft or damage to vehicles, or the contents thereof, parked or left in
the parking areas of the Building and Tenant agrees to so advise its employees,
visitors or invitees who may use such parking areas. The parking areas shall
include those areas designated by Landlord, in its sole discretion, as either
restricted or unrestricted parking areas. Any restricted parking areas shall be
leased only by separate license agreement with Landlord. Landlord agrees to
provide Tenant, subject to availability, unassigned parking spaces pursuant to
license agreements in the form of Exhibit C. The parking spaces being made
available to Tenant pursuant to this Paragraph shall be made available at the
commencement of the Term and continuing thereafter during the balance of the
Term and Renewal Terms, but only to the extent Tenant continues the initial
number of parking spaces continuously. If Tenant should cease one or more such
parking spaces, then Landlord shall not and does not guaranty that Tenant shall
be entitled to subsequently have such parking spaces available to it.
ARTICLE 15 - ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, or encumber this Lease
Agreement, the Premises, or any part thereof, whether by voluntary act,
operation of law, or otherwise without the specific prior written consent of
Landlord; provided however, Landlord agrees not to unreasonably withhold, delay
or deny such consent if: i) such assignment or sublease is in writing and the
assignee or sublessee assumes all the obligations of Tenant under this Lease
Agreement; ii) the proposed subtenant or assignee has a net worth of One Million
Dollars ($1,000,000) or more at the time of such assignment or subletting; iii)
the remaining provisions of this Lease Agreement continue to be applicable; and
iv) Tenant shall remain liable hereunder. Landlord further hereby gives its
consent (subject however to Tenant's providing ten (10) days prior written
notice and clauses i), iii) and iv) above being applicable) to an assignment of
this Lease Agreement or sublease of the Premises to an "Affiliate" of Tenant or
to any entity into or with which Tenant is merged or to the purchaser of all or
substantially all the ownership interests or assets of Tenant; provided the
survivor or transferee continues to operate the business of Tenant as a going
concern. For purposes hereof an Affiliate shall mean any party that is "related
to" Tenant as that term is defined by Sec. 267(b) of the Internal Revenue Code
of 1986. Consent by Landlord in one such instance shall not be a waiver of
Landlord's rights under this Article as to requiring consent for any subsequent
instance. In the event Tenant desires to sublet a part or all of the Premises,
or assign this Lease Agreement, Tenant shall give written notice to Landlord at
least thirty (30) days prior to the proposed subletting or assignment, which
notice shall state the name of the proposed subtenant or assignee, the terms of
any sublease or assignment documents and copies of financial reports or other
relevant financial information of the proposed subtenant or assignee. At
Landlord's option, any and all payments by the proposed assignee or sublessee
with respect to the assignment of sublease shall be paid directly to Landlord.
In any event no subletting or assignment shall release Tenant of its obligation
to pay the rent and to perform all other obligations to be performed by Tenant
hereunder for the Term of this Lease Agreement. The acceptance of rent by
Landlord from any other person shall not be deemed to be a waiver by Landlord of
any provision hereof.
B. Notwithstanding anything to the contrary contained in this Article,
Tenant may collaterally assign, mortgage, pledge, or hypothecate, without
Landlord's consent, its interest in this Lease Agreement to any financing
entity, or agent on behalf of any financing entity to whom Tenant: i) has
obligations for borrowed money or in respect of guarantees thereof, ii) has
obligations evidenced by bonds, debentures, notes, or similar instruments, or
iii) has obligations under or with respect to letters of credit, bankers'
acceptances and similar facilities or in respect of guarantees thereof.
C. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and, providing the
purchaser succeeds to the interests of Landlord under this Lease Agreement and
assumes the Landlord's obligations hereunder, Landlord shall thereupon be
entirely freed of all obligations of the Landlord accruing hereunder after such
conveyance and shall not be subject to any liability resulting from any act or
omission or event occurring after such conveyance.
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ARTICLE 16 - LOSS BY CASUALTY
A. If the Building is damaged or destroyed by fire or other casualty, the
Landlord shall have the right to terminate this Lease Agreement, provided it
gives written notice thereof to the Tenant within ninety (90) days after such
damage or destruction. If a portion of the Premises or Building is damaged by
fire or other casualty, and in the reasonable opinion of Landlord: i) the
Premises cannot be restored to tenantable condition within a period of ninety
(90) days following the commencement of such restoration work, and/or ii) the
cost of performing such restoration work exceeds the proceeds of Landlord's
casualty insurance by more than $100,000, then Landlord shall not be required to
make any repairs and Landlord shall have the right to terminate this Lease
Agreement upon written notice to Tenant within thirty (30) days of the date of
such fire or other casualty, in which event, this Lease Agreement shall
terminate as of the date of such notice and Landlord and Tenant shall be
released from any and all liability thereafter accruing hereunder. Landlord
shall notify Tenant of its decision to rebuild or not within said thirty (30)
day period. Anything herein to the contrary notwithstanding, if the Premises are
destroyed or so damaged that they cannot be repaired and made tenantable within
ninety (90) days following commencement of such restoration work, or so damaged
that Landlord shall decide not to repair or rebuild, or Landlord decides to
repair or rebuild, or Landlord decides to repair or rebuild, but does not
restore the Premises to a tenantable condition within ninety (90) days after
commencement of such restoration work (subject to an extension of up to an
additional sixty (60) days due to causes beyond Landlord's control), then, in
any of such instances, Tenant may terminate this Lease Agreement by giving
notice to Landlord within thirty (30) days after Tenant's receipt of Landlord's
notice or the expiration of said ninety (90) day period (as extended due to
causes beyond Landlord's control, as set forth above) as applicable, in which
event this Lease Agreement shall terminate as of the date of such notice and
Landlord and Tenant shall be released from any and all liability thereafter
accruing hereunder. If this Lease Agreement has not been terminated by either
Landlord or Tenant, then the rents due hereunder shall abate during such period
of time as the Premises are untenantable, in the proportion that the
untenantable portion of the Premises bears to entire Premises.
B. If the Premises are to be repaired under this Article 16, Landlord
shall repair any injury or damage to the Building itself and the Premises in
substantially the condition the Premises were in at the execution of this Lease
Agreement, specifically excluding any leasehold improvements constructed by
Tenant, Tenant's Equipment or any Collateral, all of which shall be restored to
the extent Tenant deems necessary, at Tenant's sole cost and expense. Tenant
shall, at its own cost and expense, remove all of its furniture and other
personal property from the Premises as Landlord shall reasonably require in
connection with its repair and restoration of the Premises under this Article
16.
ARTICLE 17 - WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible, provided however,
that this release shall be applicable and in force and effect only with respect
to loss or damage occurring during such times as the releasing party's policies
shall contain a clause or endorsement to the effect that any such release would
not adversely affect or impair said policies or prejudice the right of the
releasing party to recover thereunder. Landlord and Tenant agree that they will
request their insurance carriers to include in their policies such a clause or
endorsement. If extra cost shall be charged therefore, each party shall advise
the other of the amount of the extra cost, and the other party, at its election,
may pay the same, but shall not be obligated to do so.
ARTICLE 18 - EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement
shall automatically terminate as of the date of taking. If a portion of the
Building is taken by eminent domain, the Landlord shall have the right to
terminate this Lease Agreement, provided it gives written notice thereof to the
Tenant within ninety (90) days after the date of taking. If a portion of the
Premises is taken by eminent domain and this Lease Agreement is not terminated
by Landlord, Tenant shall have the right to terminate this Lease Agreement,
provided it gives written notice thereof to Landlord within ninety (90) days of
the date of taking. If neither Landlord nor Tenant terminates, then the Landlord
shall, at its expense, restore the Premises to as near the condition which
existed immediately prior to the date of taking as reasonably possible, and the
rentals shall abate during such period of time as the Premises are
untenantable, in the proportion that the untenantable portion of the Premises
bears to the entire Premises. All damages awarded for such taking under the
power of eminent domain shall belong to and be the sole property of Landlord,
irrespective of the basis upon which they are awarded, provided, however, that
nothing contained herein shall prevent Tenant from making a separate claim to
the condemning authority for its moving expenses and trade fixtures. For
purposes of this Article, a taking by eminent domain shall include Landlord's
giving of a deed under threat of condemnation, and shall be deemed to occur on
the earlier of the date fee simple title has vested or possession has been
obtained by the taking authority.
ARTICLE 19 - SURRENDER
On the last day of the Term of this Lease Agreement or on the sooner
termination thereof in accordance with the terms hereof, Tenant shall peaceably
surrender the Premises in good condition and repair consistent with Tenant's
duty to make repairs as provided in Article 9 hereof. On or before said last
day, Tenant shall at its expense remove all of its equipment from the Premises,
repairing any damage caused thereby, and any property not removed shall be
deemed abandoned, with the exception of any "Collateral" (as defined in Article
28 below) to the extent of any security interests by third parties. All
alterations, additions and fixtures other than Tenant's trade fixtures, which
have been made or installed by either Landlord or Tenant upon the Premises shall
remain as Landlord's property and shall be surrendered with the Premises as a
part thereof, or shall be removed by Tenant (unless such right to remove has
been waived by Landlord pursuant to Article 4 above), in which event Tenant
shall at its expense repair any damage caused thereby. It is specifically agreed
that any and all telephonic, coaxial, ethernet, or other computer,
word-processing, facsimile, or electronic wiring installed by Tenant within the
Premises (hereafter "Wiring") shall be removed at Tenant's cost at the
expiration of the Term, unless Landlord has specifically requested in writing
that said Wiring shall remain, whereupon said Wiring shall be surrendered with
the Premises as Landlord's property. If the Premises are not surrendered at the
end of the Term or the sooner termination thereof, Tenant shall indemnify
Landlord against loss or liability resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, claims made by any
succeeding tenant founded on such delay. Tenant shall promptly surrender all
keys for the Premises to Landlord at the place then fixed for payment of rental
and shall inform Landlord of combinations on any locks and safes on the
Premises.
ARTICLE 20 - NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs: (1) a rent payment or any other
payment due from Tenant to Landlord shall be and remain unpaid in whole or in
part for more than ten (10) days after same is due and payable; (2) Tenant shall
violate or default on any of the other covenants, agreements, stipulations or
conditions herein, or in any parking agreement(s) or other agreements between
Landlord and Tenant relating to the Premises, and such violation or default
shall continue for a period of thirty (30) days after written notice from
Landlord of such violation or default or if such violation or default shall
reasonably require longer than thirty (30) days to cure, if Tenant shall fail to
commence the cure of such default or violation within thirty (30) days after
receipt of notice thereof and/or fail to prosecute a cure to completion with due
diligence; (3) if Tenant shall commence or have commenced against Tenant
proceedings under a bankruptcy, receivership, insolvency or similar type of
action; or (4) if Tenant shall abandon the Premises; then it shall be optional
for Landlord, without further notice or demand, to cure such default or to
declare this Lease Agreement forfeited and the said Term ended, or to terminate
only Tenant's right to possession of the Premises, and to re-enter the Premises,
with or without process of law, using such force as may be necessary to remove
all persons or chattels therefrom, and Landlord shall not be liable for damages
by reason of such re-entry or forfeiture; but notwithstanding re-entry by
Landlord or termination only of Tenant's right to possession of the Premises,
the liability of Tenant for the rent and all other sums provided herein shall
not be relinquished or extinguished for the balance of the Term of this Lease
Agreement and Landlord shall be entitled to periodically sue Tenant for all sums
due under this Lease Agreement or which become due prior to judgment, but such
suit shall not bar subsequent suits for any further sums coming due thereafter.
Tenant shall be responsible for, in addition to the rentals and other sums
agreed to be paid hereunder, the cost of any necessary maintenance, repair,
restoration, reletting (including related cost of removal or modification of
tenant improvements) or cure as well as reasonable attorney's fees incurred or
awarded in any suit or action instituted by Landlord to enforce the provisions
of this Lease Agreement, regain possession of the Premises, or the collection of
the rentals due Landlord hereunder. Tenant shall also be liable to Landlord for
the payment of a late charge in the amount of 5% of the rental installment or
other sum due Landlord hereunder if said payment has not been received within
ten (10) days from the date said payment becomes due and payable, or cleared by
Landlord's bank within three (3) business days after deposit. Tenant agrees to
pay interest at the highest permissible rate of interest allowed under the usury
statutes of the State of Minnesota, or in case no such maximum rate of interest
is provided, at the rate of 12% per annum, on all rentals and other sums due
Landlord hereunder not paid within ten (10) days from the date same become due
and payable. Each right or remedy of Landlord provided for in this Lease
Agreement shall be cumulative and shall be in addition to every other right or
remedy provided for in this Lease Agreement now or hereafter existing at law or
in equity or by statute or otherwise.
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ARTICLE 21 - LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under this Lease Agreement
until Tenant has given Landlord written notice specifying the nature of the
default and Landlord does not cure such default within thirty (30) days after
receipt of such notice or within such reasonable time thereafter as may be
necessary to cure such default where such default is of such a character as to
reasonably require more than thirty (30) days to cure.
ARTICLE 22 - HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by lapse of
time or termination, give up immediate possession to Landlord. If Tenant fails
to give up possession Landlord may, at its option, serve written notice upon
Tenant that such holdover constitutes any one of (i) creation of a month to
month tenancy, or (ii) creation of a tenancy at sufferance. If Landlord does not
give said notice, Tenant's holdover shall create a tenancy at sufferance. In any
such event the tenancy shall be upon the terms and conditions of this Lease
Agreement, except that the Minimum Rental shall be 150% the Minimum Rental
Tenant was obligated to pay Landlord under this Lease Agreement immediately
prior to termination (in the case of tenancy at sufferance such Minimum Rental
shall be prorated on the basis of a 365 day year for each day Tenant remains in
possession); excepting further that in the case of a tenancy at sufferance, no
notices shall be required prior to commencement of any legal action to gain
repossession of the Premises. In the case of a tenancy at sufferance, Tenant
shall also pay to Landlord all damages sustained by Landlord resulting from
retention of possession by Tenant, provided such damages shall not include
consequential damages if such holdover is for five (5) business days or less.
The provisions of this paragraph shall not constitute a waiver by Landlord of
any right of re-entry as otherwise available to Landlord; nor shall receipt of
any rent or any other act in apparent affirmance of the tenancy operate as a
waiver of the right to terminate this Lease Agreement for a breach by Tenant
hereof.
ARTICLE 23 - SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any
mortgage(s) that may now or hereafter be placed upon the Building or any part
thereof, and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements, and extensions thereof and to execute a
specific subordination agreement (in a form reasonably requested by mortgagee)
if so requested by Landlord, provided the mortgagee named in such subordination
shall agree to recognize this Lease Agreement or Tenant in the event of
foreclosure provided the Tenant is not in default by including non-disturbance
language, in recordable form. In the event of any mortgagee electing to have the
Lease Agreement a prior encumbrance to its mortgage, then and in such event upon
such mortgagee notifying Tenant to that effect, this Lease Agreement shall be
deemed prior in encumbrance to the said mortgage, whether this Lease Agreement
is dated prior to or subsequent to the date of said mortgage. Landlord shall use
its best efforts to obtain a non-disturbance agreement from the existing
mortgagee (the Federal Deposit Insurance Corporation) and any future mortgagees,
in a form reasonably satisfactory to such mortgagee and Tenant.
ARTICLE 24 - INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for so long as this Lease
Agreement remains in effect public liability insurance with respect to the
Premises in which Landlord shall be named as an additional insured, in companies
and in form acceptable to Landlord with a minimum combined limit of liability of
Two Million Dollars ($2,000,000.00). This limit shall apply per location. Said
insurance shall also provide for contractual liability coverage by endorsement.
Tenant shall further provide for business interruption insurance to cover a
period of not less than six (6) months. Tenant will further deposit with
Landlord the policy or policies of such insurance or certificates thereof, or
other acceptable evidence that such insurance is in effect, which evidence shall
provide that Landlord shall be notified in writing thirty (30) days prior to
cancellation, material change, or failure to renew the insurance. Tenant further
covenants and agrees to indemnify and hold Landlord and Landlord's manager of
the Building harmless for any claim, loss or damage, including reasonable
attorney's fees, suffered by Landlord, Landlord's manager or Landlord's other
tenants caused by: i) any act or omission by Tenant, Tenant's employees or
anyone claiming through or by Tenant in, at, or around the Premises or the
Building; ii) the conduct or management of any work or thing whatsoever done by
Tenant in or about the Premises; or iii) Tenant's failure to comply with any and
all governmental laws, rules, ordinances or regulations applicable to Tenant's
particular use of the Premises. If Tenant shall not comply with its covenants
made in this Article 24, Landlord may, at its option, cause insurance as
aforesaid to be issued and in such event Tenant agrees to pay the premium for
such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of the
Premises and all property kept, stored or maintained in the Premises. Landlord
will make available to Tenant, at Tenant's request, the plans and specifications
for construction of the Building and the Premises. Tenant represents that it is
satisfied that the configuration of the Building and the Premises, including the
location and dimensions of the floors, walls, windows, doors and means of access
thereto are suitable for the particular needs of Tenant's business. The
placement and sufficiency of all safes, vaults, cash or security drawers,
cabinets or the like placed upon the Premises by Tenant shall be at the sole
responsibility and risk of Tenant. Tenant shall maintain in force throughout the
Term, insurance upon all contents of the Premises, including that owned by
others and Tenant's equipment and any alterations, additions, fixtures, or
improvements in the Premises acknowledged by Landlord to be the Tenant's.
C. Landlord shall carry and cause to be in full force and effect a fire and
extended coverage insurance policy on the Building, but not contents owned,
leased or otherwise in possession of Tenant. Landlord will also keep in force
during this Term public liability insurance with respect to the Building with a
minimum combined limit of liability of $2,000,000. The cost of such insurance
shall be an Operating Expense.
ARTICLE 25 - NOTICES
All notices from Tenant to Landlord required or permitted by any provisions
of this Lease Agreement shall be directed to Landlord postage prepaid, certified
or registered mail or sent by U.S. express mail or any nationally recognized
overnight carrier with a signed receipt obtained upon delivery, at the address
provided for Landlord in the preamble to this Lease Agreement or at such other
address as Tenant shall be advised to use by Landlord. All notices from Landlord
to Tenant required or permitted by any provision of this Lease Agreement shall
be directed to Tenant, postage prepaid, certified or registered mail or sent by
U.S. express mail or any nationally recognized overnight carrier with a signed
receipt obtained upon delivery, at: Landlord and Tenant shall each have the
right at any time and from time to time to designate one (1) additional party to
whom copies of any notice shall be sent
ARTICLE 26 - APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State of
Minnesota.
ARTICLE 27 - MECHANICS' LIEN
In the event any mechanic's lien shall at any time be filed against the
Premises or any part of the Building by reason of work, labor, services or
materials performed or furnished to Tenant or to anyone holding the Premises
through or under Tenant, Tenant shall forthwith cause the same to be discharged
of record. Tenant shall and hereby does indemnify Landlord from and against all
costs, damages and expenses (including reasonable attorney's fees) incurred by
Landlord as a result of any such mechanic's lien. If Tenant shall fail to cause
such lien forthwith to be discharged within twenty (20) days after being
notified of the filing thereof, then, in addition to any other right or remedy
of Landlord, Landlord may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due, or by bonding, and the amount so paid by
Landlord and all costs and expenses, including reasonable attorney's fees
incurred by Landlord in procuring the discharge of such lien, shall be due and
payable in full by Tenant to Landlord on demand. Landlord shall have the right
to post on the Premises notices of nonresponsibility for payment of labor and
materials supplied to the Premises pursuant to applicable law.
ARTICLE 28 - SECURITY DEPOSIT
INTENTIONALLY DELETED.
ARTICLE 29 - BROKERAGE
Each of the parties represents and warrants that there are no claims for
brokerage commissions or finder's fees in connection with this Lease Agreement
and agrees to indemnify the other against, and hold it harmless from all
liabilities arising from any other such claim, including without limitation, the
cost of attorney's fees in connection therewith.
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ARTICLE 30 - EXCULPATION
Tenant agrees to look solely to Landlord's interest in the Building for the
recovery of any judgment from Landlord, it being agreed that Landlord and
Landlord's partners, whether general or limited (if Landlord is a partnership)
or its directors, officers or shareholders (if Landlord is a corporation), shall
never be personally liable for any such judgment.
ARTICLE 31- ESTOPPEL CERTIFICATES
Each party hereto agrees that at any time, and from time to time during the
Term of this Lease Agreement (but not more often than twice in each calendar
year), within ten (1O) days after request by the other party hereto, it will
execute, acknowledge and deliver to such other party or to any prospective
purchaser, assignee or mortgagee designated by such other party, an estoppel
certificate in a form acceptable to Landlord. Tenant agrees to provide Landlord
(but not more often than twice in any calendar year), within ten (10) days of
request, the then most current financial statements of Tenant arid any
guarantors of this Lease Agreement, which shall be certified by Tenant, and if
available, shall be audited and certified by a certified public accountant.
Landlord shall keep such financial statements confidential, except Landlord
shall, in confidence, be entitled to disclose such financial statements to
existing or prospective mortgagees or purchasers of the Building.
ARTICLE 32 - GENERAL
This Lease Agreement does not create the relationship of principal and
agent or of partnership or of joint venture or of any association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant. No waiver of any default of Tenant hereunder shall
be implied from any omission by Landlord to take any action on account of such
default if such default persists or is repeated, and no express waiver shall
affect any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated. The covenants of Tenant
to pay the Minimum Rental and the Additional Rental are each independent of any
other covenant, condition, or provision contained in this Lease Agreement. The
marginal or topical headings of the several Articles, paragraphs and clauses are
for convenience only and do not define, limit or construe the contents of such
Articles, paragraphs or clauses. All preliminary negotiations are merged into
and incorporated in this Lease Agreement. This Lease Agreement can only be
modified or amended by an agreement in writing signed by the parties hereto. All
provisions hereof shall be binding upon the heirs, successors and assigns of
each party hereto. If any term or provision of this Lease Agreement shall to any
extent be held invalid or unenforceable, the remainder shall not be affected
thereby, and each other term and provision of this Lease Agreement shall be
valid and be enforced to the fullest extent permitted by law. If Tenant is a
corporation, each individual executing this Lease Agreement on behalf of said
corporation represents and warrants that he is duly authorized to execute and
deliver this Lease Agreement on behalf of said corporation in accordance with a
duly adopted resolution of the Board of Directors of said corporation or in
accordance with the Bylaws of said corporation, and that this Lease Agreement is
binding upon said corporation in accordance with its terms. No receipt or
acceptance by Landlord from Tenant of less than the monthly rent herein
stipulated shall be deemed to be other than a partial payment on account for any
due and unpaid stipulated rent; no endorsement or statement of any check or any
letter or other writing accompanying any check or payment of rent to Landlord
shall be deemed an accord and satisfaction, and Landlord may accept and
negotiate such check or payment without prejudice to Landlord's rights to (i)
recover the remaining balance of such unpaid rent or (ii) pursue any other
remedy provided in this Lease Agreement. Either party may record a memorandum of
this Lease Agreement and the parties agree to execute a reasonable form
memorandum as presented by the other party. Time is of the essence with respect
to the due performance of the terms, covenants and conditions herein contained.
Submission of this instrument for examination does not, constitute a reservation
of or option for the Premises, and this Lease Agreement shall become effective
only upon execution and delivery thereof by Landlord and Tenant.
ARTICLE 33 - QUIET ENJOYMENT
Landlord covenants that Tenant, upon paying the rental and other charges
due hereunder and performing all of Tenant's obligations under this Lease
Agreement, shall peacefully and quietly hold, occupy and enjoy Premises
throughout the Term hereof, without molestation or hindrance by any person
holding, under or through Landlord, subject, however, to the provisions of this
Lease Agreement and to any mortgages or ground or underlying leases referred to
in Article 23 hereof. Any diminution or shutting off of light, air or view by
any structure which may be erected on lands adjacent to the Building shall in no
way affect this Lease Agreement or impose any liability on Landlord.
ARTICLE 34 - LIMITED EXPANSION RIGHT
A. Provided Tenant is not then in default under this Lease Agreement beyond
the applicable grace period, Tenant shall have a right of leasing space
contiguous to the Premises on the third floor of the Building (hereafter
referred to as the "Option Space"), in the event such Option Space becomes
"Available for Leasing" (as defined below) during the original Term, subject to
and conditioned upon the provisions of this Article (the "Expansion Right").
B. Landlord shall notify Tenant ("Landlord's Notice") in the event the
Option Space becomes "Available for Leasing"; or in the event Landlord has a
third party interested in leasing the Option Space which is then "Available for
Leasing". Tenant shall notify Landlord ("Tenant's Leasing Notice") within five
(5) business days after its receipt of Landlord's Notice as to whether Tenant
intends to exercise its Expansion Right with respect to said Option Space as so
identified in Landlord's Notice, time being of the essence. If Tenant exercises
its Expansion Right, it must do so with respect to all the Option Space as so
identified in Landlord's Notice. In such event, Landlord and Tenant shall
execute an amendment to the Lease Agreement incorporating the Option Space as so
identified into the Premises at the Minimum Rent at the then applicable rates as
set forth in the table of Paragraph 3B above. In the event Tenant fails to
notify Landlord within the time period set forth above, Tenant's rights under
this Article shall be null and void with respect to any lease entered into with
respect to the original prospective Tenant for the Option Space as so identified
in Landlord's Notice; provided such Expansion Right shall again be applicable in
the event Landlord does not lease such Option Space to the original prospective
Tenant within nine (9) months of the Landlord's Notice.
C. Tenant's Expansion Right shall also include Tenant's providing Landlord
a Tenant's Leasing Notice (in the first instance and not in response to a
Landlord's Notice) with respect to the Option Space which is then "Available for
Leasing" provided no Landlord's Notice has been given to Tenant with respect to
any portion of such Option Space within the previous nine (9) months.
D. The leasing of said Option Space shall commence as of the "Effective
Date" (as set forth below) and shall be in said Option Space's, then "AS-IS"
condition without any improvements, improvement allowances or other
modifications to be made by Landlord. For purposes of this Article, the
"Effective Date" shall mean the date on which Tenant shall begin paying rentals
upon the Option Space after it has exercised its rights to said space; which
shall be thirty (30) days after Tenant's Leasing Notice under this Article to
Landlord exercising its rights hereunder (or such sooner date as Tenant takes
possession and commences its business operations from within the Option Space).
The provisions of this Lease Agreement governing alterations of the Premises
shall apply with respect to the construction of any leasehold improvements
Tenant desires to make to such Option Space.
E. Notwithstanding anything to the contrary in the foregoing, if Tenant
exercises its rights under this Article and there remains less than thirty-six
(36) months from the Effective Date to the expiration of the Term, then the
Tenant shall not be entitled to exercise its rights under this Article unless it
exercises its Option to Renew the Term, or if no such Option to Renew can then
be exercised, then Tenant shall no longer have any rights under this Article
with respect to the Option Space.
F. For purposes of this Article, "Available for Leasing" shall mean the
Option Space is not subject to any existing (as of the date of this Lease
Agreement) lease or first rights of refusal, first rights of negotiation, first
rights of leasing, expansion rights, renewal rights and/or similar rights of any
other third party tenant or such rights have been waived in writing (provided if
all such rights are to expire within six (6) months, Landlord may make such
Option Space Available for Leasing contingent upon the expiration of such
rights). In any event Landlord shall be entitled to renew or extend any lease of
an "Occupying Third Party" (as defined below), without providing Tenant a
Landlord's Notice and without it being subject to any rights of a third party
under this Article. Tenants which are either presently occupying Option Space
or may be so occupying in the future pursuant to a third party lease which was
entered into after Tenant's rights were waived or deemed waived pursuant to
Paragraph B of this Article shall be deemed to be an "Occupying Third Party".
G. If the Lease Agreement or Tenant's right to possession of the Premises
shall terminate in any manner whatsoever before Tenant shall exercise its rights
under this Article, or if Tenant shall have subleased or assigned all or any
portion of the Premises, then immediately upon such termination, sublease, or
assignment, then this Article and Tenant's rights hereunder shall simultaneously
terminate and become null and void. Such right is personal to
-10-
<PAGE>
Tenant. Under no circumstances whatsoever shall the assignee under a complete or
partial assignment of the Lease, or a subtenant under a sublease of the
Premises, have any right to exercise any rights under this Article or have any
right to receive any Landlord's Notice.
ARTICLE 35 - CANCELLATION RIGHT
A. Tenant shall have two separate rights to notify Landlord, that it elects
to terminate this Lease as of the end of the sixtieth (60th) or the
eighty-fourth (84) month of the Term, subject to and conditioned upon the
following conditions:
i. Tenant shall give Landlord written notice of Tenant's intention to
terminate this Lease not less than six (6) months prior to either the fifth
(5th) or the seventh (7th) anniversaries of the Term, in accordance with
the notice provisions set forth above ("Termination Notice");
ii. The Termination Notice shall set forth the effective date for said
termination ("Termination Date") which date shall be midnight of the day
prior to: i) the fifth (5th) anniversary of the Term (if the Termination
Notice is given prior to the fifty-fourth (54th) month of the Term), or ii)
the seventh (7th) anniversary of the Term (if the Termination Notice is
given after the fifty-fourth (54th) month but prior to the seventy-eighth
(78th) month of the Term);
iii. Tenant must not be in default either at the time of the Termination
Notice nor at the Termination Date and Tenant must comply with all of the
terms and conditions of this Lease Agreement (including surrender of the
Premises as required by this Lease Agreement) through the Termination Date;
iv. Tenant must accompany said Termination Notice with a "Termination Fee",
which shall be equal to six (6) months rental which would otherwise have
been due under this Lease Agreement immediately following the Termination
Date.
v. In no event shall Tenant be entitled to terminate this Lease if it has
exercised its rights to renew under Article 1 above.
B. The rights provided to Tenant under this Article are personal to Tenant,
which may assign them only in connection with an assignment of this Lease
Agreement to a company controlled by or which controls (directly or indirectly)
Advanced Telecommunications, Inc. ("Affiliate"), and such rights shall expire
automatically if Tenant assigns this Lease Agreement to any other party or
subleases all or any portion of the Premises to any other party.
C. Tenant's rights under this Article may be exercise only once, but at
either of the two (2) time periods set forth above.
D. Notwithstanding anything contained in this Article to the contrary, if
Tenant exercises its Expansion Right pursuant or in response to a "Landlord's
Notice" (as defined in Paragraph 34B above), then Tenant's right to give a
Termination Notice under this Article shall be suspended for a period commencing
with Tenant's giving of its "Tenant's Leasing Notice" (as defined in Paragraph
34B above) and continuing through the 18th month subsequent to the "Effective
Date" (as defined in Paragraph 34D above). Any Termination Notice given during
such period shall be of no effect and shall not result in the termination of
this Lease Agreement. The restrictions of this Paragraph, and specifically the
suspension of Tenant's right to give a Termination Notice under this Article
shall not become applicable if Tenant exercises its Expansion Right pursuant to
Paragraph 35C above (i.e. Tenant shall continue to have the rights to terminate
under this Article if Tenant's expansion was not in response to a "Landlord's
Notice").
IN WITNESS WHEREOF, this Lease Agreement has been duly executed by the
parties hereto as of the day and year indicated above.
TENANT: ADVANCE TELECOMMUNICATIONS, INC. LANDLORD: TIMESHARE SYSTEMS, INC.
By: [ILLEGIBLE] By: [ILLEGIBLE]
------------------------------------ -------------------------------
Its: Its:
----------------------------------- ------------------------------
By: By:
------------------------------------ -------------------------------
Its: Its: [ILLEGIBLE]
----------------------------------- ------------------------------
DATE: [ILLEGIBLE] DATE: 8/1/99
----------------------------------
SCHEDULE OF EXHIBITS
Exhibit A-1 Graphical depiction of Premises
Exhibit A-2 Legal Description of Land and Building
Exhibit B License Agreement (Antenna)
Exhibit C License Agreement (Parking Lot Unassigned)
Exhibit D Rules and Regulations
Exhibit E Chiller License Agreement
-11-
<PAGE>
EXHIBIT A-2
LEGAL DESCRIPTI0N
All of Block 7, Atwaters Addition to the Town of Minneapolis; all of Block 8,
Morrison, Smith and Hancocks Addition to Minneapolis; and that part of 12th
Avenue South, Morrison, Smith and Hancocks Addition to Minneapolis; and
Atwaters Addition to the Town of Minneapolis, lying Southwesterly of a line
connecting the most Easterly corner of Block 7, Morrison, Smith and Hancocks
Addition to Minneapolis; and the most Northerly corner of Block 8, Morrison,
Smith and Hancocks Addition to Minneapolis and Northeasterly of a line
connecting the most Southerly corner of Block 7, Atwaters Addition to the Town
of Minneapolis and the most Westerly corner of Block 8, Atwaters Addition to the
Town of Minneapolis and that part of Block 8, Atwaters Addition to the Town of
Minneapolis; except that part of said Block 8 which lies Northeasterly of the
following described line:
Beginning at a point on the Southeasterly line of Lot 7, Block 8, distant
116.50 feet Southwesterly of the most Easterly corner thereof; thence run
Northwesterly to a point on the Northwesterly line of the Southeasterly half of
Lot 9, said Block 8, distant 10 feet Southwesterly of the Northeasterly line of
said Lot 9, and there terminating.
Also except that part of the Northwesterly 1/2 of Lot 9, Block 8, Atwater's
Addition to the Town of Minneapolis which lies Northeasterly of the following
described line: Beginning at a point on the Southeasterly line of the
Northwesterly 1/2 of Lot 9, Block 8, said Addition, distant 5 feet Southwesterly
of the most Easterly corner thereof, thence run Northwesterly to the most
Northerly corner of Lot 9 and there terminating.
All of Block 7, Morrison, Smith and Hancocks Addition to Minneapolis, except
that part of Lots 9, 10, 11 and 12 of said Block 7, described as follows:
Beginning at the most Northerly corner of said Lot 12; thence south 30 degrees
04 minutes 33 seconds West, on an assumed bearing, along the Northwesterly line
of said Lot 12, a distance of 127.58 feet; thence Easterly, a distance of 259.94
feet along a non-tangential curve concave to the South having a radius of 240.00
feet, a central angle of 62 degrees 03 minutes 21 seconds and the chord of said
curve bears North 89 degrees 04 minutes 43 seconds East; thence North 30 degrees
06 minutes 24 seconds East along the prolongation of a radial line of said
curve, a distance of 0.08 feet to the Northeasterly line of said Lot 9; thence
North 59 degrees 54 minutes 07 seconds West along the Northeasterly line of said
Block 7, a distance of 212.08 feet to the point of beginning.
All according to the plats thereof on file and of record in the Hennepin County
Recorders Office and in the Office of the Registrar of Titles, and situate in
Hennepin County, Minnesota.
Part of the above shown below as Parcels 1 through 4, is Registered Property as
evidenced by Certificate No. 830754. Said Registered Property is described as
follows:
Parcel 1: Lots 3, 6, 8 and 9, Block 7;
That part of Lot 7, Block 7 lying Northeasterly of a line drawn parallel with
and distant 96 feet Southwesterly of the Southwesterly boundary line of 5th St;
The Northeasterly 60 feet of the Southwesterly 105 feet of Lot 1, Block 8;
Lots 2, 3, 4, 5, 6 and 10, Block 8;
That part of the Northwesterly 1/2 of vacated 12th Avenue South lying between
the extensions across it of the Northeasterly and Southwesterly lines of said
Lot 6, Block 7 and
That part of the Southeasterly 1/2 of vacated 12th Avenue South lying between
the extensions across it of the Northeasterly and Southwesterly lines of said
Northeasterly 60 feet of the Southwesterly 105 feet of Lot 1, Block 8, all in
Atwaters Addition to the Town of Minneapolis.
Parcel 2: That part of the following described Tract:
The Northwesterly 27 feet of the Northeasterly 100 feet of Lot 7;
The Southwesterly 39 feet of the Northeasterly 139 feet of Lot 7;
The Northwesterly 1/2 of Lot 8 and
The Southeasterly 1/2 of Lot 9,
all in Block 8, Atwaters Addition to the Town of Minneapolis, which lies
Southwesterly of a line drawn from a point on the Southeasterly line of said
Lot 7, distant 116.50 feet Southwesterly of the most Easterly corner thereof to
a point on the Northwesterly line of said Southeasterly 1/2 of Lot 9, distant
10 feet Southwesterly of the Northeasterly line thereof.
Parcel 3: Lots 3 and 8, Block 7,
That part of Lot 7, Block 7 lying Northeasterly of a line drawn parallel with
and distant 96 feet Southwesterly of the Southwesterly boundary line of 5th
Street and Lot 9. Block 7 except that part thereof lying Northerly of the
following described line: Beginning at the most Northerly corner of Lot 12, said
Block 7; thence South 30 degrees 04 minutes 33 seconds West, on an assumed
bearing, along the Northwesterly line of said Lot 12, a distance of 127.58
feet; thence Easterly, a distance of 259.94 feet along a non-tangential curve
concave to the South, having a radius of 240.00 feet, a central angle of 62
degrees, 03 minutes, 21 seconds and the chord of said curve bears North 89
degrees, 04 minutes, 43 seconds East, thence North 30 degrees, 06 minutes, 24
seconds East along the prolongation of a radial line of said curve, a distance
of 0.08 feet to the Northeasterly line of said Lot 9 and said line there
terminating,
all in Morrison, Smith and Hancocks Addition to Minneapolis.
Parcel 4: That part of the Northwesterly 1/2 of vacated 12th Avenue south lying
between the extensions across it of the Northeasterly line of Lot 7, Block 7,
Morrison, Smith and Hancocks Addition to Minneapolis and a line drawn parallel
to and distant 96 feet Southwesterly of the Northeasterly line of said Lot 7
Subject to minerals and mineral rights reserved by the State of Minnesota; (As
to all of above land except Lot 3, Block 7 in Parcel 1; Lot 3, Block 7 in Parcel
3 and the above portion of Lot 9, Block 8 in Parcel 2; and except that part of
Lot 6, Block 7 and of that part of the Northwesterly 1/2 of vacated 12th Avenue
South in Parcel 1 lying Northeasterly of extensions across it of the
Southwesterly line of said Lot 6 and its extension);
Subject to covenants, restrictions, reservations and conditions subsequent,
including a right of re-entry and forfeiture of title upon default as contained
in Deed Doc. No. 1488605; (See Inst)
A-2-1
<PAGE>
EXHIBIT B
ANTENNAE LICENSE AGREEMENT
This License Agreement (the "Agreement"), dated as of this 3rd day of
March, 1999, is between TIMESHARE SYSTEMS, INC. (the "Licensor"), having an
address at 511 Eleventh Avenue South, Minneapolis, MN. 55415 and ADVANCED
TELECOMMUNICATIONS, INC. (the "Licensee"), having an address at 511 Eleventh
Avenue South, Minneapolis, MN. 55415 (the "Premises").
A. Licensor agrees to permit licensee to utilize for purposes provided
herein, the roof space (the exact location to be determined by Licensor with the
reasonable consent of Licensee, but in no event shall such space exceed 100
contiguous square feet) on the building ("Building") in which the Premises are
located (the "Roof Space"), from the date hereof and expiring April 30, 2099.
Upon termination of Licensee's lease for the Premises for any reason (including
the failure to renew the Term), this License Agreement and the license created
hereby shall automatically expire with said termination. The termination,
cancellation or expiration of this License Agreement or the license created
hereunder shall not be cause or grounds for the cancellation or termination of
Licensee's lease for the Premises.
H. Licensee may install, use and maintain on such Roof Space equipment
("Equipment") as described in Exhibit A attached hereto. If so requested by
Licensor, Licensee shall, at its sole expense, install a screening and
protective fence ("Fence") around the perimeter of the Roof Space. The Fence
style and installation shall be subject to Licensor's prior approval.
I. Licensor agrees that Licensee may run cables (the "Cables") between the
Roof Space and the Licensee's Premises. Any damages to the Building or fixtures
or equipment located upon or within the Building resulting therefrom shall be
promptly repaired by Licensee.
J. The Equipment and Fence shall remain the property of the Licensee or its
contractor. Licensee shall at its cost remove such Equipment and Fence (and if
so requested by Licensor, the Cables) at the expiration or sooner termination of
the license granted hereunder or this License Agreement, and restore the Roof
Space and Building to the condition they were in prior to Licensee's
installation of the Equipment, Fence and Cables. The obligations to remove the
Equipment, Fence and Cables and to restore and repair the Roof Space and
Building shall survive the expiration or sooner termination of the license and
this License Agreement.
K. Licensee and/or its contractor shall bear all expenses in connection
with the installation, use and maintenance of such Equipment, Fence and Cables
and removal of the same. Licensee shall indemnify and hold Licensor harmless
from and against liability, damages, costs and expenses, including reasonable
attorney's fees incurred by Licensor, arising out of Licensee's installation,
use, maintenance and removal of the Equipment, Fence and Cables. This
obligation shall survive the expiration, cancellation or termination of this
License Agreement and the license created hereunder.
L. Licensee and/or its contractor shall maintain in force during the term
of this License Agreement comprehensive liability insurance in amounts and in
such form as reasonably satisfactory to Licensor, protecting Licensor against
any liability, damages, cost or expenses, in connection with the installation,
use, maintenance and removal of the Equipment, Fence and Cables and shall
supply the appropriate certificates of such insurance upon request.
M. Licensee and its contractors shall comply with all applicable federal,
state and local laws, regulations, and building codes in connection with the
installation, use, maintenance and removal of the Equipment, Fence and
Cables. In the event any such laws, regulations, or codes requires physical
improvements be made to the Building or other expenditures by or on behalf of
the Building and/or its owner, the costs of the same shall be borne by Licensee.
Notwithstanding the foregoing, any physical improvements, whether required by
law, regulation, code or otherwise, shall be subject to Licensor's approval,
which approval may be given or denied in Licensor's sole discretion. If any law,
regulation or code prohibits or disallows the Equipment, Fence and/or Cables or
the effective use of the license granted hereby, whether now or in the future,
Licensor shall be entitled to terminate the license granted hereby, without
penalty; and Licensee shall take such action so as to allow the Building to
again be in compliance with such law, regulation or code, including, if
necessary, the removal of the Equipment, Fence and/or Cables.
N. Licenser agrees to permit Licensee reasonable access to the Roof Space
and other areas so as to facilitate the installation, use, maintenance and
removal of the Equipment, Fence, and Cables. Licensee shall have access to the
Roof Space on a 24 hour per day, 7 days per week basis, in order to facilitate
maintenance and repairs. Licensee agrees to sign the Building's log book on each
occasion Licensee enters the Roof Space, during normal business hours. At times
other than normal business hours, or when the log book is not available for
signing, Tenant shall page Landlord at 470-4500 or shall leave a message by
calling 481-9999 or shall notify Landlord by such other reasonable means as
Landlord shall inform Tenant in writing.
O. Notwithstanding anything else contained herein to the contrary, the
license granted herein is subject to the non-interference of Licensee's
Equipment with the normal operation, functioning and use of any other equipment
(whether owned by Licensor or by other licensees and/or tenants of Licensor)
currently existing upon the roof of the Building. In the event of any such
interference, Licensor may terminate the License granted hereunder if such
interference is not corrected within three (3) days notice from Licensor to
Licensee. Notwithstanding anything else contained herein to the contrary,
Licensor does not guaranty nor warrant the reception, noninterference or
effective use of Licensee's antenna, or Equipment, either at initial
installation nor thereafter.
P. Licensee shall be required to get prior approval from Licensor
pertaining to the Antenna size, color, Fence specifications, location on roof,
method of mounting and the location of all Cables. In no instance shall this
installation breach or penetrate the roof membrane.
Q. Any notice required or desired under this License Agreement shall be
deemed sufficiently given if given in compliance with the Licensee's lease
agreement for the Premises.
R. Licensee shall pay to Licensor, without set-off, or demand the sum of
$O per month for all Antennae (as listed on Exhibit A, or otherwise located on
the Building pursuant to this License Agreement or the license created
hereunder) for use of the roof space ("License Fee") during the Terms of this
License Agreement. Failure by Licensee to pay said License Fee shall entitle
Licensor, upon 10 days written notice to Licensee, to terminate this License
Agreement and the license created hereunder, and to such other relief as may be
allowed by law or equity. No other Equipment or antennae shall be permitted by
this license, without Licensor's prior written consent, which consent shall not
be unreasonably withheld for a reasonable increase in equipment, provided the
License Fee shall be increased to Licensor's then rate for each additional
antennae.
S. In the event of default by Licensee of any of the terms and conditions
set forth in this License Agreement, whether suit be commenced or not, Licensee
agrees to pay the attorneys' fees, costs and expenses of Licensor incurred in
enforcing or attempting to enforce this License Agreement.
T. Licensee shall operate the Licensee facilities in a manner that will not
cause interference to Licensor and other Licensees of the Property provided that
their installations predate that of the Licensee's facilities. All operations by
Licensee shall be in compliance with all Federal Communications Commission
("FCC") requirements.
U. Licensor waives any lien rights it may have concerning the Equipment
which are deemed Licensee's personal property and not fixtures, and Licensee has
the right to remove the same at any time without Licensor's consent.
V. This Agreement may be terminated without further liability on thirty
(30) days prior written notice as follows: (i) by either party upon a default of
any covenant or term hereof by the other party, which default is not cured
within sixty (60) days of receipt of written notice or default provided that the
grace period for any monetary default is ten (l0) days from receipt of notice;
or (ii) by Licensee for any reason or for no reason, provided Licensee delivers
written notice of early termination to Licensor with a thirty (30) day notice
provision prior to termination; or (iii) by Licensee if it does not obtain or
maintain any license, permit or other approval necessary for the construction
and operation of the Equipment; or (iv) by Licensee if Licensee is unable to
occupy and utilize the Premises under Licensee's (lease due to an action of the
FCC, including without limitation, a take back of channels or change in
frequencies; or (v) by Licensee if Licensee determines that the Premises are not
appropriate for its operations for technological reasons, including, without
limitation, signal interference.
W. If the Premises or Equipment are damaged, destroyed, condemned or
transferred in lieu of condemnation, Licensee may elect to terminate this
Agreement as of the date of the damage, destruction, condemnation or transfer in
lieu of condemnation by giving notice to Licensor no more than forty-five (45)
days following the date of such damage, destruction, condemnation or transfer in
lieu of condemnation.
X. Licensee may not assign, or otherwise transfer all or any part of its
interest in this Agreement without the prior written consent of Licensor,
provided, however, that Licensee may assign its interest to any party to which
it is assigning its interest in the Premises under its lease
B-1
<PAGE>
Y. Licensor shall be responsible for compliance with all marking and
lighting requirements of the Federal Aviation Administration ("FAA") and the
FCC. Should Licensee be cited because the Property is not in compliance and,
should Licensor fail to cure the conditions of noncompliance, Licensee may
either terminate this Agreement or proceed to cure the conditions of
noncompliance of Licensor's expense, which accounts may be deducted from the
rent under Licensee's lease.
Z. In no event shall Licensee be entitled to erect any mono pole or
other tower-type structure.
U. In the event the Equipment, Fence and/or Cables should interfere with
any roof maintenance, repair and/or replacement which Licensor deems necessary
to perform, Licensor shall first notify Licensee and then Licensee shall
cooperate with Licensor and its contractors to remove such interference,
including if necessary, the relocation and/or temporary relocation of the
Equipment, Fence and/or Cables. Such cooperation including such relocations
and/or temporary relocations shall be at the cost and expense of Licensee.
LICENSOR:
TIMESHARE SYSTEMS, (NC.
By:_______________________________________
Its:______________________________________
LICENSEE:
ADVANCED TELECOMMUNICATIONS, INC.
By _______________________________________
Its_______________________________________
EXHIBIT A TO ANTENNAE LICENSE AGREEMENT
Equipment
Up to one (1) antenna as well as related base site cabinets and any
other appropriate ancillary equipment so long as it is contained within 100
square feet of roof space and does not exceed 10 feet in height. No additional
antennae may be installed without Landlord's written consent.
B-2
<PAGE>
EXHIBIT C
LICENSE AGREEMENT
MINNEAPOLIS TECHNOLOGY CENTER
WEST PARKING LOT (UNASSIGNED)
This License Agreement is made as of the 3rd day of March, 1999, by and
between TIMESHARE SYSTEMS, INC., a Minnesota corporation ("Licensor") and
ADVANCED TELECOMMUNICATIONS, INC. ("Licensee"),
In consideration of the covenants and agreements contained herein, and
other good and valuable consideration, receipt and sufficiency of which is
acknowledged, Licensor and licensee mutually agree as follows:
A GRANT: Licensor hereby grants to Licensee, for the sole purpose of
parking the automobile(s) described in Licensee's application attached hereto,
_________(___) unassigned parking space(s) in the restricted parking areas of
the West parking lot ("Lot") located at Minneapolis Technology Center, 511 South
Eleventh Avenue South, Minneapolis, Minnesota.
2 TERM: Thee term of this license commences this date and expires at
midnight April 30, 2099.
3. LICENSE FEE: Licensee shall pay as its fee for this License the sum of
$95 per admittance card on or before the first day of each month to Timeshare
Systems, Inc., 511 South Eleventh Avenue South, Minneapolis, Minnesota, 55415,
or at such other address that Licensor may designate; together with any use,
sales or other tax (excepting income tax) payable or which may become payable by
Licensor as a result of said fee. In the event the term of this License
commences on other than the first day of a month, the fee will be prorated for
such month. The license fee shall commence on the date Licensor delivers a Lot
gate operator(s) or admittance card(s) to Licensee. The license fee shall
terminate on the expiration date of the license or on the date the Licensee
returns the Lot gate operator(s) and/or admittance card(s) whichever occurs
last. The fee for this License may be adjusted from time to time beginnung
January 1, 2000 to whatever fee Licensor is then charging for Lot parking
stalls; provided that Licensor shall give thirty (30) days prior written notice
of any such increase and Licensee may, within thirty (30) days subsequent to any
such increase, terminate this License by giving ten (10) days written notice to
Licensor.
4. NEGATIVE COVENANTS: Licensee shall not:
a) Park more than one (1) standard sized (or smaller) automobile per
admittance card in the Lot, at any one time.
b) Allow any non-authorized automobile to be parked in the Lot through use
of Licensee's issued admittance card.
c) Allow any automobile to be stored overnight in the Lot.
Upon breach of any covenant set forth in this Paragraph 4 by Licensee,
Licensor may, at its option, and in addition to Licensor's remedies provided in
paragraph 5 hereof, charge Licensee the sum of $25.00 for each day of any such
violation, and/or may tow or have towed any automobile which is parked in
violation of any covenant set forth in this paragraph 4, and in such case
Licensee agrees to pay Licensor as an additional license fee hereunder all
towing and storage costs associated with said towing.
5. RIGHT OF RE-ENTRY AND EXPIRATION: Licensee agrees that this License is
made upon the condition that if the Licensee shall fail to pay the license fee
within ten (10) days of when due, fail to keep any term or condition of this
license, or shall neglect or fail to keep, observe and perform any of the rules
and regulations from time to time adopted and promulgated by Licensor for the
operation of the Lot, then in any of said cases the Licensor may immediately or
at any time thereafter and without notice or demand, retake possession of the
parking stall(s), without such re-taking working a forfeiture of the license fee
to be paid by Licensee for the full tern of this License. In the event of such
retaking or at the end of the Term, Licensee agrees to return to Licensor any
and all Lot gate opentor(s) and/or admittance cards, upon notice from Licensor.
Licensee shall pay to Licensor, Licensor's replacement/lost fee fur all such
operator(s) and/or admittance cards not returned.
6. PARKING LOT OPERATION: It is specifically understood and agreed that the
Lot area is operated without constant staffing and that Licensor shall not be
responsible for any loss, damage or casualty sustained by Licensee's automobile
or for the loss of any articles, personal property or any such other items from
Licensee's automobile.
7. OFFICE LEASE: Licensee presently has (or is contemporaneously executing)
a lease for office space within the Minneapolis Technology Center ("Office
Lease").
a) A termination of the Office Lease, whether by expiration of the term or
otherwise, shall automatically constitute a termination of this License
Agreement.
8. AUTHORIZED VEHICLES: Licensee agrees, upon request from Licensor, to
furnish Licensor or its authorized agent, the state automobile license number(s)
assigned to those automobile(s) of those persons employed on the premises and
who are designated by Licensee to use the Lot. Any such designation shall not
exceed the number of stalls licensed hereunder. If any automobile of Licensee or
of Licensee's officers, agents or employees who is not designated to park in the
Lot is parked therein, then Licensee shall pay to Licensor an amount equal to
$25 per day for each such vehicle for each day, or a part thereof, such amount
to be due and payable by Licensce within three (3) days after demand therefor.
9. CANCELLATION: Licensor shall leave the right, upon thirty (30) days
prior written notice to Licensee, to cancel this License Agreement and allow the
Parking Lot to be used on an unrestricted basis for all tenants and their
invitees. Licensee front and after the cancellation date specified in such
written notice, shall have no further obligation for the payment of the fee
hereunder but the use of such Parking Lot shall be subject to the terms of
paragraphs 4(c) 6 and 7 hereof.
10. LICENSE HOURS: Notwithstanding anything else contained herein to the
contrary, the license granted hereunder shall be limited to the following hours:
Monday through Friday (legal holidays specifically excluded) from 7:00 a.m. to
6:00 p.m. Licensee specifically agrees that should Licensee violate the
foregoing hours during a time period in which there is an event ("Event") at the
Hubert H. Humphrey Metrodome (located across 11th Avenue from the Minneapolis
Technology Center) licensee shall pay to Licensor $25.00 for each such Event
violation (or such higher rate which Licensor may then be charging for dome
Event parking).
(LICENSEE) (LICENSOR)
ADVANCED TELECOMMUNICATIONS. INC. TIMESHARE SYSTEMS, INC.
By________________________________ By:______________________________
Its:______________________________ Its:_____________________________
Date:_____________________________ Date:____________________________
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the right
to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person or vendor chosen by Landlord. In addition, Landlord
reserves the right to change from time to time the format of the signs or
lettering and to require previously approved signs or lettering to be
appropriately altered.
2. If Landlord objects in writing to any curtains, blinds, shades or
screens attached to or hung in or used in connection with any window or door of
the Premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything or allow
anything to be placed against or near any glass partitions or doors or windows
which may appear unsightly, in the opinion of Landlord, from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public, and Landlord shall in all cases retain the right
to control and prevent access to the Building of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants provided that nothing
contained in this rule shall be construed to prevent such access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities. No tenant and no employee
or invitee of any tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only and Landlord reserves the right
to exclude any other names therefrom.
5. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises. Landlord shall
not in any way be responsible to any Tenant for any loss of property on the
Premises, however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person.
6. Landlord will furnish Tenant free of charge with two keys to each door
in the Premises. Landlord may make a reasonable charge for any additional keys,
and Tenant shall not make or have made additional keys, and Tenant shall not
alter any lock or install a new or additional lock or bolt on any door of its
Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord
the keys of all doors which have been furnished to Tenant, and in the event of
loss of any keys so furnished, shall pay Landlord therefor.
7. It Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. No equipment, materials furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
9. Tenant shall obtain Landlord's consent prior to placing a load upon any
floor which may exceed the load per square foot which such floor was designed to
carry and which is allowed by law. Landlord shall have the right to prescribe
the weight, size and position to all equipment, materials, furniture or other
property brought into the Building. Heavy objects shall stand on such platforms
as determined by Landlord to be necessary to properly distribute the weight.
Business machines and mechanical equipment belonging to Tenant which cause noise
or vibration that my be transmitted to the structure of the Building or to any
space in the Building to such a degree as to be objectionable to Landlord or to
any tenant shall be placed and maintained by Tenant, at Tenant's expense on
vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the Building
must be acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all damage
done to the Building by maintaining or moving such equipment or other property
shall be repaired at the expense of Tenant.
10. Tenant shall not waste electricity, water or air conditioning. Tenant
shall keep corridor doors closed.
11. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays any
person unless that person is known to the person or employee in charge of the
Building as being an employee of Tenant and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
shall not be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person.
12. Tenant shall close and lock the doors of its Premises and entirely shut
off all water faucets or other water apparatus and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
13. The toilet rooms, toilets, urinals wash bowls and other apparatus shall
not be used for any purpose other than that for which they were constructed, no
foreign substance of any kind whatsoever shall be thrown into any of them, and
the expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Tenant who, or whose employees or invitees,
shall have caused it.
14. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the Building
except by virtue of a separate license negotiated with Landlord. Tenant shall
not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
15. Except as approved by Landlord, Tenant shall not mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix
any floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule.
16.No animals are allowed in the Building with the exception of seeing-eye
or hearing animals. In the event any injuries are caused to Tenant's employees
or invitees, the owner of said animal agrees to indemnify and hold the Landlord
and its managing agent and all other tenants harmless from all costs (including
reasonable attorneys' fees) with respect to the presence of any animals in the
Building.
17. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the Premises,
except by the Tenant of Underwriters' Laboratory approved microwave oven or
equipment for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted provided that such equipment and use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
19. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with the rubber tires and side
guards or such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
20. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant except as Tenant's address.
21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instruction from Landlord, and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from
D-1
<PAGE>
22. Parking is allowed between the hours of 7:00 a.m. to 6:00 p.m., Monday
through Friday, holidays excepted, in the east parking lot only, subject to
availability and at such rates as Landlord is then charging. Notwithstanding
the foregoing, no parking is allowed during professional sporting events and/or
other events occurring at the Hubert H. Humphrey Metrodome located at across
11th Avenue South from the Building. All visitors to the Building parking in
such parking lot shall pay the then prevailing parking charges. Any visitor
drop-offs are allowed only on the east side of the Building. Notwithstanding the
foregoing, parking by Tenant pursuant to a specific license agreement shall be
24 hours per day, 7 days a week.
23. Landlord may waive any one or more of these Rules and Regulations fur
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules end Regulations against any or all of the tenants of the Building. The
foregoing shall not be construed to allow Landlord to discriminatorily enforce
these Rules and Regulations as against Tenant and not other tenants of the
Building.
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
25. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety and
security, for care and cleanliness of the Building and for the preservation of
good order in and about the Building. Tenant agrees to abide by all such rules
and regulations in this Exhibit stated and any additional rules and regulations
which are adopted.
26. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
D-2
<PAGE>
EXHIBIT E
LICENSE AGREEMENT TO USE BUILDING CHILLER
This License Agreement (the "Agreement"), entered into as of the 3rd day of
March, 1999, is between TIMESHARE SYSTEMS, INC., a Minnesota corporation (the
"Licensor"), having an address at 511 Eleventh Avenue South, Minneapolis,
Minnesota 55415 and Advanced Telecommunications Inc. (the "Licensee"), having an
address at Suite 409, 511 Eleventh Avenue South, Minneapolis, Minnesota 55415
(the "Premises"), with a notice address at 730 2nd Avenue South, Suite
1200, Minneapolis, MN 55402.
1. Licensor agrees to permit Licensee to utilize for purposes provided
herein one of the chiller systems (as designated by Licensor) together with
associated plumbing and electrical and mechanical controls (the "Chiller"),
which are located on and at the building ("Building") in which the Premises are
located. This license shall be subject to automatic termination in the event
Licensee's lease for the Premises dated March 3rd, 1999 ("Lease") is
terminated or canceled, but otherwise the term of this Agreement shall be the
same as the Lease. Upon termination of Licensee's Lease for any reason, this
License Agreement and the license created hereby shall automatically expire with
said termination. The termination, cancellation or expiration of this License
Agreement shall not be cause or grounds for the cancellation or termination of
Licensee's Lease.
2. Licensee may use the Chiller for purposes of cooling Licensee's
telecommunication and other related equipment ("Equipment"). Licensee
acknowledges that the license to utilize the Chiller is non-exclusive. This
Agreement and the license granted hereby is specifically limited to Licensee's
utilization of not more than 50 tons of the Chiller's capacity. Licensor, from
time to time may provide such 50 tons of cooling capacity by any one of the
Building's chillers, but the fees and other obligations hereunder shall continue
to be applicable nonetheless.
3. Licensor agrees that Licensee may run utility lines (the "Cables")
between the Chiller and the Premises. Any damages to the Building or fixtures or
equipment located upon or within the Building resulting therefrom shall be
promptly repaired by Licensee.
4. The Chiller shall remain the property of Licensor and any improvements
made to the Chiller shall likewise become the property of Licensor. Licensee
acknowledges that Licensor makes no representations or warranties as to the
condition, fitness or purpose for which Licensee intends to use the Chiller.
Licensee acknowledges and agrees that its use of the Chiller shall be in its
current "AS-IS" condition. This License shall extend to any maintenance or
improvements Licensee may desire and need to make to the Chiller, providing
however, Licensee shall use a contractor authorized and approved by Licensor
("Authorized Contractor") and Licensee obtains Licensor's prior written consent.
No work or maintenance shall be performed on the Chiller except by an Authorized
Contractor, nor without the express written consent of Licensor.
5. For purposes of this License Agreement Licensee's "Pro Rata Share" shall
be equal to 20.8% and assumes the Chiller to which Licensee shall be connected
shall have an approximately 240 rated capacity. If the Chiller to which Licensee
has a different rated capacity, then Licensee's Pro Rata Share shall be adjusted
accordingly.
6. Licensee shall bear all expenses in connection with its use and
maintenance of the Chiller, including: i) Licensee's Pro Rata Share of periodic
maintenance costs (no less frequently than quarterly plus an annual preventative
maintenance inspection by an Authorized Contractor) for the Chiller, including
any repairs, wherever or not such repairs involve what may be typically
considered capital items, but not including capital improvements or similar
capital additions; ii) the "User Fee" (as defined in paragraph 7 below); and iv)
the "Utility Fee" (as defined in paragraph 8 below). The foregoing maintenance
costs shall specifically include any up-grades and/or capital costs required or
mandated by any governmental authority, law, rule or regulation.
7. Licensee shall pay to Licensor a monthly "User Fee" to compensate
Licensor for a share of the supervision costs for approximately one (1) hour
daily by the Building's facility maintenance person for daily logging,
adjusting, switching and for maintaining the cooling tower water and other costs
associated with the use, capital investment and operation of the Chiller. The
User Fee shall be Licensee's Pro Rata Share of such costs (said costs initially
being $5,400 and Licensee's initial Pro Rata Share shall initially be $1123 per
month), but said User Fee shall be adjusted upward in the amount of 3% annually,
on each anniversary date of this Agreement. Licensee acknowledges the
costs to connect the Premises to the Chiller shall be borne by Licensee and are
not part of any of the fees referred to elsewhere in this License Agreement. The
User Fee shall not commence until the Premises are actually connected to the
Chiller and being utilized (the "Effective Date").
Effective 7/1/99:
8. Commencing with the Effective Date, Licensee agrees to pay to Licensor
at the rate of $1950 per month ("Utility Fee"), which represents Licensee's Pro
Rata Share of Licensor's electrical utility usage of approximately $9375 per
month for electrical consumption by the Chiller, cooling tower, cooling tower
pumps, etc., such Utility Fee to be prorated for any partial calendar month, and
to be adjusted after each calendar year (up or down) at the same average rate as
Landlord's average electrical rates change from year to year. In the event,
whether through more efficient equipment upgrades, changes in electrical rates
or otherwise, it can be shown that the overall utility costs to operate the
Chiller differs from the estimated $9375 per month ("Adjusted Utility Costs"),
then Tenant's Utility Fee shall be adjusted to its Pro Rata Share of the
Adjusted Utility Costs. Landlord shall provide to Tenant all reports and other
back-up supporting any adjustments to the Utility Fee.
Effective 7/1/99:
9. Prior to the Effective Date Licensee agrees to pay to Licensor a one
time "Start-Up Fee" of $10,000, representing a portion of the "upgrade/start-up"
and accessory costs which were necessary to put the Chiller into operational
condition ("Start Up Costs").
10. Licensee's contractor shall maintain in force during the term of this
License Agreement comprehensive liability insurance in amounts and in such form
as reasonably satisfactory to Licensor, protecting Licensor against any
liability, damages, cost or expenses, in construction with the maintenance and
alteration of the Chiller and Cables and shall supply the appropriate
certificates of such insurance upon request.
11. Licensee and its contractors shall comply with all applicable federal,
state and local laws, regulations, and building codes in connection with the
use, maintenance and alteration of the Chiller and Cables. In the event any such
laws, regulations, or codes requires physical improvements be made to the
Building or other expenditures by or on behalf of the Building and/or its owner,
the costs of the same shall be borne by Licensee. Notwithstanding the foregoing,
any physical improvements, whether required by law, regulation, code or
otherwise, shall be subject to Licensor's approval, which approval may be given
or denied in Licensor's sole discretion. If any law, regulation or code
prohibits or disallows the Chiller and/or Cables or the effective use of the
license granted hereby, whether now or in the future, Licensor shall be entitled
to terminate the license granted hereby, without penalty; and Licensee shall
take such action so as to allow the Building to again be in compliance with such
law, regulation or code, including, if neccesary, the removal of Cables;
provided however, Licensor agrees to cooperate, without cost to Licensor, with
Licensee's efforts to comply with such laws, regulation or codes, including any
legal challenges thereto. Licensee shall have the right to challenge, at
Licensee's sole cost, any governmental requirement imposed or sought to be
imposed with respect to the Chiller during the term of this Agreement and in
connection therewith, to delay compliance with such requirements until
resolution of the contest or challenge; provided that neither Licensor nor the
Building is subject to the risk of any fine, penalty, cost, lien or forfeiture
during such contest.
12. Licensor agrees to permit Licensee reasonable access to the Chiller and
other areas so as to facilitate the use, maintenance and alterations of the
Chiller and Cables. Licensee shall indemnify and hold Licensor harmless from and
against liability, damages, costs and expenses, including reasonable attorneys'
fees incurred by Licensor, arising out of Licensee's use, maintenance and
alterations of the Chiller and Cables, except if due to the negligence or
willful misconduct of Licensor. This obligation shall survive the expiration,
cancellation or termination of this License Agreement and the license created
hereunder.
13. Any notice required or desired under this License Agreement shall be
deemed sufficiently given if given in compliance with the Licensee's Lease.
14. In the event of default by either Licensor or Licensee of any of the
terms and conditions set forth in this License Agreement, whether suit be
commenced or not, the defaulting party agrees to pay the reasonable attorneys
fees, costs and expenses of the non-defaulting party incurred in enforcing or
attempting to enforce this License Agreement.
15. If the Licensor is in default of any of its obligation to provide
services or maintain the Chiller as specified in this Agreement, Licensee shall
notify Licensor that Licensee is dissatisfied with the services and/or
maintenance so to be provided and, if following such notice, the same shall not
have been cured to Licensee's reasonable satisfaction within thirty (30) days of
such notice, then Licensee shall have the right to assume on the expiration of
such 30 day period the obligation to so provide the services and/or maintenance.
During the period that Licensee is performing Licensor's obligations, Licensee
shall be entitled to a credit against the User Fee otherwise due hereunder equal
to the actual cost of such service and/or maintenance.
E-1
<PAGE>
16. Licensor's right to assign this License Agreement is and shall remain
unqualified upon any sale or transfer of the Building and provided the purchaser
succeeds to the interests of Licensor and assumes all obligations of Licensor
hereunder, Licensor shall thereupon be entirely free of all obligations of the
Licensor hereunder and shall not be subject to any liability resulting from any
act or omission or event occurring after such conveyance.
(LICENSEE) (LICENSOR)
ADVANCED TELECOMMUNICATIONS INC. TIMESHARE SYSTEMS, INC.
By [ILLEGIBLE] By [ILLEGIBLE]
------------------------------------ -----------------------------------
Its Its
--------------------------------- --------------------------------
Date [ILLEGIBLE] Date 8/1/99
--------------------------------- -------------------------------
E-2
<PAGE>
Memorandum
To: Richard Smith, Cliff Williams, Mike Donahue
CC:
From: Lynne Powers
Date: 04/03/99
Re: 511 Building Lease
Please find the attached summary of the 511 Building lease. Both parties have
executed the lease, however the landlord returned the contract without signing
an attached license agreement. This was an oversight on his part and once I
obtain his signature I will forward the original to Mr. Donahue and a copy will
be placed in my files and Mr. Smith's.
I believe I have summarized the most important provisions of the contract on the
attached documents. However, if you wish to read the entire lease agreement
before I have the final signature, please let me know.
<PAGE>
Contract Summary:
511 Building Lease
Lessee: Advanced Telecommunications, Inc.
730 Second Avenue South
Suite 1200
Minneapolis, MN 55441
Lessor: Timeshare Systems, Inc.
511 Eleventh Avenue South
Minneapolis, MN 55415
Contract Negotiator: Lynne Powers, Director of Financial Analysis
Contract Approver: Richard Smith, Chief Financial Officer
Contact with Lessor Company: Bassant Kharbanda, 651-481-9999, 612-332-2071
Purpose of Lease:
Rental of 6,300 square feet of building space for operation of Minneapolis
telephone switching equipment.
Base Rent per square foot: $17.50, Year 1 rising $1 per square foot every
2 years
Commencement of Lease: 4/15/1999
Term: 10 Years
End of Initial Term: 4/15/2009
Renewable for 2 Five(5) year periods
End of 1st Renewable Term: 4/15/2014
End of 2nd Renewable Term: 4/15/2019
Early Termination: Lease may be terminated as of the end of the 60th
or 84th month if written notice given and payment
of termination fee equal to 6 months rent.
Other Terms:
1) ATI is responsible for leasehold improvements and landlord will need to
approve construction plans prior to commencement.
2) "Real Estate Tax Base" of $1.11 per square feet and "Operating Expense
Base" of $3.84 per square foot are included in the base rent. Commencing with
the first full calendar year, ATI will pay Landlord actual taxes and
operating expenses to the extent they exceed the base.
3) ATI will have submetered utilities and is responsible for those costs
directly to the utility companies.
4) Lease costs include an additional 15% of square footage on top of the actual
square footage for use of common areas.
5) ATI has right of first refusal when adjoining lease space becomes
available.
6) ATI will have access to the Landlord's generator and UPS system at no
additional cost over the base lease cost.
7) Lease includes 100 square feet of roof space for location of
antennae.
8) ATI will pay $95 per month per building access card, which includes
access to parking lot.
9) ATI will have license to use of building chiller for a monthly user fee of
$1123 and a utility fee of $1950 per month. There is also a "Start-up Fee" of
$10,000. These fees will commence on 7-1-99.
<PAGE>
<TABLE>
<CAPTION>
511 Building Lease Cost
1 2 3 4 5 6
Anniversary 1999 2000 2001 2002 2003 2004 2005
Year
- --------- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Square Feet 6,300 6,300 6,300 6,300 6,300 6,300 6,300
Common Space Multiplier x1.15 x1.15 x1.15 x1.15 x1.15 x1.15 x1.15
----- ----- ----- ----- ----- ----- -----
Total Square Feet 7,245 7,245 7,245 7,245 7,245 7,245 7,245
Base Rent per Sq Ft till 4/15 $ 17.50 $ 17.50 $ 16.50 $ 18.50 $ 19.50 $ 19.50
Base Rent per Sq. Ft. $ 17.50 $ 17.50 $ 18.50 $ 18.50 $ 19.50 $ 19.50 $ 20.50
Annual Base Rent 1/1 - 4/15 -- $126,787.50 $126,787.50 $134,032.50 $134,032.50 $141,277.50 $141,277.50
Annual Base Rent 4/15 - 12/31 $126,787.50 $126,787.50 $134,032.50 $134,032.50 $141,277.50 $141,277.50 $148,522.50
Monthly Base Rent 1/1 - 4/15 $ -- $ 10,565.63 $ 10,565.63 $ 11,169.38 $ 11,169.38 $ 11,773.13 $ 11,773.13
Monthly Base Rent 4/15 - 12/31 $ 10,565.03 $ 10,565.63 $ 11,169.38 $ 11,169.38 $ 11,773.13 $ 11,776.88 $ 12,376.88
Access Card Fees (5) $ 475.00 $ 475.00 $ 475.00 $ 475.00 $ 475.00 $ 475.00 $ 475.00
Chiller Fees (eff. Date 7/1/99) 1/1-4/15
Maintenance & Use $ -- $ 1,123.00 $ 1,156.69 $ 1,191.39 $ 1,227.13 $ 1,263.95 $ 1,301.86
Utility Fee $ -- $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00
Chiller Fees (eff. Date: 7/1/99)
4/15 - 12/31
Maintenance & Use $ 1,123.00 $ 1,156.69 $ 1,191.39 $ 1,227.13 $ 1,263.95 $ 1,301.86 $ 1,340.92
Utility Fee $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00
Monthly Payment w/ Chiller 1/1-4/15 $ -- $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,499.99
Monthly Payment w/ Chiller 4/15-12/31 $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,499.99 $16,142.80
Jan $ -- $14,113.63 $14,147.32 $14,785.77 $14,821.31 $15,462.07 $15,499.99
Feb $ -- $14,113.63 $14,147.32 $14,785.77 $14,821.31 $15,462.07 $15,499.99
Mar $ -- $14,113.63 $14,147.32 $14,785.77 $14,821.31 $15,462.07 $15,499.99
Apr $ 5,520.31 $14,130.47 $14,466.54 $14,803.64 $15,141.79 $15,481.03 $15,821.39
May $11,040.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Jun $11,040.63 $14,142.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Jul $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Aug $14,113.63 $14,147.37 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Sep $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Oct $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Nov $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
Dec $14,113.63 $14,147.32 $14,785.77 $14,821.51 $15,462.07 $15,449.99 $16,142.80
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $112,283.31 $169,649.87 $175,194.61 $177,732.99 $183,302.88 $185,867.16 $191,463.73
=========== =========== =========== =========== =========== =========== ===========
Chiller Start-up Fees $ 10,000.00 $ -- $ -- $ -- $ -- $ -- $ --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Grand Total $122,283.31 $169,649.87 $175,194.61 $177,732.99 $183,302.88 $185,867.16 $191,463.73
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
7 8 9 10
Anniversary 2006 2007 2008 2009
Year
- --------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Square Feet 6,300 6,300 6,300 6,300
Common Space Multiplier x1.15 x1.15 x1.15 x1.15
----------- ----------- ----------- -----------
Total Square Feet 7,245 7,245 7,245 7,245
Base Rent per Sq Ft till 4/15 $ 20.50 $ 20.50 $ 21.50 $ 21.50
Base Rent per Sq Ft $ 20.50 $ 21.50 $ 21.50 $ 22.50
Annual Base Rent 1/1 - 4/15 $148,522.50 $148,522.50 $155,767.50 $155,767.50
Annual Base Rent 4/15 - 12/31 $148,522.50 $155,767.50 $155,767.50 $163,012.50
Monthly Base Rent 1/1 - 4/15 $ 12,376.88 $ 12,376.88 $ 12,980.63 $ 12,980.63
Monthly Base Rent 4/15 - 12/31 $ 12,376.88 $ 12,980.63 $ 12,980.63 $ 13,584.38
Access Card Fees (5) $ 475.00 $ 475.00 $ 475.00 $ 475.00
Chiller Fees (eff. Date 7/1/99) 1/1 - 4/15
Maintenance & Use $ 1,340.92 $ 1,381.15 $ 1,422.58 $ 1,465.26
Utility Fee $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00
Chiller Fees (eff. Date: 7/1/99)
4/15 - 12/31
Maintenance & Use $ 1,381.15 $ 1,422.58 $ 1,465.26 $ 1,509.22
Utility Fee $ 1,950.00 $ 1,950.00 $ 1,950.00 $ 1,950.00
Monthly Payment w/ Chiller 1/1-4/15 $ 16,142.80 $ 16,183.02 $ 16,828.21 $ 16,870.89
Monthly Payment w/ Chiller 4/15-12/31 $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Jan. $ 16,142.80 $ 16,183.02 $ 16,828.21 $ 16,870.89
Feb. $ 16,142.80 $ 16,183.02 $ 16,828.21 $ 16,870.89
Mar. $ 16,142.60 $ 16,183.02 $ 16,828.21 $ 16,870.89
Apr $ 16,162.91 $ 16,505.62 $ 16,849.55 $ 17,194.74
May $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Jun $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Jul $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Aug $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Sep $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Oct $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Nov $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
Dec $ 16,183.02 $ 16,828.21 $ 16,870.89 $ 17,518.59
----------- ----------- ----------- -----------
Total $194,055.48 $199,680.35 $202,301.25 $207,956.14
=========== =========== =========== ===========
Chiller Start-up Fees $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
Grand Total $194,065.48 $199,680.35 $202,301.25 $207,956.14
=========== =========== =========== ===========
</TABLE>
<PAGE>
STANDARD OFFICE LEASE AGREEMENT (GROSS)
THIS LEASE AGREEMENT (hereinafter called the "Lease Agreement") made as of the
3rd day of March, 1999, by and between TIMESHARE SYSTEMS, INC., a Minnesota
corporation, having offices at 511 Eleventh Avenue South, Minneapolis,
Minnesota, 55415 (hereafter called the "Landlord"), and Advanced
Telecommunications, Inc., a ________________ corporation (hereafter called the
"Tenant").
WITNESSETH
FOR AND IN CONSIDERATION of the sum of One Dollar ($1.00) in hand paid by
each of the parties to the other, and other good and valuable consideration,
receipt and sufficiency of which is hereby acknowledged, Landlord does hereby
lease and let unto Tenant, and Tenant does hereby hire, lease and take from
Landlord, that area outlined in red on Exhibit A-1 attached hereto, and by this
reference incorporated herein, and described as 325, containing approximately
7061 rentable square feet, (hereafter called the "Premises") at 511 11th Avenue
South (hereafter called the "Building") in the City of Minneapolis, County of
Hennepin, State of Minnesota. The terms Building as it is used herein shall
consist of the land and building(s) set forth in Exhibit A-2 hereto. The
Premisesarea shall be measured from the outside of exterior or corridor walls
and from the center of demising walls to obtain the useable area of the Premise:
which shall be multiplied by a factor of 1.15 to active at the rentable area of
the Premises. The parties may measure the Premises at any time, but unless the
rentable area differs by more or less than 10% the rental amounts set forth
below shall not be adjusted.
ARTICLE 1 - TERM
A. To have and to hold said Premises for a term of ten (10) years,
commencing upon the earlier of: 1) April 15, 1999; or ii) the date on which
Tenant occupies any portion of the Premises for the conduct of its business; and
terminating on the last day of the month during which the tenth (10th)
anniversary of the commencement date occurs (hereafter called the "Term") upon
the rentals and subject to the conditions set forth in this Lease Agreement, and
the Exhibits attached hereto. The commencement and termination dates are
specifically subject to the provisions of Article 5 hereof.
B. Tenant shall have the right to renew the Term of the Lease Agreement
for two (2) periods of five (5) years each ("Renewal Term(s)"), subject to the
following terms, covenants and conditions: i) Tenant shall not be in default
beyond any applicable grace period in the performance of any of the terms,
covenants or conditions of this Lease Agreement, either at the time of the
exercise of the right to renew or at the commencement of the applicable Renewal
Term; ii) the Renewal Terms) shall be on the same terms, covenants and
conditions as provided in this Lease Agreement, except the Minimum Rental during
the Renewal Term shall be at the rates as set forth in the table in Paragraph 3B
and there shall be no further renewal right after the commencement of the second
Renewal Term; and iii) Tenant shall exercise its right to renew by giving
written notice thereof to Landlord at least nine (9) calendar months prior to
the expiration of the initial Term or first Renewal Term, as the case may be,
time being of the essence. If Tenant fails to notify Landlord in the manner and
within the time as provided in this paragraph, Tenant's right to renew this
Lease Agreement shall expire and become null and void. If Tenant fails to
exercise the first Renewal Term, then the following Renewal Term shall also
terminate.
ARTICLE 2 - USE
A. The Premises shall be used by the Tenant solely for the following
purposes: General office purposes, including executive corporate and general
offices; in addition Tenant shall be entitled, subject to obtaining such
approvals as may be required from any governmental authorities which may have
jurisdiction thereof, to install, operate and maintain telecommunications
equipment, including telecommunication switching operations and related
facilities utilized in connection with Tenant's telecommunication business. No
other use of the Premises shall be permitted or allowed.
B. Landlord acknowledges that in connection with Tenant's use of the
Premises, it shall be installing specialized telecommunication equipment, and
various electrical equipment and facilities associated therewith
("Telecommunications Equipment"). Tenant shall be solely responsible for
ensuring that the Telecommunications Equipment can be operated consistent with
Landlord's current facilities and utilities and Tenant shall be solely
responsible for any special utility requirements created by the
Telecommunications Equipment (such as, but not limited to: all electrical power
utilized thereby, additional cooling requirements, uninterrupted power sources,
etc.) the installation of which shall be governed by Article 4 below. Tenant
shall also be solely responsible to ensure that any electrical/magnetic field
("EMF") is not emitted beyond the Premises at levels exceeding those acceptable
by the Food and Drug Administration for persons with pacemakers or other
electronic prosthetics (5 goss or 5,000 milligoss). In all events, Tenant shall
indemnify, defend with counsel of Landlord's selection, and save Landlord
harmless from any claim for injury to a person or damage to property asserted by
any person against Landlord, its agents or employees by reason of any EMF
emitted from or created by the Telecommunications Equipment. In addition, Tenant
hereby assumes all risk in connection with the presence of all EMF within the
Premises and hereby releases Landlord from any and all liability or
responsibility to Tenant, its agents, employees, contractors or anyone claiming
through or under Tenant by way of subrogation or otherwise for the loss or
damage to property or injury to persons arising out of or relating to EMF.
C. Tenant and its "Affiliates" (as defined in Article 15 below) shall have
the right to provide telecommunication services to other tenants in the Building
on a non-exclusive basis with other providers of such services; provided all
such tenants shall be able to freely choose their telecommunications provider,
and Tenant shall not solicit such tenants (in person) except with Landlord's
prior approval.
ARTICLE 3 - RENTALS
A. Tenant agrees to pay to Landlord as minimum rental (hereinafter called
"Minimum Rental") for the Premises, without notice set-off or demand, monthly
installments during the Term, and if properly exercised, each of the four
Renewal Terms, all as set forth in the table in Paragraph 3B below; said monthly
installments to be due and payable by Tenant in advance on the first day of each
calendar month during the Term of this Lease Agreement, or any extension or
renewal thereof, at the office of Landlord set forth in the preamble to this
Lease Agreement or at such other place as Landlord may designate. In the event
of any fractional calendar month, Tenant shall pay for each day in such partial
month a rental equal to l/30 of the Minimum Rental. Tenant agrees to pay, as
Additional Rent, which shall be collectible to the same extent as Minimum
Rental, all amounts which may become due to Landlord hereunder and any tax,
charge or fee that may be levied, assessed or imposed upon or measured by the
rents reserved hereunder by any governmental authority acting under any present
or future law before any fine, penalty, interest or costs may be added thereto
for non-payment. Notwithstanding anything contained herein to the contrary, upon
the execution by Tenant of this Lease Agreement, Tenant shall pay to Landlord
$10,297.30 which sum shall be applied toward the first monthly Minimum Rental.
-1-
<PAGE>
(iii) Tenant shall be entitled to install an UPS electrical system
and/or batteries all in a segregated area of the Premises along with the
Telecommunications Equipment ("Electrical Room").
(iv) Tenant shall install for the Premises (including the Electrical
Room) an electric submeter for all electrical usage therein;
2. installation of the following:
(i) Tenant shall cause to be removed modular interior walls from
within the Premises, if there are any, and store the same inside the Premises
(or at such other storage location as designated by Landlord) until the
completion of Tenant's Work, at which time said removed modular interior walls
(together with any additional modular interior walls Landlord may have in
storage) shall be made available by Landlord to Tenant for installation of
offices and rooms (including the Electrical Room) utilizing Landlord's modular
walls, to the extent Tenant so desires;
(ii) installation of floor covering and wall coverings pursuant to
Final Plans;
(iii) extension of the demising walls above the ceiling to the deck of
the roof pursuant to Final Plans.
(iv) installation of cabling and conduit from the Premises to
Tenant's telecommunication antennae and related equipment on the roof of the
Building (which placement, location and maintenance of such equipment shall be
governed by a separate license agreement in the form of Exhibit B attached
hereto and incorporated herein by reference). Tenant agrees that at no time
during the Term shall it use, license or otherwise agree to utilize any space
upon the Building or land upon which it is located for antennae space, except
pursuant to Exhibit B, and in no event shall it use, license, utilize or rent
space from other tenants or licensees of the Building without the consent of
Landlord, which consent may he conditioned upon payment of reasonable fees to
Landlord;
(v) use of the Building's existing conduit and riser space and in the
event existing conduit is not available, the installation of conduit and cabling
from the Electric Room to Tenant's network outside of the Building. 1n
connection therewith Landlord shall cooperate with Tenant to locate and utilize
an appropriate riser space from the Premises to other necessary levels of the
Building, such cooperation may include core drilling (subject to Paragraph 4C
below). Tenant shall also have the right to construct dual telecommunication
conduit entrances to the Building (as reasonably approved by Landlord), which
may include the removal and replacement of curbing and/or sidewalks, and
trenching and repairing portions of the parking lot and/or other common areas,
all subject to Paragraph 4C below. Tenant agrees to cooperate and coordinate
with other tenants of the Building desiring or constructing such dual
telecommunication conduit entrances. Notwithstanding anything contained in this
Lease Agreement to the contrary, all cabling and conduit, located on the
exterior of the Premises shall become the property of Landlord upon the
expiration of the Term and shall be surrendered with the Premises.
3. installation of the following heating, ventilation, air conditioning
systems, equipment or facilities ("HVAC"):
(i) installation of such plumbing, cables, controls and accessory
equipment to connect the Electrical Room to the Building's chiller equipment
pursuant to the provisions of the license agreement set forth in Exhibit E
attached hereto and to which the parties hereby agree to be bound.
(ii) such equipment to provide Tenant' necessary HVAC capacity to the
Premises, including but not limited to, condensers on the exterior of the
Building, or on the roof of the Building, at such location as approved by
Landlord ("Cooling Equipment"). If such Cooling Equipment is necessary, it shall
be subject to availability of space and Tenant shall pay for such space at the
same per square foot rate as is set forth in the table of Article 3.
(iii) in connection with the Cooling Equipment or other forms of
cooling, such drains as Tenant deems necessary, subject to Paragraph 4C below.
(iv) Tenant shall have the right to modify the Building's heating
system servicing the Premises, subject to Paragraph 4C below.
(v) Tenant may modify the duct work and other modifications necessary
to the Building's HVAC so as to service the office portions of the Premises.
4. subject to the prior approval of Landlord, which approval shall not be
unreasonably withheld or delayed, Tenant shall be entitled to reinforce the
floor load capacity of the Premises. Tenant shall be responsible for assuring
that its equipment and any of the Work performed within the Premises does not
exceed the floor capacities of the Building and/or Premises and Tenant shall
indemnify and hold Landlord harmless from all damage, liability and costs
(including reasonable attorneys' fees) in the event it over-loads the floor
capacity of the Premises, but only to the extent it exceeds 80 ppf live weight
and 20 ppf dead weight.
5. Tenant shall have the right to modify the Building's sprinkler system
serving the Premises (including installation of a fire suppression system which
may be independent of the Building's system or have the system servicing the
Premises modified to a dry pipe system), pursuant to Final Plans to be approved
by Landlord.
6. If Tenant desires to have the right to install an emergency generator
(the "Tenant Generator") either (at Landlord's election) in an enclosed pad on
the roof of the Building or at the exterior of the Building in a location
approved by Landlord, the same shall be subject to the following:
a. Tenant shall first obtain such governmental approvals, authorizations
and permits as are required to install and operate the Tenant
Generator.
b. All plans and specifications for the installation of the Tenant
Generator and its connection to the Premises must be approved, in
advance, by Landlord. The installation of the Tenant Generator shall be
performed in a manner approved by Landlord. The Tenant Generator may
consist of up to 350 KW diesel generator and up to a related 500 gallon
fuel tank.
c. Tenant shall pay the entire cost of installing the Tenant Generator,
including any modifications to the generator area required to
accommodate and screen the Tenant Generator.
-3-
<PAGE>
d. Tenant shall maintain the Tenant Generator and any related equipment,
at its sole cost and expense, in good order and condition and will
repair any damage to the Building and/or any other equipment caused by
the Tenant Generator and/or its installation and/or removal. Landlord
shall not be liable to Tenant or to any other person for any loss or
damage to the Tenant Generator regardless of cause, other than the
negligence or acts of Landlord, its agents or employees.
e. Tenant shall have the right to install gas generator(s) in lieu of
diesel. In either event: (i) any fuel tank shall he located above ground
and within the frame of the generator, (ii) Tenant shall install such
spill protection and other tank monitoring devices as shall be required
by governmental codes and regulations, (iii) Tenant shall provide
Landlord with copies of all warranties and evidence of any testing
required by law, and (iv) Tenant shall indemnify Landlord from and
against any and all costs and liability arising from a leak from such
fuel tank, including, without limitation, any clean-up costs.
f. Upon the termination of the Lease Agreement, Tenant will have the right
to remove the Tenant Generator, provided, (i) the Tenant Generator is
removed within five (5) days following the termination of the Lease
Agreement, and (ii) Tenant shall repair all damage to the Building,
landscaping and/or any other equipment caused by the removal of the
Tenant Generator and shall restore the area to the condition as existing
prior to such installation.
g. The availability of appropriate exterior space, and Tenant shall pay for
such space at the same per square foot rate as is set forth in the table
of Article 3.
C. All of Tenant's Work shall be performed in a good and workmanlike manner
using first grade and new materials and to the extent any of such Work involves
alteration or replacement of any existing equipment or facilities of the
Building, Tenant shall use a standard and grade equal to or better than such
existing equipment and facilities. To the extent any of Tenant's Work involves
areas outside the Premises ("Exterior Work"), Tenant ant its contractors shall
coordinate all such Work with Landlord and Landlord's Building Manager, on a
daily basis. All such Work, including the Exterior Work, shall he performed in a
manner so as to not unreasonably disturb or interfere with the operations of the
Building or other tenants of the Building, specifically, but not exclusively
including, the performance of all such Work which may involve loud and/or
irritating noises, vibrations, dust and/or odors after normal business hours (as
defined in Paragraph 7D below). In all events, whenever the Tenant's Work
involves the alteration and/or interference with any of the Building's systems,
including, but not limited to, electrical, water, HVAC, sprinkler, plumbing and
life/health/safely systems, Tenant shall indemnify and hold Landlord harmless
with respect to any interruption of such systems to other portions of the
Building and/or other tenants and the continued operational integrity of such
systems as a result of the Work. In all events, Tenant, at is sole cost and
expense, shall obtain all applicable governmental approvals with respect to the
installation or doing of all Work including the Exterior Work. Tenant shall
cause its contractors and subcontractors to utilize only those parking areas
designated by Landlord, and to the extent such use utilizes parking spaces,
Tenant shall utilize its parking licenses (as set forth in Paragraph 14D and
Exhibit C below) for such purposes and Tenant shall be responsible for the
license fees due thereunder during such parking use by Tenant's contractors and
subcontractors. Landlord agrees to cooperate, at no cost to it, with respect to
the obtaining of any such governmental approvals, such cooperation, however,
shall not extend to providing any concessions to the governmental authority with
respect to zoning, parking or outer restrictions relating to the Building.
D. Landlord agrees to make such alterations to the common area restroom
facilities on the first floor as necessary so as to put them in compliance with
Title lI1 of the Americans with Disabilities Act of 1990 ("ADA"). Tenant shall
perform its Work so as to be in compliance with the ADA.
ARTICLE 5 - POSSESSION
A. Tenant shall have access and possession to the Premises pursuant to
Article 4 above. Construction delays affecting Tenant's Work due to material
shortages, strikes, or acts of God, or otherwise shall in no event postpone the
date of commencement of the Term of this Lease Agreement nor of the payment of
rentals. By occupying the Premises as a Tenant, or to install fixtures,
facilities or equipment, or to perform the Work, Tenant shall be conclusively
deemed to have accepted the same, except for any latent defects affecting the
Building. Immediately after Tenant's completion of its Work, Landlord and
Tenant shall execute a ratification agreement which shall set forth the final
commencement and termination dates for the Terms and shall acknowledge the
Minimum Rental, the square footage of the Premises, and Delivery of the Premises
in the condition required by this Lease Agreement.
ARTICLE 6 - TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND OPERATING EXPENSES
ABOVE BASE
A. Commencing with the first full calendar year subsequent to the
commencement of the Term, during each full or partial calendar year during the
Term of this Lease Agreement. Tenant shall pay to Landlord, as Additional
Rental, the amounts by which actual Real Estate Taxes and Operating Expenses
(both as hereafter defined) per square foot of rentable area in the Building
multiplied by the: number of square feet of reusable area in the Premises
exceed the Real Estate Tax Base and the Operating Expense Base, respectively
(both as hereafter defined) prorated for the period that Tenant occupied the
Premises. In the event that during all or any portion of any calendar year, the
Building is not fully rented and occupied Landlord may make any appropriate
adjustment in occupancy-related Operating Expenses for such year for the purpose
of avoiding distortion of the amount of such Operating Expenses to he attributed
to Tenant by reason of variation in total occupancy of the Building by
employing sound accounting and management principles to determine Operating
Expenses that would have been paid or incurred by Landlord had the Building
been 100% rented and occupied, and the amount so determined shall he deemed to
have been Operating Expenses for such year. As used herein, the "Real Estate Tax
Base" shall be $1.11 per rentable square foot times the rentable square feet
contained within the Premises, and the "Operating Expense Base" shall be $3.8.1
per rentable square feet times the rentable square feet contained within the
Premises. If the actual Real Estate Taxes or Operating Expenses per square foot
times the rentable square feet contained within the Premises are less than the
Real Estate Tax Base or Operating Expense Base, respectively. Tenant shall not
be entitled to any refund or credit.
B. Commencing with the first full calendar year subsequent to the:
commencement of the Term, Landlord shall, each year during the Term of this
Lease Agreement, give Tenant an estimate of Operating Expenses and an estimate
of Real Estate Taxes payable per square feet of rentable area for the coming
calendar year. If either such estimate exceeds the respective Real Estate Tax
Base or Operating Expense Base (as defined above), Tenant shall pay, as
Additional Rental, along with its monthly Minimum Rental payments required
hereunder, one-twelfth (1/12) of such excess estimated Operating Expenses and/or
Real Estate Taxes and such Additional Rental shall be payable until subsequently
adjusted for the following year pursuant to this Article
C. As soon as possible after the expiration of each calendar year
beginning with the first full calendar your subsequent to the commencement of
the Term but in any event no later than ninety (90) days following the close of
the calendar year, Landlord shall determine and certify to Tenant the actual
Operating Expenses and Real Estate Taxes for the previous year per square foot
of rentable area in the Building and the amount applicable to the Premises. If
such statement shows that Tenant's share of increases in Operating Expenses and
Real Estate Taxes over Operating Expense Base and the Real Estate Tax Base,
respectively exceeds Tenant's estimated monthly payments for the previous
calendar year, then Tenant shall within twenty (20) days after receiving
Landlord's certification, pay such deficiency to Landlord. In the event of an
overpayment by Tenant, such overpayment (not to exceed the amount of the
estimated payments) shall be refunded to Tenant, at the time of certification,
in the form of an adjustment in the Additional Rental next coming due, or if at
the end of the Term by a refund. By written notice given to Landlord no later
than six (6) months following delivery of the written certification of Landlord,
Tenant shall have the right to audit, or have audited the written certification
and the books and record from which such certification is derived. Tenant shall
pay the costs of any such audit, unless it is determined that Tenant's
overpayment was more than five percent (5%) of the actual amount in which case
Landlord shall reimburse Tenant for the reasonable cost of the audit.
-4-
<PAGE>
D. For purposes of this Article, the term "Real Estate Taxes" means the
total of all taxes, fees, charges and assessments, general and special, ordinary
and extraordinary, foreseen or unforeseen, which become due and payable upon
the Building. All reasonable costs and expenses incurred by Landlord during
negotiations for or contests of the amount of Real Estate taxes shall be
included within the term "Real Estate Taxes." For purposes of this Article,
the term "Operating Expenses" shall be deemed to mean all costs and expenses
directly related to the Building incurred by Landlord to the repair, operation,
management and maintenance of the Building including interior and exterior and
common area maintenance, management fees, cleaning expenses, energy expenses,
insurance premiums, and the amortization of capital investments made to reduce
operating costs (including reroofing costs) or that are necessary due to
governmental requirements, all in accordance with generally accepted accounting
principles. Notwithstanding the foregoing, the parties acknowledge and agree
that the janitorial services and electricity to the Premises shall be supplied
by Tenant at its costs and/or submetered and paid for by Tenant ("Tenant
Supplied Utilities") and Tenant acknowledges that it shall be given no credit
against Operating Expenses for those portions of the Premises being serviced by
Tenant Supplied Utilities. The following shall be included in Operating
Expenses:
(1) real estate brokerage and leasing commissions;
(2) cost of alterations of any tenant's premises;
(3) allowances or concessions provided to any tenant or occupant of the
Building;
(4) costs incurred to make major repairs or replacements of any defective
initial construction of the Building and related appurtenances regardless of how
such costs are characterized under generally accepted accounting principles;
(5) legal expenses incurred in connection with the preparation or
negotiation of leases, subleases, assignments or other lease-related documents
with current, prior or prospective tenants or occupants of the Building;
(6) marketing or advertising costs to solicit new tenants;
(7) wages, salaries, fees, and fringe benefits paid to executive personnel
or officers or partners of Landlord not having direct day to day responsibility
for operating or providing services to the Building;
(8) the cost, above any applicable deductible, of repairs or other work
occasioned by fire, windstorm or other casualty of an insurable nature or by the
exercise of eminent domain;
(9) costs incurred for alterations, replacements or improvements that would
be considered capital improvements under sound accounting and management
principles consistently applied, except current amortization (together with
interest of ten percent (10%) per annum on the unamortized amount) of the
capital improvement cost over the reasonable useful life of the improvement
where such capital improvement is reasonably necessary to improve the operation
or maintenance efficiency of the Building or as otherwise expressly permitted
above, provided that the amortization costs charged to direct costs for capital
improvements to improve the operation or maintenance efficiency of the Building
shall be limited to the estimated reduction in direct costs for the relevant
years resulting from such capital improvements;
(10) expenses in connection with services or other benefits of a type which
are not provided or available to Tenant but which are provided to another tenant
of the Building or to some other third party,
(11) costs incurred due to violation by Landlord or any tenant of the
Building of the terms or conditions of any lease;
(12) Landlord's general overhead except as it directly relates to the
management and operation of the Building;
(13) all items and services for which any tenant reimburses Landlord or
pays third persons;
(14) ground lease rentals, principal or interest payments, refinancing
charges or points, or penalties resulting from late payments by the landlord, or
depreciation;
(15) costs incurred in connection with the cure or correction of latent
defects at the Building and cost incurred in connection with the clean-up of
Hazardous Substances from the Project or Building;
(16) Landlord's cost of services sold separately to tenants for which
Landlord is entitled to be reimbursed by such tenants as an additional charge;
(17) costs incurred in connection with negotiations or disputes with
tenants of the Building;
(18) costs incurred in connection with renovating or otherwise improving or
decorating leased space for other tenants or other occupants or vacant tenant
space, other than common areas;
(19) any particular item or service for which Tenant otherwise reimburses
Landlord by direct payment;
(20) any expense for which Landlord is compensated through proceeds of
insurance or agreements of indemnity or surety bonds of guaranties;
(21) any fines or penalties incurred due to actual or alleged violations
by Landlord of any governmental rule or authority;
(22) cost of legal, accounting and other professional services incurred by
Landlord in connection with leasing activities or other activities which are not
Operating Expenses, and costs of audits of any kind performed by tenants;
(23) any bad debt loss, rent loss, or reserves for bad debt or rent loss;
(24) Landlord's general corporate overhead and general administrative
expenses; and
(25) Costs arising from Landlord's charitable or political contributions.
F. Landlord may at any time designate a fiscal year in lieu, of a calendar
year and in such event, at the time of such a change, there may be a billing for
the fiscal year which is less than 12 calendar months.
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F. Landlord reserves, and Tenant hereby assigns to Landlord, the sole and
exclusive right to contest, protest, petition for review, or otherwise seek a
reduction in the Real Estate Taxes. In the event of any reductions in the Real
Estate Taxes due to Landlord's contesting the same which relate to texts due and
payable for a year during the Term, such tax reduction, after payment of
Landlord's costs and expenses incurred in connection with effectuating such
reduction, shall be retroactively given effect, and Tenant shall be refunded its
Proportionate Share of said reduction (but not below the Real Estate Tax Base).
G. Landlord shall keep and maintain records of all Operating Expenses, Real
Estate Taxes for a period of not less than two (2) years, which records shall be
made available to Tenant at reasonable times at Landlord's offices for
inspection and copying by Tenant or its representatives, at Tenant's cost. If
Tenant in good faith disputes the accuracy of the total amount of Operating
Expenses or Real Estate Taxes, Tenant may audit Landlord's books and records by
Tenant's representative. If such audit establishes that any of the actual
Operating Expenses or Real Estate Taxes are less than Landlord's final
determination thereof by four percent (4%) or more, then Landlord shall pay the
cost of such audit. Any over-charged or under-paid amounts shall be reimbursed
by the responsible party with thirty (30) days following delivery of such audit
to Landlord, provided Landlord does not contest the same. Any amounts payable
pursuant to this Lease Agreement shall continue to be paid during the pendency
of any audit or dispute, but upon final determination or resolution of such
dispute, any amounts payable by one party to the other hereunder shall bear
interest at the rate of eight percent (8%) per annum.
ARTICLE 7 - UTILITIES AND SERVICE
A. Landlord agrees to provided water and sanitary sewer services to the
common area restrooms of the Building, together with janitorial supplies and
cleaning services to such restroom facilities.
B. Landlord agrees to furnish heat during the usual heating season and air
conditioning during the usual air conditioning season (provided Tenant does not
remove and/or relocate the HVAC duct work serving the office areas of the
Premises), as well as electricity and janitorial services to the office areas of
the Premises (all specifically excluded from the Electrical Room), on a 24-hour
basis. Electricity to the Premises shall be by separate submeter.
C. No temporary interruption or failure of such services incidental to the
making of repairs, alterations or improvements, or due to accidents or strike
or conditions or events not under Landlord's control, shall be deemed as an
eviction of the Tenant of relieve the Tenant from any of the Tenant's
obligations hereunder. Notwithstanding the foregoing, if for any reason
whatsoever, except due to force majure or by any negligent act or omission or
intentional misconduct of Tenant and as a result: (i) all or any portion of the
Premises shall become untenantable (the "Untenantable Premises") for the normal
conduct of Tenant's business for a period of three (3) consecutive days, (ii)
Tenant shall vacate the Untenantable Premises and cease doing business therein
(provided, however, that the continued presence of Tenant's security personnel
therein for the purposes of preservation of Tenant's property shall not
constitute a failure by Tenant to vacate the Untenantable Premises) and (iii)
Tenant shall give notice to Landlord of the facts set forth in clauses (i) and
(ii) above, then in such event, the portion of the Rents allocable to the
Untenantable Premises shall be fully abated for the period commencing on the day
that all the conditions set forth in (i), (ii) and (iii) above shall first be
satisfied and ending on the date that the Untenantable Premises shall be
rendered usable for the normal conduct of Tenant's business and Landlord shall
have given notice thereof (or the date Tenant shall reoccupy the Untenantable
Premises for the normal conduct of its business, if earlier).
D. For the purposes of this Article 7, normal business hours shall be
deemed to mean the period of time between 8:00 a.m. and 6:00 p.m., Monday
through Friday, and 8:00 a.m. to 1:00 p.m. Saturdays, and specifically excluding
Sundays and legal holidays. Landlord agrees that Tenant shall have access to the
Premises 24 hours per day, 7 days per week, however, after normal business hours
such access may be subject to the use of security cards and other rules and
regulations which Landlord may adopt from time to time with respect to the
Building, provided the same are reasonable and are equally applicable to all
tenants of the Building.
E. Tenant shall have the right to place telecommunications equipment of its
customers within the Premises ("Co-Location") and such Co-Location shall not be
deemed an assignment or sublease under the terms of this Lease Agreement
regardless whether a written agreement exists between Tenant and its customers.
F. Tenant agrees prior to such time as it installs its own Tenant Generator
(and during such time after Tenant has so installed its own Tenant Generator)
that it elects to continue to have available to it access to the Landlord's
existing back-up emergency generator at no cost. Tenant shall pay to Landlord
its proportionate costs of all maintenance repairs and replacement of the
Building's back-up emergency generator. Such proportionate use shall be based on
electrical connected load hooked up to said generator as compared to electrical
connected load of other tenants within the Building hooked up to said generator.
G. If the Tenant installs its own Tenant Generator, Tenant shall cooperate
with the Landlord in load shedding and/or peak moving program when requested by
the electric utility supplier (Northern States Power Company). Tenant
acknowledges that compliance with Northern States Power Company's load shedding
program has resulted in lower electrical charges to Landlord and is expected to
result in lower electrical charges to Tenant.
ARTICLE 8 - NON-LIABILITY OF LANDLORD
Except in the event of negligence of Landlord, its agents, employees or
contractors, or as specifically provided herein, Landlord shall not be liable
for any loss or damage for failure to furnish heat, air conditioning,
electricity, elevator service, water, sprinkler system or janitorial service.
Landlord shall not be liable for personal injury, death or any damage from any
cause, about the Premises or the Building except if caused by Landlord's
negligence or willful misconduct.
ARTICLE 9 - CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as they were
in at the time Tenant took possession of same, reasonable wear and tear and
damage from fire and other casualty for which insurance is normally procured
excepted;
2. To keep the Premises in a clean and sanitary condition and to be
responsible for janitorial services for the switch room;
3. Not to commit any nuisance or waste on the Premises, overload the
Premises or the electrical, water and/or plumbing facilities in the Premises or
Building, throw foreign substances in plumbing facilities, or wastefully use any
of the utilities furnished by Landlord,
4. To abide by such rules and regulations as may from lime to time be
reasonably promulgated by Landlord;
5. To obtain Landlord's prior approval (not to be unreasonably
withheld) of the interior design of any portion of the Premises visible from the
common areas or from the outside of the Building. "Interior design" as used in
the preceding sentence shall include but not be limited to floor and wall
coverings, furniture, office design, artwork and color scheme; and
6. Tenant shall maintain, repair and replace, if necessary any and all
equipment and/or facilities and/or trade fixtures which service, or is
dedicated, solely or exclusively to the Premises and/or Tenant, whether
initially installed by Landlord or Tenant, all at Tenant's sole cost and
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B. If Tenant shall fail to keep and preserve the Premises in the state of
condition required by the provisions of this Article 9, the Landlord may at its
option put or cause the same to be put into the condition and state of repair
agreed upon, and in such case the Tenant, on demand, shall pay the cost
thereof.
C. Landlord agrees to keep and maintain the common areas of the Building
consistent with other Class D buildings in the Minneapolis central business
district and to supply janitorial services for only the office and common areas.
ARTICLE 10- NON-PERMITTED USE
A. Tenant agrees to use the Premises only for the purposes set forth in
Article 2 hereof. Tenant further agrees not to commit or permit any act to be
performed on the Premises or any omission to occur which shall be in violation
of any statute, regulation or ordinance of any governmental body or which will
increase the insurance rates on the Building or which will be in violation of
any insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to Tenant's particular use of the Premises and shall
promptly comply with all governmental orders, rulings and directives for the
correction, prevention and abatement of any violation upon, or in connection
with Tenant's particular use of the Premises, including the making of any
alterations or improvements to the Premises, all at Tenant's sole cost and
expense. The Tenant shall not disturb other occupants of the Building by making
any undue or unseemly noise which shall not do or permit to be done in or about
the Premises anything which will be dangerous to life or limb. In connection
with the foregoing provision, Tenant covenants and agrees that it shall not
store, process, produce or dispose of any flammables, explosives, radioactive
materials, ACM's, polychlorinated biphesyls (PCB's), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous waste,
toxic substances, petroleum and petroleum products, chloraflora carbons (CFC's)
and substances declared to be hazardous or toxic (collectively "Hazardous
Substances") in violation of any present or future federal, state or local
environmental law, ordinance or regulation ("Environmental Laws") upon the
Premises or any part thereof without first obtaining Landlord's written consent,
which consent may be withheld or denied in Landlord's sole discretion, provided
that Landlord hereby consents to Hazardous Substances in small quantities as are
typically used in as office building (such as, toner, cleaning fluids, etc.).
Tenant agrees to indemnify and defend and hold Landlord harmless from and
against all fines, suits, claims, actions, damages, liabilities, costs and
expenses (including reasonable attorneys' fees) asserted against Landlord
arising out of and in any way connected with Tenant's failure to comply with
its obligations of this Paragraph or arising from the consented to presence of
Hazardous Substances (specifically including any diesel fuel), which
indemnification shall survive the expiration of the termination of this Lease
Agreement.
B. Landlord represents that it was not the owner of the Building during
construction, and makes no representations as to any Hazardous Substances but
Landlord shall make available that certain Phase I Environmental Report prepared
on behalf of the FDIC/RTC ("Environmental Report") to Tenant. Landlord hereby
covenants that if, at any time during the Term of the Lease Agreement, as the
same may he extended, "Hazardous Substances" are required to be removed,
encapsulated or otherwise remediated by any legal governmental authority
having jurisdiction over the Building, the presence for which Landlord is the
"responsible party" and Tenant is not a "responsible party" (as defined by
Environmental Laws) then Landlord shall so remediate the same as so required, at
Landlord's sole cost and expense and not as a part of Operating Expenses.
Landlord agrees to indemnify and defend and hold Tenant harmless from and
against all fines, suits, claims, actions, damages, liabilities, costs and
expenses (including attorneys' fees) asserted by such governmental authorities
against Tenant arising out of or in any way connected with Landlord's failure to
comply with its obligations in the preceding sentence, which indemnification
shall survive the expiration or the termination of this Lease Agreement.
ARTICLE 11 - INSPECTION
The Landlord or its employees or agents shall have the right without any
diminution of rent or other charges payable hereunder by Tenant to enter the
Premises at all reasonable times for the purpose of exhibiting the Premises to
prospective tenants or purchasers, inspection, cleaning, repairing, testing,
altering or improving the same or said Building, but nothing contained in this
Article shall be construed so as to impose any obligation on the landlord to
make any repairs, alterations or improvements. Landlord's rights under this
section shall be exercised in such a manner as to create the least practicable
interference with Tenant's use and occupancy of the Premises. Except that the
case of an emergency which makes notice to Tenant impractical, any entry on
the Premises by Landlord shall be made at reasonable times after reasonable
notice to Tenant. In exercising Landlord's rights of entry, Landlord shall
comply with Tenant's reasonable security regulations of which Landlord has been
advised of in writing. Landlord hereby recognizes that Tenant is engaged in a
business that involves access to privileged and confidential matters and
information and agrees to take reasonable precautions as to not compromise such
confidentiality. Therefore Landlord agrees that Landlord may enter and pass
through the Premises only when accompanied by a representative of Tenant,
provided that Tenant agrees to make such representative available. Landlord
agrees that it shall not enter the Premises for the purpose of exhibiting the
Premises to prospective tenants, except during the last nine (9) months of any
Term, or at any time when Tenant is in default.
ARTICLE 12 - ALTERATIONS
Tenant will not make any alterations, additions or improvements in or to
the Premises or add, disturb or in any way change any plumbing, wiring,
life/safety or mechanical systems, locks, or structural portions of the
Building without the prior written consent of the Landlord as to the character
of the alterations, additions or improvements to be made, the manner
of doing the work, and the contractor doing the work. Such consent shall not be
unreasonably withheld or delayed, if such alterations, repairs additions or
improvements are required of Tenant or are the obligation of Tenant pursuant
to this Lease Agreement. All such work shall comply with all applicable
governmental laws, ordinances, rules and regulations. Tenant agrees to indemnify
and hold Landlord free and harmless from any liability, loss, cost, damage or
expense (including attorney's fees) by reasons of any said alteration, repairs,
additions or improvements.
ARTICLE 13 - SIGNS
Tenant agrees that no signs or other advertising materials shall be
erected, attached or affixed to any portion of the interior or exterior of the
Premises or the building without the express prior written consent of Landlord.
Landlord, at its sole cost and expense, shall install Building standard tenant
graphics at the main entry to the Premises and an identification strip
for Tenant on the Building's lobby directory.
ARTICLE 14 - COMMON AREAS
A. Tenant agrees that the use of all corridors, passageways, elevators,
toilet rooms, parking areas and landscaped area in and around said Building, by
the Tenant or Tenant's employees, visitors or invitees, shall be subject to such
reasonable rules and regulations as may from time to time be made by Landlord
for the safety, comfort and convenience of the owners, occupants, tenants and
invitees of said Building. Tenant agrees that no awnings, curtains, drapes or
shades shall be used upon the Premises except as may be approved by Landlord,
such approval not to be unreasonably withheld, delayed or conditioned.
B. In addition to the Premises, Tenant shall have; the right of
non-exclusive use, in common with others, of (a) all unrestricted automobile
parking areas, driveways and walkways, and (b) loading facilities, freight
elevators and other facilities as may be constructed in the Building, all to be
subject to the Terms and conditions of this Lease Agreement and to reasonable
rules and regulations for the use thereof as prescribed from time to tune by
Landlord.
C. Landlord shall have the right to make changes or revisions in the site
plan and in the Building so as to provide additional leasing area. Landlord
shall also have the right to construct additional buildings on the land
described on Exhibit A-2 for such purposes as Landlord may deem appropriate.
Subject to Tenant's rights in respect of the Tenant Improvements, Landlord also
reserves all airspace rights above, below and to all sides of
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the Premises, including the right to make changes, alterations or provide
additional leasing areas, provided the same do not interfere with Tenant's
operations on or from the Premises.
D. Landlord and Tenant agree that Landlord will not be responsible for any
loss, then or damage to vehicles, or the: contents thereto; parked or left in
the parking areas of the Building and Tenant agrees to so advise its employees,
visitors or invitees who may use such parking areas The parking areas shall
include those areas designated by Landlord. In its sole discretion, as either
restricted or unrestricted parking areas. All restricted parking areas shall be
leased only by separate license agreement with Landlord. Landlord agrees to
provide Tenant, subject to availability unassigned parking spaces pursuant to
license agreements in the form of Exhibit C. The parking spaces being made
available to Tenant pursuant to the paragraph shall be made available at the
commencement of the Term and continuing thereafter during the balance of the
Term and Renewal Terms but only to the extent Tenant continues the initial
number of parking spaces continuously. If Tenant should cease one or more such
parking spaces, the Landlord shall not and does not guaranty that Tenant shall
be entitled to subsequently have such parking spaces available to it.
ARTICLE 15 - ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, or encumber this Lease
Agreement, the Premises, or any part thereof, whether by voluntary act,
operation of law, or otherwise without the specific prior written consent of
Landlord; provided however, landlord agrees not to unreasonably withhold, delay
or deny such consent if i) such assignment or sublease is in writing and the
assignee or sublessee assumes all the obligations of Tenant under this Lease
Agreement; ii) the proposed subtenant or assignee has a net worth of One Million
Dollars ($1,000,000) or more at the time of such assignment or subletting; iii)
the remaining provisions of this Lease Agreement continue to be applicable; and
iv) Tenant shall remain liable hereunder Landlord further hereby gives its
consent (subject however to Tenant's providing ten (10) days prior written
notice and clauses i), iii) and iv) above being applicable) to an assignment of
this Lease Agreement or sublease of the Premises to an "Affiliate" of Tenant or
to any entity into or with which Tenant merged or to the purchaser of all
or substantially all the ownership interests or assets of Tenant; provided the
survivor or transferee continues to operate the business of Tenant as a going
concert. For purposes hereof an Affiliate shall mean any party that is "related
to" Tenant as that term is defined by Sec 267(b) of the Internal Revenue Code of
1986. Consent by Landlord in one such instance shall not be a waiver of
Landlord's rights under this Article as to requiring consent for any subsequent
instance. In the event Tenant desires to sublet a part or all of the Premises,
or assign this Lease Agreement, Tenant shall give written notice to Landlord at
least thirty (30) days prior to the proposed subletting or assignment, which
notice shall state the name of the proposed subtenant or assignee, the terns of
any sublease or assignment documents and copies of financial reports or other
relevant financial information of the proposed subtenant or assignee. At
Landlord's option, any and all payments by the proposed assignee or sublessee
with respect to the assignment to sublease shall be paid directly to Landlord.
In any event no subletting or assignment shall release Tenant of its obligation
to pay the rent and to perform all other obligations to be performed by Tenant
hereunder for the Term of this Lease Agreement. The acceptance of rent by
Landlord from another person shall not be deemed to be a waiver by Landlord of
any provision hereof.
B. Notwithstanding anything to the contrary contained in this Article,
Tenant may collaterally assign, mortgage, pledge, hypothecate, without
Landlord's consent, its interest in this Lease Agreement to any financing
entity, or agent on behalf of any financing entity to whom Tenant: i) has
obligations for borrowed money or in respect of guarantees thereof, ii) has
obligations evidenced by bonds, debentures, notes, or similar instruments, or
iii) has obligations under or with respect to letters of credit, bankers'
acceptances and similar facilities or in respect of guarantees thereof:
C. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and providing the
purchaser succeeds to the interests of Landlord under this Lease Agreement and
assumes the Landlord's obligations hereunder, Landlord shall thereupon be
entirely freed of all obligations of the Landlord accruing hereunder after such
conveyance and shall not be subject to any liability, resulting from any act or
omission or event occurring after such conveyance.
<PAGE>
ARTICLE 16 - LOSS BY CASUALTY
A. If the Building is damaged or destroyed by fire or other casualty, (the
Landlord shall have the right to terminate this Lease Agreement, provided it
gives written notice thereof to the Tenant within ninety (90) days after such
damage or destniction. If a portion of the Premises of Building is damaged by
fire or other casualty, and in the reasonable opinion of Landlord: i) the
Premises cannot be restored to tenantable condition within a period of ninety
(90) days following the commencement of such restoration work, and/or ii) (the
cost of performing such restoration work exceeds the proceeds of Landlord's
casualty insurance by more than $100,000, then Landlord shall not be required
to make any repairs and Landlord shall have the right to terminate the Lease
Agreement upon written notice to Tenant within thirty (30) days of the date of
such fire or other casualty, the which event, the Lease Agreement shall
terminate as of the date of such notice and Landlord and Tenant shall be:
released from any and all liability thereafter accrued hereunder. Landlord
shall notify Tenant of its decision to rebuild or not within said thirty (30)
day period. Anything herein to the contrary notwithstanding if the Premises are
destroyed or so damaged that they cannot be repaired and made tenantable within
ninety (90) days following commencement of such restoration work, or so damaged
that Landlord shall decide not to repair or rebuild, or Landlord decides to
repair or rebuild, or Landlord decides to repair or rebuild, but does not
restore the Premises to a tenantable condition within ninety (90) days after
commencement of such restoration work (subject to an extension of up to an
additional sixty (60) days due to causes beyond Landlord's control), then, in
any of such instances, Tenant may terminate this Lease Agreement by giving
notice to Landlord within thirty (30) days after Tenant's receipt of Landlord's
notice or the expiration of said ninety (90) day period (as extended due to
causes beyond Landlord's control, as set forth above) as applicable, in which
event this Lease Agreement shall terminate as of the date of such notice and
Landlord and Tenant shall be released from any and all liability thereafter
accruing hereunder. If this Lease Agreement has not been determinated by either
Landlord or Tenant, then the rents due hereunder shall abate during such period
of time as the Premises are untenantable, in the proportion that the
untenantable portion of the Premises bears to entire Premises.
B. If the Premises are to be repaired under this Article 16, Landlord shall
repair any injury or damage to the Building itself and the Premises in
substantially the condition the Premises were in at the execution of this Lease
Agreement, specifically excluding any leasehold improvements constructed by
Tenant, Tenant's Equipment or any Collateral, all of which shall be restored to
the extent Tenant deems necessary, at Tenant's sole cost and expense. Tenant
shall, at its own cost and expense, remove all of its furniture and other
personal property from the Premises as Landlord shall reasonably require in
connection with its repair and restoration of the Premises under this Article
16.
ARTICLE 17 - WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible, provided however,
that this release shall be applicable and in force and effect only with respect
to loss or damage occurring during such times as the releasing party's policies
shall contain a clause or endorsement to the effect that any such release would
not adversely affect or impair said policies or prejudice the right of the
releasing party to recover thereunder. Landlord and Tenant agree that they will
request their insurance carriers to include in their policies such a clause or
endorsement. If extra cost shall be charged therefore, each party shall advise
the other of the amount of the extra cost, and the other party, at its election,
may pay the same, but shall not be obligated to do so.
ARTICLE 18 - EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement
shall automatically terminate as of the date of taking. If a portion of the
Building is taken by eminent domain, the Landlord shall have the right to
terminate this Lease Agreement, provided it gives written notice thereof to the
Tenant within ninety (90) days after the date of taking. If a portion of the
Premises is taken by eminent domain and this Lease Agreement is not
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terminated by Landlord, Tenant shall have the right to terminate this Lease
Agreement, provided it gives written notice thereof to Landlord within ninety
(90) days of the date of taking. If neither Landlord nor Tenant terminates,
the Landlord shall, at its expense, restore the Premises to as near the
condition which existed immediately prior to the date of taking as reasonably
possible, and the rentals shall abate during such period of time us the Premises
are untenantable, in the proportion that the untenantable portion of the
Premises bears to the entire Premises. All damages awarded for such taking under
the power of eminent domain shall belong to and be the sole property of
Landlord, irrespective of the basis upon which they are awarded, provided,
however, that nothing contained herein shall prevent Tenant from making a
separate claim to the condemning authority for its moving expenses and trade
fixtures. For purposes of this Article, a taking by eminent domain shall include
Landlord's giving of a deed under threat of condemnation, and shall be deemed to
occur on the earlier of the date fee simple title has vested or possession has
been obtained by the taking authority.
ARTICLE 19 - SURRENDER
On the last day of the Tenn of this Lease Agreement or on the sooner
termination thereof in accordance with the terms hereof, Tenant shall peaceably
surrender the Premises in good condition and repair consistent with Tenant's
duty to make repairs as provided in Article 9 hereof. On or before said last
day, Tenant shall at its expense removes all of its equipment from the
Premises, repairing any damage caused thereby, and any property not removed
shall he deemed abandoned, with the exception of any "Collateral" (as defined in
Article 28 below) to the extent of any security interests by third parties. All
alterations, additions and fixtures other than Tenant's trade fixtures, which
have been made or installed by either Landlord or Tenant upon the Premises
shall remain as Landlord's property and shall be surrendered with the Premises
as a part thereof, or shall be removed by Tenant (unless such right to remove
has been waived by Landlord pursuant to Article 4 above), which event Tenant
shall at its expense repair any damage caused thereby. It is specifically agreed
that any and all telephonic, coaxial, ethernet, or other computer,
word-processing, facsimile, or electronic wiring installed by Tenant within the
Premises (hereafter "Wiring") shall be removed at Tenant's cost at the
expiration of the Term, unless Landlord has specifically requested in writing
that said Wiring shall remain, whereupon said Wiring shall be surrendered with
the Premises as Landlord's property. If the Premises are not surrendered at the
end of the Term or the sooner termination thereof, Tenant shall indemnify
Landlord against loss or liability resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, claims made by any
succeeding tenant founded on such delay. Tenant shall promptly surrender all
keys for the Premises to Landlord at the place then fixed for payment of rental
and shall inform Landlord of combinations on any locks and safes on the
Premises.
ARTICLE 20 - NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs: (1) a rent payment or any other
payment due from Tenant to Landlord shall be and remain unpaid in whole or in
port for more than ten (10) days after same is due and payable; (2) Tenant
shall violate or default on any of the other covenants, agreements, stipulations
or conditions herein, or in any parking agreement(s) or other agreements between
Landlord and Tenant relating to the Premises, and such violation or default
shall continue for a period of thirty (30) days after written notice from
Landlord of such violation or default or if such violation or default shall
reasonably require longer than thirty (30) days to cure, if Tenant shall fail
to commence the cure of such default or violation within thirty (30) days after
receipt of notice thereof and/or fail to prosecute a cure to completion with due
diligence; (3) if Tenant shall commence or have commenced against Tenant
proceedings under a bankruptcy, receivership, insolvency or similar type of
action; or (4) if Tenant shall abandon the Premises; then it shall be optional
for Landlord, without further notice or demand, to cure such default or to
declare this Lease Agreement forfeits and the said Term ended, or to terminate
only Tenant's right to possession of the Premises, and to re-enter the Premises,
with or without process of law, using such force as may be necessary to remove
all persons or chattels therefrom, and Landlord shall not be liable for damages
by reason of such re-entry or forfeiture; but notwithstanding re-entry by
Landlord or termination only of Tenant's right to possession of the Premises,
the liability of Tenant for the rent and all other sums provided herein
shall not ha relinquished or extinguished for the balance of the Term of this be
Lease Agreement and Landlord shall be entitled to periodically sue Tenant for a
all sums due under this Lease Agreement or which become due prior to judgment,
but such suit shall not bar subsequent suits for any further sums coming due
thereafter. Tenant shall he responsible for, in addition to the rentals and
other sums agreed to be paid hereunder, the cost of any necessary maintenance,
repair, restoration, reletting (including related cost of removal or
modification of tenant improvements) or cure us well as reasonable attorney's
fees incurred or awarded in any suit or action instituted by Landlord to enforce
the provisions of this Lease Agreement, regain possession of the Premises. or
the collection of the rentals due Landlord hereunder, Tenant shall also be
liable to Landlord for the payment of a late charge in the: amount of 5% of the
rental installment or other sum due Landlord hereunder if said payment has not
been receive) within ten (10) days from the date said payment becomes due and
payable, or cleared by Landlord's bank within three (3) business days after
deposit. Tenant agrees to pay interest at the highest permissible rate of
interest allowed under the usury statutes of the State of Minnesota, or in case
no such maximum rate of interest is provided, at the rate of 12% per annum, on
all rentals and other sums due Landlord hereunder not paid within ten (10) days
from the date same become due and payable. Each right or remedy of Landlord
provided for in this Lease Agreement shall be cumulative and shall be in
addition to every other right or remedy provided for in this Lease Agreement now
or hereafter existing at law or in equity or by statute or otherwise.
ARTICLE 21 - LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under this Lease Agreement
until Tenant has given Landlord written notice specifying the nature of the
default and Landlord does not cure such default within thirty (30) days after
receipt of such notice or within such reasonable time thereafter as may be
necessary to cure such default where such default is of such a character us to
reasonably require more than thirty (30) days to cure.
ARTICLE 22 - HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by lapse
of time or termination, give up immediate possession to Landlord. If Tenant
fails to give up possession Landlord may, at its option, serve written notice
upon Tenant that such holdover constitutes any one of (i) creation of a month
to month tenancy, or (ii) creation of a tenancy at sufferance. If Landlord does
not give said notice, Tenant's holdover shall create a tenancy at sufferance. In
any such event the tenancy shall be upon the terms and conditions of this Lease
Agreement, except that the Minimum Rental shall be 150% the Minimum Rental
Tenant was obligated to pay Landlord under this Lease Agreement immediately
prior to termination (in the case of tenancy the sufferance such Minimum Rental
shall be prorated on the basis of a 365 day year for each day Tenant reamains in
possession); excepting further that in the case of a tenancy at sufferance, no
notices shall be required prior to commencement of any legal action to gain
repossession of the Premises. In the case of a tenancy at sufferance, Tenant
shall also pay to Landlord all damages sustained by Landlord resulting from
retention of possession by Tenant, provide) such damages shall not include
consequential damages if such holdover is for five (5) business days
or less. The provisions of this paragraph shall not constitute a waiver by
Landlord of any right of re-entry as otherwise available to Landlord, nor shall
receipt of any rent or any other act in apparent affirmance of the tenancy
operate as a waiver of the right to terminate this Lease Agreement for a breach
by Tenant hereof.
ARTICLE 23 - SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any
mortgage(s) that may now or hereafter be placed upon the Building or any part
thereof, and to any and all advances to he made thereunder, and to the interest
thereon, and all renewals, replacements, and extensions thereof and to execute
a specific subordination agreement (in a form reasonably requested by mortgagee)
if so requested by Landlord, provide) the mortgagee named in such subordination
shall agree to recognize this Lease Agreement or Tenant in the event of
foreclosure provided the Tenant is not in default by including non-disturbance
language, in recordable form. In the event of any mortgagee electing to have
the Lease Agreement a prior encumbrance to its mortgage, then and in such event
upon such mortgagee notifying Tenant to that effect, this Lease Agreement shall
be deemed prior in encumbrance to the said mortgage, whether this Lease
Agreement is dated prior to or subsequent to the date of said mortgage. Landlord
shall use its best efforts to obtain a non-disturbance agreement from the
existing mortgagee (the Federal Deposit Insurance Corporation) and any future
mortgagees, in a form reasonably satisfactory to such mortgagee and Tenant.
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ARTICLE 24 - INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for so long as this
Lease Agreement remains in effect public liability insurance with respect to the
Premises in which Landlord shall be named as an additional insured, in companies
and in form acceptable to Landlord with minimum combined limit of liability of
Two Million Dollars ($2,000,000.00). This limit shall apply per location. Said
insurance shall also provide [ILLEGIBLE] contractual liability coverage by
endorsement. Tenant shall further provide business interruption insurance to
cover a period of not less than six (6) months. Tenant will further deposit with
Landlord the policy or policies of such insurance or certificates thereof, or
other acceptable evidence that such insurance is in effect, which evidence shall
provide that Landlord shall be notified in writing thirty (30) days prior to
cancellation, material change, failure to renew the insurance. Tenant further
covenants and agrees to indemnify and hold Landlord and Landlord's manager of
the Building harmless for any claim, loss or damage, including reasonable
attorney's fees, suffered by Landlord, Landlord's manager or Landlord's other
tenants caused by: i) any act or omission by Tenant, Tenant's employees or
anyone claiming through or by Tenant in, at, or around the Premises or the
Building; ii) [ILLEGIBLE] conduct or management of any work or thing whatsoever
done by Tenant in or about the Premises; or iii) Tenant's failure to comply with
any and all governmental laws, rules, ordinances or regulations applicable to
Tenant's particular use of the Premises. If Tenant shall not comply with its
covenants made in this Article 24, Landlord may, at its option, cause insurance
as aforesaid to be issued and in such event Tenant agrees to pay the premium of
such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of
the Premises and all property kept, stored or maintained on the Premises.
Landlord will make available to Tenant at Tenant's request, the plans and
specifications for construction of the Building and the Premises. Tenant
represents that it is satisfied that the configuration of the Building and the
Premises, including the location and dimensions of the floors, walls, windows,
doors and means of access thereto are suitable for the particular needs of
Tenant's business. The placement and sufficiency of all safes, vaults, cash or
security drawers, cabinets or the like placed upon the Premises by Tenant shall
be at the sole responsibility and risk of Tenant. Tenant shall maintain in force
throughout the Term, insurance upon all contents of the Premises, including that
owned by others and Tenant's equipment and all alterations, additions, fixtures,
or improvements in the Premises acknowledged by Landlord to be the Tenant's.
C. Landlord shall carry and cause to be in full force and effect a
fire and extended coverage insurance policy on the Building, but [ILLEGIBLE]
contents owned, leased or otherwise in possession of Tenant. Landlord will also
keep in force during this Term public liability insurance with respect
[ILLEGIBLE] the Building with a minimum combined limit of liability of
$2,000,000. The cost of such insurance shall be an Operating Expense.
ARTICLE 25 - NOTICES
All notices from Tenant to Landlord required or permitted by any
provisions of this Lease Agreement shall be directed to Landlord postage
prepaid, certified or registered mail or sent by U.S. express mail or any
nationally recognized overnight carrier with a signed receipt obtained upon
delivery, at the address provided for Landlord in the preamble to this Lease
Agreement or at such other address as Tenant shall be advised to use by
Landlord. All notices from Landlord to Tenant required or permitted by any
provision of this Lease Agreement be directed to Tenant, postage prepaid,
certified or registered mail or sent by U.S. express mail or any nationally
recognized overnight carrier with a signed receipt obtained upon delivery, at:
730 2nd Avenue South, Suite 1200, Minneapolis, MN 55402. Landlord and Tenant
shall each have the right at any time and from time to time to designate one (1)
additional party to whom copies of any notice shall be sent.
ARTICLE 26 - APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State
of Minnesota.
ARTICLE 27 - MECHANICS' LIEN
In the event any mechanic's lien shall at any time be filed against
the Premises or any part of the Building by reason of work, [ILLEGIBLE] services
or materials performed or furnished to Tenant or to anyone holding the Premises
through or under Tenant, Tenant shall forthwith cause the same to be discharged
of record. Tenant shall and hereby does indemnify Landlord from and against all
costs, damages and expenses (including reasonable attorney's fees) incurred by
Landlord as a result of any such mechanic's lien. If Tenant shall fail to cause
such lien forthwith to be discharged within twenty (20) days after being
notified of the filing thereof, then, in addition to any other right or remedy
of Landlord, Landlord may, but shall not be obligated to, discharge the same by
paying the amount claimed to be due, or by bonding, and the amount so paid by
Landlord and all costs and expenses, including reasonable attorney's fees
incurred by Landlord in procuring the discharge of such lien, shall be due and
payable in full Tenant to Landlord on demand. Landlord shall have the right to
post on the Premises notices of nonresponsibility for payment of labor and
materials supplied to the Premises pursuant to applicable law.
ARTICLE 28 - SECURITY DEPOSIT
INTENTIONALLY DELETED.
ARTICLE 29- BROKERAGE
Each of the parties represents and warrants that there are no claims
for brokerage commissions or finder's fees in connection with this Lease
Agreement and agrees to indemnify the other against, and hold it harmless from
all liabilities arising from any other such claim, including without limitation,
the cost of attorney's fees in connection therewith.
ARTICLE 30 - EXCULPATION
Tenant agrees to look solely to Landlord's interest in the Building
for the recovery of any judgment from Landlord, it being agreed that Landlord
and Landlord's partners, whether general or limited (if Landlord is a
partnership) or its directors, officers or shareholders (if Landlord is a
corporation), shall never be personally liable for any such judgment.
ARTICLE 31 - ESTOPPEL CERTIFICATES
Each party hereto agrees that at any time, and from time to time
during the Term of this Lease Agreement (but not more often than twice each
calendar year), within ten (10) days after request by the other party hereto, it
will execute, acknowledge and deliver to such other party or any prospective
purchaser, assignee or mortgagee designated by such other party, an estoppel
certificate in a form acceptable to Landlord. Tenant agrees to provide Landlord
(but not more than twice in any calendar year), within ten (10) days of request,
the then most current financial statements of Tenant and any guarantors of this
Lease Agreement, which shall be certified by Tenant, and if available, shall be
audited and certified by a certified public accountant. Landlord shall keep such
financial statements confidential, except Landlord shall, in confidence, be
entitled to disclose such financial statements to existing or prospective
mortgagees or purchasers of the Building.
ARTICLE 32 - GENERAL
This Lease Agreement does not create the relationship of principal
and agent or of partnership or of joint venture or of an association between
Landlord and Tenant, the sole relationship between Landlord and Tenant being
that of landlord and tenant. No waiver of any default of Tenant hereunder shall
be implied from any omission by Landlord to take any action on account of such
default if such default persists or is repeated and no express waiver shall
affect any default other than the default specified in the express waiver and
that only for the time and to the extent therein stated. The covenants of Tenant
to pay the Minimum Rental and the Additional Rental are each independent of any
other covenant, condition, or provision contained in this Lease Agreement. The
marginal or topical headings of the several Articles, paragraphs and clauses are
for convenience only and do
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<PAGE>
not define, limit or construe the contents of such Articles, paragraphs or
clauses. All preliminary negotiations are merged into and incorporated in this
Lease Agreement. This Lease Agreement can only be modified or amended by an
agreement in writing signed by the parties hereto. All provisions hereof shall
be binding upon the heirs, successors and assigns of each party hereto. If any
term or provision of this Lease Agreement shall to any extant be held invalid or
unenforceable, the remainder shall not be affected thereby, and each other term
and provision of this Lease Agreement shall be valid and be enforced to the
fullest extent permitted by law. If Tenant is a corporation, each individual
executing this Lease Agreement on behalf of said corporation represents and
warrants that he is duly authorized to execute and deliver this Lease. Agreement
on behalf of said corporation in accordance with a duly adopted resolution of
the Board of Directors of said corporation or in accordance with the Bylaws of
said corporation, and that this Lease Agreement is binding upon said corporation
in accordance with its terms. No receipt or acceptance by Landlord from Tenant
of less than the monthly rent herein stipulated shall be deemed to be other than
a partial payment on account for any due and unpaid stipulated rent; no
endorsement or statement of any check or any letter or other writing
accompanying any check or payment of rent to Landlord shall be deemed an accord
and satisfaction, and Landlord may accept and negotiate such check or payment
without prejudice to Landlord's rights to (i) recover the remaining balance o
such unpaid rent or (ii) pursue any other remedy provided in this Lease
Agreement. Either party may record a memorandum of this Lease Agreement and the
parties agree to execute a reasonable form memorandum as presented by the other
party. Time is of the essence with respect to the due performance of the terms,
covenants and conditions herein contained. Submission of this instrument for
examination does not constitute reservation of or option for the Premises, and
this Lease Agreement shall become effective only upon execution and delivery
thereof by Landlord and Tenant.
ARTICLE 33 - QUIET ENJOYMENT
Landlord covenants that Tenant, upon paying the rental and other
charges due hereunder and performing all of Tenant's obligations under this
Lease Agreement, shall peacefully and quietly hold, occupy and enjoy Premises
throughout the Term hereof, without molestation or hindrance by any person
holding, under or through Landlord, subject, however, to the provisions of this
Lease Agreement and to any mortgages or ground or underlying leases referred to
in Article 23 hereof. Any diminution or shutting off of light, air or view by
any structure which may be erected on lands adjacent to the Building shall in no
way affect this Lease Agreement or impose any liability on Landlord.
ARTICLE 34 - LIMITED EXPANSION RIGHT
A. Provided Tenant is not then in default under this Lease Agreement
beyond the applicable grace period, Tenant shall have a right [ILLEGIBLE]
leasing Suite 407, contiguous to the Premises (hereafter referred to as the
"Option Space"), in the event such Option Space becomes "Available for Leasing"
(as defined below) during the original Term, subject to and conditioned upon the
provisions of this Article (the "Expansion Right").
B. Landlord shall notify Tenant ("Landlord's Notice") in the event the
Option Space becomes "Available for Leasing"; or in the event Landlord has a
third party interested in leasing the Option Space which is then "Available for
Leasing". Tenant shall notify Landlord ("Tenant's Leasing Notice") within five
(5) business days after its receipt of Landlord's Notice as to whether Tenant
intends to exercise its Expansion Right with respect to said Option Space as so
identified in Landlord's Notice, time being of the essence. If Tenant exercises
its Expansion Right, it must do so with respect to [ILLEGIBLE] the Option Space
as so identified in Landlord's Notice. In such event, Landlord and Tenant shall
execute an amendment to the Lease Agreement incorporating the Option Space as so
identified into the Premises at the Minimum Rent at the then applicable rates as
set forth in the table of Paragraph 31 above. In the event Tenant fails to
notify Landlord within the time period set forth above, Tenant's rights under
this Article shall be null and void with respect to any lease entered into with
respect to the original prospective Tenant for the Option Space as so identified
in Landlord's Notice; provided such Expansion Right shall again be applicable in
the event Landlord does not lease such Option Space to the original prospective
Tenant within nine (9) months of the Landlord's Notice.
C. Tenant's Expansion Right shall also include Tenant's providing
Landlord a Tenant's Leasing Notice (in the first instance and not in response to
a Landlord's Notice) with respect to the Option Space which is then "Available
for Leasing" provided no Landlord's Notice has been given to Tenant with respect
to any portion of such Option Space within the previous nine (9) months.
D. The leasing of said Option Space shall commence as of the
"Effective Date" (as set forth below) and shall be in said Option Space's, then
"AS-IS" condition without any improvements, improvement allowances or other
modifications to be made by Landlord. For purposes of this Article, the
"Effective Date" shall mean the date on which Tenant shall begin paying rentals
upon the Option Space after it has exercised its rights to said space; which
shall be thirty (30) days after Tenant's Leasing Notice under this Article to
Landlord exercising its rights hereunder (or such sooner date as Tenant takes
possession and commences its business operations from within the Option Space).
The provisions of this Lease Agreement governing alterations of the Premises
shall apply with respect to the construction of any leasehold improvements
Tenant desires to make to such Option Space.
E. Notwithstanding anything to the contrary in the foregoing, if
Tenant exercises its rights under this Article and there remains less than
thirty-six (36) months from the Effective Date to the expiration of the Term,
then the Tenant shall not be entitled to exercise its rights under this Article
unless it exercises its Option to Renew the Term, or if no such Option to Renew
can then be exercised, then Tenant shall no longer have any right under this
Article with respect to the Option Space.
F. For purposes of this Article, "Available for Leasing" shall mean
the Option Space is not subject to any existing (as of the date of this Lease
Agreement) lease or first rights of refusal, first rights of negotiation, first
rights of leasing, expansion rights, renewal rights and/or similar rights of any
other third party tenant or such rights have been waived in writing (provided if
all such rights are to expire within six (6) months, Landlord may make such
Option Space Available for Leasing contingent upon the expiration of such
rights). In any event Landlord shall be entitled to renew or extend any lease of
an "Occupying Third Party" (as defined below), without providing Tenant a
Landlord's Notice and without it being subject to any rights of a third party
under this Article. Tenants which are either presently occupying Option Space or
may be so occupying in the future pursuant to a third party lease which was
entered into after Tenant's rights were waived or deemed waived pursuant to
Paragraph B of this Article shall be deemed to be an "Occupying Third Party".
G. If the Lease Agreement or Tenant's right to possession of the
Premises shall terminate in any manner whatsoever before Tenant shall exercise
its rights under this Article, or if Tenant shall have subleased or assigned all
or any portion of the Premises, then immediately upon such termination,
sublease, or assignment, then this Article and Tenant's rights hereunder shall
simultaneously terminate and become null and void. Such right is personal to
Tenant. Under no circumstances whatsoever shall the assignee under a complete or
partial assignment of the Lease, or a subtenant under a sublease of the
Premises, have any right to exercise any rights under this Article or have any
right to receive any Landlord's Notice.
ARTICLE 35 - CANCELLATION RIGHT
A. Tenant shall have two separate rights to notify Landlord, that it
elects to terminate this Lease as of the end of the sixtieth (60th) [ILLEGIBLE]
the eighty-fourth (84) month of the Term, subject to and conditioned upon the
following conditions:
i. Tenant shall give Landlord written notice of Tenant's
intention to terminate this Lease not less than six (6) months prior
to either the fifth (5th) or the seventh (7) anniversaries of the
Term, in accordance with the notice provisions set forth above
("Termination Notice");
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<PAGE>
ii. The Termination Notice shall set forth the effective date
for said termination ("Termination Date") which date shall be
midnight of the day prior to: i) the fifth (5th) anniversary of the
Term (if the Termination Notice is given prior to the fifty-fourth
(54th) month of the Term), or ii) the seventh (7th) anniversary of
the Term (if the Termination Notice is given after the fifty-fourth
(54th) month but prior to the seventy-eighth (78th) month of the
Term);
iii. Tenant must not be in default either at the time of the
Termination Notice nor at the Termination Date and Tenant must
comply with all of the terms and conditions of this Lease Agreement
(including surrender of the Premises as required by this Lease
Agreement) through the Termination Date;
iv. Tenant must accompany said Termination Notice with a
"Termination Fee", which shall be equal to six (6) months rental
which would otherwise have been due under this Lease Agreement
immediately following the Termination Date.
v. In no event shall Tenant be entitled to terminate this
Lease if it has exercised its rights to renew under Article 1 above.
B. The rights provided to Tenant under this Article are personal to
Tenant, which may assign them only in connection with an assignment of this
Lease Agreement to a company controlled by or which controls (directly or
indirectly) Advanced Telecommunications, Inc. ("Affiliate"), and such rights
shall expire automatically if Tenant assigns this Lease Agreement to any other
party or subleases all or any portion of the Premises to any other party.
C. Tenant's rights under this Article may be exercise only once, but
at either of the two (2) time periods set forth above.
D. Notwithstanding anything contained in this Article to the
contrary, if Tenant exercises its Expansion Right pursuant or in response to a
"Landlord's Notice" (as defined in Paragraph 34B above), then Tenant's right to
give a Termination Notice under this Article shall be suspended for a period
commencing with Tenant's giving of its "Tenant's Leasing Notice" (as defined in
Paragraph 34B above) and continuing through the 18th month subsequent to the
"Effective Date" (as defined in Paragraph 34D above). Any Termination Notice
given during such period shall be of no effect and shall not result in the
termination of this Lease Agreement. The restrictions of this Paragraph, and
specifically the suspension of Tenant's right to give a Termination Notice under
this Article shall not become applicable if Tenant exercises its Expansion Right
pursuant to Paragraph 35C above (i.e. Tenant shall continue to have the rights
to terminate under this Article if Tenant's expansion was not in response to a
"Landlord's Notice").
IN WITNESS WHEREOF, this Lease Agreement has been duly executed by
the parties hereto as of the day and year indicated above.
TENANT: ADVANCED TELECOMMUNICATIONS, LANDLORD: TIMESHARE SYSTEMS, INC.
INC.
By: /s/ [Illegible] By: /s/ [Illegible]
--------------------------------- --------------------------------
Its: Chief Financial Officer Its: PRES.
--------------------------------- --------------------------------
By: By:
--------------------------------- --------------------------------
Its: Its:
--------------------------------- --------------------------------
Date: 3/30/99 Date: 3/30/99
--------------------------------- --------------------------------
SCHEDULE OF EXHIBITS
Exhibit A-1 Graphical depiction of Premises
Exhibit A-2 Legal Description of Land and Building
Exhibit B License Agreement (Antenna)
Exhibit C License Agreement (Parking Lot Unassigned)
Exhibit D Rules and Regulations
Exhibit E Chiller License Agreement
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<PAGE>
[FLOOR PLANS FOR THE FOURTH FLOOR OMITTED]
EXHIBIT A-1
<PAGE>
EXHIBIT A-2
LEGAL DESCRIPTION
All of Block 7, Atwaters Addition to the Town of Minneapolis; all of Block 8,
Morrison, Smith and Hancocks Addition to Minneapolis; and that part of 12th
Avenue South, Morrison, Smith and Hancocks Addition to Minneapolis; and Atwaters
Addition to the Town of Minneapolis, lying Southwesterly of a line connecting
the most Easterly corner of Block 7, Morrison, Smith and Hancocks Addition to
Minneapolis; and the most Northerly corner of Block 8, Morrison, Smith and
Hancocks Addition to Minneapolis and Northeasterly of a line connecting the most
Southerly corner of Block 7, Atwaters Addition to the Town of Minneapolis and
the most Westerly corner of Block 8, Atwaters Addition to the Town of
Minneapolis; except that part of said Block 8 which lies Northeasterly of the
following described line:
Beginning at a point on the Southeasterly line of Lot 7, Block 8, distant 116.50
feet Southwesterly of the most Easterly corner thereof; thence run Northwesterly
to a point on the Northwesterly line of the Southeasterly half of Lot 9, said
Block 8, distant 10 feet Southwesterly of the Northeasterly line of said Lot 9,
and there terminating.
Also except that part of the Northwesterly 1/2 of Lot 9, Block 8, Atwater's
Addition to the Town of Minneapolis which lies Northeasterly of the following
described line. Beginning at a point on the Southeasterly line of the
Northwesterly 1/2 of Lot 9, Block 8, said Addition, distant 5 feet Southwesterly
of the most Easterly corner thereof, thence run Northwesterly to the most
Northerly corner of Lot 9 and there terminating.
All of Block 7, Morrison, Smith and Hancocks Addition to Minneapolis, except
that part of Lots 9, 10, 11 and 12 of said Block 7, described as follows:
Beginning at the most Northerly corner of said Lot 12; thence south 30 degrees
04 minutes 33 seconds West, on an assumed bearing, along the Northwesterly line
to said Lot 12, a distance of 127.58 feet; thence Easterly, a distance of 259.94
feet along a non-tangential curve concave to the South having a radius of 240.00
feet, central angle of 62 degrees 03 minutes 21 seconds and the chord of said
curve bears North 89 degrees 04 minutes 43 seconds East; thence North 30 degrees
06 minutes 24 seconds East along the prolongation of a radial line of said
curve, a distance of 0.08 feet to the Northeasterly line of said Lot 9; thence
North 59 degrees 54 minutes 07 seconds West along the Northeasterly line of said
Block 7, a distance of 212.08 feet to the point of beginning.
All according to the plats thereof on file and of record in the Hennepin County
Recorders Office and in the Office of the Registrar of Titles, and situate in
Hennepin County, Minnesota.
Part of the above shown below as Parcels 1 through 4, is Registered Property as
evidenced by Certificate No. 830754. Said Registered Property is described as
follows:
Parcel 1: Lots 3, 6, 8 and 9, Block 7;
That part of Lot 7, Block 7 lying Northeasterly of a line drawn parallel with
and distant 96 feet Southwesterly of the Southwesterly boundary line of 5th
Street;
The Northeasterly 60 feet of the Southwesterly 105 feet of Lot 1, Block 8;
Lots 2, 3, 4, 5, 6 and 10, Block 8;
That part of the Northwesterly 1/2 of vacated 12th Avenue South lying between
the extensions across it of the Northeasterly and Southwesterly lines of said
Lot 6, Block 7 and
That part of the Southeasterly 1/2 of vacated 12th Avenue South lying between
the extensions across it of the Northeasterly and Southwesterly lines of said
Northeasterly 60 feet of the Southwesterly 105 feet of Lot 1, Block 8,
all in Atwaters Addition to the Town of Minneapolis.
Parcel 2: That part of the following described Tract:
The Northwesterly 27 feet of the Northeasterly 100 feet of Lot 7;
The Southwesterly 39 feet of the Northeasterly 1 39 feet of Lot 7;
The Northwesterly 1/2 of Lot 8 and
The Southeasterly 1/2 of Lot 9,
all in Block 8, Atwaters Addition to the Town of Minneapolis, which lies
Southwesterly of a line drawn from a point on the Southeasterly line of said Lot
7, distant 116.50 feet Southwesterly of the most Easterly corner thereof to a
point on the Northwesterly line of said Southeasterly 1/2 of Lot 9, distant 10
feet Southwesterly of the Northeasterly line thereof
Parcel 3: Lots 3 and 8, Block 7.
That part of Lot 7, Block 7 lying Northeasterly of a line drawn parallel with
and distant 96 feet Southwesterly of the Southwesterly boundary line of 5th
Street and Lot 9, Block 7 except that part thereof lying Northerly of the
following described line: Beginning at the most Northerly corner of Lot 12, said
Block 7; thence South 30 degrees 04 minutes 33 seconds West, on an assumed
bearing, along the Northwesterly line of said Lot 12, a distance of 127.58 feet;
thence Easterly a distance of 259.94 feet along a non-tangential curve concave
to the South, having a radius of 240.00 feet, a central angle of 62 degrees, 03
minutes, 21 seconds and the chord of said curve bears North 89 degrees, 04
minutes, 43 seconds East, thence North 30 degrees, 06 minutes, 24 seconds East
along the prolongation of a radial line of said curve, a distance of 0.08 feet
to the Northeasterly line of said Lot 9 and said line there terminating,
all in Morrison, Smith and Hancocks Addition to Minneapolis.
Parcel 4: That part of the Northwesterly 1/2 of vacated 12th Avenue south lying
between the extensions across it of the Northeasterly line of Lot 7, Block 7,
Morrison. Smith and Hancocks Addition to Minneapolis and a line drawn parallel
to and distant 96 feet Southwesterly of the Northeasterly line of said lot 7
Subject to minerals and mineral rights reserved by the State of Minnesota; (As
to all of above land except Lot 3, Block 7 in Parcel 1; Lot 3, Block 7 in Parcel
3 and the above portion of Lot 9, Block 8 in Parcel 2; and except that part of
Lot 6, Block 7 and of that part of the Northwesterly 1/2 of vacated 12th Avenue
South in Parcel 1 lying Northeasterly of extensions across it of the
Southwesterly lien of said Lot 6 and its extension);
Subject to covenants, restrictions, reservations and conditions subsequent,
including a right of re-entry and forfeiture of title upon default as contained
in Deed Doc. No. 1488605; (See Inst)
A-2-1
<PAGE>
EXHIBIT B
ANTENNAE LICENSE AGREEMENT
This License Agreement (the "Agreement"), dated as of this 3rd day
of March, 1999, is between TIMESHARE SYSTEMS, INC. (the "License") having an
address at 511 Eleventh Avenue South, Minneapolis, MN. 55415 and ADVANCED
TELECOMMUNICATIONS, INC. (the "Licensee"), having an address at 511 Eleventh
Avenue South, Minneapolis, MN. 55415 (the "Premises").
A. Licensor agrees to permit Licensee to utilize for purposes
provided herein, the roof space (the exact location to be determined by Licensor
[with] the reasonable consent of Licensee, but in no event shall such space
exceed 100 contiguous square feet) on the building ("Building") in which the
Premises are located (the "Roof Space"), from the date hereof and expiring April
30, 2099. Upon termination of Licensee's lease for the Premises for any reason
(including the failure to renew the Term), this License Agreement and the
license created hereby shall automatically expire with said termination. The
termination, cancellation or expiration this License Agreement or the license
created hereunder shall not be cause or grounds for the cancellation or
termination of Licensee's lease for the Premises.
H. Licensee may install, use and maintain on such Roof Space
equipment (" Equipment") as described in Exhibit A attached hereto. If requested
by Licensor, Licensee shall, at its sole expense, install a screening and
protective fence ("Fence") around the perimeter of the Roof Space. The Fence
style and installation shall be subject to Licensor's prior approval.
I. Licensor agrees that Licensee may run cables (the "Cables")
between the Roof Space and the Licensee's Premises. Any damages to Building or
fixtures or equipment located upon or within the Building resulting therefrom
shall be promptly repaired by Licensee.
J. The Equipment and Fence shall remain the property of the Licensee
or its contractor. Licensee shall at its cost remove such Equipment and Fence
(and if so requested by Licensor, the Cables) at the expiration or sooner
termination of the license granted hereunder or this License Agreement, and
restore Roof Space and Building to the condition they were in prior to
Licensee's installation of the Equipment, Fence and Cables. The obligations to
remove the Equipment, Fence and Cables and to restore and repair the Roof Space
and Building shall survive the expiration or sooner termination of the license
and this License Agreement.
K. Licensee and/or its contractor shall bear all expenses in
connection with the installation, use and maintenance of such Equipment, Fence
and Cables and removal of the same. Licensee shall indemnify and hold Licensor
harmless from and against liability, damages, costs and expenses, including
reasonable attorneys' fees incurred by Licensor, arising out of Licensee's
installation, use, maintenance and removal of the Equipment, Fence and Cables.
This obligation shall survive the expiration, cancellation or termination of
this License Agreement and the license created hereunder.
L. Licensee and/or its contractor shall maintain in force during the
term of this License Agreement comprehensive liability insurance in amount and
in such form as reasonably satisfactory to Licensor, protecting Licensor against
any liability, damages, cost or expenses, in connection with the installation,
use, maintenance and removal of the Equipment, Fence and Cables and shall supply
the appropriate certificates of such insurance upon request.
M. Licensee and its contractors shall comply with all applicable
federal, state and local laws, regulations, and building codes in connection
with the installation, use, maintenance and removal of the Equipment, Fence and
Cables. In the event any such laws, regulations, or codes require physical
improvements made to the Building or other expenditures by or on behalf of the
Building and/or its owner, the costs of the same shall be borne by Licensee.
Notwithstanding the foregoing, any physical improvements, whether required by
law, regulation, code or otherwise, shall be subject to Licensor's approval,
which approval may be given or denied in Licensor's sole discretion. If any law,
regulation or code prohibits or disallows the Equipment, Fence and/or Cables or
the effective use of the license granted hereby, whether now or in the future,
Licensor shall be entitled to terminate the license granted hereby, without
penalty, and Licensee shall take such action so as to allow the Building to
again be in compliance with such law, regulation or code, including, if
necessary, the removal of the Equipment, Fence and/or Cables.
N. Licensor agrees to permit Licensee reasonable access to the Roof
Space and other areas so as to facilitate the installation, use, maintenance and
removal of the Equipment, Fence, and Cables. Licensee shall have access to the
Roof Space on a 24 hour per day, 7 days per week basis, in order to facilitate
maintenance and repairs. Licensee agrees to sign the Building's log book on each
occasion Licensee enters the Roof Space, during normal business hours. At times
other than normal business hours, or when the log book is not available for
signing, Tenant shall page Landlord at 470-4500 or shall leave a message by
calling 481-9999 or shall notify Landlord by such other reasonable means as
Landlord shall inform Tenant in writing.
O. Notwithstanding anything else contained herein to the contrary,
the license granted herein is subject to the non-interference of Licensee's
Equipment with the normal operation, functioning and use of any other equipment
(whether owned by Licensor or by other licensees and/or tenants of Licensor
currently existing upon the roof of the Building. In the event of any such
interference, Licensor may terminate the License granted hereunder if such
interference is not corrected within three (3) days notice from Licensor to
Licensee. Notwithstanding anything else contained herein to the contrary,
Licensor does not guaranty nor warrant the reception, noninterference or
effective use of Licensee's antenna, or Equipment, either at initial
installation nor thereafter.
P. Licensee shall be required to get prior approval from Licensor
pertaining to the Antenna size, color, Fence specifications, location on roof,
method of mounting and the location of all Cables. In no instance shall this
installation breach or penetrate the roof membrane.
Q. Any notice required or desired under this License Agreement shall
be deemed sufficiently given if given in compliance with the Licensee's lease
agreement for the Premises.
R. Licensee shall pay to Licensor, without set-off, or demand the
sum of $0 per month for all Antennae (as listed on Exhibit A, or otherwise
located on the Building pursuant to this License Agreement or the license
created hereunder) for use of the roof space ("License Fee") during the Term of
this License Agreement. Failure by Licensee to pay said License Fee shall
entitle Licensor, upon 10 days written notice to Licensee, to terminate this
License Agreement and the license created hereunder, and to such other relief as
may be allowed by law or equity. No other Equipment or antennae shall be
permitted by this license, without Licensor's prior written consent, which
consent shall not be unreasonably withheld for a reasonable increase in
equipment, provided the License Fee shall be increased to Licensor's then rate
for each additional antennae.
S. In the event of default by Licensee of any of the terms and
conditions set forth in this License Agreement, whether suit be commenced or not
Licensee agrees to pay the attorneys' fees, costs and expenses of Licensor
incurred in enforcing or attempting to enforce this License Agreement.
T. Licensee shall operate the Licensee facilities in a manner that
will not cause interference to Licensor and other Licensees of the Property
provided that their installations predate that of the Licensee's facilities. All
operations by Licensee shall be in compliance with all Federal Communications
Commission ("FCC") requirements.
U. Licensor waives any lien rights it may have concerning the
Equipment which are deemed Licensee's personal property and not fixtures, and
Licensee has the right to remove the same at any time without Licensor's
consent.
V. This Agreement may be terminated without further liability on
thirty (30) days prior written notice as follows: (i) by either party upon a
default of any covenant or term hereof by the other party, which default is not
cured within sixty (60) days of receipt of written notice or default provided
that the grace period for any monetary default is ten (10) days from receipt of
notice; or (ii) by Licensee for any reason or for no reason, provided License
delivers written notice of early termination to Licensor with a thirty (30) day
notice provision prior to termination; or (iii) by Licensee if it does not
obtain or maintain any license, permit or other approval necessary for the
construction and operation of the Equipment; or (iv) by Licensee if Licensee is
unable to occupy and utilize the Premises under Licensee's lease due to an
action of the FCC, including without limitation, a take back of channels or
change in frequencies; or (v) by Licensee if Licensee determines that the
Premises are not appropriate for its operations for technological reasons,
including, without limitation, signal interference.
B-1
<PAGE>
W. If the Premises or Equipment are damaged, destroyed, condemned or
transferred in lieu of condemnation, Licensee may elect to terminate this
Agreement as of the date of the damage, destruction, condemnation or transfer in
lieu of condemnation by giving notice to Licensor no more than forty-five (45)
days following the date of such damage, destruction, condemnation or transfer in
lieu of condemnation.
X. Licensee may not assign, or otherwise transfer all or any part of
its interest in this Agreement without the prior written consent of Licensor
provided, however, that Licensee may assign its interest to any party to which
it is assigning its interest in the Premises under its lease
Y. Licensor shall be responsible for compliance with all marking and
lighting requirements of the Federal Aviation Administration ("FAA") and the
FCC. Should Licensee be cited because the Property is not in compliance and,
should Licensor fail to cure the conditions of noncompliance, Licensee may
either terminate this Agreement or proceed to cure the conditions of
noncompliance at Licensor's expense, which accounts may be deducted from the
rent under Licensee's lease.
Z. In no event shall Licensee be entitled to erect any mono pole or
other tower-type structure.
U. In the event the Equipment, Fence and/or Cables should interfere
with any roof maintenance, repair and/or replacement which Licensor deems
necessary to perform, Licensor shall first notify Licensee and then Licensee
shall cooperate with Licensor and its contractors to remove such interference,
including if necessary, the relocation and/or temporary relocation of the
Equipment, Fence and/or Cables. Such cooperation including such relocations
and/or temporary relocations shall be at the cost and expense of Licensee.
LICENSOR:
TIMESHARE SYSTEMS, INC.
By: /s/ [Illegible]
---------------------------------------
Its: PRES.
---------------------------------------
3/30/99
LICENSEE:
ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ [Illegible] 3/30/99
---------------------------------------
Its: Chief Financial Officer
---------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT A TO ANTENNAE LICENSE AGREEMENT
Up to one (1) antenna as well as related base site cabinets and any other
appropriate ancillary equipment so long as it is contained within 100 square
feet of roof space and does not exceed 10 feet in height. No additional antennae
may be installed without Landlord's written consent.
B-2
<PAGE>
[CHECK OMITTED]
[Photocopy of endorsed check payed to order of TIMESHARE SYSTEMS, INC. in the
amount of $10,000.00 as a deposit drawn on ADVANCED TELECOMMUNICATIONS, INC.
account at NORWEST BANK MINNESOTA, N.A. dated 2/19/99]
<PAGE>
[Business card of Basant Kharbanda omitted]
<PAGE>
EXHIBIT C
LICENSE AGREEMENT
MINNEAPOLIS TECHNOLOGY CENTER
WEST PARKING LOT (UNASSIGNED)
This License Agreement is made as of the 3rd day of March, 1999, by
and between TIMESHARE SYSTEMS, INC., a Minnesota corporate ("Licensor") and
ADVANCED TELECOMMUNICATIONS, INC. ("Licensee"),
In consideration of the covenants and agreements contained herein,
and other good and valuable consideration, receipt and sufficiency of which
acknowledged, Licensor and Licensee mutually agree as follows:
A. GRANT: Licensor hereby grants to Licensee, for the sole purpose
of parking the automobile(s) described in Licensee's application attach hereto,
_________________________ (_____) unassigned parking space(s) in the restricted
parking areas of the West parking lot ("Lot") located at Minneapolis Technology
Center, 511 South Eleventh Avenue South, Minneapolis, Minnesota.
2. TERM: The term of this License commences this date amid expires
at Midnight April 30, 2099.
3. LICENSE FEE: Licensee shall pay as its fee for this License the
sum of $95 per admittance card on or before the first day of each month
Timeshare Systems, Inc., 511 South Eleventh Avenue South, Minneapolis,
Minnesota, 55415, or at such other address that Licensor may designate; together
with all use, sales or other tax (excepting income tax) payable or which may
become payable by Licensor as a result of said fee. In the event the term of
this License commence on other than the first day of the month, the fee will be
prorated for such month. The license fee shall commence on the date Licensor
delivers a Lot gate operator(s) admittance card(s) to Licensee. The license fee
shall terminate on the expiration date of the license or on the date the
Licensee returns the Lot gate operator(s) and admittance card(s) whichever
occurs last. The fee for this License may be adjusted from time to time
beginning January 1, 2000 to whatever fee Licensor is then charging for Lot
parking stalls; provided that Licensor shall give thirty (30) days prior written
notice of any such increase and Licensee may, within thirty (30) days subsequent
to any such increase, terminate this License by giving ten (10) days written
notice to Licensor.
4. NEGATIVE COVENANTS: Licensee shall not:
a) Park more than one (1) standard sized (or smaller)
automobile per admittance card in the Lot, at any one
time.
b) Allow any non-authorized automobile to be parked in the
Lot through use of License's issued admittance card.
c) Allow any automobile to be stored overnight in the Lot.
Upon breach of any covenant set forth in this Paragraph 4 by
Licensee, Licensor may, at its option, and in addition to Licensor's remedies
provided in paragraph 5 hereof, charge Licensee the sum of $25.00 for each day
of any such violation, and/or may tow or have towed any automobile which is
parked in violation of any covenant set forth in this paragraph 4, and in such
case Licensee agrees to pay Licensor as an additional license fee hereunder all
towing and storage cost associated with said towing.
5. RIGHT OF RE-ENTRY AND EXPIRATION: Licensee agrees that this
License is made upon the condition that if the License shall fail to pay the
license fee within ten (10) days of when due, fail to keep any term or condition
of this license, or shall neglect or fail to keep, observe and perform any of
the rules and regulations from time to time adopted and promulgated by Licensor
for the operation of the Lot, then in any of said cases the Licensor may
immediately or a any time thereafter and without notice or demand, retake
possession of the parking stall(s), without such re-taking working a forfeiture
of the license fee to be paid by Licensee for the full term of this License. In
the event of such retaking or at the end of the Term, Licensee agrees to return
to Licensor any and all Lot gate operator(s) and/or admittance cards, upon
notice from Licensor. Licensee shall pay to Licensor, Licensor's
replacement/lost fee for all such operator(s) and/or admittance cards not
returned.
6. PARKING LOT OPERATION: It is specifically understood and agreed
that the Lot area is operated without constant staffing and that Licensor shall
not be responsible for any loss, damage or casualty sustained by Licensee's
automobile or for the loss of any articles, personal property or any such other
items from Licensee's automobile.
7. OFFICE LEASE: Licensee presently has (or is contemporaneously
executing) a lease for office space within the Minneapolis Technology Center
("Office Lease").
a) A termination of the Office Lease, whether by expiration of
the term or otherwise, shall automatically constitute a termination
of this License Agreement.
8. AUTHORIZED VEHICLES: Licensee agrees, upon request from Licensor,
to furnish Licensor or its authorized agent, the state automobile license
number(s) assigned to those automobile(s) of those persons employed on the
premises and who are designated by Licensee to use the Lot. Any such designation
shall not exceed the number of stalls licensed hereunder. If any automobile of
Licensee or of Licensee's officers, agents or employees who is not designated to
park in the Lot is parked therein, then Licensee shall pay to Licensor an amount
equal to $25 per day for each such vehicle for each day, or a part thereof, such
amount to be due and payable by Licensee within three (3) days after demand
therefor.
9. CANCELLATION: Licensor shall have the right, upon thirty (30)
days prior written notice to Licensee, to cancel this License Agreement and
allow the Parking Lot to be used on an unrestricted basis for all tenants and
their invitees. Licensee from and after the cancellation date specified in such
written notice, shall have no further obligation for the payment of the fee
hereunder but the use of such Parking Lot shall be subject to the terms of
paragraphs 4(c), 6 and 7 hereof.
10. LICENSE HOURS: Notwithstanding anything else contained herein to
the contrary, the license granted hereunder shall be limited to the following
hours: Monday through Friday (legal holidays specifically excluded) from 7:00
a.m. to 6:00 p.m. Licensee specifically agrees that should Licensee violate the
foregoing hours during a time period in which there is an event ("Event") at the
Hubert H. Humphrey Metrodome (located across 11th Avenue from the Minneapolis
Technology Center) Licensee shall pay to Licensor $25.00 for each such Event
violation (or such higher rate which Licensor may then be charging for dome
Event parking).
(LICENSEE) (LICENSOR)
ADVANCED TELECOMMUNICATIONS , INC. TIMESHARE SYSTEMS, INC.
By /s/ [Illegible] By /s/ [Illegible]
----------------------------------- --------------------------------
Its Chief Financial Officer Its PRES.
-------------------------------- -----------------------------
Date: 3/30/99 Date: 3/30/99
-------------------------------- -----------------------------
C-1
<PAGE>
EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the right
to remove, at Tenant's expense and without notice, any sign installed or
displayed violation of this rule. All approved signs or lettering on doors and
walls shall be printed, painted, affixed or inscribed at the expense of Tenant
by a person or vendor chosen by Landlord. In addition, Landlord reserves the
right to change from time to time the format of the signs or lettering and to
require previously approved signs [ILLEGIBLE] lettering to be appropriately
altered.
2. If Landlord objects in writing to any curtains, blinds, shades or
screens attached to or hung in or used in connection with any window or doors of
the Premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything or allow
anything to be placed against or near any glass partitions or doors or windows
which may appear unsightly, in the opinion of Landlord, from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public, and Landlord shall in all cases retain the right
to control and prevent access to the Building of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants provided that nothing
contained in this rule shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No tenant and no employee or
invitee or any tenant shall go upon the roof of the Building.
4. The directory of the Building will be provided exclusively for
the display of the name and location of tenants only and Landlord reserves the
right to exclude any other names therefrom.
5. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises. Landlord shall
not in any way be responsible to any Tenant for any loss of property on the
Premises, however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person.
6. Landlord will furnish Tenant free of charge with two keys to each
door in the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys, and Tenant shall
not alter any lock or install a new or additional lock or bolt on any door of
its Premises. Tenant, upon the termination of its tenancy, shall deliver to
Landlord the keys of all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or
similar services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
8. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be designated
by Landlord.
9. Tenant shall obtain Landlord's consent prior to placing a load
upon any floor which may exceed the load per square foot which such floor was
designed to carry and which is allowed by law. Landlord shall have the right to
prescribed the weight, size and a position to all equipment, materials,
furniture or other property brought into the Building. Heavy objects shall stand
on such platforms as determined by Landlord to be necessary to properly
distribute the weight. Business machines and mechanical equipment belonging to
Tenant which cause noise or vibration that may be transmitted to the structure
of the Building or to any space in the Building to such a degree as to be
objectionable to Landlord or to any tenant shall be placed and maintained by
Tenant, as Tenant's expense on vibration eliminators or other devices sufficient
to eliminate noise or vibration. The persons employed to move such equipment in
or out of the Building must be acceptable to Landlord. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property shall be repaired at the expense of Tenant.
10. Tenant shall waste electricity, water or air conditioning.
Tenant shall keep corridor doors closed.
11. Landlord reserves the right to exclude from the Building between
the hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays any
person unless that person is known to the person or employee in charge of the
Building as being an employee of Tenant and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
shall not be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person.
12. Tenant shall close and lock the doors of its Premises and
entirely shut off all water faucets or other water apparatus and electricity,
gas or air outlets before Tenant and its employees leave the Premises. Tenant
shall be responsible for any damage or injuries sustained by other tenants or
occupants of the Building or by Landlord for noncompliance with this rule.
13. The toilet rooms, toilets, urinals wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown into
any of them, and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, shall have caused it.
14. Tenant shall not install any radio or television antenna,
satellite dish, loudspeaker or other device on the roof or exterior walls of the
Building except by virtue of a separate license negotiated with Landlord. Tenant
shall not interfere with radio or television broadcasting or reception from or
in the Building or elsewhere.
15. Except as approved by Landlord, Tenant shall not mark, drive
nails, screw or drill into the partitions, woodwork or plaster or in any way
deface the Premises. Tenant shall not cut or bore holes for wires. Tenant shall
not affix any floor covering to the floor of the Premises in any manner except
as approved by Landlord. Tenant shall repair any damage resulting from
noncompliance with this rule.
16. No animals are allowed in the Building with the exception of
seeing-eye or hearing animals. In the event any injuries are caused to Tenant's
employees or invitees, the owner of said animal agrees to indemnify and hold the
Landlord and its managing agent and all other tenants harmless from all costs
(including reasonable attorney's fees) with respect to the presence of any
animals in the Building.
17. Tenant shall store all its trash and garbage within its
Premises. Tenant shall not place in any trash box or receptacle any material
which cannot be disposed of in the ordinary and customary manner of trash and
garbage disposal. All garbage and refuse disposal shall be made in accordance
with directions issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the
Premises, except by the Tenant of Underwriters' Laboratory approved microwave
oven or equipment for brewing coffee, tea, hot chocolate and similar beverages
shall be permitted provided that such equipment and use is in accordance with
all applicable federal, state and city laws, codes, ordinances, rules and
regulations.
19. Tenant shall not use in any space or in the public halls of the
Building any hand trucks except those equipped with the rubber tires and side
guards or such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
D-1
<PAGE>
20. Tenant shall not use the name of the Building in connection with
or in promoting or advertising the business of Tenant except as Tenant address.
21. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Employees of Landlord shall not perform any work or do anything
outside of their regular duties unless under special instruction from Landlord,
and no employee [ILLEGIBLE] Landlord will admit any person (Tenant or otherwise)
to any office without specific instructions from Landlord.
22. Parking is allowed between the hours of 7:00 a.m. to 6:00 p.m.,
Monday through Friday, holidays excepted, in the east parking lot [ILLEGIBLE]
subject to availability and at such rates as Landlord is then charging.
Notwithstanding the foregoing, no parking is allowed during professional
sporting events and other events occurring at the Hubert H. Humphrey Metrodome
located at across 11th Avenue South from the Building. All visitors to the
Building parking in such parking lot shall pay the then prevailing parking
charges. Any visitor drop-offs are allowed only on the east side of the
Building. Notwithstanding the foregoing, parking by Tenant pursuant to a
specific license agreement shall be 24 hours per day, 7 days a week.
23. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular tenant or tenants, but no such
waiver [ILLEGIBLE] Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant or tenants, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of the
tenants of the Building. The foregoing shall not be construed to allow Landlord
to discriminatorily enforce these Rules and Regulations as against Tenant and
not other tenants of the Building.
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
25. Landlord reserves the right to make such other and reasonable
rules and regulations as in its judgment may from time to time be needed for
safety and security, for care and cleanliness of the Building and for the
preservation of good order in and about the Building. Tenant agrees to abide by
all such rules and regulations which are adopted.
26. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers, invitees and
guests.
D-2
<PAGE>
EXHIBIT E
LICENSE AGREEMENT TO USE BUILDING CHILLER
This License Agreement (the "Agreement"), entered into as of the 3rd
day of March, 1999, is between TIMESHARE SYSTEMS, INC., a Minnesota corporation
(the "Licensor"), having an address at 511 Eleventh Avenue South, Minneapolis,
Minnesota 55415 and Advanced Telecommunications Inc. (the "Licensee"), having an
address at Suite 409, 511 Eleventh Avenue South, Minneapolis, Minnesota 55415
(the "Premises"), with a notice address at 730 2nd Avenue South, Suite 1200,
Minneapolis, MN. 55402.
1. Licensor agrees to permit Licensee to utilize for purposes
provided herein one of the chiller systems (as designated by Licensor) together
with associated plumbing and electrical and mechanical controls (the "Chiller"),
which are located on and at the building ("Building") in which the Premises are
located. This license shall be subject to automatic termination in the event
Licensee's lease for the Premises dated March 3rd, 1999 ("Lease") is terminated
or canceled, but otherwise the term of this Agreement shall be the same as the
Lease. Upon termination of Licensee's Lease for any reason, this License
Agreement and the license created hereby shall automatically expire with said
termination. The termination, cancellation or expiration of this License
Agreement shall not be cause or grounds for the cancellation or termination of
Licensee's Lease.
2. Licensee may use the Chiller for purposes of cooling Licensee's
telecommunication and other related equipment ("Equipment"). Licensee
acknowledges that the license to utilize the Chiller is non-exclusive. This
Agreement and the license granted hereby is specifically limited to Licensee's
utilization of not more than 50 tons of the Chiller's capacity. Licensor, from
time to time may provide such 50 tons of cooling capacity by any one of the
Building's chillers, but the fees and other obligations hereunder shall continue
to be applicable nonetheless.
3. Licensor agrees that Licensee may run utility lines (the
"Cables") between the Chiller and the Premises. Any damages to the Building or
fixtures or equipment located upon or within the Building resulting therefrom
shall be promptly repaired by Licensee.
4. The Chiller shall remain the property of Licensor and any
improvements made to the Chiller shall likewise become the property of Licensor.
Licensee acknowledges that Licensor makes no representations or warranties as to
the condition, fitness or purpose for which Licensee intends to use the Chiller.
Licensee acknowledges and agrees that its use of the Chiller shall be in its
current "AS-IS" condition. This License shall extend to any maintenance or
improvements Licensee may desire and need to make to the Chiller, providing
however, Licensee shall use a contractor authorized and approved by Licensor
("Authorized Contractor") and Licensee obtains Licensor's prior written consent.
No work or maintenance shall be performed on the Chiller except by an Authorized
Contractor, nor without the express written consent of Licensor.
5. For purposes of this License Agreement Licensee's "Pro Rata
Share" shall be equal to 20.8% and assumes the Chiller to which Licensee shall
be connected shall have an approximately 240 rated capacity. If the Chiller to
which Licensee has a different rated capacity, then Licensee's Pro Rata Share
shall be adjusted accordingly.
6. Licensee shall bear all expenses in connection with its use and
maintenance of the Chiller, including: i) Licensee's Pro Rata Share of periodic
maintenance costs (no less frequently than quarterly plus an annual preventative
maintenance inspection by an Authorized Contractor) for the Chiller, including
any repairs, whether or not such repairs involve what may be typically
considered capital items, but not including capital improvements or similar
capital additions; ii) the "User Fee" (as defined in paragraph 7 below); and iv)
the "Utility Fee" (as defined in paragraph 8 below). The foregoing maintenance
costs shall specifically include any up-grades and/or capital costs required or
mandated by any governmental authority, law, rule or regulation.
7. Licensee shall pay to Licensor a monthly "User Fee" to compensate
Licensor for a share of the supervision costs for approximately one (1) hour
daily by the Building's facility maintenance person for daily logging,
adjusting, switching and for maintaining the cooling tower water and other costs
associated with the use, capital investment and operation of the Chiller. The
User Fee shall be Licensee's Pro Rata Share of such costs (said costs initially
being $5,400 and Licensee's initial Pro Rata Share shall initially be $1123 per
month), but said User Fee shall be adjusted upward in the amount of 3% annually,
on each anniversary date of this Agreement. Licensee acknowledges the costs to
connect the Premises to the Chiller shall be borne by Licensee and are not part
of any of the fees referred to elsewhere in this License Agreement. The User Fee
shall not commence until the Premises are actually connected to the Chiller and
being utilized (the "Effective Date").
8. Commencing with the Effective Date, Licensee agrees to pay to
Licensor at the rate of $1950 per month ("Utility Fee"), which represents
Licensee's Pro Rata Share of Licensor's electrical utility usage of
approximately $9375 per month for electrical consumption by the Chiller, cooling
tower, cooling tower pumps, etc., such Utility Fee to be prorated for any
partial calendar month, and to be adjusted after each calendar year (up or down)
at the same average rate as Landlord's average electrical rates change from year
to year. In the event, whether through more efficient equipment upgrades,
changes in electrical rates or otherwise, it can be shown that the overall
utility costs to operate the Chiller differs from the estimated $9375 per month
("Adjusted Utility Costs"), then Tenant's Utility Fee shall be adjusted to its
Pro Rata Share of the Adjusted Utility Costs. Landlord shall provide to Tenant
all reports and other back-up supporting any adjustments to the Utility Fee.
9. Prior to the Effective Date Licensee agrees to pay to Licensor a
one time "Start-Up Fee" of $10,000, representing a portion of the
"upgrade/start-up" and accessory costs which were necessary to put the Chiller
into operational condition ("Start Up Costs").
10. Licensee's contractor shall maintain in force during the term of
this License Agreement comprehensive liability insurance in amounts and in such
form as reasonably satisfactory to Licensor, protecting Licensor against any
liability, damages, cost or expenses, in connection with the maintenance and
alteration of the Chiller and Cables and shall supply the appropriate
certificates of such insurance upon request.
11. Licensee and its contractors shall comply with all applicable
federal, state and local laws, regulations, and building codes in connection
with the use, maintenance and alteration of the Chiller and Cables. In the event
any such laws, regulations, or codes requires physical improvements be made to
the Building or other expenditures by or on behalf of the Building and/or its
owner, the costs of the same shall be borne by Licensee. Notwithstanding the
foregoing, any physical improvements, whether required by law, regulation, code
or otherwise, shall be subject to Licensor's approval, which approval may be
given or denied in Licensor's sole discretion. If any law, regulation or code
prohibits or disallows the Chiller and/or Cables or the effective use of the
license granted hereby, whether now or in the future, Licensor shall be entitled
to terminate the license granted hereby, without penalty; and Licensee shall
take such action so as to allow the Building to again be in compliance with such
law, regulation or code, including, if necessary, the removal of Cables;
provided however, Licensor agrees to cooperate, without cost to Licensor, with
Licensee's efforts to comply with such laws, regulation or codes, including any
legal challenges thereto. Licensee shall have the right to challenge, at
Licensee's sole cost, any governmental requirement imposed or sought to be
imposed with respect to the Chiller during the term of this Agreement and in
connection therewith, to delay compliance with such requirements until
resolution of the contest or challenge; provide that neither Licensor nor the
Building is subject to the risk of any fine, penalty, cost, lien or forfeiture
during such contest.
12. Licensor agrees to permit Licensee reasonable access to the
Chiller and other areas so as to facilitate the use, maintenance and alterations
of the Chiller and Cables. Licensee shall indemnify and hold Licensor harmless
from and against liability, damages, costs and expenses, including reasonable
attorneys' fees incurred by Licensor, arising out of Licensee's use, maintenance
and alterations of the Chiller and Cables, except if due to the negligence or
willful misconduct of Licensor. This obligation shall survive the expiration,
cancellation or termination of this License Agreement and the license created
hereunder.
13. Any notice required or desired under this License Agreement
shall be deemed sufficiently given if given in compliance with the Licensee's
Lease.
E-1
<PAGE>
14. In the event of default by either Licensor or Licensee of any of
the terms and conditions set forth in this License Agreement, whether suit be
commenced or not, the defaulting party agrees to pay the reasonable attorneys
fees, costs and expenses of the non-defaulting party incurred in enforcing or
attempting enforce this License Agreement.
15. If the Licensor is in default of any of its obligation to
provide services or maintain the Chiller as specified in this Agreement,
Licensee shall notify Licensor that Licensee is dissatisfied with the services
and/or maintenance so to be provided and, if following such notice, the same
shall not have been cured to Licensee's reasonable satisfaction within thirty
(30) days of such notice, then Licensee shall have the right to assume on the
expiration of such 30 day period the obligation to so provide the services
and/or maintenance. During the period that Licensee is performing Licensor's
obligations, Licensee shall be entitled to a credit against the User Fee
otherwise due hereunder equal to the actual cost of such service and/or
maintenance.
16. Licensor's right to assign this License Agreement is and shall
remain unqualified upon any sale or transfer of the Building and provided the
purchaser succeeds to the interests of Licensor and assumes all obligations of
Licensor hereunder, Licensor shall thereupon be entirely free of all obligations
of the Licensor hereunder and shall not be subject to any liability resulting
from any act or omission or event occurring after such conveyance.
(LICENSEE) (LICENSOR)
ADVANCED TELECOMMUNICATIONS , INC. TIMESHARE SYSTEMS, INC.
By /s/ [Illegible] By /s/ [Illegible]
----------------------------------- --------------------------------
Its Chief Financial Officer Its PRES.
-------------------------------- -----------------------------
Date: 3/30/99 Date: 3/30/99
-------------------------------- -----------------------------
E-2
<PAGE>
STANDARD OFFICE LEASE AGREEMENT (GROSS)
THIS LEASE AGREEMENT (hereinafter called the "Lease Agreement") made as of the
24th day of July, 1997, by and between TIMESHARE SYSTEMS, INC., a Minnesota
corporation, having offices at 511 Eleventh Avenue South, Minneapolis,
Minnesota, 55415 (hereafter called the "Landlord"), and Frontier Local Services,
Inc., a ______________ corporation (hereafter called the "Tenant").
WITNESSETH
FOR AND IN CONSIDERATION of the sum of One Dollar ($1.00) in hand paid by
each of the parties to the other, and other good and valuable consideration,
receipt and sufficiency of which is hereby acknowledged, Landlord does hereby
lease and let unto Tenant, and Tenant does hereby hire, lease and take from
Landlord, that area outlined in red on Exhibit A-1 attached hereto, and by this
reference incorporated herein, and described as Suite ____, containing
approximately _____ rentable square feet, (hereafter called the "Premises") at
511 11th Avenue South (hereafter called the "Building") in the City of
Minneapolis, County of Hennepin, State of Minnesota. The term Building as it is
used herein shall consist of the land and building(s) set forth in Exhibit A-2
hereto. The Premises area shall be measured from the outside of exterior or
corridor walls and from the center of demising walls to obtain the useable area
of the Premises, which shall be multiplied by a factor of 1.15 to arrive at the
rentable area of the Premises. The parties may measure the Premises at any time,
but unless the rentable area differs by more or less than 10% the rental amounts
set forth below shall not be adjusted.
ARTICLE I - TERM
A. To have and to hold said Premises for a term of ten (10) years,
commencing upon the earlier of: i) October 1, 1997; or ii) the date on which
Tenant occupies any portion of the Premises for the conduct of its business; and
terminating on the last day of the month during which the tenth (10th)
anniversary of the commencement date occurs (hereafter called the "Term") upon
the rentals and subject to the conditions set forth in this Lease Agreement, and
the Exhibits attached hereto. The commencement and termination dates are
specifically subject to the provisions of Article 5 hereof.
B. Tenant shall have the right to renew the Term of the Lease Agreement
for two (2) periods of five (5) years each ("Renewal Term(s)"), subject to the
following terms, covenants and conditions: i) Tenant shall not be in default
beyond any applicable grace period in the performance of any of the terms,
covenants or conditions of this Lease Agreement, either at the time of the
exercise of the right to renew or at the commencement of the applicable Renewal
Term; ii) the Renewal Term(s) shall be on the same terms, covenants and
conditions as provided in this Lease Agreement, except the Minimum Rental during
the Renewal Term shall be at the rates as set forth in the table in Paragraph 3B
and there shall be no further renewal right after the commencement of the second
Renewal Term; and iii) Tenant shall exercise its right to renew by giving
written notice thereof to Landlord at least nine (9) calendar months prior to
the expiration of the initial Term or first Renewal Term, as the case may be,
time being of the essence. If Tenant fails to notify Landlord in the manner and
within the time as provided in this paragraph, Tenant's right to renew this
Lease Agreement shall expire and become null and void. If Tenant fails to
exercise the first Renewal Term, then the following Renewal Term shall also
terminate.
ARTICLE 2 - USE
A. The Premises shall be used by the Tenant solely for the following
purposes: General office purposes, including executive corporate and general
offices; in addition Tenant shall be entitled, subject to obtaining such
approvals as may be required from any governmental authorities which may have
jurisdiction thereof, to install, operate and maintain telecommunications
equipment, including telecommunications switching operations and related
facilities utilized in connection with Tenant's telecommunication business. No
other use of the Premises shall be permitted or allowed.
B. Landlord acknowledges that in connection with Tenant's use of the
Premises, it shall be installing specialized telecommunication equipment, and
various electrical equipment and facilities associated therewith
("Telecommunications Equipment"). Tenant shall be solely responsible for
ensuring that the Telecommunications Equipment can be operated consistent with
Landlord's current facilities and utilities and Tenant shall be solely
responsible for any special utility requirements created by the
Telecommunications Equipment (such as, but not limited to: all electrical power
utilized thereby, additional cooling requirements, uninterrupted power sources,
etc.) the installation of which shall be governed by Article 4 below. Tenant
shall also be solely responsible to ensure that any electrical/magnetic field
("EMF") is not emitted beyond the Premises at levels exceeding those acceptable
by the Food and Drug Administration for persons with pacemakers or other
electronic prosthetics (5 goss or 5,000 milligoss). In all events, Tenant shall
indemnify, defend with counsel of Landlord's selection, and save Landlord
harmless from any claim for injury to a person or damage to property asserted by
any person against Landlord, its agents or employees by reason of any EMF
emitted from or created by the Telecommunications Equipment. In addition, Tenant
hereby assumes all risk in connection with the presence of all EMF within the
Premises and hereby releases Landlord from any and all liability or
responsibility to Tenant, its agents, employees, contractors or anyone claiming
through or under Tenant by way of subrogation or otherwise for the loss or
damage to property or injury to persons arising out of or relating to EMF.
C. Tenant and its "Affiliates" (as defined in Article 15 below) shall
have the right to provide telecommunication services to other tenants in the
Building on a non-exclusive basis with other providers of such services;
provided all such tenants shall be able to freely choose their
telecommunications provider, and Tenant shall not solicit such tenants (in
person) except with Landlord's prior approval.
ARTICLE 3 - RENTALS
A. Tenant agrees to pay to Landlord as minimum rental (hereinafter called
"Minimum Rental") for the Premises, without notice set-off or demand, monthly
installments during the Term, and if properly exercised, each of the four
Renewal Terms, all as set forth in the table in Paragraph 3B below; said monthly
installments to be due and payable by Tenant in advance on the first day of each
calendar month during the Term of this Lease Agreement, or any extension or
renewal thereof, at the office of Landlord set forth in the preamble to this
Lease Agreement or at such other place us Landlord may designate. In the event
of any fractional calendar month, Tenant shall pay for each day in such partial
month a rental equal to 1/30 of the Minimum Rental. Tenant agrees to pay, as
Additional Rent, which shall be collectible to the same extent as Minimum
Rental, all amounts which may become due to Landlord hereunder and any tax,
charge or fee that may be levied, assessed or imposed upon or measured by the
rents reserved hereunder by any governmental authority acting under any present
or future law before any fine, penalty, interest or costs may be added thereto
for non-payment. Notwithstanding anything contained herein to the contrary, upon
the execution by Tenant of this Lease Agreement, Tenant shall pay to Landlord
$_______ which sum shall be held as a security deposit pursuant to Article 28,
below.
B. The scheduled Minimum Rentals to be paid by Tenant are as follows:
<TABLE>
<CAPTION>
=========================================================================================
Per Annum Minimum
Rental Rate
Time Period per Rentable Square Monthly Minimum Rent
Foot of Area
Contained within the
Premises
-----------------------------------------------------------------------------------------
<S> <C> <C>
Commencement Date until second anniversary $___ $___
thereof
-----------------------------------------------------------------------------------------
second anniversary of Term until the fourth $___ $___
anniversary
-----------------------------------------------------------------------------------------
fourth anniversary of Term until the sixth $___ $___
anniversary
-----------------------------------------------------------------------------------------
sixth anniversary of Term until the eighth $___ $___
anniversary
-----------------------------------------------------------------------------------------
eighth anniversary of Term until the tenth $___ $___
anniversary
-----------------------------------------------------------------------------------------
First Renewal Term, if applicable, until the $___ $___
twelfth anniversary
-----------------------------------------------------------------------------------------
twelfth anniversary of Term until the $___ $___
fourteenth anniversary
-----------------------------------------------------------------------------------------
fourteenth anniversary of Term until the $___ $___
fifteenth anniversary
-----------------------------------------------------------------------------------------
Second Renewal Term, if applicable, until $___ $___
the sixteenth anniversary
-----------------------------------------------------------------------------------------
sixteenth anniversary of Term until the $___ $___
eighteenth anniversary
-----------------------------------------------------------------------------------------
eighteenth anniversary of Term until the end $___ $___
of the Second Renewal Term
=========================================================================================
</TABLE>
ARTICLE 4 - CONSTRUCTION
A. Tenant has provided or shall provide Landlord with plans and/or a
description for permanent improvements to modify the Premises to accommodate
Tenant's intended use (hereafter called the "Preliminary Plans"), which
Preliminary Plans are subject to Landlord's approval, which approval shall not
be unreasonably withheld or delayed. Subject to the further written approval of
Landlord, which approval also shall not be unreasonably withheld or delayed,
Tenant shall make such modifications to the Preliminary Plans as it shall
require (hereafter called the "Final Plans"). The Final Plans shall be deemed
approved by Landlord if Landlord fails to make objections thereto within the
later of five (5) days of receipt of such Final Plans from Tenant or the date of
execution of this Lease Agreement. Tenant agrees to make its architect and
engineers available to Landlord for purposes of responding to questions of
Landlord regarding the Preliminary and Final Plans and their impact upon the
Building. Upon receipt of the Final Plans, Tenant shall obtain bids from the
various contractors and subcontractors needed to perform the work contemplated
by the Final Plans ("Work"). The general contractor or construction manager and
major subcontractors contemplated by Tenant shall be first approved by Landlord,
which approval shall not be unreasonably withheld or delayed, Tenant shall
furnish to the Landlord a written statement certified by Tenant and the general
contractor who shall perform the Work listing all subcontractors and suppliers
regarding the Work. Upon submission of such certification, Tenant shall have the
right and license to enter the Premises to do the Work, subject to all the
provisions of this Lease Agreement, except that the Term and the commencement of
rentals shall not commence except pursuant to Paragraph 1A above. Tenant shall
be responsible for constructing the improvements as shown on the Final Plans
(hereafter called "Tenant's Improvements") at Tenant's sole cost and expense.
Article 27 below, and Tenant's obligations thereunder shall specifically be
applicable to the Tenant's Improvements and all Work performed or to be
performed by Tenant. Tenant acknowledges that the Work shall begin with the
Premises in its current "as is" condition with the exception of the following
("Landlord's Work"): the Premises shall be in broom-clean condition. After
completion of, the Tenant's Improvements, Tenant shall supply to Landlord lien
waivers from all suppliers, subcontractors and other entities listed on the
sworn construction statements together with a blanket lien waiver from Tenant's
contractor for the full amount of the Work. Within ninety (90) days subsequent
to the commencement of the Term, Tenant, shall submit in writing to Landlord a
list ("Tenant's Equipment") of any equipment and/or fixtures it deems to be
"trade fixtures" and which Tenant shall be removing at the end of the Term (or
last Renewal Term, if applicable). In no event shall any Tenant Improvement
which [ILLEGIBLE] any existing Building system or any Building equipment
servicing more than just the Premises be included as Tenant's Equipment. If no
list is so submitted to Landlord then none of the equipment and improvements
installed by Tenant shall be deemed trade equipment nor removable by Tenant at
the end of the Term, unless it is covered by a separate license agreement
between Landlord and Tenant. If Tenant desires to add equipment not shown on the
Final [ILLEGIBLE] (whether during the performance of Tenant's Work or
subsequently during the Term or any Renewal Term) then it shall supplement
Tenant's Equipment List prior to the installation of such equipment. Landlord,
in connection with its approval of the Final Plans, shall provide Tenant with a
list of the improvements which Landlord will require Tenant to remove at the end
of the Term (or last Renewal Term, if applicable) pursuant to Article 19
[ILLEGIBLE] Any Tenant Improvements not on such list, or if Landlord fails to
supply such list to Tenant prior to the completion of the Tenant Improvements,
Landlord shall be deemed to have waived its rights under Article 19 to required
Tenant to so remove such Tenant Improvements.
B. The parties acknowledge that the Tenant's Work shall include the
following matters (whether or not included within the Final [ILLEGIBLE]
1 . the following electrical systems requirements:
(i) reconfiguring the power distribution system in connection
with the power to be distributed to the "Electrical [ILLEGIBLE] (as
defined below) including installation of electrical grounding facilities
connected to the Building's water main, provided the same [ILLEGIBLE]
violate any city ordinance and any necessary consents from the City of
Minneapolis are obtained by Tenant, at its sole cost and expense.
(ii) providing of A/C electric capacity delivered to a pull
box within the Premises at a capacity for Tenant's need [ILLEGIBLE]
electrical capacity may exist, but Tenant is responsible for verifying
same, as well as confirming that such is sufficient for its needs,
[ILLEGIBLE] the "Tenant Generator", as defined below). If Tenant
determines that its electrical requirements exceed the existing service to
the [ILLEGIBLE] Tenant shall be entitled to, at its sole cost and expense,
increase such capacity, provided it obtains the necessary governmental
approvals [ILLEGIBLE] additional costs for service fees are incurred by
Landlord. Landlord agrees to cooperate with any applications Tenant may be
required [ILLEGIBLE] to any appropriate governmental agencies and/or
public utility providers in connection therewith, provided the same shall
be without [ILLEGIBLE] Landlord;
(iii) Tenant shall be entitled to install an UPS electrical
system and/or batteries all in a segregated area of the [ILLEGIBLE] along
with the Telecommunications Equipment ("Electrical Room") which Electrical
Room shall have an electric submeter for all electric [ILLEGIBLE] of the
equipment contained therein;
3
<PAGE>
2. installation of the following:
(i) Tenant shall cause to be removed all modular interior walls from
within the Premises and store the same inside the Premises (or at such other
storage location as designated by Landlord) until the completion of Tenant's
Work, at which time said removed modular interior walls (together with any
additional modular interior walls Landlord may have in storage) shall be made
available by Landlord to Tenant for installation of offices and rooms (including
the Electrical Room) utilizing Landlord's modular walls, to the extent Tenant so
desires;
(ii) installation of floor covering and wall coverings pursuant to
Final Plans;
(iii) installation of cabling and conduit from the Premises to
Tenant's telecommunication antennae and related equipment on the roof of the
Building (which placement, location and maintenance of such equipment shall be
governed by a separate license agreement in the form of Exhibit B attached
hereto and incorporated herein by reference). Tenant agrees that at no time
during the Term shall it use, license or otherwise agree to utilize any space
upon the Building or land upon which it is located for antennae space, except
pursuant to Exhibit B, and in no event shall it use, license, utilize or rent
space from other tenants or licensees of the Building without the consent of
Landlord, which consent may be conditioned upon payment of reasonable fees to
Landlord;
(iv) use of the Building's existing conduit and riser space and in
the event existing conduit is not available, the installation of conduit and
cabling from the Electric Room to Tenant's network outside of the Building. In
connection therewith Landlord shall cooperate with Tenant to locate and utilize
an appropriate riser space from the Premises to other necessary levels of the
Building, such cooperation may include core drilling (subject to Paragraph 4C
below). Tenant shall also have the right to construct dual telecommunication
conduit entrances to the Building (as reasonably approved by Landlord), which
may include the removal and replacement of curbing and/or sidewalks, and
trenching and repairing portions of the parking lot and/or other common areas,
all subject to Paragraph 4C below. Tenant agrees to cooperate and coordinate
with other tenants of the Building desiring or constructing such dual
telecommunication conduit entrances. Notwithstanding anything contained in this
Lease Agreement to the contrary, all cabling and conduit, located on the
exterior of the Premises shall become the property of Landlord upon the
expiration of the Term and shall be surrendered with the Premises.
3. installation of the following heating, ventilation, air conditioning
systems, equipment or facilities ("HVAC"):
(i) installation of such plumbing, cables, controls and accessory
equipment to connect the Electrical Room to cooling equipment to be installed by
Tenant.
(ii) such equipment to provide Tenant' necessary HVAC capacity to
the Premises, including but not limited to condensers on the exterior of the
Building, or on the roof of the Building, at such location as approved by
Landlord ("Cooling Equipment").
(iii) in connection with the Cooling Equipment or other forms of
cooling, such drains as Tenant deems necessary, subject to Paragraph 4C below.
(iv) Tenant shall have the right to modify the Building's heating
system servicing the Premises, subject to Paragraph 4C below.
(v) Tenant shall modify the duct work and other modifications
necessary to the Building's HVAC so as to service the office portions of the
Premises.
4. subject to the prior approval of Landlord, which approval shall not be
unreasonably withheld or delayed, Tenant shall be entitled to reinforce the
floor load capacity of the Premises. Tenant shall be responsible for assuring
that its equipment and any of the Work performed within the Premises does not
exceed the floor capacities of the Building and/or Premises and Tenant shall
indemnify and hold Landlord harmless from all damage, liability and costs
(including reasonable attorneys' fees) in the event it over-loads the floor
capacity of the Premises, but only to the extent it exceeds 80 ppf live weight
and 20 ppf dead weight.
5. Tenant shall have the right to modify the Building's sprinkler system
serving the Premises (including installation of a fire suppression system which
may be independent of the Building's system or have the system servicing the
Premises modified to a dry pipe system), pursuant to Final Plans to be approved
by Landlord.
6. Tenant shall have the right to install an emergency generator (the
"Tenant Generator") either (at Landlord's election) in an enclosed pad on the
roof of the Building or at the exterior of the Building in a location approved
by Landlord, subject to the following:
a. Tenant shall first obtain such governmental approvals,
authorizations and permits as are required to install and operate
the Tenant Generator.
b. All plans and specifications for the installation of the Tenant
Generator and its connection to the Premises must be approved, in
advance, by Landlord. The installation of the Tenant Generator shall
be performed in a manner approved by Landlord. The Tenant Generator
may consist of up to 350 KW diesel generator and up to a related
1000 gallon fuel tank.
c. Tenant shall pay the entire cost of installing the Tenant Generator,
including any modifications to the generator area required to
accommodate and screen the Tenant Generator.
d. Tenant shall maintain the Tenant Generator and any related
equipment, at its sole cost and expense, in good order and condition
and will repair any damage to the Building and/or any other
equipment caused by the Tenant Generator and/or its installation
and/or removal. Landlord shall not be liable to Tenant or to any
other person for any loss or damage to the Tenant Generator
regardless of cause, other than the negligence or acts of Landlord,
its agents or employees.
e. Tenant shall have the right to install gas generator(s) in lieu of
diesel. In either event: (i) any fuel tank shall be located above
ground and within the frame of the generator, (ii) Tenant shall
install such spill protection and other tank monitoring devices as
shall be required by governmental codes and regulations, (iii)
Tenant shall provide Landlord with copies of all warranties and
evidence of any testing required by law, and (iv) Tenant shall
indemnify Landlord from and against any and all costs and liability
arising from a leak from such fuel tank, including, without
Limitation, any clean-up costs.
f. Upon the termination of the Lease Agreement, Tenant will have the
right to remove the Tenant Generator, provided, (i) the Tenant
Generator is removed within five (5) days following the termination
of the Lease Agreement, and (ii) Tenant shall repair all damage to
the Building and/or any other equipment caused by the removal of the
Tenant Generator.
C. All of Tenant's Work shall be performed in a good and workmanlike
manner using first grade and new materials and to the extent any of such Work
involves alteration or replacement of any existing equipment or facilities of
the Building, Tenant shall use a standard and grade equal to or
3
<PAGE>
better than such existing equipment and facilities. To the extent any of
Tenant's Work involves areas outside the Premises ("Exterior Work"), Tenant and
its contractors shall coordinate all such Work with Landlord and Landlord's
Building Manager, on a daily basis. All such Work, including the Exterior Work,
shall be performed in a manner so as to not unreasonably disturb or interfere
with the operations of the Building or other tenants of the Building;
specifically, but not exclusively including, the performance of all such Work
which may involve loud and/or irritating noises, vibrations, dust and/or odors
after normal business hours (as defined in Paragraph 7D below). In all events,
whenever the Tenant's Work involves the alteration and/or interference with any
of the Building's systems, including, but not limited to, electrical, water,
HVAC, sprinkler, plumbing and life/health/safety systems, Tenant shall indemnify
and hold Landlord harmless with respect to any interruption of such systems to
other portions of the Building and/or other tenants and the continued
operational integrity of such systems as a result of the Work. In all events,
Tenant, at is sole cost and expense, shall obtain all applicable governmental
approvals with respect to the installation or doing of all Work including the
Exterior Work. Tenant shall cause its contractors and subcontractors to utilize
only those parking areas designated by Landlord, and to the extent such use
utilizes parking spaces, Tenant shall utilize its parking licenses (as set forth
in Paragraph 14D and Exhibit C below) for such purposes and Tenant shall be
responsible for the license fees due thereunder during such parking use by
Tenant's contractors and subcontractors. Landlord agrees to cooperate, at no
cost to it, with respect to the obtaining of any such governmental approvals,
such cooperation, however, shall not extend to providing any concessions to the
governmental authority with respect to zoning, parking or other restrictions
relating to the Building.
D. Landlord agrees to make such alterations to the common area restroom
facilities on the first floor as necessary so as to put them in compliance with
Title III of the Americans with Disabilities Act of 1990 ("ADA"). Tenant shall
perform its Work so as to be in compliance with the ADA.
ARTICLE 5 - POSSESSION
A. Tenant shall have access and possession to the Premises pursuant to
Article 4 above. Construction delays affecting Tenant's Work due to material
shortages, strikes, or acts of God, or otherwise shall in no event postpone the
date of commencement of the Term of this Lease Agreement nor of the payment of
rentals. By occupying the Premises as a Tenant, or to install fixtures,
facilities or equipment, or to perform the Work, Tenant shall be conclusively
deemed to have accepted the same, except for any latent defects affecting the
Building. Immediately after Tenant's completion of its Work, Landlord and Tenant
shall execute a ratification agreement which shall set forth the final
commencement and termination dates for the Term and shall acknowledge the
Minimum Rental, the square footage of the Premises, and delivery of the Premises
in the condition required by this Lease Agreement.
ARTICLE 6 - TENANT'S PRO RATA SHARE OF REAL ESTATE TAXES AND OPERATING
EXPENSES ABOVE BASE
A . Commencing with the first full calendar year subsequent to the
commencement of the Term, during each full or partial calendar year during the
Term of this Lease Agreement, Tenant shall pay to Landlord, as Additional
Rental, the amounts by which actual Real Estate Taxes and Operating Expenses
(both as hereafter defined) per square foot of rentable area in the Building
multiplied by the number of square feet of rentable area in the Premises exceed
the Real Estate Tax Base and the Operating Expense Base, respectively (both as
hereafter defined) prorated for the period that Tenant occupied the Premises. In
the event that during all or any portion of any calendar year, the Building is
not fully rented and occupied Landlord may make any appropriate adjustment in
occupancy-related Operating Expenses for such year for the purpose of avoiding
distortion of the amount of such Operating Expenses to be attributed to Tenant
by reason of variation in total occupancy of the Building, by employing sound
accounting and management principles to determine Operating Expenses that would
have been paid or incurred by Landlord had the Building been 100% rented and
occupied, and the amount so determined shall be deemed to have been Operating
Expenses for such year. As used herein, the "Real Estate Tax Base" shall be
$0.91 per rentable square foot times the rentable square feet contained within
the Premises, and the "Operating Expense Base" shall be $3.34 per rentable
square foot times the rentable square feet contained within the Premises. If the
actual Real Estate Taxes or Operating Expenses per square foot times the
rentable square feet contained within the Premises are less than the Real Estate
Tax Base or Operating Expense Base, respectively, Tenant shall not be entitled
to any refund or credit.
B. Commencing with the first full calendar year subsequent to the
commencement of the Term, Landlord shall, each year during the Term of this
Lease Agreement, give Tenant an estimate of Operating Expenses and an estimate
of Real Estate Taxes payable per square foot of rentable area for the coming
calendar year. If either such estimate exceeds the respective Real Estate Tax
Base or Operating Expense Base (as defined above), Tenant shall pay, as
Additional Rental, along with its monthly Minimum Rental payments required
hereunder, one-twelfth (1/12) of such excess estimated Operating Expenses and/or
Real Estate Taxes and such Additional Rental shall be payable until subsequently
adjusted for the following year pursuant to this Article.
C. As soon as possible after the expiration of each calendar year
beginning with the first full calendar year subsequent to the commencement of
the Term, but in any event no later than ninety (90) days following the close of
the calendar year, Landlord shall determine and certify to Tenant the actual
Operating Expenses and Real Estate Taxes for the previous year per square foot
of rentable area in the Building and the amounts applicable to the Premises. If
such statement shows that Tenant's share of increases in Operating Expenses and
Real Estate Taxes over the Operating Expense Base and the Real Estate Tax Base,
respectively exceeds Tenant's estimated monthly payments for the previous
calendar year, then Tenant shall, within twenty (20) days after receiving
Landlord's certification, pay such deficiency to Landlord. In the event of an
overpayment by Tenant, such overpayment (not to exceed the amount of the
estimated payments) shall be refunded to Tenant, at the time of certification,
in the form of an adjustment in the Additional Rental next coming due, or if at
the end of the Term by a refund. By written notice given to Landlord no later
than six (6) months following delivery of the written certification of Landlord,
Tenant shall have the right to audit, or have audited the written certification
and the books and records from which such certification is derived. Tenant shall
pay the costs of any such audit, unless it is determined that Tenant's
overpayment was more than five percent (5%) of the actual amount in which case
Landlord shall reimburse Tenant for the reasonable cost of the audit.
D. For purposes of this Article, the term "Real Estate Taxes" means the
total of all taxes, fees, charges and assessments, general and special, ordinary
and extraordinary, foreseen or unforeseen, which become due and payable upon the
Building. All reasonable costs and expenses incurred by Landlord during
negotiations for or contests of the amount of Real Estate Taxes shall be
included within the term "Real Estate Taxes". For purposes of this Article, the
term "Operating Expenses" shall be deemed to mean all costs and expenses
directly related to the Building incurred by Landlord in the repair, operation,
management and maintenance of the Building including interior and exterior and
common area maintenance, management fees, cleaning expenses, energy expenses,
insurance premiums, and the amortization of capital investments made to reduce
operating costs or that are necessary due to governmental requirements, all in
accordance with generally accepted accounting principles. Notwithstanding the
foregoing, the parties acknowledge and agree that the janitorial services and
electricity to the Electrical Room shall be supplied by Tenant at its costs
and/or submetered and paid for by Tenant ("Tenant Supplied Utilities") and
Tenant acknowledges that it shall be given no credit against Operating Expenses
for those portions of the Premises being serviced by Tenant Supplied Utilities.
The following shall not be included in Operating Expenses:
(1) real estate brokerage and leasing commissions;
(2) cost of alterations of any tenant's premises;
(3) allowances or concessions provided to any tenant or occupant of
the Building;
(4) costs incurred to make major repairs or replacements of any
defective initial construction of the Building and related appurtenances
regardless of how such costs are characterized under generally accepted
accounting principles;
(5) legal expenses incurred in connection with the preparation or
negotiation of leases, subleases, assignments or other lease-related documents
with current, prior or prospective tenants or occupants of the Building;
(6) marketing or advertising costs to solicit new tenants;
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(7) wages, salaries, fees, and fringe benefits paid to executive
personnel or officers or partners of Landlord not having direct day to day
responsibility for operating or providing services to the Building;
(8) the cost, above any applicable deductible, of repairs or other
work occasioned by fire, windstorm or other casualty of an insurable nature or
by the exercise of eminent domain;
(9) costs incurred for alterations, replacements or improvements
that would be considered capital improvements under sound accounting and
management principles consistently applied, except current amortization
(together with interest of ten percent (10%) per annum on the unamortized
amount) of the capital improvement cost over the reasonable useful life of the
improvement where such capital improvement is reasonably necessary to improve
the operation or maintenance efficiency of the Building or as otherwise
expressly permitted above, provided that the amortization costs charged to
direct costs for capital improvements to improve the operation or maintenance
efficiency of the Building shall be limited to the estimated reduction in direct
costs for the relevant years resulting from such capital improvements;
(10) expenses in connection with services or other benefits of a
type which are not provided or available to Tenant but which are provided to
another tenant of the Building or to some other third party;
(11) costs incurred due to violation by Landlord or any tenant of
the Building of the terms or conditions of any lease;
(12) Landlord's general overhead except as it directly relates to
the management and operation of the Building;
(13) all items and services for which any tenant reimburses Landlord
or pays third persons;
(14) ground lease rentals, principal or interest payments,
refinancing charges or points, or penalties resulting from late payments by the
Landlord, or depreciation;
(15) costs incurred in connection with the cure or correction of
latent defects at the Building and cost incurred in connection with the clean-up
of Hazardous Substances from the Project or Building;
(16) Landlord's cost of services sold separately to tenants for
which Landlord is entitled to be reimbursed by such tenants as an additional
charge;
(17) costs incurred in connection with negotiations or disputes with
tenants of the Building;
(18) costs incurred in connection with renovating or otherwise
improving or decorating leased space for other tenants or other occupants or
vacant tenant space, other than common areas;
(19) any particular item or service for which Tenant otherwise
reimburses Landlord by direct payment;
(20) any expense for which Landlord is compensated through proceeds
of insurance or agreements of indemnity or surety bonds or guaranties;
(21) any fines or penalties incurred due to actual or alleged
violations by Landlord of any governmental rule or authority;
(22) cost of legal, accounting and other professional services
incurred by Landlord in connection with leasing activities or other activities
which are not Operating Expenses, and costs of audits of any kind performed by
tenants;
(23) any bad debt loss, rent loss, or reserves for bad debt or rent
loss;
(24) Landlord's general corporate overhead and general
administrative expenses; and
25) Costs arising from Landlord's charitable or political
contributions.
E. Landlord may at any time designate a fiscal year in lieu of a calendar
year and in such event, at the time of such a change, there may be a billing for
the fiscal year which is less than 12 calendar months.
F. Landlord reserves, and Tenant hereby assigns to Landlord, the sole and
exclusive right to contest, protest, petition for review, or otherwise seek a
reduction in the Real Estate Taxes. In the event of any reductions in the Real
Estate Taxes due to Landlord's contesting the same which relate to taxes due and
payable for a year during the Term, such tax reduction, after payment of
Landlord's costs and expenses incurred in connection with effectuating such
reduction, shall be retroactively given effect, and Tenant shall be refunded its
Proportionate Share of said reduction (but not below the Real Estate Tax Base).
G. Landlord shall keep and maintain records of all Operating Expenses,
Real Estate Taxes for a period of not less than two (2) years. which records
shall be made available to Tenant at reasonable times at Landlord's offices for
inspection and copying by Tenant or its representatives, at Tenant's cost. If
Tenant in good faith disputes the accuracy of the total amount of Operating
Expenses or Real Estate Taxes, Tenant may audit Landlord's books and records by
Tenant's representative. If such audit establishes that any of the actual
Operating Expenses or Real Estate Taxes are less than Landlord's final
determination thereof by four percent (4%) or more, then Landlord shall pay the
cost of such audit. Any over-charged or under-paid amounts shall be reimbursed
by the responsible party with thirty (30) days following delivery of such audit
to Landlord, provided Landlord does not contest the same. Any amounts payable
pursuant to this Lease Agreement shall continue to be paid during the pendency
of any audit or dispute, but upon final determination or resolution of such
dispute, any amounts payable by one party to the other hereunder shall bear
interest at the rate of eight percent (8%) per annum.
ARTICLE 7 - UTILITIES AND SERVICE
A. Landlord agrees to provided water and sanitary sewer services to the
common area restrooms of the Building, together with janitorial supplies and
cleaning services to such restroom facilities.
B. Landlord agrees to furnish heat during the usual heating season and air
conditioning during the usual air conditioning season, as well as electricity
and janitorial services to the office areas of the Premises (all specifically
excluded from the Electrical Room), on a 24-hour basis. Electricity to the
Electrical Room shall be by separate submeter.
C. No temporary interruption or failure of such services incidental to the
making of repairs, alterations or improvements, or due to accidents or strike or
conditions or events not under Landlord's control, shall be deemed as an
eviction of the Tenant or relieve the Tenant from any of the Tenant's
obligations hereunder. Notwithstanding the foregoing, if for any reason
whatsoever, except due to force majeure or by any negligent act or omission or
intentional misconduct of Tenant and as a result: (i) all or any portion of the
Premises shall become untenantable (the "Untenantahle Premises")
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for the normal conduct of Tenant's business for a period of three (3)
consecutive days, (ii) Tenant shall vacate the Untenantable Premises and cease
doing business therein (provided, however, that the continued presence of
Tenant's security personnel therein for the purposes of preservation of Tenant's
property shall not constitute a failure by Tenant to vacate the Untenantable
Premises) and (iii) Tenant shall give notice to Landlord of the facts set forth
in clauses (i) and (ii) above, then in such event, the portion of the Rents
allocable to the Untenantable Premises shall be fully abated for the period
commencing on the day that all the conditions set forth in (i), (ii) and (iii)
above shall first be satisfied and ending on the date that the Untenantable
Premises shall be rendered usable for the normal conduct of Tenant's business
and Landlord shall have given notice thereof (or the date Tenant shall re-occupy
the Untenantable Premises for the normal conduct of its business, if earlier).
D. For the purposes of this Article 7, normal business hours shall be
deemed to mean the period of time between 8:00 a.m. and 6:00 p.m., Monday
through Friday, and 8:00 a.m. to 1:00 p.m. Saturdays, and specifically excluding
Sundays and legal holidays. Landlord agrees that Tenant shall have access to the
Premises 24 hours per day, 7 days per week, however, after normal business hours
such access may be subject to the use of security cards and other rules and
regulations which Landlord may adopt from time to time with respect to the
Building, provided the same are reasonable and are equally applicable to all
tenants of the Building.
E. Tenant shall have the right to place telecommunications equipment of
its customers within the Premises ("Co-Location") and such Co-Location shall not
be deemed an assignment or sublease under the terms of this Lease Agreement
regardless whether a written agreement exists between Tenant and its customers.
F. Tenant agrees prior to such time as it installs its own Tenant
Generator (and during such time after Tenant has so installed its own Tenant
Generator that it elects to continue to have available to it access to the
Landlord's back-up emergency and UPS generator(s)) that it shall: i) pay to
Landlord and additional $.50 per square foot of rentable area within the
Premises, per annum, in monthly installments, as additional rent for each of
Landlord's back-up emergency generator and its UPS generator (i.e. a total of
$1.00 per square foot); and ii) pay to Landlord its proportionate costs of all
maintenance of the Building's back-up emergency generator and UPS generator.
Such proportionate use shall be based on electrical connected load hooked up to
said generators as compared to electrical connected load of other tenants within
the Building hooked up to said generators.
G. If the Tenant installs its own Tenant Generator, Tenant shall cooperate
with the Landlord in load shedding and/or peak moving program when requested by
the electric utility supplier (Northern States Power Company). Tenant
acknowledges that compliance with Northern States Power Company's load shedding
program has resulted in lower electrical charges to Landlord and is expected to
result in lower electrical charges to Tenant.
ARTICLE 8 - NON-LIABILITY OF LANDLORD
Except in the event of negligence of Landlord, its agents, employees or
contractors, or as specifically provided herein, Landlord shall not be liable
for any loss or damage for failure to furnish heat, air conditioning,
electricity, elevator service, water, sprinkler system or janitorial service.
Landlord shall not be liable for personal injury, death or any damage from any
cause about the Premises or the Building except if caused by Landlord's
negligence or willful misconduct.
ARTICLE 9 - CARE OF PREMISES
A. Tenant agrees:
1. To keep the Premises in as good condition and repair as they were
in at the time Tenant took possession of same, reasonable wear and tear and
damage from fire and other casualty for which insurance is normally procured
excepted;
2. To keep the Premises in a clean and sanitary condition;
3. Not to commit any nuisance or waste on the Premises, overload the
Premises or the electrical, water and/or plumbing facilities in the Premises or
Building, throw foreign substances in plumbing facilities, or wastefully use any
of the utilities furnished by Landlord;
4. To abide by such rules and regulations as may from time to time
be reasonably promulgated by Landlord;
5. To obtain Landlord's prior approval (not to be unreasonably
withheld) of the interior design of any portion of the Premises visible from the
common areas or from the outside of the Building. "Interior design" as used in
the preceding sentence shall include but not be limited to floor and wall
coverings, furniture, office design, artwork and color scheme; and
6. Tenant shall maintain, repair and replace, if necessary any and
all equipment and/or facilities and/or trade fixtures which services, or is
dedicated, solely or exclusively to the Premises and/or Tenant, whether
initially installed by Landlord or Tenant, all at Tenant's sole cost and
expense.
B. If Tenant shall fail to keep and preserve the Premises in the state of
condition required by the provisions of this Article 9, the Landlord may at its
option put or cause the same to be put into the condition and state of repair
agreed upon, and in such case the Tenant, on demand, shall pay the cost thereof.
C. Landlord agrees to keep and maintain the common areas of the Building
consistent with other Class B buildings in the Minneapolis central business
district.
ARTICLE 10 - NON-PERMITTED USE
A. Tenant agrees to use the Premises only for the purposes set forth in
Article 2 hereof. Tenant further agrees not to commit or permit any act to be
performed on the Premises or any omission to occur which shall be in violation
of any statute, regulation or ordinance of any governmental body or which will
increase the insurance rates on the Building or which will be in violation of
any insurance policy carried on the Building by the Landlord. Tenant, at its
expense, shall comply with all governmental laws, ordinances, rules and
regulations applicable to Tenant's particular use of the Premises and shall
promptly comply with all governmental orders, rulings and directives for the
correction, prevention and abatement of any violation upon, or in connection
with Tenant's particular use of the Premises, including the making of any
alterations or improvements to the Premises, all at Tenant's sole cost and
expense. The Tenant shall not duster other occupants of the Building by making
any undue or unseemly noise and shall not do or permit to be done in or about
the Premises anything which will be dangerous to life or limb. In connection
with the foregoing provision, Tenant covenants and agrees that it shall not
store, process, produce or dispose of any flammables, explosives, radioactive
materials, ACM's, polychlorinated biphenyls (PCB's), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous waste,
toxic substances, petroleum and petroleum products, [ILLEGIBLE] carbons (CPC's)
and substances declared to be hazardous or toxic (collectively "Hazardous
Substances") in violation of any present or future Federal, state or local
environmental law, ordinance or regulation ("Environmental Laws") upon the
Premises or any part thereof without first obtaining Landlord's written consent,
which consent may be withheld or denied in Landlord's sole discretion, provided
that Landlord hereby consents to Hazardous substances in small quantities as are
typically used in an office building (such as, toner, cleaning fluids, etc.).
Tenant agrees to indemnify and defend and hold Landlord harmless from and
against all fines, suits, claims, actions, damages, liabilities, costs and
expenses (including reasonable attorney's fees) entered against Landlord arising
out of and in any way connected with Tenant's failure to comply with its
obligations of this Paragraph or arising from [ILLEGIBLE] (specifically
including any diesel fuel), which indemnification shall survive the expiration
of the termination of this Lease Agreement.
B. Landlord represents that it was not the owner of the Building during
construction, but to Landlord's actual knowledge [which is not based upon any
outside investigation other than that certain Phase I Environmental Report
prepared on behalf of the FDIC/RTC ("Environmental Report"), a copy of which has
been provided to Tenant] that the Building was constructed using no asbestos or
asbestos containing materials ("ACM"). Landlord hereby covenants that if, at any
time during the Term of the Lease Agreement, as the same may be extended,
"Hazardous Substances" are required to be removed, encapsulated or otherwise
remediated by any legal governmental authority having jurisdiction over the
Building, the presence for which Landlord is the "responsible party" and Tenant
is not a "responsible party" (as defined by Environmental Laws) then Landlord
shall so remediate the same as of
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required, at Landlord's sole cost and expense and not as a part of Operating
Expenses. Landlord agrees to indemnify and defend and hold Tenant harmless from
and against all fines, suits, claims, actions, damages, liabilities, costs and
expenses (including attorneys' fees) asserted by such governmental authorities
against Tenant arising out of or in any way connected with Landlord's failure to
comply with its obligations in the preceding sentence, which indemnification
shall survive the expiration or the termination of this Lease Agreement.
ARTICLE 11 - INSPECTION
The Landlord or its employees or agents shall have the right without any
diminution of rent or other charges payable hereunder by Tenant to enter the
Premises at all reasonable times for the purpose of exhibiting the Premises to
prospective tenants or purchasers, inspection, cleaning, repairing, testing,
altering or improving the same or said Building, but nothing contained in this
Article shall be construed so as to impose any obligation on the Landlord to
make any repairs, alterations or improvements. Landlord's rights under this
section shall be exercised in such a manner as to create the least practicable
interference with Tenant's use and occupancy of the Premises. Except in the case
of an emergency which makes notice to Tenant impractical, any entry on the
Premises by Landlord shall be made at reasonable times after reasonable notice
to Tenant. In exercising Landlord's rights of entry, Landlord shall comply with
Tenant's reasonable security regulations of which Landlord has been advised of
in writing. Landlord hereby recognizes that Tenant is engaged in a business that
involves access to privileged and confidential matters and information and
agrees to take reasonable precautions as to not compromise such confidentiality.
Therefore Landlord agrees that Landlord may enter and pass through the Premises
only when accompanied by a representative of Tenant, provided that Tenant agrees
to make such representative available. Landlord agrees that it shall not enter
the Premises for the purpose of exhibiting the Premises to prospective tenants,
except during the last nine (9) months of any Term, or at any time when Tenant
is in default.
ARTICLE 12 - ALTERATIONS
Tenant will not make any alterations, additions or improvements in or to
the Premises or add, disturb or in any way change any plumbing, wiring,
life/safety or mechanical systems, locks, or structural portions of the Building
without the prior written consent of the Landlord as to the character of the
alterations, additions or improvements to be made, the manner of doing the work,
and the contractor doing the work. Such consent shall not be unreasonably 6 6 0
withheld or delayed, if such alterations, repairs additions or improvements are
required of Tenant or are the obligation of Tenant pursuant to this Lease
Agreement. All such work shall comply with all applicable governmental laws,
ordinances, rules and regulations. Tenant agrees to indemnify and hold Landlord
free and harmless from any liability, loss, cost, damage or expense (including
attorney's fees) by reasons of any said alteration, repairs, additions or
improvements.
ARTICLE 13 - SIGNS
Tenant agrees that no signs or other advertising materials shall be
erected, attached or affixed to any portion of the interior or exterior of the
Premises or the Building without the express prior written consent of Landlord.
Landlord, at its sole cost and expense, shall install Building standard tenant
graphics at the main entry to the Premises and an identification strip for
Tenant on the Building's lobby directory.
ARTICLE 14 - COMMON AREAS
A. Tenant agrees that the use of all corridors, passageways, elevators,
toilet rooms, parking areas and landscaped area in and around said Building, by
the Tenant or Tenant's employees, visitors or invitees, shall be subject to such
reasonable rules and regulations as may from time to time be made by Landlord
for the safety, comfort and convenience of the owners, occupants, tenants and
invitees of said Building. Tenant agrees that no awnings, curtains, drapes or
shades shall be used upon the Premises except as may be approved by Landlord,
such approval not to be unreasonably withheld, delayed or conditioned,
B. In addition to the Premises, Tenant shall have the right of
non-exclusive use, in common with others, of (a) all unrestricted automobile
parking areas, driveways and walkways, and (b) loading facilities, freight
elevators and other facilities as may be constructed in the Building, all to be
subject to the terms and conditions of this Lease Agreement and to reasonable
rules and regulations for the use thereof as prescribed from time to time by
Landlord.
C. Landlord shall have the right to make changes or revisions in the site
plan and in the Building so as to provide additional leasing area. Landlord
shall also have the right to construct additional buildings on the land
described on Exhibit A-2 for such purposes as Landlord may deem appropriate.
Subject to Tenant's rights in respect of the Tenant Improvements, Landlord also
reserves all airspace rights above, below and to all sides of the Premises,
including the right to make changes, alterations or provide additional leasing
areas, provided the same do not interfere with Tenant's operations on or from
the Premises.
D . Landlord and Tenant agree that Landlord will not be responsible for
any loss, theft or damage to vehicles, or the contents thereof, parked or left
in the parking areas of the Building and Tenant agrees to so advise its
employees, visitors or invitees who may use such parking areas. The parking
areas shall include those areas designated by Landlord, in its sole discretion,
as either restricted or unrestricted parking areas. Any restricted parking areas
shall be leased only by separate license agreement with Landlord. Landlord
agrees to provide Tenant ___unassigned parking spaces and ____ assigned parking
spaces pursuant to license agreements in the form of Exhibit C and Exhibit C-1 ,
respectively. The parking spaces being made available to Tenant pursuant to this
Paragraph shall be made available at the commencement of the Term and continuing
thereafter during the balance of the Term and Renewal Terms, but only to the
extent Tenant continues the initial said number of parking spaces continuously.
If Tenant should cease one or more such parking spaces, then Landlord shall not
and does not guaranty that Tenant shall be entitled to subsequently have such
parking spaces available to it.
ARTICLE 15 - ASSIGNMENT AND SUBLETTING
A. Tenant agrees not to assign, sublet, license, or encumber this Lease
Agreement, the Premises, or any part thereof, whether by voluntary act,
operation of law, or otherwise without the specific prior written consent of
Landlord; provided however, Landlord agrees not to unreasonably withhold, delay
or deny such consent if: i) such assignment or sublease is in writing and the
assignee or sublessee assumes all the obligations of Tenant under this Lease
Agreement; ii) the proposed subtenant or assignee has a net worth of One Million
Dollars ($1,000,000) or more at the time of such assignment or subletting iii)
the remaining provisions of this Lease Agreement continue to be applicable; and
iv) Tenant shall remain liable hereunder. Landlord further hereby gives its
consent (subject however to Tenant's providing ten (10) days prior written
notice and clauses i), iii) and iv) above being applicable) in an [ILLEGIBLE] of
this Lease Agreement or sublease of the Premises to an "Affiliate" of Tenant or
to any entity into or with which Tenant is [ILLEGIBLE] substantially all the
ownership interests or assets of Tenant; provided the survivor or transferee
continues to operate the business of Tenant [ILLEGIBLE] hereof an Affiliate
shall mean any party that is "related to" Tenant as that term is defined by Sec.
267(b) of the Internal Revenue Code of 1986. Consent by Landlord in one such
instance shall not be a waiver of Landlord's rights under this Article as to
requiring consent for any subsequent instance. In the event Tenant desires to
sublet a part or all of the Premises, or assign this Lease Agreement, Tenant
shall give written notice to Landlord at least thirty (30) days prior to the
proposed subletting or assignment, which notice shall state the name of the
proposed subtenant or assignee, the terms of any sublease or assignment
documents and copies of financial reports or other relevant financial
information of the proposed subtenant or assignee. At Landlord's option, any and
all payments by the proposed assignee or sublessee with respect to the
assignment of sublease shall be paid directly to Landlord. In any event no
subletting or assignment shall release Tenant of its obligation to pay the rent
and to perform all other obligations to be performed by Tenant hereunder for the
Term of this Lease Agreement. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any provision hereof.
B. Notwithstanding anything to the contrary contained in this Article,
Tenant may collaterally assign, mortgage, pledge, or hypothecate, without
Landlord's consent, its interest in this Lease Agreement to any financing
entity, or agent on behalf of any financing entity to whom Tenant: i) has
obligations for borrowed money or in respect of guarantees thereof, ii) has
obligations evidenced by bonds, debentures, notes, or similar instruments, or
iii) has obligations under or with respect to letters of credit, bankers'
acceptances and similar facilities or in respect of guarantees thereof.
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C. Landlord's right to assign this Lease Agreement is and shall remain
unqualified upon any sale or transfer of the Building and, providing the
purchaser succeeds to the interests of Landlord under this Lease Agreement and
assumes the Landlord's obligations hereunder, Landlord shall thereupon be
entirely freed of all obligations of the Landlord accruing hereunder after such
conveyance and shall not be subject to any liability resulting from any act or
omission or event occurring after such conveyance.
ARTICLE 16 - LOSS BY CASUALTY
If the Building is damaged or destroyed by fire or other casualty, the
Landlord shall have the right to terminate this Lease Agreement, provided it
gives written notice thereof to the Tenant within ninety (90) days after such
damage or destruction. If a portion of the Premises or Building is damaged by
fire or other casualty, and in the reasonable opinion of Landlord: i) the
Premises cannot be restored to tenantable condition within a period of ninety
(90) days following the commencement of such restoration work, and/or ii) the
cost of performing such restoration work exceeds the proceeds of Landlord's
casualty insurance by more than $100,000, then Landlord shall not be required to
make any repairs and Landlord shall have the right to terminate this Lease
Agreement upon written notice to Tenant within thirty (30) days of the date of
such fire or other casualty, in which event, this Lease Agreement shall
terminate as of the date of such notice and Landlord and Tenant shall be
released from any and all liability thereafter accruing hereunder. Landlord
shall notify Tenant of its decision to rebuild or not within said thirty (30)
day period. Anything herein to the contrary notwithstanding, if the Premises are
destroyed or so damaged that they cannot be repaired and made tenantable within
ninety (90) days following commencement of such restoration work, or so damaged
that Landlord shall decide not to repair or rebuild, or Landlord decides to
repair or rebuild, or Landlord decides to repair or rebuild, but does not
restore the Premises to a tenantable condition within ninety (90) days after
commencement of such restoration work (subject to an extension of up to an
additional sixty (60) days due to causes beyond Landlord's control), then, in
any of such instances, Tenant may terminate this Lease Agreement by giving
notice to Landlord within thirty (30) days after Tenant's receipt of Landlord's
notice or the expiration of said ninety (90) day period (as extended due to
causes beyond Landlord's control, as set forth above as applicable, in which
event this Lease Agreement shall terminate as of the date of such notice and
Landlord and Tenant shall be released from any and all liability thereafter
accruing hereunder. If this Lease Agreement has not been terminated by either
Landlord or Tenant, then the rents due hereunder shall abate during such period
of time as the Premises are untenantable, in the proportion that the
untenantable portion of the Premises bears to entire Premises.
16.1 If the Premises are to be repaired under this Article 16, Landlord
shall repair any injury or damage to the Building itself and the Premises in
substantially the condition the Premises were in at the execution of this Lease
Agreement, specifically excluding any leasehold improvements constructed by
Tenant, Tenant's Equipment or any Collateral, all of which shall be restored to
the extent Tenant deems necessary, at Tenant's sole cost and expense. Tenant
shall, at its own cost and expense, remove all of its furniture and other
personal property from the Premises as Landlord shall reasonably require in
connection with its repair and restoration of the Premises under this Article
16.
ARTICLE 17 - WAIVER OF SUBROGATION
Landlord and Tenant hereby release the other from any and all liability or
responsibility to the other or anyone claiming through or under them by way of
subrogation or otherwise for any loss or damage to property caused by fire or
any of the extended coverage or supplementary contract casualties, even if such
fire or other casualty shall have been caused by the fault or negligence of the
other party, or anyone for whom such party may be responsible, provided however,
that this release shall be applicable and in force and effect only with respect
to loss or damage occurring during such times as the releasing party's policies
shall contain a clause or endorsement to the effect that any such release would
not adversely affect or impair said policies or prejudice the right of the
releasing party to recover thereunder. Landlord and Tenant agree that they will
request their insurance carriers to include in their policies such a clause or
endorsement. If extra cost shall be charged therefore, each party shall advise
the other of the amount of the extra cost, and the other party, at its election,
may pay the same, but shall not be obligated to do so.
ARTICLE 18 - EMINENT DOMAIN
If the entire Building is taken by eminent domain, this Lease Agreement
shall automatically terminate as of the date of taking. If a portion of the
Building is taken by eminent domain, the Landlord shall have the right to
terminate this Lease Agreement, provided it gives written notice thereof to the
Tenant within ninety (90) days after the date of taking. If a portion of the
Premises is taken by eminent domain and this Lease Agreement is not terminated
by Landlord, Tenant shall have the right to terminate this Lease Agreement,
provided it gives written notice thereof to Landlord within ninety (90) days of
the date of taking. If neither Landlord nor Tenant terminates, then the Landlord
shall, at its expense, restore the Premises to as near the condition which
existed immediately prior to the date of taking as reasonably possible, and the
rentals shall abate during such period of time as the Premises are untenantable,
in the proportion that the untenantable portion of the Premises hears to the
entire Premises. All damages awarded for such taking under the power of eminent
domain shall belong to and be the sole property of Landlord, irrespective of the
basis upon which they are awarded, provided, however, that nothing contained
herein shall prevent Tenant from making a separate claim to the condemning
authority for its moving expenses and trade fixtures. For purposes of this
Article, a taking by eminent domain shall include Landlord's giving of a deed
under threat of condemnation, and shall be deemed to occur on the earlier of the
date fee simple title has vested or possession has been obtained by the taking
authority.
ARTICLE 19 - SURRENDER
On the last day of the Term of this Lease Agreement or on the sooner
termination thereof in accordance with the terms hereof, Tenant shall peaceably
surrender the Premises in good condition and repair consistent with Tenant's
duty to make repairs as provided in Article 9 hereof. On or before said last
day, Tenant shall at its expense remove all of its equipment from the Premises,
repairing any damage caused thereby, and any property not removed shall be
deemed abandoned, with the exception of any "Collateral" (as defined in Article
28 below) to the extent of any security interests by third parties. All
alterations, additions and fixtures other than Tenant's trade fixtures, which
have been made or installed by either Landlord or Tenant upon the Premises shall
remain as Landlord's property and shall be surrendered with the Premises as a
part thereof, or shall be removed by Tenant (unless such right to remove has
been waived by Landlord pursuant to Article 4 above), in which event Tenant
shall at its expense repair any damage caused thereby. It is specifically agreed
that any and all telephonic, coaxial, ethernet, or other computer, word
processing, facsimile, or electronic wiring installed by Tenant within the
Premises (hereafter "Wiring") shall be removed at Tenant's cost at the
expiration of the Term, unless Landlord has specifically requested in writing
that said Wiring shall remain, whereupon said Wiring shall be surrendered with
the Premises as Landlord's property. If the Premises are not surrendered at the
end of the Term or the sooner termination thereof, Tenant shall indemnify
Landlord against loss or liability resulting from delay by Tenant in so
surrendering the Premises, including, without limitation, claims made by any
succeeding tenant founded on such delay. Tenant shall promptly surrender all
keys for the Premises to Landlord at the place then fixed for payment of rental
and shall inform Landlord of combinations on any locks and safes on the
Premises.
ARTICLE 20- NON-PAYMENT OF RENT, DEFAULTS
If any one or more of the following occurs: (1) a rent payment or any
other payment due from Tenant to Landlord shall be and remain unpaid in whole or
in part for more than ten (10) days after same is due and payable; (2) Tenant
shall violate or default on any of the other covenants, agreements, stipulations
or conditions herein, or in any parking agreement(s) or other agreements between
Landlord and Tenant relating to the Premises, and such violation or default
shall continue for a period of thirty (30) days after written notice from
Landlord of such violation or default or if such violation or default shall
reasonably require longer than thirty (30) days to cure, if Tenant shall fail to
commence the cure of such default or violation within thirty (30) days after
receipt of notice thereof and/or fail to prosecute a cure to completion with due
diligence; (3) if Tenant shall commence or have commenced against Tenant
proceedings under a bankruptcy, receivership, insolvency or similar type of
action; or (4) if Tenant shall abandon the Premises; then it shall be optional
for Landlord, without further notice or demand, to cure such default or to
declare this Lease Agreement forfeited and the said Term ended, or to terminate
only Tenant's right to possession of the Premises, and to re-enter the Premises,
with or without process of law, using such force as may be necessary to remove
all persons or chattels therefrom, and Landlord shall not be liable for damages
by reason of such re-entry or forfeiture; but notwithstanding re-entry by
Landlord or termination only of Tenant's right to possession of the Premises,
the liability of Tenant for the rent and all other sums provided herein shall
not be relinquished or extinguished for the balance of the Term of this Lease
Agreement and Landlord shall be entitled to periodically sue Tenant for all sums
due under this Lease Agreement or which become due prior to judgment, but such
suit shall not bar subsequent
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suits for any further sums coming due thereafter. Tenant shall be responsible
for, in addition to the rentals and other sums agreed to be paid hereunder, The
cost of any necessary maintenance, repair, restoration, reletting (including
related cost of removal or modification of tenant improvements) or cure as well
as reasonable attorney's fees incurred or awarded in any suit or action
instituted by Landlord to enforce the provisions of this Lease Agreement, regain
possession of the Premises, or the collection of the rentals due Landlord
hereunder. Tenant shall also be liable to Landlord for the payment of a late
charge in the amount of 5% of the rental installment or other sum due Landlord
hereunder if said payment has not been received within ten (10) days from the
date said payment becomes due and payable, or cleared by Landlord's bank within
three (3) business days after deposit. Tenant agrees to pay interest at the
highest permissible rate of interest allowed under the usury statutes of the
State of Minnesota, or in case no such maximum rate of interest is provided, at
the rate of 12% per annum, on all rentals and other sums due Landlord hereunder
not paid within ten (10) days from the date same become due and payable. Each
right or remedy of Landlord provided for in this Lease Agreement shall be
cumulative and shall be in addition to every other right or remedy provided for
in this Lease Agreement now or hereafter existing at law or in equity or by
statute or otherwise.
ARTICLE 21 - LANDLORD'S DEFAULT
Landlord shall not be deemed to be in default under this Lease Agreement
until Tenant has given Landlord written notice specifying the nature of the
default and Landlord does not cure such default within thirty (30) days after
receipt of such notice or within such reasonable time thereafter as may be
necessary to cure such default where such default is of such a character as to
reasonably require more than thirty (30) days to cure.
ARTICLE 22 - HOLDING OVER
Tenant will, at the expiration of this Lease Agreement, whether by lapse
of time or termination, give up immediate possession to Landlord. If Tenant
fails to give up possession Landlord may, at its option, serve written notice
upon Tenant that such holdover constitutes any one of (i) creation of, a month
to month tenancy, or (ii) creation of a tenancy at sufferance. If Landlord does
not give said notice, Tenant's holdover shall create a tenancy at sufferance. In
any such event the tenancy shall be upon the terms and conditions of this Lease
Agreement, except that the Minimum Rental shall be 150% the Minimum Rental
Tenant was obligated to pay Landlord under this Lease Agreement immediately
prior to termination (in the case of tenancy at sufferance such Minimum Rental
shall be prorated on the basis of a 365 day year for each day Tenant remains in
possession); excepting further that in the case of a tenancy at sufferance, no
notices shall be required prior to commencement of any legal action to gain
repossession of the Premises. In the case of a tenancy at sufferance, Tenant
shall also pay to Landlord all damages sustained by Landlord resulting from
retention of possession by Tenant, provided such damages shall not include
consequential damages if such holdover is for five (5) business days or less.
The provisions of this paragraph shall not constitute a waiver by Landlord of
any right of re-entry as otherwise available to Landlord; nor shall receipt of
any rent or any other act in apparent affirmance of the tenancy operate as a
waiver of the right to terminate this Lease Agreement for a breach by Tenant
hereof.
ARTICLE 23 - SUBORDINATION
Tenant agrees that this Lease Agreement shall be subordinate to any
mortgage(s) that may now or hereafter be placed upon the Building or any part
thereof, and to any and all advances to be made thereunder, and to the interest
thereon, and all renewals, replacements, and extensions thereof and to execute a
specific subordination agreement (in a form reasonably requested by mortgagee)
if so requested by Landlord, provided the mortgagee named in such subordination
shall agree to recognize this Lease Agreement or Tenant in the event of
foreclosure provided the Tenant is not in default by including non-disturbance
language, in recordable form. In the event of any mortgagee electing to have the
Lease Agreement a prior incumbrance to its mortgage, then and in such event upon
such mortgagee notifying Tenant to that effect, this Lease Agreement shall be
deemed prior in incumbrance to the said mortgage, whether this Lease Agreement
is dated prior to or subsequent to the date of said mortgage. Landlord shall use
its best efforts to obtain a non-disturbance agreement from the existing
mortgagee (the Federal Deposit Insurance Corporation) and any future mortgagees,
in a form reasonably satisfactory to such mortgagee and Tenant.
ARTICLE 24 - INDEMNITY, INSURANCE AND SECURITY
A. Tenant will keep in force at its own expense for so long as this Lease
Agreement remains in effect public liability insurance with respect to the
Premises in which Landlord shall be named as an additional insured, in companies
and in form acceptable to Landlord with a minimum combined limit of liability of
Two Million Dollars (2,000,000.00). This limit shall apply per location. Said
insurance shall also provide for contractual liability coverage by endorsement.
Tenant shall further provide for business interruption insurance to cover a
period of not less than six (6) months. Tenant will further deposit with
Landlord the policy or policies of such insurance or certificates thereof, or
other acceptable evidence that such insurance is in effect, which evidence shall
provide that Landlord shall be notified in writing thirty (30) days prior to
cancellation, material change, or failure to renew the insurance. Tenant further
covenants and agrees to indemnify and hold Landlord and Landlord's manager of
the Building harmless for any claim, loss or damage, including reasonable
attorney's fees, suffered by Landlord, Landlord's manager or Landlord's other
tenants caused by: i) any act or omission by Tenant, Tenant's employees or
anyone claiming through or by Tenant in, at, or around the Premises or the
Building; ii) the conduct or management of any work or thing whatsoever done by
Tenant in or about the Premises; or iii) Tenant's failure to comply with any and
all governmental laws, rules, ordinances or regulations applicable to Tenant's
particular use of the Premises. If Tenant shall not comply with its covenants
made in this Article 24, Landlord may, at its option, cause insurance as
aforesaid to be issued and in such event Tenant agrees to pay the premium for
such insurance promptly upon Landlord's demand.
B. Tenant shall be responsible for the security and safeguarding of the
Premises and all property kept, stored or maintained in the Premises. Landlord
will make available to Tenant, at Tenant's request, the plans and specifications
for construction of the Building and the Premises. Tenant represents that it is
satisfied that the configuration of the Building and the Premises, including the
location and dimensions of the floors, walls, windows, doors and means of access
thereto are suitable for the particular needs of Tenant's business. The
placement and sufficiency of all safes, vaults, cash or security drawers,
cabinets or the like placed upon the Premises by Tenant shall be at the sole
responsibility and risk of Tenant. Tenant shall maintain in force throughout the
Term, insurance upon all contents of the Premises, including that owned by
others and Tenant's equipment and any alterations, additions, fixtures, or
improvements in the Premises acknowledged by Landlord to be the Tenant's.
C. Landlord shall carry and cause to be in full force and effect a fire
and extended coverage insurance policy on the Building, but not contents owned,
leased or otherwise in possession of Tenant. Landlord will also keep in force
during this Term public liability insurance with respect to the Building with a
minimum combined limit of liability of $2,000,000. The cost of such insurance
shall be an Operating Expense.
ARTICLE 25 - NOTICES
All notices from Tenant to Landlord required or permitted by any
provisions of this Lease Agreement shall be directed to Landlord postage
prepaid, certified or registered mail or sent by U.S. express mail or any
nationally recognized overnight carrier with a signed receipt obtained upon
delivery, at the address provided for Landlord in the preamble to this Lease
Agreement or at such other address as Tenant shall be advised to use by
Landlord. All notices from Landlord to Tenant required or permitted by any
provision of this Lease Agreement shall be directed to Tenant, postage prepaid,
certified or registered mail or sent by U.S. express mail or any nationally
recognized overnight carrier with a signed receipt obtained upon delivery,
at:____________________________________________________________________________
_______________________________________________________________________________
Landlord and Tenant shall each have the right at any time and from time to time
to designate one (1) additional party to whom copies of any notice shall be
sent.
ARTICLE 26 - APPLICABLE LAW
This Lease Agreement shall be construed under the laws of the State of
Minnesota.
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fifty-fourth (54th) month of the Term), or ii) the seventh (7th)
anniversary of the Term (if the Termination Notice is given after the
fifty-fourth (54th) month but prior to the seventy-eighth (78th) month of
the Term);
iii. Tenant must not be in default either at the time of the
Termination Notice nor at the Termination Date and Tenant must comply with
all of the terms and conditions of this Lease Agreement (including
surrender of the Premises as required by this Lease Agreement) through the
Termination Date;
iv. Tenant must accompany said Termination Notice with a
"Termination Fee", which shall be equal to the unamortized "Transaction
Costs" incurred by Landlord in entering into this Lease Agreement. Said
unamortized Transaction Costs shall be equivalent to the remaining
principal balance of a hypothetical loan as of the Termination Date, which
originally had been made as of the commencement date of the Term, in the
original principal amount equal to the Transaction Costs and amortized
over the same number of months Tenant is to pay rent under the original
Term of this Lease at 10.5 % per annum. For purposes of the foregoing,
"Transaction Costs" shall mean any legal fees and brokerage fees paid in
connection with this Lease, plus the amount of "free rent" provided to
Tenant (which shall mean the period from the time Tenant is given access
to the Premises, until Tenant commences paying Minimum Renal at the rate
Tenant is required to pay rent at the commencement of the Term) in
connection with the entering into of this Lease Agreement.
v. In no event shall Tenant be entitled to terminate this Lease if
it has exercised its rights to renew under Article I above.
B. The rights provided to Tenant under this Article are personal to Tenant
and shall expire automatically if Tenant assigns this Lease or subleases all or
any portion of the Premises.
C. Tenant's rights under this Article may be exercise only once, but at
either of the two (2) time periods set forth above.
D. Notwithstanding anything contained in this Article to the contrary,
Tenant's rights under this Article shall become null, void and of no further
force or effect if Tenant exercises its Expansion Right (as set forth in the
following Article) at any time after the second (2nd) anniversary of the Term;
provided that if Tenant exercises its Expansion Right at any time prior to the
second (2nd) anniversary of the Term, then Tenant's rights under this Article
shall be limited to Tenant's Termination Notice providing a Termination Date of
midnight prior to the seventh (7th) anniversary of the Term.
ARTICLE 35 - LIMITED EXPANSION RIGHT
A. Provided Tenant is not then in default under this Lease Agreement
beyond the applicable grace period, Tenant shall have a first right of leasing
on the space(s) on the contiguous first and second floors of the Building
(hereafter referred to as the "Option Space"), in the event such Option Space
becomes "Available for Leasing" (as defined below) during the original Term,
subject to and conditioned upon the provisions of this Article (the "Expansion
Right").
B. Landlord shall notify Tenant ("Landlord's Notice") in the event any
portion of the Option Space becomes "Available for Leasing"; or in the event
Landlord has a third party interested in leasing any portion of the Option Space
which is then "Available for Leasing". Tenant shall notify Landlord ("Tenant's
Leasing Notice") within five (5) business days after its receipt of Landlord's
Notice as to whether Tenant intends to exercise its Expansion Right with respect
to said Option Space as so identified in Landlord's Notice, time being of the
essence. If Tenant exercises its Expansion Right, it must do so with respect to
all the Option Space as so identified in Landlord's Notice. In such event,
Landlord and Tenant shall execute an amendment to the Lease Agreement
incorporating the Option Space as so identified into the Premises at the Minimum
Rent at the then applicable rates as set forth in the table of Paragraph 3B
above. In the event Tenant fails to notify Landlord within the time period set
forth above, Tenant's rights under this Article shall be null and void with
respect to any lease entered into with respect to the original prospective
Tenant for the Option Space as so identified in Landlord's Notice; provided such
Expansion Right shall again be applicable in the event Landlord does not lease
such Option Space to the original prospective Tenant within nine (9) months of
the Landlord's Notice.
C. Tenant's Expansion Right shall also include Tenant's providing Landlord
a Tenant's Leasing Notice (in the first instance and not response to a
Landlord's Notice) with respect to any Option Space contiguous to the Premises
which is then "Available for Leasing" provided no Landlord's Notice has been
given to Tenant with respect to any portion of such Option Space within the
previous nine (9) months.
D. The leasing of said Option Space shall commence as of the "Effective
Date" (as set forth below) and shall be in said Option Space's, then "AS-IS"
condition without any improvements, improvement allowances or other
modifications to be made by Landlord. For purposes of this Article, the
"Effective Date" shall mean the date on which Tenant shall begin paying rentals
upon the Option Space after it has exercised its rights to said space; which
shall be thirty (30) days after Tenant's Leasing Notice under this Article to
Landlord exercising its rights hereunder (or such sooner date as Tenant takes
possession of such Option Space). The provisions of this Lease Agreement
governing alterations of the Premises shall apply with respect to the
construction of any leasehold improvements Tenant desires to make to such Option
Space.
E. Notwithstanding anything to the contrary in the foregoing, if Tenant
exercises its rights under this Article and there remains less than thirty-six
(36) months from the Effective Date to the expiration of the Term, then the
Tenant shall not be entitled to exercise its rights under this Article unless it
exercises its Option to Renew the Term.
F. For purposes of this Article, "Available for Leasing" shall mean the
Option Space is contiguous to the Premises (either to the sides of the Premises
on the first floor of the Building, or immediately above the Premises on the
second floor of the Building) and not subject to any existing (as of the date of
this Lease Agreement) lease or first rights of refusal, first rights of
negotiation, first rights of leasing, expansion rights, renewal rights and/or
similar rights of any other third party tenant or such rights have been waived
in writing (provided if all such rights are to expire within six (6) months,
Landlord may make such Option Space Available for Leasing contingent upon the
expiration of such rights). In any event Landlord shall be entitled to renew or
extend any lease of an "Occupying Third Party" (as defined below), without
providing Tenant a Landlord's Notice and without it being subject to any rights
of Tenant under this Article. Tenants which are either presently occupying
Option Space or may be so occupying in the future pursuant to a third party
lease which was entered into after Tenant's rights were waived pursuant to
Paragraph B of this Article shall be deemed to be an "Occupying Third Party".
G. If the Lease Agreement or Tenant's right to possession of the Premises
shall terminate in any manner whatsoever before Tenant shall exercise its rights
under this Article, or if Tenant shall have subleased or assigned all or any
portion of the Premises, then immediately upon such termination, sublease, or
assignment, then this Article and Tenant's rights hereunder shall simultaneously
terminate and become null and void. Such right is personal to Tenant. Under no
circumstances whatsoever shall the assignee under a complete or partial
assignment of the Lease, or a subtenant under a sublease of the Premises, have
any right to exercise any rights under this Article or have any right to receive
any Landlord's Notice.
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IN WITNESS WHEREOF, this Lease Agreement has been duly executed by the
parties hereto as of the day and year indicated above.
TENANT: FRONTIER LOCAL SERVICES, INC. LANDLORD: TIMESHARE SYSTEMS, INC.
By:__________________________________ By:___________________________________
Its:_________________________________ Its:__________________________________
By:__________________________________ By:___________________________________
Its:_________________________________ Its:__________________________________
DATE:________________________________ DATE:_________________________________
SCHEDULE OF EXHIBITS
Exhibit A-1 Graphical depiction of Premises
Exhibit A-2 Legal Description
Exhibit B License Agreement (Antenna)
Exhibit C License Agreement (Parking Lot Unassigned)
Exhibit C-1 License Agreement (Parking Lot Assigned)
Exhibit D Rules and Regulations
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EXHIBIT A-1
(To be provided)
13
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EXHIBIT A-2
LEGAL DESCRIPTION
All of Block 7, Atwaters Addition to the Town of Minneapolis; all of Block 8,
Morrison, Smith and Hancocks Addition to Minneapolis; and that part of 12th
Avenue South, Morrison, Smith and Hancocks Addition to Minneapolis; and Atwaters
Addition to the Town of Minneapolis, lying Southwesterly of a line connecting
the most Easterly corner of Block 7, Morrison, Smith and Hancocks Addition to
Minneapolis; and the most Northerly corner of Block 8, Morrison, Smith and
Hancocks Addition to Minneapolis and Northeasterly of a line connecting the most
Southerly corner of Block 7, Atwaters Addition to the Town of Minneapolis and
the most Westerly corner of Block 8, Atwaters Addition to the Town of
Minneapolis and that part of Block 8, Atwaters Addition to the Town of
Minneapolis; except that part of said Block 8 which lies Northeasterly of the
following described line:
Beginning at a point on the Southeasterly line of Lot 7, Block 8, distant 116.50
feet Southwesterly of the most Easterly corner thereof; thence run Northwesterly
to a point on the Northwesterly line of the Southeasterly half of Lot 9, said
Block 8, distant 10 feet Southwesterly of the Northeasterly line of said Lot 9,
and there terminating.
Also except that part of the Northwesterly 1/2 of Lot 9, Block 8, Atwater's
Addition to the Town of Minneapolis which lies Northeasterly of the following
described line: Beginning at a point on the Southeasterly line of the
Northwesterly 1/2 of Lot 9, Block 8, said Addition, distant 5 feet Southwesterly
of the most Easterly corner thereof; thence run Northwesterly to the most
Northerly corner of Lot 9 and there terminating.
All of Block 7, Morrison, Smith and Hancocks Addition to Minneapolis, except
that part of Lots 9, 10, I I and 12 of said Block 7, described as follows:
Beginning at the most Northerly corner of said Lot 12; thence south 30 degrees
04 minutes 33 seconds West, on an assumed bearing, along the Northwesterly line
of said Lot 12, a distance of 127.58 feet; thence Easterly, a distance of 259.94
feet along a non-tangential curve concave to the South having a radius at 240.00
feet, a central angle of 62 degrees 03 minutes 21 seconds and the chord of said
curve bears North 89 degrees 04 minutes 43 seconds East; thence North 30 degrees
06 minutes 24 seconds East along the prolongation of a radial line of said
curve, a distance of 0.08 feet to the Northeasterly line of said Lot 9; thence
North 59 degrees 54 minutes 07 seconds West along the Northeasterly line of said
Block 7, a distance of 212.08 feet to the point of beginning.
All according to the plats thereof on file and of record in the Hennepin County
Recorders Office and in the Office of the Registrar of Titles, and situate in
Hennepin County, Minnesota.
Part of the above shown below as Parcels 1 through 4, is Registered Property as
evidenced by Certificate No. 830754. Said Registered Property is described as
follows:
Parcel 1: Lots 3, 6, 8 and 9, Block 7;
That part of Lot 7, Block 7 lying Northeasterly of a line drawn parallel with
and distant 96 feet Southwesterly of the Southwesterly boundary line of 5th
Street;
The Northeasterly 60 feet of the Southwesterly 105 feet of Lot 1, Block 8;
Lots 2, 3, 4, 5, 6 and l0, Block 8;
That part of the Northwesterly 1/2 of vacated 12th Avenue south lying between
the extensions across it of the Northeasterly and Southwesterly lines of said
Lot 6, Block 7 and
That part of the Southeasterly 1/2 of vacated 12th Avenue South lying between
the extensions across it of the Northeasterly and Southwesterly lines of said
Northeasterly 60 feet of the Southwesterly 105 feet of Lot 1, Block 8,
all in Atwaters Addition to the Town of Minneapolis.
Parcel 2: That part of the following described Tract:
The Northwesterly 27 feet of the Northeasterly 100 feet of Lot 7;
The Southwesterly 39 feet of the Northeasterly 139 feet of Lot 7;
The Northwesterly 1/2 of Lot 8 and
The Southeasterly 1/2 of Lot 9,
all in Block 8, Atwaters Addition to the Town of Minneapolis, which lies
Southwesterly of a line drawn from a point on the Southeasterly line of said Lot
7, distant 116.50 feet Southwesterly of the most Easterly corner thereof to a
point on the Northwesterly line of said Southeasterly 1/2 of Lot 9, distant 10
feet Southwesterly of the Northeasterly line thereof.
Parcel 3: Lots 3 and 8, Block 7,
That part of Lot 7, Block 7 lying Northeasterly of a line drawn parallel with
and distant 96 feet Southwesterly of the Southwesterly boundary line of 5th
Street
and
Lot 9, Block 7 except that part thereof lying Northerly of the following
described line: Beginning at the most Northerly corner of Lot 12, said Block 7;
thence South 30 degrees 04 minutes 33 seconds West, on an assumed bearing, along
the Northwesterly line of said Lot 12, a distance of 127.58 feet; thence
Easterly, distance of 259.94 feet along a non-tangential curve concave to the
South, having a radius, of 240.00 feet, a central angle of 62 degrees, 03
minutes, 21 seconds and the chord of said curve bears North 89 degrees, 04
minutes, 43 seconds East, thence North 30 degrees, 06 minutes, 24 seconds East
along the prolongation of a radial line of said curve, a distance of 0.08 feet
to the Northeasterly line of said Lot 9 and said line there terminating, all in
Morrison, Smith and Hancocks Addition to Minneapolis.
Parcel 4: That part of the Northwesterly 1/2 of vacated 12th Avenue south lying
between the extensions across it of the Northeasterly line of Lot 7, Block 7,
Morrison, Smith and Hancock's Addition to Minneapolis and a line drawn parallel
to and distant 96 feet Southwesterly of the Northeasterly line of said Lot 7
Subject to minerals and mineral rights reserved by the State of Minnesota; (As
to all of above land except Lot 3, Block 7 in Parcel 1; Lot 3, Block 7 in Parcel
3 and the above portion of Lot 9, Block 8 in Parcel 2; and except that part of
Lot 6, Block 7 and of that part of the Northwesterly 1/2 of vacated 12th Avenue
South in Parcel 1 lying Northeasterly of extensions across it of the
Southwesterly lien of said Lot 6 and its extension);
Subject to covenants, restrictions, reservations and conditions subsequent,
including a right of re-entry and forfeiture of title upon default as contained
in Deed Doc. No. 1488605; (See lnst)
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EXHIBIT B
ANTENNAE LICENSE AGREEMENT
This License Agreement (the "Agreement"), dated as of this 14th day of
March, 1997, is between TIMESHARE SYSTEMS, INC. (the "Licensor"), having an
address at 511 Eleventh Avenue South, Minneapolis, MN. 55415 and FRONTIER LOCAL
SERVICES, INC. (the "Licensee"), having an address at 511 Eleventh Avenue South,
Minneapolis, MN, 55415 (the "Premises").
A. Licensor agrees to permit Licensee to utilize for purposes provided
herein, the roof space (the exact location to be determined by Licensor with the
reasonable consent of Licensee, but in no event shall such space exceed 500
contiguous square feet) on the building ("Building") In which the Premises are
located (the "Roof Space"), from the date hereof and expiring August 31, 2017.
Upon termination of Licensee's lease for the Premises for any reason (including
the failure to renew the Term), this License Agreement arid the license created
hereby shall automatically expire with said termination. The termination,
cancellation or expiration of this License Agreement or the license created
hereunder shall not be cause or grounds for the cancellation or termination of
Licensee's lease for the Premises.
B. Licensee may install, use and maintain on such Roof Space equipment
("Equipment") as described in Exhibit A attached hereto. If so requested by
Licensor, Licensee shall, at its sole expense, install a screening and
protective fence ("Fence") around the perimeter of the Roof Space. The Fence
style and installation shall be subject to Licensor's prior approval.
C. Licensor agrees that Licensee may run cables (the "Cables") between the
Roof Space and the Licensee's Premises. Any damages to the Building or fixtures
or equipment located upon or within the Building resulting therefrom shall be
promptly repaired by Licensee.
D. The Equipment and Fence shall remain the property of the Licensee or
its contractor. Licensee shall at its cost remove such Equipment and Fence (and
if so requested by Licensor, the Cables) at the expiration or sooner termination
of the license granted hereunder or this License Agreement, and restore the Roof
Space and Building to the condition they were in prior to Licensee's
installation of the Equipment, Fence and Cables. The obligations to remove the
Equipment, Fence and Cables and to restore and repair the Roof Space and
Building shall survive the expiration or sooner termination of the license and
this License Agreement.
E. Licensee and/or its contractor shall bear all expenses in connection
with the installation, use and maintenance of such Equipment, Fence and Cables
and removal of the same. Licensee shall indemnify and hold Licensor harmless
from and against liability, damages, costs and expenses, including reasonable
attorneys' fees incurred by Licensor, arising out of Licensee's installation,
use, maintenance and removal of the Equipment, Fence and Cables. This obligation
shall survive the expiration, cancellation or termination of this License
Agreement and the license created hereunder.
F. Licensee and/or its contractor shall maintain in force during the term
of this License Agreement comprehensive Liability insurance in amounts and in
such form as reasonably satisfactory to Licensor, protecting Licensor against
any liability, damages, cost or expenses, in connection with the installation,
use, maintenance and removal of the Equipment, Fence and Cables and shall supply
the appropriate certificates of such insurance upon request.
G. Licensee and its contractors shall comply with all applicable federal,
state and local laws, regulations, and building codes in connection with the
installation, use, maintenance and removal of the Equipment, Fence and Cables.
In the event any such laws, regulations, or codes requires physical improvements
be made to the Building or other expenditures by or on behalf of the Building
and/or its owner, the costs of the same shall be borne by Licensee.
Notwithstanding the foregoing, any physical improvements, whether required by
law, regulation, code or otherwise, shall be subject to Licensor's approval,
which approval may be given or denied in Licensor's sole discretion. If any law,
regulation or code prohibits or disallows the Equipment, Fence and/or Cables or
the effective use of the license granted hereby, whether now or in the future,
Licensor shall be entitled to terminate the license granted hereby, without
penalty; and Licensee shall take such action so as to allow the Building to
again be in compliance with such law, regulation or code, including, if
necessary, the removal of the Equipment, Fence and/or Cables.
H. Licensor agrees to permit Licensee reasonable access to the Roof Space
and other areas so as to facilitate the installation, use, maintenance and
removal of the Equipment, Fence, and Cables. Licensee shall have access to the
Roof Space on a 24 hour per day, 7 days per week basis, in order to facilitate
maintenance and repairs. Licensee agrees to sign the Building's log book on each
occasion Licensee enters the Roof Space, during normal business hours. At times
other than normal business hours, or when the Log book is not available for
signing, Tenant shall page Landlord at 470-4500 or shall leave a message by
calling 481-9999 or shall notify Landlord by such other reasonable means as
Landlord shall inform Tenant in writing.
I. Notwithstanding anything else contained herein to the contrary, the
license granted herein is subject to the non' interference of Licensee's
Equipment with the normal operation, functioning and use of any other equipment
(whether owned by Licensor or by other licensees and/or tenants of Licensor)
currently existing upon the roof of the Building. In the event of any such
interference, Licensor may terminate the License granted hereunder if such
interference is not corrected within three (3) days notice from Licensor to
Licensee. Notwithstanding anything else contained herein to the contrary,
Licensor does not guaranty nor warrant the reception, noninterference or
effective use of Licensee's antenna, or Equipment, either at initial
installation nor thereafter.
J. Licensee shall be required to get prior approval from Licensor
pertaining to the Antenna size, color, Fence specifications, location on roof,
method of mounting and the location of all Cables. In no instance shall this
installation breach or penetrate the roof membrane.
K. Any notice required or desired under this License Agreement shall be
deemed sufficiently given if given in compliance with the Licensee's lease
agreement for the Premises.
L. Licensee shall pay to Licensor, without set-off, or demand the sun of
$0 per month for all Antennae (as listed on Exhibit A, or otherwise located on
the Building pursuant to this License Agreement or the license created
hereunder) for use of the roof space ("License Fee") during the Term of this
License Agreement. Failure by Licensee to pay said License Fee shall entitle
Licensor, upon 10 days written notice to Licensee, to terminate this License
Agreement and the license created hereunder, and to such other relief as may be
allowed by law or equity. No other Equipment or antennae shall be permitted by
this license, without Licensor's prior written consent, which consent shall not
be unreasonably withheld for a reasonable increase in equipment, provided the
License Fee shall be increased to Licensor's then rate for each additional
antennae.
M. In the event of default by Licensee of any of the terms and conditions
set forth in this License Agreement, whether suit be commenced or not, Licensee
agrees to pay the attorneys' fees, costs and expenses of Licensor incurred in
enforcing or attempting to enforce this License Agreement.
N. Licensee shall operate the Licensee facilities in a manner that will
not cause interference to Licensor and other Licensees of the Property provided
that their installations predate that of the Licensee's facilities. All
operations by Licensee shall be in compliance with all Federal Communications
Commission ("FCC") requirements.
O. Licensor waives any lien rights it may have concerning the Equipment
which are deemed Licensee's personal property and not fixtures, and Licensee has
the right to remove the same at any time without Licensor's consent.
P. This Agreement may be terminated without further liability on thirty
(30) days prior written notice as follows: (i) by either party upon a default of
any covenant or term hereof by the other party, which default is not cured
within sixty (60) days of receipt of written notice or default provided that the
grace period for any monetary default is ten (10) days from receipt of notice;
or (ii) by Licensee for any reason or for no reason, provided Licensee delivers
written notice of early termination to Licensor with a thirty (30) day notice
provision prior to termination; or (iii) by Licensee if it does not obtain or
maintain any license, permit or other approval necessary for the construction
and operation of the Equipment; or (iv) by Licensee if Licensee is unable to
occupy and utilize the Premises under Licensee's lease due to an action of the
FCC, including without limitation, a take back of channels or change in
frequencies; or (v) by Licensee if Licensee determines that the Premises are not
appropriate for its operations for technological reasons, including, without
limitation, signal interference.
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Equipment
Up to 100 antennae as well as related base site cabinets and any other
appropriate ancillary equipment so long as it is contained within the 500 square
foot roof space and does not exceed 10 feet in height. No additional antennae
may be installed without Landlord's written consent.
<PAGE>
EXHIBIT C
LICENSE AGREEMENT
MINNEAPOLIS TECHNOLOGY CENTER
PARKING LOT (UNASSIGNED)
This License Agreement Is made as of this 14th day of March, 1997, by and
between TIMESHARE SYSTEMS, INC., a Minnesota corporation ("Licensor") and
FRONTIER LOCAL SERVICES, INC. ("Licensee"),
In consideration of the covenants and agreements contained herein, and
other good and valuable consideration, receipt and sufficiency of which is
acknowledged, Licensor and Licensee mutually agree as follows:
1. GRANT: Licensor hereby grants to Licensee, for the sole purpose of
parking the automobile(s) described in Licensee's application attached hereto,
_____________________ (___) unassigned parking space(s) in the restricted
parking areas of the West parking lot ("Lot") located at Minneapolis Technology
Center, 511 South Eleventh Avenue South, Minneapolis, Minnesota.
2. TERM: The term of this License commences this date and expires at
midnight August 31, 2017.
3. LICENSE FEE: Licensee shall pay as its fee for this License the sum of
$95 per admittance card on or before the first day of each month to Timeshare
Systems, Inc., 511 South Eleventh Avenue South, Minneapolis, Minnesota, 55415,
or at such other address that Licensor may designate; together with any use,
sales or other tax (excepting income tax) payable or which may become payable by
Licensor as a result of said fee. In the event the term of this License
commences on other than the first day of a month, the fee will be prorated for
such month. The license fee shall commence on the date Licensor delivers a Lot
gate operator(s) or admittance card(s) to Licensee. The license fee shall
terminate on the expiration date of the license or on the date the Licensee
returns the Lot gate operator(s) and/or admittance card(s) whichever occurs
last. The fee for this License may be adjusted from time to time beginning
September 1, 1998 to whatever fee Licensor is then charging for Lot parking
stalls; provided that Licensor shall give thirty (30) days prior written notice
of any such increase and Licensee may, within thirty (30) days subsequent to any
such increase, terminate this License by giving ten (10) days written notice to
Licensor.
4. NEGATIVE COVENANTS: Licensee shall not:
a) Park more than one (1) standard sized (or smaller) automobile per
admittance card in the Lot, at any one time.
b) Allow any non-authorized automobile to be parked in the Lot
through use of Licensee's issued admittance card.
c) Allow any automobile to be stored overnight in the Lot.
Upon breach of any covenant set forth in this Paragraph 4 by Licensee,
Licensor may, at its option, and in addition to Licensor's remedies provided in
paragraph 5 hereof, charge Licensee the sum of $25.00 for each day of any such
violation, and/or may tow or have towed any automobile which is parked in
violation of any covenant set forth in this paragraph 4, and in such case
Licensee agrees to pay Licensor as an additional license fee hereunder all
towing and storage costs associated with said towing.
5. RIGHT OF RE-ENTRY AND EXPIRATION: Licensee agrees that this License is
made upon the condition that if the Licensee shall fail to pay the license fee
within ten (10) days of when due, fail to keep any term or condition of this
license, or shall neglect or fail to keep, observe and perform any of the rules
and regulations from time to time adopted and promulgated by Licensor for the
operation of the Lot, then in any of said cases the Licensor may immediately or
at any time thereafter and without notice or demand, retake possession of the
parking stall(s), without such re-taking working a forfeiture of the license fee
to be paid by Licensee for the full term of this License. In the event of such
retaking or at the end of the Term, Licensee agrees to return to Licensor any
and all Lot gate operator(s) and/or admittance cards, upon notice from Licensor.
Licensee shall pay to Licensor, Licensor's replacement/lost fee for all such
operator(s) and/or admittance cards not returned.
6. PARKING LOT OPERATION: It is specifically understood and agreed that
the Lot area is operated without constant staffing and that Licensor shall not
be responsible for any Loss, damage or casualty sustained by Licensee's
automobile or for the loss of any articles, personal property or any such other
items from Licensee's automobile.
7. OFFICE LEASE: Licensee presently has (or is contemporaneously
executing) a lease for office space within the Minneapolis Technology Center
("Office Lease").
a) A termination of the Office Lease, whether by expiration of the
term or otherwise, shall automatically constitute a termination of this License
Agreement.
8. AUTHORIZED VEHICLES: Licensee agrees, upon request from Licensor, to
furnish Licensor or its authorized agent, the state automobile license number(s)
assigned to those automobile(s) of those persons employed on the premises and
who are designated by Licensee to use the Lot. Any such designation shall not
exceed the number of stalls licensed hereunder. If any automobile of Licensee or
of Licensee's officers, agents or employees who is not designated to park in the
Lot is parked therein, then Licensee shall pay to Licensor an amount equal to
$25 per day for each such vehicle for each day, or a part thereof, such amount
to be due and payable by Licensee within three (3) days after demand therefor.
9. CANCELLATION: Licensor shall have the right, upon thirty (30) days
prior written notice to Licensee, to cancel this License Agreement and allow the
Parking Lot to be used on an unrestricted basis for all tenants and their
invitees. Licensee from and after the cancellation date specified in such
written notice, shall have no further obligation for the payment of the fee
hereunder but the use of such Parking Lot shall be subject to the terms of
paragraphs 4(c), 6 and 7 hereof.
10. LICENSE HOURS: Notwithstanding anything else contained herein to the
contrary, the license granted hereunder shall be limited to the following hours:
Monday through Friday (legal holidays specifically excluded) from 7:00 a.m. to
6:00 p.m. Licensee specifically agrees that should Licensee violate the
foregoing hours during a time period in which there is an event ("Event") at the
Hubert H. Humphrey Metrodome (located across 11th Avenue from the Minneapolis
Technology Center) Licensee shall pay to Licensor $25.00 for each such Event
violation (or such higher rate which Licensor may then be charging for dome
Event parking).
(LICENSEE) (LICENSOR)
FRONTIER LOCAL SERVICES, INC. TIMESHARE SYSTEMS, INC.
By____________________________ By___________________________________
Its___________________________ Its__________________________________
Date:_________________________ Date:________________________________
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EXHIBIT D
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice shall be
installed or displayed on any part of the outside or inside of the Building
without the prior written consent of the Landlord. Landlord shall have the right
to remove, at Tenant's expense and without notice, any sign installed or
displayed in violation of this rule. All approved signs or lettering on doors
and walls shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person or vendor chosen by Landlord. In addition, Landlord reserves
the right to change from time to time the format of the signs or lettering and
to require previously approved signs or lettering to be appropriately altered.
2. If Landlord objects in writing to any curtains, blinds, shades or
screens attached to or hung in or used in connection with any window or door of
the Premises, Tenant shall immediately discontinue such use. No awning shall be
permitted on any part of the Premises. Tenant shall not place anything or allow
anything to be placed against or near any glass partitions or doors or windows
which may appear unsightly, in the opinion of Landlord, from outside the
Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators or stairways of the Building. The halls,
passages, exits, entrances, shopping malls, elevators, escalators and stairways
are not for the general public, and Landlord shall in all cases retain the right
to control and prevent access to the Building of all persons whose presence in
the judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants provided that nothing
contained in this rule shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its business, unless
such persons are engaged in illegal activities. No tenant and no employee or
invitee of any tenant shall go upon the roof of the Building,
4. The directory of the Building will be provided exclusively for the
display of the name and location of tenants only and Landlord reserves the right
to exclude any other names therefrom.
5. Tenant shall not cause any unnecessary labor by carelessness or
indifference to the good order and cleanliness of the Premises. Landlord shall
not in any way be responsible to any Tenant for any loss of property on the
Premises, however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person.
6. Landlord will furnish Tenant free of charge with two keys to each door
in the Premises. Landlord may make a reasonable charge for any additional keys,
and Tenant shall not make or have made additional keys, and Tenant shall not
alter any lock or install a new or additional lock or bolt on any door of its
Premises. Tenant, upon the termination of its tenancy, shall deliver to Landlord
the keys of all doors which have been furnished to Tenant, and in the event of
loss of any keys so furnished, shall pay Landlord therefor.
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's instructions in
their installation.
8. No equipment, materials, furniture, packages, supplies, merchandise or
other property will be received in the Building or carried in the elevators
except between such hours and in such elevators as may be designated by
Landlord.
9. Tenant shall obtain Landlord's consent prior to placing a load upon any
floor which may exceed the load per square foot which such floor was designed to
carry and which is allowed by law. Landlord shall have the right to prescribe
the weight, size and position to all equipment, materials, furniture or other
property brought into the Building, Heavy objects shall stand on such platforms
as determined by Landlord to be necessary to properly distribute the weight.
Business machines and mechanical equipment belonging to Tenant which cause noise
or vibration that my be transmitted to the structure of the Building or to any
space in the Building to such a degree as to be objectionable to Landlord or to
any tenant shall be placed and maintained by Tenant, at Tenant's expense on
vibration eliminators or other devices sufficient to eliminate noise or
vibration. The persons employed to move such equipment in or out of the Building
must be acceptable to Landlord. Landlord will not be responsible for loss of, or
damage to, any such equipment or other property from any cause, and all damage
done to the Building by maintaining or moving such equipment or other property
shall be repaired at the expense of Tenant.
10. Tenant shall not waste electricity, water or air conditioning. Tenant
shall keep corridor doors closed.
11. Landlord reserves the right to exclude from the Building between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays any
person unless that person is known to the person or employee in charge of the
Building as being an employee of Tenant and has a pass or is properly
identified. Tenant shall be responsible for all persons for whom it requests
passes and shall be liable to Landlord for all acts of such persons. Landlord
shall not be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person.
12. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus and electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant shall be
responsible for any damage or injuries sustained by other tenants or occupants
of the Building or by Landlord for noncompliance with this rule.
13. The toilet rooms, toilets, urinals wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed, no foreign substance of any kind whatsoever shall be thrown into
any of them, and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the Tenant who, or whose employees
or invitees, shall have caused it.
14. Tenant shall not install any radio or television antenna, satellite
dish, loudspeaker or other device on the roof or exterior walls of the Building
except by virtue of a separate license negotiated with Landlord. Tenant shall
not interfere with radio or television broadcasting or reception from or in the
Building or elsewhere.
15. Except as approved by Landlord, Tenant shall not mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall not affix
any floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance with
this rule.
16. No animals are allowed in the Building with the exception of
seeing-eye or hearing animals. In the event any injuries are caused to Tenant's
employees or invitees, the owner of said animal agrees to indemnify and hold the
Landlord and its managing agent and all other tenants harmless from all costs
(including reasonable attorneys' fees) with respect to the presence of any
animals in the Building.
17. Tenant shall store all its trash and garbage within its Premises.
Tenant shall not place in any trash box or receptacle any material which cannot
be disposed of in the ordinary and customary manner of trash and garbage
disposal. All garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord.
18. No cooking shall be done or permitted by any Tenant on the Premises,
except by the Tenant of Underwriters' Laboratory approved microwave oven or
equipment for brewing coffee, tea, hot chocolate and similar beverages shall be
permitted provided that such equipment and use is in accordance with all
applicable federal, state and city laws, codes, ordinances, rules and
regulations.
19. Tenant shall not use in any space or in the public hails of the
Building any hand trucks except those equipped with the rubber tires and side
guards or such other material-handling equipment as Landlord may approve. Tenant
shall not bring any other vehicles of any kind into the Building.
20. Tenant shall not use the name of the Building in connection with or in
promoting or advertising the business of Tenant except as Tenant's address.
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21. The requirements of Tenant will be attended to only upon appropriate
application to the office of the Building by an authorized individual. Employees
of Landlord shall not perform any work or do anything outside of their regular
duties unless under special instruction from Landlord, and no employee of
Landlord will admit any person (Tenant or otherwise) to any office without
specific instructions from Landlord.
22. Parking is allowed between the hours of 7:00 a.m. to 6:00 p.m., Monday
through Friday, holidays excepted, in the east parking lot only, subject to
availability and at such rates as Landlord is then charging. Notwithstanding the
foregoing, no parking is allowed during professional sporting events and/or
other events occurring at the Hubert H. Humphrey Metrodome located at across
11th Avenue South from the Building. All visitors to the Building parking in
such parking lot shall pay the then prevailing parking charges. Any visitor
drop-offs are allowed only on the east side of the Building. Notwithstanding the
foregoing, parking by Tenant pursuant to a specific license agreement shall be
24 hours per day, 7 days a week.
23. Landlord may waive any one or more of these Rules arid Regulations for
the benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of any
other tenant or tenants, nor prevent Landlord from thereafter enforcing any such
Rules and Regulations against any or all of the tenants of the Building. The
foregoing shall not be construed to allow Landlord to discriminatorily enforce
these Rules and Regulations as against Tenant and not other tenants of the
Building.
24. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of premises in the Building.
25. Landlord reserves the right to make such other and reasonable rules
and regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and for the preservation
of good order in and about the Building. Tenant agrees to abide by all such
rules and regulations in this Exhibit stated and any additional rules and
regulations which are adopted.
26. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
8/04/97, LBG, 718651M
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<PAGE>
Exhibit 10.1.16
EXECUTION COPY
================================================================================
LOAN AND SECURITY AGREEMENT
Dated as of July 16, 1999
among
ATI OPERATING COMPANY,
as Borrower,
ADVANCED TELECOMMUNICATIONS, INC. and
CERTAIN OPERATING SUBSIDIARIES OF ADVANCED TELECOMMUNICATIONS, INC.,
as Guarantors,
NTFC CAPITAL CORPORATION,
as Lender,
THE OTHER LENDERS PARTY HERETO
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
Article 1: DEFINITIONS .................................................. 1
1.1 Certain Definitions .......................................... 1
1.2 Accounting Principles; Subsidiaries .......................... 17
1.3 Computation of Time Periods .................................. 17
1.4 UCC Terms .................................................... 17
1.5 General Construction; Captions ............................... 17
1.6 References to Documents and Laws ............................. 18
Article 2: LOANS ........................................................ 18
2.1 Term Loan Commitments ........................................ 18
2.2 Notes ........................................................ 18
2.3 Reliance on Notices .......................................... 18
2.4 Procedures for Borrowing ..................................... 18
2.5 Loan Amortization ............................................ 19
2.6 Maturity ..................................................... 19
2.7 Prepayments; Commitment Reductions ........................... 19
2.8 Interest and Applicable Margin ............................... 20
2.9 Payments ..................................................... 21
2.10 Application and Allocation of Payments ....................... 21
2.11 Loan Account and Accounting .................................. 22
2.12 Taxes ........................................................ 22
2.13 Capital Adequacy; Increased Costs; Illegality ................ 23
2.14 Use of Proceeds .............................................. 24
2.15 Fees ......................................................... 24
Article 3: COLLATERAL AND SECURITY AGREEMENT ............................ 25
3.1 Grant of Security Interest ................................... 25
3.2 Regulatory Authorizations .................................... 26
3.3 Priority of Security Interests ............................... 26
3.4 Pledge Agreement ............................................. 26
3.5 Further Documentation; Pledge of Instruments ................. 26
3.6 Accounts, Etc ................................................ 27
3.7 Further Identification of Collateral ......................... 27
3.8 Remedies ..................................................... 27
3.9 Standard of Care ............................................. 27
3.10 Advances to Protect Collateral ............................... 27
3.11 License to Use ............................................... 28
3.12 Benefit of the Liens ......................................... 28
3.13 Release of Collateral ........................................ 28
Article 4: REPRESENTATIONS AND WARRANTIES .............................. 28
4.1 Organization and Qualification .............................. 28
4.2 Authority and Authorization ................................. 28
4.3 Execution and Binding Effect ................................ 28
4.4 Governmental Authorizations ................................. 29
4.5 Regulatory Authorizations ................................... 29
4.6 Agreements and Other Documents .............................. 29
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4.7 Absence of Conflicts ......................................... 29
4.8 No Restrictions .............................................. 29
4.9 Government Contracts ......................................... 30
4.10 Financial Statements; Business Plan .......................... 30
4.11 Financial Accounting Practices ............................... 30
4.12 Deposit and Disbursement Accounts ............................ 30
4.13 Insurance .................................................... 30
4.14 Accurate and Complete Disclosure ............................. 30
4.15 No Event of Default; Compliance with Material Agreements ..... 31
4.16 Labor Matters ................................................ 31
4.17 Litigation ................................................... 31
4.18 Rights to Property ........................................... 31
4.19 Year 2000 Issue .............................................. 32
4.20 Taxes ........................................................ 32
4.21 No Material Adverse Change ................................... 32
4.22 Solvency ..................................................... 32
4.23 No Regulatory Event .......................................... 32
4.24 Trade Relations .............................................. 32
4.25 No Brokerage Fees ............................................ 32
4.26 Margin Stock; Regulation U ................................... 32
4.27 Investment Company; Public Utility Holding Company ........... 32
4.28 Personal Holding Company; Subchapter S ....................... 33
4.29 Securities Act, Etc .......................................... 33
4.30 ERISA ........................................................ 33
4.31 Intellectual Property ........................................ 33
4.32 Environmental Warranties ..................................... 33
4.33 Security Interests ........................................... 33
4.34 Place of Business ............................................ 33
4.35 Location of Collateral ....................................... 34
4.36 Material Contracts and Accounts .............................. 34
4.37 No Defaults Under Contracts or Accounts ...................... 34
4.38 Corporate Structure .......................................... 34
4.39 Assumed Names ................................................ 34
4.40 Transactions with Affiliates ................................. 34
Article 5: CONDITIONS TO FIRST BORROWING DATE ........................... 34
5.1 Closing Certificates ......................................... 34
5.2 Opinions of Counsel .......................................... 35
5.3 Closing Documents ............................................ 35
5.4 No Material Adverse Change ................................... 36
Article 6: CONDITIONS OF LENDING ........................................ 36
6.1 Conditions to Each Borrowing Date ............................ 36
6.2 Post-Closing Items ........................................... 37
6.3 Affirmation of Representations and Warranties ................ 37
6.4 Deadline for Funding Conditions .............................. 37
Article 7: AFFIRMATIVE COVENANTS ........................................ 38
7.1 Reporting and Information Requirements ....................... 38
7.2 Other Notices ................................................ 39
7.3 Notice of Pension-Related Events ............................. 39
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7.4 Financial Accounting Practices ............................... 40
7.5 Preservation of Corporate Existence and Qualification ........ 40
7.6 Continuation of Business ..................................... 40
7.7 Insurance .................................................... 40
7.8 Indemnity .................................................... 42
7.9 Access ....................................................... 43
7.10 Expenses ..................................................... 43
7.11 Payment of Taxes, Charges, Claims and Current Liabilities .... 44
7.12 Compliance with Laws ......................................... 45
7.13 Use of Proceeds .............................................. 45
7.14 Government Authorizations; Regulatory Authorizations, Etc .... 45
7.15 Contracts and Franchises ..................................... 45
7.16 Site Leases and Consents ..................................... 45
7.17 Financial Covenants .......................................... 45
7.18 Patent, Trademark and Copyright Collateral ................... 45
7.19 Sites ........................................................ 46
7.20 Environmental Site Assessments ............................... 46
7.21 Construction ................................................. 46
7.22 No Encroachments ............................................. 46
7.23 Certain Notices .............................................. 47
7.24 Management Team .............................................. 47
7.25 Contracts .................................................... 47
7.26 Liens on After-Acquired Property ............................. 47
7.27 Year 2000 Compliance ......................................... 47
7.28 Post-Closing Items ........................................... 47
7.29 Further Assurances ........................................... 47
Article 8: NEGATIVE COVENANTS ........................................... 48
8.1 Indebtedness ................................................. 48
8.2 Restrictions on Liens ........................................ 48
8.3 Limitation on Contingent Obligations ......................... 48
8.4 Prohibition of Mergers, Acquisitions, Sales of Assets, Name,
Office or Business Changes, Etc .............................. 49
8.5 Limitation on Equity Payments ................................ 50
8.6 Assumed Names ................................................ 50
8.7 Limitation on Leases ......................................... 50
8.8 Transactions with Affiliates ................................. 50
8.9 Extension of Accounts ........................................ 50
8.10 Unscheduled Payments ......................................... 50
8.11 Business Activities .......................................... 50
8.12 Capital Expenditures ......................................... 50
8.13 Limitation on Investments, Advances and Loans ................ 51
8.14 Subsidiaries ................................................. 51
Article 9: EVENTS OF DEFAULT AND REMEDIES ............................... 51
9.1 Events of Default ............................................ 51
9.2 Remedies ..................................................... 53
9.3 Waivers by Loan Parties ...................................... 54
9.4 Exercise of Rights ........................................... 54
9.5 Rights of Secured Party ...................................... 55
9.6 Additional Remedies .......................................... 55
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9.7 Application of Proceeds ...................................... 56
9.8 Discontinuance of Proceedings ................................ 56
9.9 Power of Attorney and Proxy .................................. 57
9.10 Regulatory Matters ........................................... 58
Article 10: ASSIGNMENT AND PARTICIPATION; APPOINTMENT OF
ADMINISTRATIVE AGENT ......................................... 59
10.1 Assignment and Participation ................................. 59
10.2 Appointment of the Administrative Agent ...................... 60
10.3 The Administrative Agent's Reliance, Etc ..................... 61
10.4 GECC and Affiliates .......................................... 61
10.5 Lender Credit Decision ....................................... 61
10.6 Indemnification .............................................. 62
10.7 Successor Administrative Agent ............................... 62
10.8 Set Off and Sharing of Payments .............................. 63
10.9 Advances; Payments; Non-Funding Lenders; Information;
Actions in Concert ........................................... 63
Article 11: GUARANTY ..................................................... 65
11.1 Guaranty ..................................................... 65
11.2 Waivers by Guarantors ........................................ 66
11.3 Benefit of Guaranty .......................................... 66
11.4 Subrogation; Subordination ................................... 66
11.5 Election of Remedies ......................................... 67
11.6 Limitation ................................................... 67
11.7 Contribution with Respect to Guaranty Obligations ............ 68
11.8 Liability Cumulative ......................................... 68
Article 12: GENERAL CONDITIONS/MISCELLANEOUS ............................. 68
12.1 Amendments, Modifications and Waivers ........................ 68
12.2 Advances Not Implied Waivers ................................. 69
12.3 Business Day ................................................. 69
12.4 Records ...................................................... 69
12.5 Notices ...................................................... 69
12.6 FCC and PUC Approval ......................................... 70
12.7 Lenders Sole Beneficiary ..................................... 70
12.8 Lender's Review of Information ............................... 70
12.9 No Joint Venture ............................................. 71
12.10 Severability ................................................. 71
12.11 Rights Cumulative ............................................ 71
12.12 Duration; Survival ........................................... 71
12.13 Governing Law ................................................ 71
12.14 Counterparts ................................................. 71
12.15 Successors and Assigns ....................................... 71
12.16 Disclosures and Confidentiality .............................. 71
12.17 Jurisdiction and Venue ....................................... 73
12.18 Jury Waiver .................................................. 73
12.19 Limitation on Liability ...................................... 73
12.20 Schedules, Exhibits and Annexes .............................. 74
12.21 Agreement to Govern .......................................... 74
12.22 Entire Agreement ............................................. 74
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ANNEXES TO LOAN AND SECURITY AGREEMENT
Annex I Initial Commitments; Addresses of the Lenders
Annex II Closing Checklist
SCHEDULES TO LOAN AND SECURITY AGREEMENT
Schedule 1 Loan Party Information and Certain Defined Terms
Schedule 2.5 Loan Amortization
Schedule 2.15 Commitment Fees
Schedule 4.4 Required Consents
Schedule 4.5 Regulatory Authorizations
Schedule 4.6 Agreements and Other Documents
Schedule 4.8 Restrictions on Indebtedness
Schedule 4.9 Government Contracts
Schedule 4.10 Financial Statements
Schedule 4.12 Deposit and Disbursement Accounts
Schedule 4.13 Existing Insurance
Schedule 4.16 Labor Matters
Schedule 4.17 Litigation
Schedule 4.18 Site and Site Leases; Real Property; Equipment Location
Schedule 4.31 Intellectual Property
Schedule 4.32 Environmental Assessments
Schedule 4.33 Security Interests--Recordings and Filings
Schedule 4.34 Place of Business
Schedule 4.35 Location of Collateral
Schedule 4.38 Corporate Structure
Schedule 4.39 Assumed Names
Schedule 4.40 Transactions with Affiliates
Schedule 6.2 Post-Closing Items
Schedule 7.7 Required Insurance
Schedule 7.17 Financial Covenants
Schedule 8.2 Liens
Schedule 8.3 Contingent Obligations
Schedule 8.13 Investments
Schedule 10.9 Wire Instructions
EXHIBITS TO LOAN AND SECURITY AGREEMENT
Exhibit A Form of Note
Exhibit B Form of Borrowing Certificate
Exhibit C Form of Notice of Conversion/Continuation
Exhibit D Form of Opinion of Counsel to Loan Parties
Exhibit E Form of Opinion of Regulatory Counsel to Loan Parties
Exhibit F Form of Landlord Consent
Exhibit G Form of Assignment Agreement
Exhibit H Form of Additional Guarantor Assumption
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is dated as of July 16,
1999, by and among ATI Operating Company, a Minnesota corporation (the
"Borrower"); Advanced Telecommunications, Inc., a Minnesota corporation
("Holdings"); each Subsidiary (as hereinafter defined) of the Borrower listed on
the signature pages hereof as a "Guarantor"; each financial institution listed
on the signature pages hereof as a "Lender" and the other financial institutions
and other entities who may hereafter from time to time become parties hereto as
successors or assigns as provided herein (each a "Lender" and collectively, the
"Lenders"); and GENERAL ELECTRIC CAPITAL CORPORATION, a New York corporation
("GECC"), as the administrative agent for the Lenders (in such capacity, the
"Administrative Agent").
BACKGROUND:
1. The Loan Parties are engaged in the provision of telecommunication
services primarily in Tier I and Tier II Markets in the United States.
2. Holdings and the Borrower have requested that the Lenders provide funds
to the Borrower to finance the Telecommunications Costs and other general
corporate and working capital purposes, including payment of interest and
expenses and the repayment of the Non-Continuing Indebtedness.
3. The Lenders are willing to extend such credit to the Borrower upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE I: DEFINITIONS
1.1 Certain Definitions. Certain terms are defined on Schedule 1. In
addition to other words and terms defined in the preamble hereof or elsewhere in
this Agreement, or on the Schedules, the following words and terms shall have
the following meanings (such meanings to be equally applicable to both the
singular and plural form of such words and terms) unless the context otherwise
clearly requires:
"Accounts": as defined in Section 3.1(a).
"Additional Contributed Capital": cash equity capital received by Holdings
from time to time after the date hereof pursuant to the Additional Capital
Commitment.
"Additional Capital Commitment": the commitment from one or more Persons
reasonably acceptable to the Administrative Agent to provide cash equity capital
to Holdings of at least $30,000,000 (before payment of transaction fees) in form
and substance, including with respect to any conditions thereto, reasonably
acceptable to the Administrative Agent.
"Additional Guarantor Assumption": as defined in Section 8.14.
<PAGE>
"Advance": any advance made pursuant to Section 2.1.
"Affected Lender": as defined in Section 2.13(d).
"Affiliate": with respect to any Person, (a) each Person that, directly or
indirectly, owns or controls, whether beneficially, or as a trustee, guardian or
other fiduciary, five percent (5%) or more of the Stock having ordinary voting
power in the election of directors of such Person, (b) each Person that
controls, is controlled by or is under common control with such Person and (c)
in the case of individuals, the immediate family members, spouses and lineal
descendants of individuals who are Affiliates of the Borrower. For the purposes
of this definition, "control" of a Person shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of its management or
policies, whether through the ownership of voting securities, by contract, by
virtue of being an executive officer or a director or otherwise; provided,
however, that the term "Affiliate" shall specifically exclude, in the case of
any Loan Party, the Administrative Agent and each Lender.
"Applicable Base Margin": 3.75%.
"Applicable LIBOR Margin": 4.75%.
"Applicable Margins": the Applicable Base Margin and the Applicable LIBOR
Margin.
"Artesian Note": the Subordinated Promissory Note for the principal amount
of $400,000, dated August 31, 1998, between Holdings and Artesian Capital
Limited Partnership II.
"Asset Disposition": any sale or other disposition (including by way of
merger, consolidation or condemnation and whether by operation of law or
otherwise), or series of sales or other dispositions, made on or after the
Closing Date by any Loan Party or any of its Subsidiaries to any Person (other
than a Loan Party) of (i) all or substantially all of the outstanding Stock of
any of its Subsidiaries, (ii) all or substantially all of its assets or the
assets of any division of the Borrower or any of its Subsidiaries or (iii) any
other asset or assets (other than inventory sold in the ordinary course of
business and obsolete equipment) which, when taken together with all sales or
other dispositions of assets not covered by either of the foregoing clause (i)
or (ii), yield Asset Disposition Net Proceeds in excess of $500,000 in any
twelve-month period.
"Asset Disposition Net Proceeds": the proceeds of any Asset Disposition,
net of (a) brokerage commissions and other commissions, fees and expenses
(including fees and expenses of counsel, accountants and investment bankers)
related to such Asset Disposition and (b) a reserve for taxes payable as a
result of such Asset Disposition.
"Assignment Agreement": as defined in Section 10.1(a).
"Available Credit": the aggregate Commitments of the Lenders less the
Reserve.
"Availability Increase Date": any date on which all of the following is
true: (i) the Borrower has received Additional Contributed Capital, (ii) the
Loan Parties are in compliance with the financial covenants set forth on
Schedule 7.17 and (iii) at least 95% of the Indebtedness under the Note Purchase
Agreements has been converted to equity of Holdings.
"Base Rate": for any day, a floating rate equal to the higher of (a) the
rate publicly quoted from time to time by The Wall Street Journal as the "base
rate on corporate loans at large U.S. money center commercial banks" (or, if The
Wall Street Journal ceases quoting a base rate of the type described, the
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highest per annum rate of interest published by the Board of Governors of the
Federal Reserve System in Federal Reserve statistical release H.15 (519)
entitled "Selected Interest Rates" as the Bank prime loan rate or its
equivalent) and (b) the Federal Funds Rate plus fifty (50) basis points per
annum. Each change in any interest rate provided for in this Agreement based
upon the Base Rate shall take effect at the time of such change in the Base
Rate.
"Base Rate Loan": any portion of the Loan bearing interest by reference to
the Base Rate.
"Borrower": as defined in the first paragraph of this Agreement.
"Borrower Indebtedness": as defined in Section 11.4.
"Borrowing Certificate": a certificate substantially in the form of
Exhibit B.
"Borrowing Date": any Business Day on which an Advance is made.
"Business Day": a day on which commercial banks in New York City are not
authorized or required by law to close and, if the applicable Business Day
relates to the LIBOR Rate or a LIBOR Loan, a day on which banks in the city of
London are also generally open for interbank or foreign exchange transactions.
"Business Plan": The Loan Parties' business plan, including quarterly pro
forma Projections for the period from January, 1999 through December, 2006, as
described in, and attached to, Schedule 4.10.
"Capital Expenditures": for any period, (a) the additions to property,
plant and equipment (including any additions through the acquisition of stock of
a Person that becomes a Subsidiary) and other capital expenditures of the
Borrower or any of its Subsidiaries (including all systems and development
expenditures related to the build-out of the Networks) that are (or would be)
set forth in a consolidated statement of cash flows of the Borrower and its
Subsidiaries for such period prepared in accordance with GAAP and, without
duplication, (b) Capital Lease Obligations incurred by the Borrower or any of
its Subsidiaries during such period; provided, however, that no consideration
paid for or expenditure or obligation related to the acquisition of any
Regulatory Authorization and no capitalized interest shall be treated as a
Capital Expenditure nor shall expenditures of proceeds of insurance settlements,
condemnation awards and other like settlements in respect of lost, destroyed,
damaged or condemned property, plant or equipment to the extent that such
expenditures are made to repair or replace such property or to acquire other
property, plant and equipment useful in the Telecommunications Business within
twelve (12) months of receipt of such proceeds, be deemed Capital Expenditures.
"Capital Lease": with respect to any Person, any lease of (or other
indebtedness arrangement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee that, in accordance with GAAP, would
be required to be classified and accounted for as a capital lease or a liability
on a balance sheet of such Person.
"Capital Lease Obligation": with respect to any Capital Lease of any
Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease and that shall have a stated maturity which is the date of
the last payment of rent or any amount due under such Capital Lease prior to the
first date upon which such Capital Lease may be terminated by the lessee without
payment of a penalty.
"Cash Equivalents": (a) securities issued or fully guaranteed or insured
by the United States government or any agency thereof, (b) certificates of
deposit, eurodollar time deposits, overnight bank
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deposits and bankers' acceptances of any commercial bank organized under the
laws of the United States, any state thereof, the District of Columbia, any
foreign bank, or its branches or agencies (fully protected against currency
fluctuations) which, at the time of acquisition, are rated at least "A-1" by
Standard & Poor's Rating Corp, a division of The McGraw-Hill Companies ("S&P")
or "P-1" by Moody's Investors Service ("Moody's"), (c) commercial paper of an
issuer rated at least "A-1" by S&P or "P-1" by Moody's and (d) shares of any
money market fund that (i) has at least 95% of its assets invested continuously
in the types of investments referred to in clauses (a) through (c) above, (ii)
has net assets of not less than $500,000,000 and (iii) is rated at least "A-l"
by S&P or "P-1" by Moody's; provided, however, that the maturities of all
obligations of the type specified in clauses (a) through (c) above shall not
exceed 270 days.
"Cash Interest Coverage Ratio": (a) until the Loan Parties report positive
EBITDA for each of four (4) consecutive Fiscal Quarters considered as a single
accounting period, the product of EBITDA for the two (2) most recent Fiscal
Quarters ending on or prior to such date multiplied by two (2) divided by
Interest Expense (excluding any portion thereof not paid in cash) for the most
recent four (4) consecutive Fiscal Quarters ending on or prior to such date and
(b) thereafter, EBITDA for any period of four (4) consecutive Fiscal Quarters
divided by Interest Expense (excluding any portion thereof not paid in cash) for
such period.
"Cash Interest Expense": Interest Expense, excluding any portion thereof
not paid in cash.
"Change of Control": the failure of (i) Stolberg Partners, L.P.
("Stolberg") to own beneficially a percentage of the voting Stock of Holdings
greater than that beneficially owned by any other Person or (ii) of Stolberg and
the Person or Persons providing the Additional Capital Contribution to own
beneficially a percentage of the voting Stock of Holdings needed to elect
directors and/or approve a business combination.
"Charges": all federal, state, county, city, municipal, local, foreign or
other governmental Taxes (including Taxes owed to the PBGC at the time due and
payable), levies, assessments, charges, liens, claims or encumbrances upon or
relating to (a) the Collateral, (b) the Obligations, (c) the payroll, income or
gross receipts of any Loan Party, (d) any Loan Party's ownership or use of any
properties or other assets or (e) any other aspect of any Loan Party's business.
"Closing Checklist": the schedule, including all appendices, exhibits or
schedules thereto, listing certain documents and information to be delivered in
connection with this Agreement, the other Loan Documents and the financing
contemplated hereunder, substantially in the form attached hereto as Annex II.
"Closing Date": the date of this Agreement first written above.*
"Code": the Internal Revenue Code of 1986, as amended from time to time.
"Collateral": as defined in Section 3.1.
"Commerce Collateral": all equipment purchased with the proceeds of the
Commerce Equipment Loan and any substitutions or replacements of any components
thereof and any other equipment that was owned by Holdings on December 31, 1998
and was reflected in the books, records and financial statements of Holdings at
such date.
- ----------
* Note: Not necessarily the First Borrowing Date.
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"Commerce Equipment Loan": the outstanding balance under the Commerce Loan
Agreements.
"Commerce Loan Agreement": the Equipment Loan Agreements, dated March 30,
1998 and December 30, 1998 (in each case as amended to the date hereof), between
Holdings and Commerce Financial Group, Inc., providing loans totaling
$1,500,000, which were used to finance fixed assets and certain Equipment and
are secured by substantially all such Equipment.
"Commissions": as defined in Section 12.16(b).
"Commitment": (a) as to any Lender, the commitment of such Lender to make
its Pro Rata Share of Advances and (b) as to all Lenders, the aggregate
commitment of all Lenders to make Advances, which aggregate commitment shall be
Sixty-Five Million Dollars ($65,000,000) on the date hereof, in each case as
such amounts may be adjusted, if at all, from time to time in accordance with
this Agreement. The initial Commitment of each Lender is set forth on Annex I.
"Commitment Fees": as defined in Section 2.15(a).
"Commitment Termination Date": the earliest of (a) the second anniversary
of the Closing Date, (b) the date of termination of the Lenders' obligation to
make Advances or permit the Loan to remain outstanding pursuant to Section
9.2(b), (c) the date of the permanent reduction of the Commitments to zero
dollars ($0) and (d) a date twelve (12) months from the Closing Date unless the
Additional Capital Commitment has been obtained prior thereto.
"Communications Law": any and all of (a) the Communications Act of 1934,
as amended by the Telecommunications Act of 1996, any successor federal statute
and the rules and regulations of the FCC thereunder and (b) any state law
governing the provision of telecommunications services and the rules and
regulations of any PUC, all as the same may be in effect from time to time.
"Contingent Obligation": as to any Person, any obligation of such Person
guaranteeing, directly or indirectly, any Indebtedness, leases, dividends or
other obligations ("primary obligations") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including any
obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary obligation or (ii) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary obligation of the ability
of the primary obligor to make payment of such primary obligation or (d)
otherwise to assure or hold harmless the owner of such primary obligation
against loss in respect thereof. The amount of any Contingent Obligation shall
be equal to the amount of the obligation so guaranteed or otherwise supported
or, if less, the amount to which such Contingent Obligation is specifically
limited.
"Contracts": as defined in Section 3.1(b).
"Current Assets": with respect to any Person, all current assets of such
Person as of any date of determination calculated in accordance with GAAP.
"Current Liabilities": with respect to any Person, all liabilities which
should, in accordance with GAAP, be classified as current liabilities, and in
any event shall include all Indebtedness payable on demand or within one year
from any date of determination without any option on the part of the obligor to
extend or renew beyond such year, all accruals for federal or other Taxes based
on or measured by
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income and payable within such year, and the current portion of long-term debt
required to be paid within one year, but excluding, in the case of the Borrower,
the aggregate outstanding principal amount of the Loan.
"Default": any of the conditions or occurrences specified in Section 9.1,
whether or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition has been satisfied.
"Default Rate": as defined in Section 2.8(d).
"EBITDA": for any period, the sum of the consolidated net income (or loss)
of Holdings and its Subsidiaries (excluding extraordinary gains and losses and
the amount of any revenues which are in dispute) plus the amount of
depreciation, amortization, Interest Expense and tax expense deducted in the
determination of such consolidated net income (or loss).
"Environmental Laws": all applicable federal, state, local and foreign
laws, statutes, ordinances, codes, rules and regulations and all applicable
judicial or administrative interpretations thereof, including any applicable
judicial or administrative order, consent decree, order or judgment, imposing
liability or standards of conduct for or relating to the regulation and
protection of human health, safety, the environment and natural resources
(including ambient air, surface water, groundwater, wetlands, land surface or
subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws
include the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 (42 U.S.C.ss.ss.9601 et seq.) ("CERCLA"); the Hazardous Materials
Transportation Authorization Act of 1994 (49 U.S.C.ss.ss.5101 et seq.); the
Resource Conservation Recovery Act (42 U.S.C.ss.ss.6901 et seq.); the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.ss.ss.136 et seq.); the
Solid Waste Disposal Act (42 U.S.C.ss.ss.6901 et seq.); the Toxic Substance
Control Act (15 U.S.C. ss.ss.2601 et seq.); the Clean Air Act (42
U.S.C.ss.ss.7401 et seq.); the Federal Water Pollution Control Act (33
U.S.C.ss.ss.1251 et seq.); the Occupational Safety and Health Act (29
U.S.C.ss.ss.651 et seq.); and the Safe Drinking Water Act (42 U.S.C.ss.ss.300(f)
et seq.); and any and all regulations promulgated thereunder, and all analogous
state, local and foreign counterparts or equivalents and any transfer of
ownership notification or approval statutes.
"Environmental Liabilities": with respect to any Person, all liabilities,
response, remedial and removal costs, losses, damages, property damages, natural
resource damages, costs and expenses (including all reasonable fees,
disbursements and expenses of counsel, experts and consultants), fines,
penalties, sanctions and interest incurred as a result of or related to any
environmental claim, suit, action, investigation, proceeding or demand by any
Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising under
or related to any Environmental Law, Permit required by or pursuant to any
Environmental Law, or in connection with any Release or threatened Release or
presence of a Hazardous Material.
"Equipment": as defined in Section 3.1(c).
"Equity Payment": any distribution of earnings or capital, or any dividend
payment, redemption or other payment in respect of Stock, either directly or
indirectly, whether in cash or property or in obligations of any Loan Party.
"ERISA": the Employee Retirement Income Security Act of 1974, as amended
from time to time, and any successor statute.
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"ERISA Affiliate": with respect to any Loan Party, any trade or business
(whether or not incorporated) which, together with such Loan Party, are treated
as a single employer within the meaning of Sections 414(b), (c), (m) or (o) or
the Code.
"Event of Default": any of the conditions or occurrences specified in
Section 9.1; provided, however, that any requirement for the giving of notice,
the lapse of time, or both, shall have been satisfied.
"Excess Cash Flow": with respect to any Fiscal Year, the consolidated net
income (or loss) of the Borrower and its Subsidiaries for such Fiscal Year plus
(a) depreciation, amortization and Interest Expense to the extent deducted in
determining such consolidated net income or loss, plus decreases or minus
increases (as the case may be) (b) in Working Capital during such Fiscal Year,
minus (c) Interest Expense paid or accrued (excluding any original issue
discount, interest paid in kind or amortized debt discount, to the extent
included in determining Interest Expense), to the extent deducted in determining
such net income or loss, and scheduled principal payments paid or payable during
such Fiscal Year in respect of Indebtedness permitted hereunder to be incurred,
plus or minus (as the case may be), (d) extraordinary gains or losses which are
cash items not included in the calculation of net income or loss, minus (e)
Capital Expenditures for such Fiscal Year to the extent permitted hereunder,
plus (f) Taxes deducted in determining consolidated net income to the extent not
paid or payable in cash. For purposes of this definition, "Working Capital"
means Current Assets (exclusive of cash and Cash Equivalents) less Current
Liabilities.
"FCC": the Federal Communications Commission of the United States of
America, and any successor, in whole or in part, to its jurisdiction.
"Federal Funds Rate": for any period, a fluctuating interest rate equal
for each day during such period to the weighted average of the rates on
overnight Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal Reserve
Bank of New York, or, if such rate is not so published for any day which is a
Business Day, the weighted average of the rates on overnight Federal funds
transactions among members of the Federal Reserve System, as reasonably
determined by the Administrative Agent.
"Fees": any and all fees payable to the Administrative Agent or any Lender
pursuant to this Agreement or any of the other Loan Documents.
"Financial Statements": the consolidated and consolidating income
statements, statements of cash flows and balance sheets of Holdings delivered in
accordance with this Agreement.
"First Borrowing Date": the first date on which an Advance is made.
"Fiscal Quarter": any of the quarterly accounting periods of the Loan
Parties ending on March 31, June 30, September 30 and December 31 of each year.
"Fiscal Year": any of the annual accounting periods of the Loan Parties
ending on December 31 of each year.
"Fixed Charges": for any period, the sum of (a) Total Debt Service, (b)
Capital Expenditures and (c) Cash Taxes imposed or measured by consolidated net
income, in the case of each of (a), (b) and (c), for Holdings and its
Subsidiaries for such period.
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"Fixed Charges Coverage Ratio": (a) until the Loan Parties report positive
EBITDA for each of four (4) consecutive Fiscal Quarters considered as a single
accounting period, the product of EBITDA for the two (2) most recent Fiscal
Quarters ending on or prior to such date multiplied by two (2) divided by Fixed
Charges for the most recent four (4) consecutive Fiscal Quarters ending on or
prior to such date and (b) thereafter, EBITDA for any period of four (4)
consecutive Fiscal Quarters divided by Fixed Charges for such period.
"GAAP": subject to Section 1.2, generally accepted accounting principles
in the United States of America (as such principles may change from time to
time) applied on a consistent basis (except for changes in application in which
the Loan Parties' independent certified public accountants concur), applied both
to classification of items and amounts.
"GECC Fee Letter": as defined in Section 2.15(b).
"General Intangibles": as defined in Section 3.1(d).
"Governmental Authority": the federal government, any state or political
subdivision thereof, any city or municipal entity, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Grantor": each Loan Party.
"Guarantor": Holdings, each Subsidiary of the Borrower listed on the
signature pages hereof as a "Guarantor" and any future Subsidiary of the
Borrower which executes an Additional Guarantor Assumption.
"Guarantor Payment": as defined in Section 11.7(a).
"Hazardous Material": any substance, material or waste which is regulated
by, or forms the basis of liability under, any Environmental Laws, including any
material or substance which is (a) defined as a "solid waste," "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous
constituent," "special waste," "toxic substance" or other similar term or phrase
under any Environmental Laws or (b) petroleum or any fraction or by-product
thereof, asbestos, polychlorinated biphenyls ("PCBs") or any radioactive
substance which is not naturally occurring radioactive material.
"Imperial Bridge Loan": the outstanding balance under the term loan
agreement dated April 12, 1999 with Imperial Bank, which provides for $1,500,000
to be used for working capital purposes, and is secured by a guaranty from one
of Holdings' shareholders.
"Imperial Working Capital Loan": the outstanding balance under the Loan
Agreement, dated June 16, 1998 and as amended on September 16, 1998 and April
12, 1999, among certain of the Loan Parties and Imperial Bank, which provides a
revolving credit facility of $6,000,000, secured by all of the assets of the
Loan Parties and a guaranty by Holdings, to finance working capital needs of the
Loan Parties.
"Indebtedness": as to any Person, at a particular time, without
duplication, (a) indebtedness of such Person for borrowed money, (b)
indebtedness of such Person for the deferred purchase price of property or
services, which purchase price is (i) due more than six (6) months from the date
of incurrence of the obligation in respect thereof or (ii) evidenced by a note
or similar written instrument, (c) obligations under leases which shall have
been or should be, in accordance with GAAP, recorded as
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Capital Leases, (d) obligations of such Person to purchase or repurchase
accounts receivable, chattel paper or other payment rights sold or assigned by
such Person, (e) indebtedness or obligations of such Person evidenced by or
under or with respect to letters of credit, notes, bonds or other debt
instruments (other than letters of credit that are cash collateralized), and (f)
all Indebtedness referred to in clause (a), (b), (c), (d) or (e) above secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including Accounts and General Intangibles) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness.
"Indemnified Liabilities": as defined in Section 7.8(a).
"Indemnified Person": as defined in Section 7.8(a).
"Indemnified Proceeding": as defined in Section 7.8(a).
"Interest Expense": for any period, the aggregate amount of interest,
hedging costs and fees (excluding closing fees and reimbursements for expenses)
paid or payable during such period by the Loan Parties in respect of Total Debt.
"Interest Payment Date": (a) as to any Base Rate Loan, the last Business
Day of each Fiscal Quarter and (b) as to any LIBOR Loan, the last day of the
applicable LIBOR Period; provided, however, that in the case of any LIBOR Period
of two (2) months or greater in duration, interest shall be payable at
three-month intervals and on the last day of such LIBOR Period; provided,
further, that, in addition to the foregoing, each of (x) the Termination Date
and (y) the Maturity Date shall be deemed to be an "Interest Payment Date" with
respect to any interest which is then accrued on the Loan.
"Inventory": as defined in Section 3.1(e).
"Investment Property": as defined in Section 3.1(f).
"Landlord Consent": a consent substantially in the form of Exhibit F or in
other form acceptable to the Administrative Agent executed by the
owner/landlord, sublessor and/or licensor (including carriers) of any switch
site, co-location site, operations center, point of presence site or other
location where any Equipment other than Commerce Collateral with a cost of more
than $300,000 is or is to be located.
"Law": any law (including common law), constitution, statute, regulation,
rule, ordinance, order, injunction, writ, decree or award of any Governmental
Authority of competent jurisdiction or of any arbitrator (including ERISA, the
Code, the UCC, any applicable tax law, product safety law, occupational safety
or health law, Communications Law, Environmental Law and/or securities laws).
"Lender": as defined in the first paragraph of this Agreement.
"Lenders' Expenses": as defined in Section 7.10.
"LIBOR Loan": any portion of the Loan bearing interest by reference to the
LIBOR Rate.
"LIBOR Period": with respect to any LIBOR Loan, each period commencing on
a Business Day selected by the Borrower pursuant to this Agreement and ending
one, three or six months thereafter, as selected by the Borrower's irrevocable
notice to the Administrative Agent as set forth in Section 2.8(e) provided,
however, that the foregoing provision relating to LIBOR Periods is subject to
the following:
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(a) if any LIBOR Period would otherwise end on a day that is not a
Business Day, such LIBOR Period shall be extended to the next succeeding LIBOR
Business Day unless the result of such extension would be to carry such LIBOR
Period into another calendar month in which event such LIBOR Period shall end on
the immediately preceding Business Day;
(b) any LIBOR Period pertaining to a LIBOR Loan that begins on the last
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such LIBOR Period) shall
end on the last Business Day of a calendar month;
(c) the Borrower shall select LIBOR Periods so as not to require a
scheduled payment of any LIBOR Loan during a LIBOR Period for such Loan; and
(d) the Borrower shall select LIBOR Periods so that there shall be no more
than six (6) separate LIBOR Loans in existence at any one time.
"LIBOR Rate": for each LIBOR Period, a rate of interest determined by the
Administrative Agent equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period which appears on Telerate Page 3750 as of 11:00 a.m.,
London time, on the second full Business Day next preceding the first day of
each LIBOR Period (unless such date is not a Business Day, in which event the
next succeeding Business Day will be used); divided by
(b) a number equal to 1.0 minus the aggregate (but without duplication) of
the rates (expressed as a decimal fraction) of reserve requirements in effect on
the day which is two (2) Business Days prior to the beginning of such LIBOR
Period (including basic, supplemental, marginal and emergency reserves under any
regulations of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and from
time to time in effect) for Eurocurrency funding (currently referred to as
"Eurocurrency liabilities" in Regulation D of such Board) which are required to
be maintained by a member bank of the Federal Reserve System.
If such interest rates shall cease to be available from Telerate News
Service, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to the
Administrative Agent and the Borrower.
"Lien": any mortgage, pledge, hypothecation, lien (statutory or other),
judgment lien, security interest, security agreement, charge or other
encumbrance, or other security arrangement of any nature whatsoever, including
any installment contract, conditional sale or other title retention arrangement,
any sale of accounts receivable or chattel paper, any assignment, deposit
arrangement or lease intended as, or having the effect of, security and the
filing of any financing statement under the UCC or comparable law of any
jurisdiction (other than UCC financing statements filed for informational
purposes only).
"Loan": at any time, the aggregate amount of Advances outstanding to the
Borrower.
"Loan Account": as defined in Section 2.11.
"Loan Documents": this Agreement, the Notes, the Stockholder Pledge
Agreement, the other Security Documents, any guaranty by a Guarantor not a party
hereto, the GECC Fee Letter and all filings and other agreements, instruments,
documents and certificates identified on the Closing Checklist.
"Loan Parties": the Borrower, Holdings and each other Guarantor.
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"Markets": as defined in Schedule 1.
"Material Adverse Change": a material adverse change in (a) the business,
assets. financial or other condition or prospects of the Loan Parties taken as a
whole (b) the ability of the Loan Parties to perform their obligations under
this Agreement, the Notes or the other Loan Documents or (c) the Administrative
Agent's or the Lenders' ability to enforce the rights and remedies granted under
this Agreement or the other Loan Documents, in all cases whether attributable to
a single circumstance or event or an aggregation of circumstances or events.
"Material Adverse Effect": an effect that has, results in or causes or has
a reasonable likelihood of resulting in or causing a Material Adverse Change.
"Maturity Date": the earlier of (a) seventh anniversary of the Closing
Date and (b) the date, if any, on which the Loan matures by notice of
prepayment, acceleration or otherwise.
"Maximum Lawful Rate": as defined in Section 2.8(f).
"Network": a telecommunications system operated by a Loan Party, including
all Equipment related thereto.
"Non-Continuing Indebtedness": the Imperial Bridge Loan, the Imperial
Working Capital Loan, the Nortel Bridge Loan and the Artesian Note.
"Non-Funding Lender": as defined in Section l0.9(a)(ii).
"Note": as defined in Section 2.2.
"Note Purchase Agreements": (a) the Note Purchase Agreement dated as of
February 7, 1997, amended as of August 15, 1997, by and among Holdings and each
person listed thereto as an Investor, for up to $6,000,000 of Series A 8%
Convertible Subordinated Promissory Notes due June 30, 2001 and (b) the Note
Purchase Agreement dated as of December 18, 1997, by and among Holdings,
Stolberg Partners, L.P., Stolberg, Meehan & Scano II, L.P. and each person
listed thereto as an Investor, for up to $6,000,000 of Series B Convertible
Subordinated Promissory Notes due June 30, 2001.
"Nortel": Nortel Networks, Inc., a Delaware corporation.
"Nortel Bridge Loan": the outstanding balance under the loan agreement,
dated May 15, 1999, which Holdings entered into with Nortel for a loan of up to
$2,000,000 to finance working capital needs on an unsecured basis.
"Nortel Volume Purchase Agreement": The Master Purchase and Services
Agreement, dated as of June 1, 1999, between Holdings and Nortel.
"Notice of Conversion/Continuation": as defined in Section 2.8(e).
"Obligations": all loans, advances, debts, liabilities and obligations for
the performance of covenants or duties or for payment of monetary amounts
(whether or not such performance is then required or contingent, provided that
such performance is provided for in the Loan Documents, or such amounts are
liquidated or determinable) owing by any Loan Party to the Administrative Agent
or any Lender, and all covenants and duties regarding such amounts, of any kind
or nature, present or future, whether or not evidenced by any note, agreement or
other instrument, in each case arising under this
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Agreement or any of the other Loan Documents. This term includes all principal,
interest (including all interest which accrues after the commencement of any
case or proceeding in bankruptcy after the insolvency of, or for the
reorganization of, any Loan Party, whether or not allowed in such proceeding),
Fees, expenses, attorneys' fees and any other sum chargeable to any Loan Party
under this Agreement or any of the other Loan Documents.
"Organizational Documents": with respect to a corporation, the certificate
or articles of incorporation and by-laws of such corporation; with respect to a
partnership, the certificate of partnership (or limited partnership, as
applicable) and partnership agreement, together with the analogous documents for
any corporate or partnership general partner; with respect to a limited
liability company, the certificate of formation or articles of organization and
operating agreement; and in any case, any other document governing the formation
and conduct of business by such entity.
"Other Lender": as defined in Section 10.9(d).
"PBGC": the Pension Benefit Guaranty Corporation established under Title
IV of ERISA or any other governmental agency, department or instrumentality
succeeding to its functions.
"Permits": all consents, licenses, notices, approvals, authorizations,
filings, orders, registrations, and permits required by any Governmental
Authority for the construction and operation of a Network (excluding Regulatory
Authorizations), issued or obtained as and when required in accordance with all
Requirements of Law.
"Permitted Encumbrances": the Liens permitted under Section 8.2.
"Permitted Indebtedness": (a) the Obligations, (b) purchase money
Indebtedness and Capital Lease Obligations in an amount not greater than
$1,000,000 in the aggregate outstanding at any one time, (c) unsecured
Indebtedness incurred for purposes of the Telecommunications Business in an
amount outstanding at any time not greater in the aggregate than $1,000,000, (d)
Permitted Intercompany Indebtedness, (e) Indebtedness outstanding under the Note
Purchase Agreements and the Commerce Equipment Loan, (f) interest rate
protection agreements in connection with Indebtedness of the Loan Parties
permitted hereunder and (g) Permitted Subordinated Indebtedness.
"Permitted Intercompany Indebtedness": Indebtedness of the Borrower to any
of its Subsidiaries and Indebtedness of Holdings or of any Subsidiary of the
Borrower to the Borrower or any Subsidiary of the Borrower; provided, however,
that such Indebtedness is subordinated to the Obligations on terms satisfactory
to the Administrative Agent and, if any such Indebtedness is evidenced by an
instrument, such instrument is pledged to the Administrative Agent to secure the
Obligations pursuant to Section 3.5.
"Permitted Subordinated Indebtedness": unsecured Indebtedness of Holdings
the payment of which is structurally or contractually subordinated to the
payment of the Obligations on terms satisfactory to the Administrative Agent and
the Requisite Lenders and as to which the payment of principal of (and premium,
if any) and interest and other payment obligations in respect of such
Indebtedness shall be subordinate to the prior payment in full of the
Obligations to at least the following extent: (a) no payments of principal of
(or premium, if any) or interest on or otherwise due in respect of such
Indebtedness may be permitted for so long as any Default or Event of Default
exists; (b) such Indebtedness may not (i) provide for payments of principal
thereof at the stated maturity thereof by way of a sinking fund applicable
thereto or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by Holdings (including any redemption, retirement or
repurchase which is contingent upon events or circumstances but excluding any
retirement required by virtue of acceleration of such indebtedness upon any
event of default thereunder), in each case prior to 6 months after the Maturity
Date
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or (ii) permit redemption or other retirement (including pursuant to an offer to
purchase made by Holdings or any of its Subsidiaries) of such other Indebtedness
at the option of the holder thereof prior to 6 months after the Maturity Date at
the option of the holder of such Indebtedness (including pursuant to an offer to
purchase made by Holdings or any of its Subsidiaries) other than a redemption or
retirement which is conditioned upon a change of control of Holdings pursuant to
provisions set forth in the instruments evidencing such Indebtedness and which
constitutes a "Change of Control" or requires payment in full of the
Obligations; and (c) immediately prior to the issuance of such Indebtedness, no
Default or Event of Default exists and, after giving pro forma effect to the
issuance of such Indebtedness as if such issuance occurred on the first day of
each of the most recently completed computation periods referred to in Section
7.17 and Schedule 7.17, no Default or Event of Default would exist.
"Permitted Third Party Expenses": expenses related to the purchase of
goods and services from any Person other than Nortel which are directly related
to the installation and operation of Equipment purchased from Nortel.
"Person": any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, limited liability
company, institution, public benefit corporation, other entity or government
(whether federal, state, county, city, municipal, local, foreign, or otherwise,
including any instrumentality, division, agency, body or department thereof).
"Plan": any employee pension benefit plan to which Section 4021 of ERISA
applies and which any Loan Party or ERISA Affiliate maintains, contributes to or
has an obligation to contribute to or maintain for employees of any Loan Party
or to which any Loan Party or ERISA Affiliate maintained, made or was required
to make, contributions at any time within the preceding five (5) years.
"Proceeds": as defined in Section 3.1(g).
"Projections": the Loan Parties' forecasted consolidated and consolidating
(a) balance sheets; (b) profit and loss statements; and (c) cash flow
statements, all prepared on a Subsidiary by Subsidiary basis, together with
appropriate supporting details and a statement of underlying assumptions.
"Pro Rata Share": (a) with respect to all matters relating to any Lender
other than as provided in clause (b) below, the percentage obtained by dividing
(i) the Commitment of such Lender by (ii) the aggregate Commitments of all
Lenders and (b) with respect to the Loan on and after the Commitment Termination
Date, the percentage obtained by dividing (i) the aggregate outstanding
principal balance of the Loan held by that Lender by (ii) the outstanding
principal balance of the Loan held by all Lenders.
"PUC": the public utilities commission for the state or any other
jurisdiction in which all or any portion of a Network is located, or any
successor agency, and any successor, in whole or in part, to its functions or
jurisdictions, and any other Persons specified on Schedule 1.
"Quarterly Revenues": for any period, revenues of the Borrower and its
Subsidiaries for the previous Fiscal Quarter that are (a) received from any
third party entity which is not an Affiliate of Holdings or any of its principal
equity owners and (b) not in dispute.
"Regulatory Authorizations": all approvals, authorizations, licenses,
filings, notices, registrations, consents, permits, exemptions, registrations,
qualifications, designations, declarations, or other actions or undertakings now
or hereafter made by, to or in respect of any telecommunications Governmental
Authority, including any certificates of public convenience and all grants,
approvals, licenses, filings and registrations from or to the FCC or any PUC or
under any Communications Law
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necessary in order to enable any Loan Party to provide telecommunications
service of the type provided or proposed to be provided by such Loan Party.
"Regulatory Event": any of the following events: (a) any Lender becomes
subject to regulation as a "carrier," a "telephone company," a "common carrier,"
a "public utility" or otherwise under any applicable law or governmental
regulation, federal, state or local, solely as a result of the transactions
contemplated by this Agreement and the other Loan Documents or (b) any Loan
Party becomes subject to regulation by any Governmental Authority in any way
that is materially different from the regulation existing at the date hereof and
that has a Material Adverse Effect or (c) the FCC or any PUC issues an order
revoking, denying or refusing to renew, or recommending the revocation, denial
or non-renewal of, any Regulatory Authorization that has a Material Adverse
Effect.
"Release": any spill, emission, leaking, pumping, pouring, emptying,
escape, injection, deposit, disposal, discharge, dumping or leaching of
Hazardous Material in the environment.
"Replacement Lender": as defined in Section 2.13(d).
"Reportable Event": (a) a reportable event described in Section 4043 of
ERISA and regulations thereunder, (b) a withdrawal by a substantial employer
from a Plan to which more than one employer contributes, as referred to in
Section 4063(b) of ERISA, or (c) a cessation of operations at a facility causing
more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4062(f) of ERISA.
"Required Consents": as defined in Section 4.4.
"Requirement of Law": as to any Person, the Organizational Documents of
such Person, all Laws applicable to or binding upon such Person or any of its
properties or transactions or to which such Person or any of its property or
transactions is subject and all Permits or Regulatory Authorizations issued to
such Person.
"Requirements": as defined in Section 7.11.
"Requisite Lenders": Lenders having more than sixty-six and two-thirds
percent (66-2/3%) of (a) the Commitments of all Lenders or (b) after the
Commitment Termination Date, the outstanding principal amount of the Loan.
"Reserve": Forty Five Million Dollars ($45,000,000) less the product of
$45,000,000 and the percentage of $30,000,000 that the Additional Contributed
Capital then and theretofore received represents.
"Responsible Officer": of a Person, the chief executive officer, the
president, the general counsel, the chief financial officer or the director of
treasury operations of such Person.
"Right-of-Way": any Loan Party's right, title and interest in, to, over or
under property located in any state or territory, acquired or to be acquired by
such Loan Party at any time for Network purposes, and all such real and personal
property interests as shall be necessary to construct, install, operate and
maintain such Loan Party's Network, including satellite rights, underground
rights, access to and from all such property and any such property or property
rights now or hereafter necessary to connect customers and service providers to
the Network.
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"Right-of-Way Agreements": all easements, use agreements, contracts,
deeds, co-location agreements, licenses, leases, agreements, documents or means
pursuant to which any Loan Party acquires any Right-of-Way, regardless of
whether such Right-of-Way consists of real property, real property interests or
personal property.
"Roll Out": the transition of Holdings' and its Subsidiaries'
telecommunications operations from a resale to a facilities-based operation, as
described in the Business Plan.
"Secured Parties": the Administrative Agent and the Lenders.
"Security Documents": this Agreement, the Stockholder Pledge Agreement,
the Landlord Consents, all financing statements, and any other agreement or
document required by the terms of this Agreement to be entered into by a
Guarantor not party to this Agreement granting a security interest or other Lien
to secure payment of the Obligations.
"Senior Debt": all Indebtedness of the Borrower and its Subsidiaries other
than Indebtedness which is subordinated, to the reasonable satisfaction of the
Requisite Lenders, to the Obligations.
"Senior Debt to Total Capitalization": at any date, Senior Debt at such
date, divided by Total Capitalization at the same date.
"Senior Leverage Ratio": for any period, Senior Debt as of any date
divided by the product of (i) EBITDA for the two (2) most recent Fiscal Quarters
ending on or prior to such date multiplied by (ii) two (2).
"Site": any site where Equipment with a cost of more than $100,000 is
located.
"Site Leases": collectively, all leases, subleases, tower leases,
co-location agreements, license agreements, easements, use agreements,
privileges, access agreements, Right-of-Way Agreements and all other agreements
relating to the use by any Loan Party of any Site.
"Software" and "Software Licenses": any software now or hereafter owned
by, or licensed to, any Loan Party or with respect to which such Loan Party has
or may have license or use rights.
"Solvent": with respect to any Person on a particular date, that on such
date (a) the fair value of the property of such Person is greater than the total
amount of liabilities, including contingent liabilities, of such Person; (b) the
present fair salable value of the assets of such Person is not less than the
amount that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured; (c) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (d) such
Person is not engaged in a business or transaction, and is not about to engage
in a business or transaction, for which such Person's property would constitute
an unreasonably small capital. The amount of contingent liabilities (such as
litigation, guarantees and pension plan liabilities) at any time shall be
computed as the amount which, in light of all the facts and circumstances
existing at the time, represents the amount which can reasonably be expected to
become an actual or matured liability.
"Stage 1": the period of time from the Closing Date until a date when the
Borrower submits Financial Statements and compliance certificates demonstrating
(i) positive EBITDA for each of the previous two (2) consecutive Fiscal Quarters
taken as a single accounting period and (ii) Total Debt to annualized EBITDA not
greater than l0.0x.
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"Stage 2": the period immediately following the end of Stage 1.
"Stock": all shares, options, warrants, general or limited partnership or
membership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership, limited liability company or equivalent entity,
whether voting or nonvoting, including common stock, preferred stock or any
other "equity security" (as such term is defined in Rule 3a11-1 of the General
Rules and Regulations promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, as amended).
"Subsidiary": with respect to any Person, (a) any corporation (i) of which
an aggregate of more than fifty percent (50%) of the outstanding Stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether, at the time, Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) is at the time, directly or indirectly, owned
legally or beneficially by such Person and/or one or more Subsidiaries of such
Person or (ii) with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such Stock, whether by
proxy, agreement, operation of law or otherwise and (b) any partnership or
limited liability company (i) in which such Person and/or one or more
Subsidiaries of such Person shall have an interest (whether in the form of
voting or participation in profits or capital contribution) of more than fifty
percent (50%) or (ii) of which any such Person is a general partner or manager
or may exercise the powers of a general partner or manager.
"System Agreements": any and all agreements and documents executed by or
delivered by or to any Loan Party at any time in connection with a Network or
its acquisition, construction or operation, including all management and
maintenance agreements, agreements for storage or warehousing of any Equipment,
Site leases, interconnection agreements, Right-of-Way Agreements, capacity and
usage agreements and agreements with carriers, customers or subscribers.
"Taxes": taxes, levies, imposts, deductions, Charges or withholdings, and
all liabilities with respect thereto (including interest, penalties or additions
thereto), excluding taxes imposed on or measured by the net income of the
Administrative Agent or any Lender by or within the United States of America or
any other jurisdiction from or to which a payment is made by or on behalf of the
Borrower or under which the Administrative Agent or any Lender is organized or
from which it makes the Advances or any political subdivision of any thereof.
"Telecommunications Business": the business of (i) transmitting, or
providing services relating to the transmission of, voice fax, video or data
through owned or leased transmission facilities or the provision of Internet
related services, (ii) creating, developing or marketing communications related
network equipment, software and other devices for use in a telecommunications
business or (iii) evaluating, participating or pursuing any other activity or
opportunity that is primarily related to those identified in clause (i) or (ii)
above.
"Telecommunications Costs": shall mean the costs and expenses related to
purchasing Equipment and services from Nortel and, in an amount not to exceed
50% of the amount paid to Nortel for Equipment and services, Permitted Third
Party Expenses and other expenses acceptable to the Requisite Lenders.
"Termination Date": the date on which the Loan has been repaid in full,
all other Obligations then due have been paid in full, and the Borrower shall
not have any further right to borrow any monies under this Agreement.
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"Total Capitalization": at any date, Total Debt at such date plus
paid-in-capital (including preferred stock but excluding additional equity
issued as pay-in-kind dividends on issued and outstanding equity securities) at
such date for the Loan Parties on a consolidated basis, excluding any
accumulated deficits resulting from operations.
"Total Debt": the aggregate Indebtedness of the Loan Parties.
"Total Debt Service": for any period, the sum of (a) scheduled mandatory
principal payments during such period of Total Debt and (b) Cash Interest
Expense.
"Total Debt to Total Capitalization": at any date, Total Debt at such date
divided by Total Capitalization as of the same date.
"Total Leverage Ratio": for any period, Total Debt as of any date divided
by the product of (i) EBITDA for the two (2) most recent Fiscal Quarters ending
on or prior to such date multiplied by (ii) two (2).
"UCC": the Uniform Commercial Code as the same may from time to time be in
effect in the State of New York or, to the extent it may be required to apply to
any item or items of Collateral, the Uniform Commercial Code as in effect in any
other applicable jurisdiction.
1.2 Accounting Principles: Subsidiaries. Except as otherwise provided in
this Agreement, all computations and determinations as to accounting or
financial matters and all financial statements to be delivered pursuant to this
Agreement shall be made and prepared in accordance with GAAP (including
principles of consolidation where appropriate), consistently applied, and all
accounting or financial terms shall have the meanings ascribed to such terms by
GAAP. If at any time a Loan Party has any Subsidiaries, all accounting and
financial terms herein shall be deemed to include references to consolidation
and consolidating principles, and covenants, representations and agreements with
respect to a Loan Party and its properties and activities shall be deemed to
refer to such Loan Party and its consolidated Subsidiaries collectively. For
purposes of Section 7.17 and Schedule 7.17, GAAP shall be determined on the
basis of such principles in effect on the date of the most recent annual audited
Financial Statements provided hereunder (or if prior to delivery of the first
such annual audited Financial Statements hereunder, then on a basis consistent
with the annual audited Financial Statements referenced in Section 4.10);
provided, however, that if due to a change in application of GAAP or the rules
promulgated with respect thereto, (a) the Borrower shall object to determination
of compliance with the financial covenants in Section 7.17 on such basis or (b)
the Administrative Agent or the Requisite Lenders shall object to determination
of compliance therewith on such basis within thirty (30) days after delivery of
such Financial Statements, then such calculations shall be made on a basis
consistent with the most recent Financial Statements delivered as to which no
such objection shall have been made.
1.3 Computation of Time Periods. In this Agreement, in the computation of
periods of time from a specified date to a later specified date, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding" and the word "through" means "to and including".
1.4 UCC Terms. Except as otherwise provided or amplified (but not limited)
herein, terms used in this Agreement that are defined in the UCC shall have the
same meanings herein.
1.5 General Construction: Captions. All definitions and other terms used
in this Agreement shall be equally applicable to the singular and plural forms
thereof, and all references to any gender shall include all other genders. The
words "hereof," "hereto," "herein" and "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular
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Article, Section or clause in this Agreement. References herein to an Exhibit,
Schedule, Article, Section or clause refer to the appropriate Exhibit, Schedule,
Article, Section or clause in this Agreement unless otherwise specified. The
word "including" shall have the meaning represented by the phrase "including,
without limitation." The captions and table of contents in this Agreement and
the other Loan Documents are for convenience only, and in no way limit or
amplify the provisions hereof.
1.6 References to Documents and Laws. All defined terms and references in
this Agreement or any of the other Loan Documents to any agreement, note,
instrument, certificate or other document shall be deemed to refer to all
amendments, modifications, renewals, extensions, replacements, restatements,
substitutions and supplements thereof and to all appendices, exhibits or
schedules thereto, in each case as the same may be in effect at any and all
times such reference becomes operative. All references herein and in any of the
other Loan Documents to any Law shall include all amendments thereof and any
successor statute and regulations under any of the foregoing.
ARTICLE 2: LOANS
2.1 Term Loan Commitments. On the terms and subject to conditions hereof,
each Lender agrees to make available to the Borrower from time to time during
the period from the Closing Date to the Commitment Termination Date its Pro Rata
Share of each Advance requested by the Borrower in accordance with Section 2.4.
The Pro Rata Share of any Lender of the Loan shall not at any time exceed such
Lender's Pro Rata Share of the Available Credit. The obligation of each Lender
hereunder shall be several and not joint. Amounts repaid or prepaid may not be
reborrowed under this Agreement.
2.2 Notes. The Borrower shall execute and deliver to each Lender a note to
evidence the obligation of the Borrower to repay the amount of such Lender's
Advances together with interest thereon as prescribed in Section 2.8. Each note
shall be in the principal amount of the Commitment of the applicable Lender,
dated the First Borrowing Date, and substantially in the form of Exhibit A (each
a "Note" and, collectively, the "Notes").
2.3 Reliance on Notices. The Administrative Agent and each Lender shall be
entitled to rely upon, and shall be fully protected in relying upon, any
Borrowing Certificate, Notice of Conversion/Continuation or similar notice
believed by the Administrative Agent or such Lender to be genuine. The
Administrative Agent and each Lender may assume that each Person executing and
delivering such a notice was duly authorized, unless the responsible individual
acting thereon for the Administrative Agent or such Lender has actual knowledge
to the contrary.
2.4 Procedures for Borrowing.
(a) Borrowing Certificates. To request an Advance, the Borrower
shall send to the Administrative Agent a completed Borrowing Certificate at
least three (3) Business Days prior to the requested Borrowing Date for LIBOR
Loans and one (1) Business Day prior to the requested Borrowing Date for Base
Rate Loans (or such shorter period for the First Borrowing Date as agreed to by
the Lenders). Each Borrowing Certificate shall specify therein (i) the requested
Borrowing Date, (ii) the aggregate amount of such Advance and the purpose
thereof, (iii) the amount thereof, if any, requested to be LIBOR Loans and (iv)
the initial LIBOR Period or Periods for any such LIBOR Loans. The Loan shall be
made as Base Rate Loans unless (subject to Section 2.13) the Borrowing
Certificate specifies that all or a portion thereof shall be LIBOR Loans. All
LIBOR Loans shall comply with Section 2.8(e).
Each Borrowing Certificate shall be irrevocable and binding on the
Borrower. In the case of any requested Advance which the related Borrowing
Certificate specifies is to be comprised of LIBOR
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Loans, the Borrower shall indemnify each Lender against any loss, cost or
expense incurred by such Lender as a result of any failure to fulfill on the
date specified for such requested Advance in such Borrowing Certificate the
applicable conditions set forth in Article 6, including any loss (excluding loss
of margin), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund any
LIBOR Loan to be made by such Lender as part of such requested Advance when such
LIBOR Loan, as a result of such failure, is not made on such date.
(b) Each Lender's Obligation Several. The failure of any Lender to
make the Advance to be made by it as part of the Loan shall not relieve any
other Lender of its obligation, if any, hereunder to make its Advance on such
Borrowing Date, but no Lender shall be responsible for the failure of any other
Lender to make the Advance to be made by such other Lender on the Borrowing
Date.
(c) Advances. Each Advance (other than the last Advance) shall be in
an aggregate principal amount of not less than $500,000 and no more than two
Advances may be required to be made in any calendar month without the
Administrative Agent's consent. No amount may be borrowed hereunder on or after
the Commitment Termination Date.
2.5 Loan Amortization. The Borrower shall repay the Loan in installments
as set forth on Schedule 2.5.
2.6 Maturity. The entire unpaid balance of the Loan and all other
non-contingent Obligations shall be immediately due and payable in full in
immediately available funds on the Maturity Date, if not sooner paid in full
pursuant to Section 2.7.
2.7 Prepayments: Commitment Reductions.
(a) Voluntary Prepayment. The Borrower may, at its option, at any
time and from time to time upon three (3) Business Days' prior notice to the
Administrative Agent, specifying the date and amount of prepayment, in a minimum
amount of $1,000,000, voluntarily prepay part of the Loan or, at any time, upon
three (3) Business Days' prior written notice to the Administrative Agent,
voluntarily prepay all of the Loan plus in, all cases, all accrued but unpaid
interest thereon and any LIBOR funding breakage costs in accordance with Section
7.8(b). Such notice shall be irrevocable, and the principal amount specified in
such notice shall be due and payable on the date specified together with accrued
interest on the amount prepaid. Any such prepayment shall be subject to a
prepayment premium equal to a percentage of the amount prepaid as follows: two
percent (2%) if the prepayment is made prior to the first anniversary of the
Closing Date; one percent (1%) if the prepayment is made on or after the first
anniversary of the Closing Date but prior to the second anniversary of the
Closing Date; and zero percent (0%) if the prepayment is made on or after the
second anniversary of the Closing Date.
(b) Mandatory Prepayment.
(i) Asset Dispositions. In the event of receipt by any Loan Party of
Asset Disposition Net Proceeds that are not used within 180 days of receipt for
the purchase of Equipment from Nortel or, to the extent permitted herein, any
other Person, in which Equipment the Administrative Agent for the benefit of the
Secured Parties has a first priority perfected security interest, the Borrower
shall prepay the Loan on the next Business Day following the end of such 180 day
period in an amount equal to all such proceeds not so used.
(ii) Excess Cash Flow. The Borrower shall prepay the Loan, in an
amount equal to fifty percent (50%) of Excess Cash Flow for each Fiscal Year
commencing with the first Fiscal Year ending after the Commitment Termination
Date, which payment shall be made on the earlier of the date
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which is ten (10) days after (A) the date on which Holdings' annual audited
Financial Statements for the immediately preceding Fiscal Year are delivered
pursuant to Section 7.1 or (B) the date on which such annual audited Financial
Statements were required to be delivered pursuant to Section 7.1.
(c) Nortel Volume Purchase Agreement. In the event of the
termination of or any material breach by Holdings under the Nortel Volume
Purchase Agreement prior to the Commitment Termination Date, the Borrower shall,
upon receipt of a written notice from the Requisite Lenders, forthwith prepay
the amount of the Obligations in full.
(d) Commitment Reductions. Any prepayment made prior to the
Commitment Termination Date shall reduce the Commitment of the Lenders dollar
for dollar, and the Commitment of each Lender shall be reduced by its Pro Rata
Share of such reduction.
2.8 Interest and Applicable Margin.
(a) The Borrower shall pay interest on the Loan to the
Administrative Agent, for the ratable benefit of the Lenders in accordance with
the Advances made by each Lender, in arrears on each applicable Interest Payment
Date, at the following rates: (i) for Base Rate Loans, the Base Rate plus the
Applicable Base Margin per annum or (ii) for LIBOR Loans, the applicable LIBOR
Rate plus the Applicable LIBOR Margin per annum, based on the aggregate amount
outstanding from time to time.
(b) If any payment on the Loan becomes due and payable on a day
other than a Business Day, the maturity thereof will be extended to the next
succeeding Business Day (except as set forth in the definition of LIBOR Period)
and, with respect to payments of principal, interest thereon shall be payable at
the then applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis and of
interest on LIBOR Rate Loans shall be made by the Administrative Agent on the
basis of a 360 day year and of interest on Base Rate Loans on the basis of a
365/366 day year, in any case, for the actual number of days occurring in the
period for which such Fees and interest are payable. The Base Rate shall be
determined each day based upon the Base Rate as in effect each day. Each
determination by the Administrative Agent of an interest rate and Fees hereunder
shall be conclusive, absent manifest error.
(d) As long as an Event of Default shall have occurred and be
continuing under Section 9.1 (a) or as long as any other Event of Default shall
have occurred and be continuing at the election of the Requisite Lenders
confirmed by written notice to the Borrower, the interest rates applicable to
the Loan shall be increased by three percent (3%) per annum above the rates of
interest otherwise applicable hereunder ("Default Rate"), and all other
outstanding Obligations shall bear interest at the Default Rate applicable to
such Obligations. Interest at the Default Rate shall accrue from the initial
date of such Event of Default until that Event of Default is cured or waived and
shall be payable upon demand.
(e) As long as no Default or Event of Default shall have occurred
and be continuing, the Borrower shall have the option to (i) request that any
Advances be made as a LIBOR Loan, (ii) convert at any time all or any part of
the outstanding Loan from a Base Rate Loan to one or more LIBOR Loans, (iii)
convert any LIBOR Loan to a Base Rate Loan, subject to payment of LIBOR funding
breakage costs in accordance with Section 7.8(b) if such conversion is made
prior to the expiration of the LIBOR Period applicable thereto, or (iv) continue
all or any portion of any LIBOR Loan upon the expiration of the applicable LIBOR
Period with the succeeding LIBOR Period of that continued LIBOR Loan commencing
on the last day of the LIBOR Period of the LIBOR Loan to be continued. Any
portion of the Loan to be made or continued as, or converted into, a LIBOR Loan
must be in a minimum amount
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of $500,000 and integral multiples of $100,000 in excess of such amount. Any
such election must be made by 11:00 a.m. (New York time) on the third (3rd)
Business Day prior to (1) the date of any proposed Advance which is to bear
interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any
LIBOR Loan to be continued as such or (3) the date on which the Borrower wishes
to convert a Base Rate Loan to a LIBOR Loan for a LIBOR Period designated by the
Borrower in such election. If no election is received with respect to a LIBOR
Loan by 11:00 a.m. (New York time) on the third (3rd) Business Day prior to the
end of the LIBOR Period with respect thereto (or if an Event of Default shall
have occurred and be continuing), that LIBOR Loan shall be converted to a Base
Rate Loan at the end of its LIBOR Period. The Borrower must make such election
by notice to the Administrative Agent in writing, by telecopy or overnight
courier. In the case of any conversion or continuation, such election must be
made pursuant to a written notice (a "Notice of Conversion/Continuation") in the
form of Exhibit C.
(f) Notwithstanding anything to the contrary set forth in this
Section 2.8, if a court of competent jurisdiction determines in a final order
that the rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, the Borrower shall continue to pay interest hereunder at the
Maximum Lawful Rate until such time as the total interest received by the
Administrative Agent, on behalf of the Lenders, is equal to the total interest
which would have been received had the interest rate payable hereunder been (but
for the operation of this paragraph) the interest rate payable since the date
hereof as otherwise provided in this Agreement. Thereafter, interest hereunder
shall be paid at the rate(s) of interest and in the manner provided in Sections
2.8(a) through (e) above unless and until the rate of interest again exceeds the
Maximum Lawful Rate, and at that time this paragraph shall again apply. In no
event shall the total interest received by any Lender pursuant to the terms
hereof exceed the amount which such Lender could lawfully have received had the
interest due hereunder been calculated for the full term hereof at the Maximum
Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to this
paragraph, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. If, notwithstanding the provisions of this Section 2.8(f),
a court of competent jurisdiction shall finally determine that the Lender has
received interest hereunder in excess of the Maximum Lawful Rate, the
Administrative Agent shall, to the extent permitted by applicable law, promptly
apply such excess in the order specified in Section 2.10 and thereafter shall
refund any excess to the Borrower or as a court of competent jurisdiction may
otherwise order.
2.9 Payments. All payments and prepayments to be made in respect of
principal, interest or other amounts due from the Borrower hereunder or under
any other Loan Document shall be payable on or before 1:00 p.m., New York time,
on the day when due, without presentment, demand, protest or notice of any kind,
all of which are hereby expressly waived, and an action therefor shall
immediately accrue. Such payments shall be made to the Administrative Agent at
the Administrative Agent's office at 10 Riverview Drive, Danbury, Connecticut
06810 or such other location specified in writing by the Administrative Agent,
in immediately available funds, without set off, recoupment, counterclaims or
any other deduction of any nature. Payments received after 1:00 p.m., New York
time, on any Business Day shall be deemed to have been received on the following
Business Day.
2.10 Application and Allocation of Payments.
(a) As long as no Default or Event of Default shall have occurred
and be continuing, payments matching specific scheduled payments then due shall
be applied to those scheduled payments. All payments and prepayments applied to
the Loan shall be applied ratably to the portion thereof held by
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each Lender as determined by its Pro Rata Share. As to each other payment, and
as to all payments made when an Event of Default shall have occurred and be
continuing, the Borrower hereby irrevocably waives the right to direct the
application of any and all payments received from or on behalf of the Borrower,
and the Borrower hereby irrevocably agrees that the Administrative Agent shall
have the continuing exclusive right to apply any and all such payments against
the Obligations of the Borrower as the Administrative Agent may deem advisable
notwithstanding any previous entry by the Administrative Agent in the Loan
Account or any other books and records. In the absence of a specific
determination by the Requisite Lenders and the Administrative Agent with respect
thereto, payments shall be applied to amounts then due and payable in the
following order: (1) to the Administrative Agent for Fees, reimbursement of
expenses (including costs of collection and amounts expended in connection with
the sale or administration of the Collateral), protective advances made pursuant
to Section 3.10 and Advances on behalf of a Non-Funding Lender made pursuant to
Section 10.9(a)(ii); (2) to interest on the Loan; (3) to principal payments on
the Loan; and (4) to all other Obligations including all expenses of the Lenders
to the extent reimbursable under Section 7.10.
(b) The Administrative Agent is authorized to, and at its sole
election may, charge to the Loan balance on behalf of the Borrower and cause to
be paid all Fees, expenses, Charges, costs (including insurance premiums in
accordance with Section 7.7(a)) and interest and principal, other than principal
of the Loan, owing by the Borrower under this Agreement or any of the other Loan
Documents if and to the extent the Borrower fails to promptly pay any such
amounts as and when due, even if such charges would cause the balance of the
Loan to exceed the Commitment. At the Administrative Agent's option and to the
extent permitted by law, any charges so made shall constitute part of the Loan
hereunder.
2.11 Loan Account and Accounting. The Administrative Agent shall maintain
a loan account (the "Loan Account") on its books to record: all Advances, all
payments made by the Borrower, and all other debits and credits as provided in
this Agreement with respect to the Loan or any of the other Obligations. All
entries in the Loan Account shall be made in accordance with the Administrative
Agent's customary accounting practices as in effect from time to time. The
balance in the Loan Account, as recorded on the Administrative Agent's most
recent printout or other written statement, shall, absent manifest error, be
presumptive evidence of the amounts due and owing to the Administrative Agent
and the Lenders by the Borrower; provided, however, that any failure to so
record or any error in so recording shall not limit or otherwise affect the
Borrower's duty to pay the Obligations. The Administrative Agent shall render to
the Borrower a monthly accounting of transactions with respect to the Loan
setting forth the balance of the Loan Account. Unless the Borrower notifies the
Administrative Agent in writing of any objection to any such accounting
(specifically describing the basis for such objection), within thirty (30) days
after the date thereof, each and every such accounting shall (absent manifest
error) be deemed final, binding and conclusive upon the Borrower in all respects
as to all matters reflected therein. Only those items expressly objected to in
such notice shall be deemed to be disputed by the Borrower. Notwithstanding any
provision herein contained to the contrary, any Lender may elect (which election
may be revoked) to dispense with the issuance of Notes to that Lender and may
rely on the Loan Account as evidence of the amount of Obligations from time to
time owing to it.
2.12 Taxes.
(a) Any and all payments by the Borrower hereunder (including any
payments made pursuant to Sections 7.8 and 7.10 or under any other Loan
Document) shall be made, in accordance with this Section 2.12, free and clear of
and without deduction for any and all present or future Taxes. If the Borrower
shall be required by law to deduct any Taxes from or in respect of any sum
payable hereunder (including any sum payable pursuant to Sections 7.8 and 7.10
or under any other Loan Document), (i) the sum payable shall be increased as
much as shall be necessary so that after making all required deductions
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(including deductions applicable to additional sums payable under this Section
2.12) the Administrative Agent or the Lenders, as applicable, receive an amount
equal to the sum they would have received had no such deductions been made, (ii)
the Borrower shall make such deductions, and (iii) the Borrower shall pay on
behalf of the relevant Lender the full amount deducted to the relevant taxing or
other authority in accordance with applicable law. Within thirty (30) days after
the date of any payment of such Taxes, the Borrower shall furnish to the
Administrative Agent the original or a certified copy of a receipt evidencing
payment thereof.
(b) Each Loan Party that is a signatory hereto shall jointly and
severally indemnify and, within ten (10) days of demand therefor, pay the
Administrative Agent and each Lender for the full amount of Taxes (including any
Taxes imposed by any jurisdiction on amounts payable under this Section 2.12)
paid by the Administrative Agent or such Lender, as appropriate, and any
liability (including penalties, interest, additions thereto and expenses)
arising therefrom or with respect thereto.
2.13 Capital Adequacy; Increased Costs; Illegality.
(a) If any Lender shall have determined that any law, treaty,
governmental (or quasi-governmental) rule, regulation, guideline or order
regarding capital adequacy, reserve requirements or similar requirements or
compliance by any Lender with any request or directive regarding capital
adequacy, reserve requirements or similar requirements (whether or not having
the force of law), in each case, adopted after the date hereof, from any central
bank or other Governmental Authority increases or would have the effect of
increasing the amount of capital, reserves or other funds required to be
maintained by such Lender and thereby reducing the rate of return on such
Lender's capital as a consequence of its obligations hereunder, then the
Borrower shall from time to time upon demand by such Lender made within ninety
(90) days of the occurrence thereof (with a copy of such demand to
Administrative Agent) pay to the Administrative Agent, for the account of such
Lender, additional amounts sufficient to compensate such Lender for such
reduction. A certificate as to the amount of that reduction and showing the
basis of the computation thereof submitted by such Lender to the Borrower and to
the Administrative Agent shall, absent manifest error, be final, conclusive and
binding for all purposes. The Borrower shall not be liable for any amounts to
compensate such Lender for such reduction if the Borrower is not so notified
within such ninety (90) day period.
(b) If, due to either (i) the introduction of or any change in any
law or regulation (or any change in the interpretation thereof) or (ii) the
compliance with any guideline or request from any central bank or other
Governmental Authority (whether or not having the force of law), in each case
adopted after the date hereof, there shall be any increase in the cost to any
Lender of agreeing to make or making, funding or maintaining any Loan, then the
Borrower shall from time to time, upon demand by such Lender made within ninety
(90) days of the occurrence thereof (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. A certificate as to the amount of such increased cost, submitted
to the Borrower and to the Administrative Agent by such Lender, shall be
conclusive and binding on the Borrower for all purposes, absent manifest error.
Each Lender agrees that, as promptly as practicable after it becomes aware of
any circumstances referred to above which would result in any such increased
cost, but in any event within ninety (90) days thereof, it shall, to the extent
not inconsistent with such Lender's internal policies of general application,
use reasonable commercial efforts to minimize costs and expenses incurred by it
and payable to it by the Borrower pursuant to this Section 2.13(b).
(c) Notwithstanding anything to the contrary contained herein, if
the introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any
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Lender to agree to make or to make or to continue to fund or maintain any LIBOR
Loan, then, unless that the Lender is able to make or to continue to fund or to
maintain such LIBOR Loan at another branch or office of that the Lender without,
in that Lender's opinion, adversely affecting it or its Loan or the income
obtained therefrom, on notice thereof and demand therefor by such Lender to the
Borrower through Administrative Agent, (i) the obligation of such Lender to
agree to make or to make or to continue to fund or maintain LIBOR Loans shall
terminate and (ii) the Borrower shall forthwith prepay in full all outstanding
LIBOR Loans owing by the Borrower to such Lender, together with interest accrued
thereon, unless the Borrower, within five (5) Business Days after the delivery
of such notice and demand, converts the Loan into a Base Rate Loan.
(d) Within fifteen (15) days after receipt by the Borrower of
written notice and demand from any Lender (an "Affected Lender") for payment of
additional amounts or increased costs as provided in Section 2.12 or Section
2.13(a) or 2.13(b), the Borrower may, at its option, notify the Administrative
Agent and such Affected Lender of its intention to replace the Affected Lender.
As long as no Default or Event of Default shall have occurred and be continuing,
the Borrower, with the consent of the Administrative Agent, may obtain, at the
Borrower's expense, a replacement Lender ("Replacement Lender") for the Affected
Lender, which Replacement Lender shall be a commercial bank or other financial
institution having combined capital and surplus of at least $300,000,000 or must
otherwise be reasonably satisfactory to the Administrative Agent. If the
Borrower obtains a Replacement Lender within ninety (90) days following notice
of its intention to do so, the Affected Lender must sell and assign its Loan and
Commitment to such Replacement Lender for an amount equal to the principal
balance of the Loan held by the Affected Lender and all accrued interest and
Fees with respect thereto through the date of such sale; provided, however, that
the Borrower shall have reimbursed such Affected Lender for the additional
amounts or increased costs that it is entitled to receive under this Agreement
through the date of such sale and assignment.
Notwithstanding the foregoing, the Borrower shall not have the right
to obtain a Replacement Lender if the Affected Lender rescinds its demand for
increased costs or additional amounts within fifteen (15) days following its
receipt of the Borrower's notice of intention to replace such Affected Lender.
Furthermore, if the Borrower gives a notice of intention to replace and does not
so replace such Affected Lender within ninety (90) days thereafter, the
Borrower's rights under this Section 2.13(d) shall terminate and the Borrower
shall promptly pay all increased costs or additional amounts demanded by such
Affected Lender pursuant to Sections 2.12(a), 2.13(a) and 2.13(b).
2.14 Use of Proceeds.
(a) Prior to the Availability Increase Date, up to $10,000,000 of
the proceeds of the Advances may be used for Telecommunications Costs and up to
$10,000,000 may be used for other general corporate and working capital
purposes, including payment of interest and expenses and repayment of the
Non-Continuing Indebtedness.
(b) On or after the first Availability Increase Date, up to
$50,000,000 of the proceeds of the Advances may be used for Telecommunications
Costs and up to $15,000,000 may be used for other general corporate and working
capital purposes, including payment of interest and expenses and the repayment
of the Non-Continuing Indebtedness.
2.15 Fees.
(a) The Borrower shall pay to the Administrative Agent, for the
ratable benefit of the Lenders, the fees described on Schedule 2.15 (the
"Commitment Fees").
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(b) The Borrower shall pay to GECC, individually for its own
account, additional fees, the amount and dates of payment of which are embodied
in a separate agreement dated the date hereof between Holdings and GECC (the
"GECC Fee Letter").
ARTICLE 3: COLLATERAL AND SECURITY AGREEMENT
3.1 Grant of Security Interest. To secure the prompt and complete payment,
performance and observance of all of the Obligations (specifically including
each Grantor's Obligations arising under the provisions of Article 9), each
Grantor hereby grants, assigns, conveys, mortgages, pledges, hypothecates and
transfers to the Administrative Agent for the benefit of the Secured Parties a
continuing Lien upon all of such Grantor's right, title and interest in and to
the following kinds and types of property, whether now owned or hereafter
acquired or arising, wherever located, together with all substitutions therefor
and all accessions, replacements and renewals thereof, and in all proceeds and
products thereof (collectively, the "Collateral"):
(a) all existing and future accounts, accounts receivable and rights
to payment, including all accounts receivable created by or arising from all
sales or leases of goods or rendition of services by such Grantor to its
customers or subscribers, all unpaid seller's rights (including rescission,
replevin, reclamation and stopping in transit) relating to the foregoing or
arising therefrom, all rights to any goods represented by any of the foregoing,
including returned or repossessed goods, all reserves and credit balances
arising from any of the foregoing, all guarantees or collateral for any of the
foregoing and all insurance policies or rights relating to any of the foregoing
(collectively, "Accounts");
(b) all existing and future instruments, chattel paper, documents of
title, contracts, agreements, licenses, grants and rights, now or hereafter
entered into or acquired by such Grantor, as modified, replaced or supplemented
from time to time, including all System Agreements, purchase and supply
agreements and related warranty rights, operating agreements and insurance
policies (collectively, "Contracts");
(c) all equipment, furniture and fixtures, switches, towers,
electronics, transmitting equipment, Software, fiber-optic cables and other
cabling, hardware, devices and components, now or hereafter owned by such
Grantor, and any and all additions, substitutions and replacements to or of any
of the foregoing, together with all attachments, components, parts,
improvements, upgrades and accessions installed thereon or affixed thereto
(collectively, "Equipment") other than the Commerce Collateral;
(d) all general intangibles and intangible property, including
rights under Contracts, rights to payment of any kind, insurance proceeds and
amounts due under insurance policies, deposit accounts, patent rights,
trademarks, service marks, copyrights, trade names, customer lists, goodwill,
registrations, licenses, license rights, rights in intellectual property,
Software, Software Licenses, computer programming (including source codes,
object codes and all other embodiments of computer programming or information),
tax refunds and benefits, corporate and other business records, refunds and
indemnification rights, all amounts owed at any time to such Grantor, all rights
that such Grantor may have at any time in any Regulatory Authorization,
including any rights to payment upon any transfer of any Regulatory
Authorization (to the extent permitted by applicable law in effect at any time
and subject to Section 3.2), or any other transfer or transaction intended to
result in a transfer of such a Regulatory Authorization, or the obtaining of FCC
or PUC authority for another Person to operate a telecommunications system in
the area instead of such Grantor (to the extent permitted by applicable law in
effect at any time and subject to Section 3.2), all rights to receive payment or
property upon any assignment, transfer, sale or surrender of any other
Collateral and all other intangible personal property of such Grantor of every
kind and nature (collectively, "General Intangibles");
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(e) all merchandise, inventory and goods, now or hereafter owned,
together with all goods and materials used or usable in manufacturing,
processing, packaging or shipping such merchandise, inventory and goods in all
states of production, from raw materials through work-in-progress to finished
goods (collectively, "Inventory");
(f) all securities, whether certificated or uncertificated,
including the stock of each Guarantor as set forth on Schedule 4.38, security
entitlements, securities accounts, commodity contracts and commodity accounts
(collectively, "Investment Property") and
(g) all proceeds and products, including (i) any and all proceeds of
any insurance, indemnity, warranty or guaranty payable to such Grantor from time
to time with respect to any of the Collateral, (ii) any and all payments (in any
form whatsoever) made or due and payable to such Grantor from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of any other Collateral by any Governmental
Authority (or any Person acting under color of Governmental Authority), (iii)
any and all other amounts from time to time paid or payable under or in
connection with any other Collateral and (iv) any and all cash proceeds and
non-cash proceeds in the form of Equipment, Inventory, Contracts, Accounts,
General Intangibles, documents or securities (collectively, "Proceeds").
3.2 Regulatory Authorizations. The Administrative Agent and each Lender
acknowledge and recognize that each Grantor's assignment of or grant of a
security interest in its Regulatory Authorizations may be subject to
restrictions imposed by the FCC or any PUC on such Grantor's ability to assign
its interest in or transfer control of any Regulatory Authorizations. Likewise,
the Administrative Agent and each Lender acknowledge and recognize that each
Grantor's assignment of or grant of a security interest in any state or local
franchises or licenses may be subject to similar government restrictions. Each
Grantor acknowledges, however, that the value of the Regulatory Authorizations
is a critical part of the Collateral package, and agrees to use its best efforts
to effect the transfer of such Regulatory Authorizations to the Administrative
Agent on behalf of the Secured Parties, or its designee, upon the occurrence and
during the continuance of an Event of Default, upon written notice from the
Administrative Agent.
3.3 Priority of Security Interests. The security interests granted in
Section 3.1 by each Grantor to the Administrative Agent on behalf of the Secured
Parties are and shall be continuing and first-priority security interests in the
Collateral to the extent such Collateral is Stock of a Loan Party or such
security interests may be perfected by filing under the UCC, subject to no Liens
except Permitted Encumbrances.
3.4 Pledge Agreement. Each Loan Party hereby represents and warrants that
valid, first-priority security interests have been granted by the Borrower and
Holdings to the Administrative Agent, on behalf of the Secured Parties, pursuant
to this Agreement, in 100% of the Stock of the Borrower and each Subsidiary of
the Borrower, together with an irrevocable proxy to vote such Stock if an Event
of Default should occur, and that all existing stock certificates, warrants and
other instruments evidencing ownership, together with executed blank stock
powers, have been delivered to the Administrative Agent on behalf of the Secured
Parties.
3.5 Further Documentation; Pledge of Instruments. At any time and from
time to time, upon the written request of the Administrative Agent, and at the
sole expense of the Loan Parties, each Loan Party shall promptly execute,
deliver and record any documents, instruments, agreements and amendments, and
take all such further action, as the Administrative Agent may reasonably deem
desirable in obtaining the full benefits of this Agreement and of the rights and
powers herein granted, including the filing of any financing statements or
amendments under the UCC. Each Loan Party also hereby
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authorizes the Administrative Agent to file any such financing statement or
amendment thereto, without the signature of such Loan Party or with a copy or
telecopy of such Loan Party's signature, to the extent permitted by applicable
law. If any amount payable under or in connection with any of the Collateral or
any Stock of the Borrower or any of its Subsidiaries shall be or become
evidenced by any promissory note or other instrument or any certificated
securities, such note, instrument or certificate shall be immediately pledged
and delivered to the Administrative Agent on behalf of the Secured Parties
hereunder, duly endorsed in a manner satisfactory to the Administrative Agent.
The Administrative Agent shall have the right at any time to exchange
certificates or instruments representing or evidencing any of the Collateral or
Stock of the Borrower or any of its Subsidiaries for certificates or instruments
of smaller or larger denominations. Each Loan Party shall keep and maintain, at
its own cost and expense, satisfactory and complete records of the Collateral,
including a record of any and all payments received and any and all credits
granted with respect to the Collateral and all other dealings with the
Collateral. Each Loan Party shall mark its books and records pertaining to the
Collateral to evidence this Agreement and the Liens granted hereby. Each Loan
Party shall duly register on its books and records pertaining to the Stock the
security interests of the Administrative Agent on behalf of the Secured Parties
in such Stock.
3.6 Accounts, Etc. Each Grantor shall be entitled to collect any Accounts
and General Intangibles until the occurrence of an Event of Default, during the
continuance of which the Administrative Agent or the Requisite Lenders may
restrict or terminate such authority. Each Grantor agrees that, upon the
occurrence and during the continuance of an Event of Default, the Administrative
Agent on behalf of the Secured Parties shall be entitled to assume any or all of
the Contracts, Accounts or General Intangibles in the place of such Grantor
(without releasing such Grantor from liability thereunder).
3.7 Further Identification of Collateral. Each Grantor shall furnish to
the Administrative Agent on behalf of the Secured Parties from time to time
statements and schedules further identifying and describing the Collateral and
each location thereof and such other reports in connection with the Collateral
as the Administrative Agent may reasonably request, all in reasonable detail.
3.8 Remedies. The Administrative Agent on behalf of the Secured Parties
shall have all the rights and remedies of a secured party under the UCC, and
shall be entitled to exercise any and all remedies available under this Article
3 or Article 9 or otherwise available at law or in equity upon the occurrence
and during the continuance of an Event of Default. Except as otherwise
specifically provided herein, each Grantor hereby waives presentment, demand,
protest or any notice (to the maximum extent permitted by applicable Law) of any
kind in connection with this Agreement or any Collateral.
3.9 Standard of Care. The Administrative Agent shall be deemed to have
exercised reasonable care in the custody and preservation of any of the
Collateral in its possession if it takes such action for that purpose as the
Borrower requests in writing, but the Administrative Agent's failure to comply
with any such request shall not of itself be deemed a failure to exercise
reasonable care, and no failure of the Administrative Agent to preserve or
protect any rights with respect to such Collateral against prior parties, or to
do any act with respect to the preservation of such Collateral not so requested
by the Borrower, shall be deemed a failure to exercise reasonable care in the
custody or preservation of such Collateral.
3.10 Advances to Protect Collateral. All insurance expense and all
expenses of protecting, storing, warehousing, insuring, handling, maintaining
and shipping the Collateral (including all rent payable by any Grantor to any
landlord of any premises where any of the Collateral may be located) and any and
all Taxes shall be borne and paid by such Loan Party. The Administrative Agent
on behalf of the Secured Parties may (but shall not be obligated to) make
advances to preserve, protect or obtain any of the Collateral, including
advances to cure defaults under any of the Contracts or advances to pay Taxes,
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insurance and the like upon failure of the Borrower to do so promptly after
request by the Administrative Agent, and all such advances shall become part of
the Obligations owing to the Lenders hereunder and shall be payable to the
Administrative Agent on demand, with interest thereon from the date of such
advance until paid at the Default Rate applicable to Base Rate Loans in effect
on the date of such advance.
3.11 License to Use. The Administrative Agent on behalf of the Secured
Parties is hereby granted a non-exclusive license or other right to use without
charge during the continuance of an Event of Default any Grantor's labels,
patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any tangible or intangible property or
rights of a similar nature of any Grantor as they pertain to the Collateral, in
advertising for sale and selling any Collateral, and during the continuance of
an Event of Default the rights of each Grantor under all licenses and all
franchise agreements shall inure to the benefit of the Administrative Agent on
behalf of the Secured Parties.
3.12 Benefit of the Liens. All Liens granted or contemplated hereby shall
be for the benefit of the Administrative Agent on behalf of the Secured Parties,
and all Proceeds or payments realized from the Collateral in accordance herewith
shall be applied to the Obligations in accordance with the terms provided
herein.
3.13 Release of Collateral. Upon any sale of assets permitted herein and
payment of the proceeds as required by Section 2.7, the Liens on such assets
granted by the Grantor to the Administrative Agent for the benefit of the
Secured Parties shall be released and the Administrative Agent shall, upon
request of the Borrower, execute and deliver to the Borrower appropriate
executed UCC-3s and other instruments of release as may be appropriate under the
circumstances, confirming such release.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES
Each Loan Party hereby represents and warrants, jointly and severally, to
the Administrative Agent and each Lender, with respect to all Loan Parties, as
follows:
4.1 Organization and Qualification. Each Loan Party is duly organized,
validly existing and in good standing under the laws of its state of
organization. Each Loan Party is duly qualified to do business and in good
standing in each jurisdiction in which the failure to receive or retain such
qualification would have a Material Adverse Effect.
4.2 Authority and Authorization. Each Loan Party has all requisite
corporate right, power, authority and legal right to carry on its business, to
own or lease its properties and to execute and deliver and perform its
obligations under this Agreement, to make the borrowings provided for herein,
and to execute and deliver and to perform its obligations under the Loan
Documents. Each Loan Party's execution, delivery and performance of the Loan
Documents have been duly and validly authorized by all necessary corporate
proceedings on the part of each Loan Party.
4.3 Execution and Binding Effect. This Agreement, the Notes and all other
Loan Documents have been or will be duly and validly executed and delivered by
each Loan Party, and constitute or, when executed and delivered, will
constitute, the legal, valid and binding obligations of such Loan Party
enforceable in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium or other laws affecting creditors' rights generally and
by general principles of equity.
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4.4 Governmental Authorizations. Except for the consents identified on
Schedule 4.4 (the "Required Consents"), no authorization, consent, approval,
license, exemption or other action by, and no registration, qualification,
designation, declaration or filing with, any Governmental Authority (other than
the filing of financing statements and continuation statements) is or will be
necessary in connection with the execution and delivery of this Agreement, the
Notes or any other Loan Documents by each Loan Party, consummation by each Loan
Party of the transactions herein or therein contemplated, including the
Borrower's obtaining the Loan, the Guarantors' guaranty of the Obligations and
the Loan Parties' granting security for the Obligations, performance of or
compliance by each Loan Party with the terms and conditions hereof or thereof or
the legality, validity and enforceability hereof or thereof.
4.5 Regulatory Authorizations. Each Loan Party holds all authorizations,
permits and licenses required by the FCC, any PUC or any Communications Law for
the conduct of its business and all such Regulatory Authorizations are in full
force and effect and subject to no pending contest, challenge or appeal, subject
only to exceptions that in the aggregate would have no Material Adverse Effect.
No Lender, solely by reason of the execution, delivery and performance of any of
the Loan Documents, will be subject to the regulation or control of either the
FCC or any PUG, except in connection with the enforcement of remedies. The
Regulatory Authorizations are described on Schedule 4.5. The Loan Parties are in
compliance with all applicable Requirements of Law, except for noncompliances
that in the aggregate would not have a Material Adverse Effect.
4.6 Agreements and Other Documents. As of the date hereof, each Loan Party
has provided to the Lenders, accurate and complete copies (or summaries) of all
of the following agreements or documents to which such Loan Party is subject and
each of which is listed on Schedule 4.6: (a) supply agreements and purchase
agreements not terminable by such Loan Party within sixty (60) days following
written notice issued by such Loan Party and involving transactions in excess of
$1,000,000 per annum; (b) any lease of Equipment having a remaining term of one
year or longer and requiring aggregate rental and other payments in excess of
$500,000 per annum; (c) Permits held by such Loan Party, except those the
absence of which in the aggregate would not have a Material Adverse Effect; (d)
instruments or documents evidencing Indebtedness of such Loan Party and any
security interest granted by such Loan Party with respect thereto; (e)
instruments and agreements evidencing the issuance of any equity securities,
warrants, rights or options to purchase equity securities of the Borrower or any
of its Subsidiaries; and (f) all material System Agreements required for the
build-out of the Networks contemplated by the Business Plan. All such agreements
are in full force and effect and are not subject to termination because of
default by a Loan Party or otherwise. Except as set forth on Schedule 4.6, no
material System Agreement or material Contract to which any Loan Party is a
party contains any provision which provides that a change of control of any Loan
Party constitutes an unauthorized assignment thereof or gives the other party a
right of termination, and all material System Agreements are either assignable
or readily replaceable on substantially comparable terms.
4.7 Absence of Conflicts. The execution and delivery of this Agreement,
the Notes and the other Loan Documents, the consummation of the transactions
herein or therein contemplated and the performance of or compliance with the
terms and conditions hereof or thereof by each Loan Party will not (a) violate
any applicable Law; (b) conflict with or result in a breach of or a default
under the Organizational Documents of such Loan Party or any material agreement
or instrument to which such Loan Party is a party or by which such Loan Party or
its properties are bound; or (c) result in the creation or imposition of any
Lien upon any property (now owned or hereafter acquired) of such Loan Party
except as otherwise contemplated by this Agreement.
4.8 No Restrictions. No Loan Party is a party or subject to any contract,
agreement or restriction in its Organizational Documents that materially and
adversely affects its business or the use or ownership of any of its properties
or operation of its business as contemplated in the Business Plan. No
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Loan Party is a party or subject to any contract or agreement which restricts
its right or ability to incur Indebtedness, other than as set forth on Schedule
4.8, none of which prohibits any Loan Party's execution or performance of its
obligations under this Agreement, the Borrower's obtaining the Loan, the
Guarantors' guaranty of the Obligations and the Loan Parties' providing security
for the Obligations as provided herein. No Loan Party has agreed or consented to
cause or permit in the future (upon the happening of a contingency or otherwise)
any of the Collateral, whether now owned or hereafter acquired, to be subject to
a Lien that is not a Permitted Encumbrance.
4.9 Government Contracts. Except as set forth in Schedule 4.9, as of the
date hereof, no Loan Party's Accounts are subject to the Federal Assignment of
Claims Act, as amended (31 U.S.C.ss.3727) or any similar state or local law.
4.10 Financial Statements; Business Plan. The Borrower has furnished to
the Lenders the most recent annual and quarterly Financial Statements of
Holdings, certified by a Responsible Officer of Holdings, as described on
Schedule 4.10. Such Financial Statements (including the notes thereto) present
fairly the financial condition of the Loan Parties on a consolidated and
consolidating basis as of the end of such fiscal period and the results of its
operations and the changes in its financial position for the fiscal period then
ended, all in conformity with GAAP applied on a basis consistent with that of
the preceding fiscal period. As of the date hereof, no Loan Party has any
obligation or liability (absolute, contingent, liquidated or unliquidated)
material to the Loan Parties taken as a whole, except for those reflected in the
Financial Statements described on Schedule 4.10. Since the date hereof, no Loan
Party has incurred any such obligation or liability except to the extent not
prohibited by this Agreement. The Projections delivered by the Borrower to the
Administrative Agent, on behalf of the Lenders, as part of the Business Plan, as
described on Schedule 4.10, a copy of which has been delivered prior to the date
hereof, were prepared in good faith, based on reasonable assumptions, it being
recognized by the Administrative Agent and the Lenders that such Projections as
to future events are not to be viewed as facts and that actual results during
the period covered by such Projections may differ from the projected results.
4.11 Financial Accounting Practices. Each Loan Party has made and kept
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its respective transactions and dispositions of its assets and maintains
a system of internal accounting controls sufficient to provide reasonable
assurances that (a) transactions are executed in accordance with management's
general or specific authorization, (b) transactions are recorded as necessary to
permit preparation of Financial Statements in conformity with GAAP and to
maintain accountability for assets, (c) access to assets is permitted only in
accordance with management's general or specific authorization and (d) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
4.12 Deposit and Disbursement Accounts. Schedule 4.12 lists all banks and
other financial institutions at which any Loan Party maintains deposits and/or
other accounts as of the date hereof, including any disbursement accounts, and
such Schedule correctly identifies the name, address and telephone number of
each such depository, the name in which the account is held, a description of
the purpose of the account and the complete account number.
4.13 Insurance. Schedule 4.13 lists all insurance policies of any nature
maintained, as of the date hereof, for current occurrences by any Loan Party, as
well as a summary of the terms of each such policy.
4.14 Accurate and Complete Disclosure. No representation or warranty made
by or on behalf of any Loan Party in this Agreement or any other Loan Document
and no statement made by or on behalf of any Loan Party in any Financial
Statement, certificate, report, exhibit or document furnished by such
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Loan Party to the Administrative Agent pursuant to or in connection with this
Agreement (including any filings with the Securities and Exchange Commission,
the FCC or any PUC), taken as a whole, is or was false or misleading as of the
date made in any material respect (including by omission of material information
necessary to make such representation, warranty or statement not misleading).
There are no facts known (or which should upon the exercise of reasonable
diligence be known) to any Loan Party that, individually or in the aggregate,
would have any reasonable likelihood of resulting in or causing a Material
Adverse Change which have not been set forth in the Financial Statements
referred to in Section 4.10 or otherwise disclosed in writing to the
Administrative Agent and the Lenders prior to the date hereof.
4.15 No Event of Default; Compliance with Material Agreements. No event
has occurred and is continuing and no condition exists which constitutes a
Default or an Event of Default. No Loan Party is in violation of any term of any
material agreement or instrument to which it is a party or by which it or its
properties are bound, except for such violations that in the aggregate would not
have a Material Adverse Effect.
4.16 Labor Matters. (a) No strikes or other material labor disputes
against any Loan Party are pending or, to any Loan Party's knowledge,
threatened; (b) hours worked by and payment made to employees of each Loan Party
comply in all material respects with the Fair Labor Standards Act and each other
federal, state, local or foreign law applicable to such matter; (c) all material
payments due from any Loan Party for employee health and welfare insurance have
been paid or accrued as a liability on the books of such Loan Party; (d) except
as set forth in Schedule 4.16, no Loan Party is a party to or bound by any
collective bargaining agreement, management agreement, consulting agreement or
any employment agreement (and true and complete copies of any agreements
described on Schedule 4.16 have been delivered to the Administrative Agent and
each Lender); (e) as of the date hereof there is no organizing activity
involving any Loan Party pending or, to any Loan Party's knowledge, threatened
by any labor union or group of employees; (f) there are no representation
proceedings pending or, to any Loan Party's knowledge, threatened with the
National Labor Relations Board, and no labor organization or group of employees
of any Loan Party has made a pending demand for recognition which would have a
Material Adverse Effect; and (g) except as set forth in Schedule 4.16, there are
no complaints or charges against any Loan Party pending or, to the knowledge of
the Responsible Officers of Holdings, threatened to be filed with any
Governmental Authority or arbitrator based on, arising out of, in connection
with, or otherwise relating to the employment or termination of employment by
any Loan Party of any individual which, if adversely determined, could
reasonably be expected to have a Material Adverse Effect.
4.17 Litigation. Except as set forth in Schedule 4.17, there is no pending
action, suit or proceeding by or before any Governmental Authority that is
pending or to the knowledge of any Loan Party is threatened against or affecting
any Loan Party or any of its properties, rights or licenses which if adversely
decided would have a Material Adverse Effect.
4.18 Rights to Property. The Loan Parties have good and legal title,
subject only to the Permitted Encumbrances, to the Collateral, all other
personal and real property purported to be owned by them and all property
reflected in the most recent balance sheet referred to in Section 4.10 (except
as sold or otherwise disposed of in the ordinary course of business or as no
longer used or useful in the conduct of the business). Schedule 4.18 lists or
describes (i) all Sites and Site Leases as of the date hereof, (ii) all other
real property owned by each Loan Party as of the date hereof, and (iii) all
material Equipment of each Loan Party as of June 30, 1999 and its location or
proposed location. Each Loan Party has, or by the Borrowing Date shall have,
entered into the Site Leases described on Schedule 4.18. Such Site Leases are in
full force and effect and are not subject to termination because of default or
otherwise.
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4.19 Year 2000 Issue. Each Loan Party has a plan and organization in place
to minimize any Material Adverse Effect caused by the failure of any system or
Equipment which is material to such Loan Party's operations to be Year 2000
Compliant. "Year 2000 Compliant" means that such system or Equipment will
process date data from, into and between the calendar year 1999 and the calendar
year 2000, including leap year calculations, with substantially the same
functionality as such system or Equipment processes date data falling on or
before December 31, 1999 and that, when used in accordance with such system's or
Equipment's normal operation specifications, and provided all systems and
equipment of others used in combination with such system or Equipment properly
exchange data with such system or Equipment, such system or Equipment will
accept, store, retrieve, calculate, compare and otherwise process date data
before and after January 1, 2000. Each Loan Party is conscientiously
implementing such plan. Each Loan Party will, upon request from the
Administrative Agent, on behalf of the Lenders, or from the Requisite Lenders,
provide the Administrative Agent or, if so requested, the Lenders with periodic
updates on its implementation of such plan.
4.20 Taxes. Each Loan Party's federal tax identification number is set
forth on Schedule 1. All federal and state income tax returns and all other
material Tax returns required to be filed by each Loan Party have been properly
prepared, executed and filed, and all Taxes upon such Loan Party or upon any of
its respective properties, incomes, sales or franchises which are shown to be
due and payable thereon have been paid, other than Taxes or assessments the
validity or amount of which such Loan Party is contesting in good faith. The
reserves and provisions for Taxes on the books of each Loan Party are adequate
for all open years and for its current fiscal period.
4.21 No Material Adverse Change. Since the date of the Financial
Statements referenced in Section 4.10 there has been no Material Adverse Change.
4.22 Solvency. Both immediately before and after giving effect to (a) the
Advances to be made or extended on the date hereof or such other date as the
Advances requested hereunder are made or extended, (b) the disbursement of the
proceeds of such Advances and (c) the payment and accrual of all transaction
costs in connection with the foregoing, the Loan Parties, taken as a whole, are
Solvent.
4.23 No Regulatory Event. To the knowledge of any Loan Party, no
Regulatory Event has occurred and is continuing.
4.24 Trade Relations. There exists no actual or, to the knowledge of any
Loan Party, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between any Loan Party and
any customer or supplier that would have a Material Adverse Effect or prevent
the Loan Parties from conducting their business after the consummation of the
financing contemplated by this Agreement in substantially the same manner as is
contemplated in the Business Plan.
4.25 No Brokerage Fees. No Loan Party has agreed to pay any brokerage or
other fee, commission or compensation to any Person in connection with the Loan
to be made hereunder except the Fees as contemplated herein.
4.26 Margin Stock; Regulation U. No Loan Party is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock. The making of the Advances and
the use of the proceeds thereof will not violate Regulation U or X of the Board
of Governors of the Federal Reserve System.
4.27 Investment Company; Public Utility Holding Company. No Loan Party is
an "investment company" or a "company controlled by an investment company" or an
"affiliated person" or
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"promoter" or "principal underwriter" for, an "investment company," within the
meaning of the Investment Company Act of 1940, as amended, or a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate" of
a "holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935. as amended.
4.28 Personal Holding Company; Subchapter S. No Loan Party is a "personal
holding company" as defined in Section 542 of the Code, or a "Subchapter S"
corporation within the meaning of the Code.
4.29 Securities Act. Etc. The issuance of the Notes to the Lenders under
the circumstances contemplated by this Agreement is not required to be
registered under the Securities Act of 1933, as amended, or under the securities
laws of any state.
4.30 ERISA. (i) With respect to any Plan, no Reportable Event has occurred
which may reasonably result in any material liability to the PBGC with respect
to any Plan, (ii) no Plan has been terminated, (iii) no trustee has been
appointed by any United States District Court to administer any Plan, (iv) the
PBGC has not instituted proceedings to terminate any Plan or to appoint a
trustee to administer any such Plan, (v) no Loan Party or Affiliate of a Loan
Party has withdrawn, completely or partially, from any Plan, (vi) no Loan Party
or Affiliate of a Loan Party has incurred secondary liability for withdrawal
liability payments under any Plan and (vii) no Loan Party is subject to any
liability (contingent or otherwise) with respect to any Plan that would have a
Material Adverse Effect.
4.31 Intellectual Property. Each Loan Party owns or possesses the right to
use all patents, trademarks, service marks, trade names, copyrights, know-how,
franchises, Software and Software Licenses necessary for the operation of its
business, without any known conflict with the valid rights of others which would
have a Material Adverse Effect. All such material rights are described
on Schedule 4.31.
4.32 Environmental Warranties. To the best of the Holdings' knowledge,
each Loan Party is in compliance with all Environmental Laws applicable to such
Loan Party or its business or to the real or personal property owned, leased or
operated by such Loan Party, except for such non-compliances which would not
result in any Loan Party incurring Environmental Liabilities that in the
aggregate would have a Material Adverse Effect. No Loan Party has received
notice from a Governmental Authority of, or is aware of, any violation or
alleged violation, or any liability or asserted liability, under any
Environmental Law, with respect to such Loan Party or its business or its
premises. The only premises occupied by any Loan Party are Sites where Equipment
is located and office spaces in commercial office buildings. Schedule 4.32 lists
all environmental or health and safety assessments, investigations, analyses,
testing or sampling results with respect to the operations of any Loan Party or
any real property owned, operated or leased by any Loan Party that is in such
Loan Party's possession, custody or control.
4.33 Security Interests. The provisions of Article 3 are effective to
create in favor of the Administrative Agent, on behalf of the Secured Parties, a
legal, valid and enforceable Lien on or security interest in all of the
Collateral, and, when the recordings and filings described on Schedule 4.33 have
been effected in the public offices listed on said Schedule 4.33, this Agreement
will create a perfected first priority security interest in all right, title,
estate and interest of each Loan Party in the Collateral which may be perfected
by filing, subject to no Liens except Permitted Encumbrances. The recordings and
filings shown on said Schedule 4.33 are all the actions necessary in order to
establish, protect and perfect the interest of the Administrative Agent, on
behalf of the Secured Parties, in the Collateral.
4.34 Place of Business. The chief executive office of each Loan Party is
identified on Schedule 4.34. Each Loan Party's principal place of business in
the state(s) where a Site is located is
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identified on Schedule 4.34. Each Loan Party's records concerning the Collateral
are kept at one or all of these addresses.
4.35 Location of Collateral. The Collateral is and will be kept at the
locations identified by Loan Party and type of Collateral on Schedule 4.35 or
such other locations as may be permitted under Section 8.4.
4.36 Material Contracts and Accounts. Each Contract, General Intangible
and Account is, or will be when it is created, a bona fide, valid and legally
enforceable property or right of a Loan Party and, so far as any Loan Party
knows, of any other party thereto, except for those that do not, in the
aggregate, materially and adversely affect the value of the Collateral. No
amount payable in excess of $10,000 individually or $100,000 in the aggregate
under or in connection with any of such Contracts, General Intangibles or
Accounts are evidenced by any chattel paper or any promissory notes or other
instruments that have not been delivered to the Administrative Agent on behalf
of the Secured Parties.
4.37 No Defaults Under Contracts or Accounts. With respect to each
Contract, Account and General Intangible, no default by any Loan Party or event
which with the giving of notice or the passage of time would be a default has
occurred and, to the knowledge of the Responsible Officers of Holdings, the
other party or parties thereto are not in default thereunder, except for
defaults that in the aggregate would not have a Material Adverse Effect, and
each Loan Party has fully and timely performed all its material obligations
thereunder. The right, title and interest of such Loan Party thereunder is not
subject to any defense, set off, counterclaim or claim, and none of the
foregoing been asserted or alleged against such Loan Party except in respect of
such defaults, defenses, set offs, counterclaims and claims that in the
aggregate do not materially adversely affect the value of the Collateral. The
amount represented by each Loan Party to the Administrative Agent, on behalf of
the Lenders, from time to time as owing on any or all Accounts, Contracts or
General Intangibles, will at such time be the correct amount actually owing by
such account debtors thereunder.
4.38 Corporate Structure. The Borrower is wholly-owned by Holdings. The
Guarantors other than Holdings are wholly-owned, directly or indirectly, by the
Borrower. The authorized and outstanding Stock of each Guarantor and the
ownership thereof is set forth on Schedule 4.38.
4.39 Assumed Names. Except as set forth on Schedule 4.39, no Loan Party
conducts business under any assumed names or trade names, or has conducted
business under any other names, or any assumed names or trade names, at any time
prior to the date hereof.
4.40 Transactions with Affiliates. No Affiliate and no officer or director
of any Loan Party or any individual related by blood, marriage, adoption or
otherwise to any such Affiliate, officer or director, or any Person in which any
such Affiliate, officer, director or individual related thereto owns any
material beneficial interest, is a party to any material agreement, contract,
commitment or transaction with such Loan Party or has any material interest in
any material property used by such Loan Party, except as set forth on Schedule
4.40.
ARTICLE 5: CONDITIONS TO FIRST BORROWING DATE
On the First Borrowing Date, the following conditions shall have been
satisfied:
5.1 Closing Certificates. The Administrative Agent and each Lender shall
have received the following certificates, all in form and substance reasonably
satisfactory to the Administrative Agent and all dated the First Borrowing Date
upon which the Administrative Agent may conclusively rely unless
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and until later certificates have been furnished to the Administrative Agent and
each Lender: (a) a certificate of each Loan Party signed by a duly authorized
Responsible Officer, certifying as to (i) true copies of Organizational
Documents of such Loan Party in effect on such date; (ii) true copies of all
corporate action taken by such Loan Party relative to this Agreement, the Notes
and the other Loan Documents (including a resolution of its Board of Directors
authorizing the execution and delivery of the Loan Documents, the incurrence of
the Obligations and the granting of the Liens contemplated hereby to the extent
required pursuant to the Organizational Documents applicable thereto) which have
been properly adopted and have not been modified or amended; and (iii) the
names, true signatures and incumbency of the Responsible Officers of such Loan
Party authorized to execute and deliver this Agreement, the Notes and the other
Loan Documents; (b) a Certificate of Good Standing (or equivalent certificate)
for such Loan Party, duly issued by the Secretary of State of the State of
organization of such Loan Party and of each other state in which such Loan Party
does business; and (c) a certificate as to such other matters as the
Administrative Agent or any Lender shall reasonably request.
5.2 Opinions of Counsel. The Administrative Agent and each Lender shall
have received the following opinions, all dated the First Borrowing Date and all
in form and substance satisfactory to the Administrative Agent and each Lender:
(a) a written opinion of counsel to each Loan Party, substantially
in the form of Exhibit D, as to such matters as shall be required by the
Administrative Agent, any Lender or their respective counsel, including the
corporate good standing of such Loan Party, the proper adoption of any corporate
resolution required hereby, the authority of the Person signing for such Loan
Party, the validity, binding nature and enforceability of this Agreement and the
other Loan Documents and the validity and perfection of all Liens granted by the
Loan Documents to the Administrative Agent on behalf of the Secured Parties by
such Loan Party in the Collateral; and
(b) a written opinion of regulatory counsel for Loan Parties,
substantially in the form of Exhibit E, as to such matters as shall be required
by the Administrative Agent and its counsel, including the validity of each Loan
Party's Regulatory Authorizations and Permits.
5.3 Closing Documents. The Administrative Agent and the Lenders shall have
received the following documents, all in form and substance reasonably
satisfactory to the Administrative Agent, the Lenders and their respective
counsel:
(a) Agreement. This Agreement, duly executed by all Loan Parties;
(b) Notes. The Notes, duly executed by the Borrower, payable to the
order of each Lender;
(c) Financing Statements. Evidence that all UCC-l financing
statements necessary to perfect the Liens granted hereby, each duly executed by
each Loan Party, have been duly recorded in all the offices identified on
Schedule 4.33;
(d) Commerce Loan Agreement. Amendments to the Commerce Loan
Agreements and related UCC-l financing statements;
(e) Nortel Volume Purchase Agreement. A copy of the duly executed
Nortel Volume Purchase Agreement, in form and substance reasonably satisfactory
to the Lenders;
(f) Insurance. Policies and certificates of insurance required by
Section 7.7. accompanied by evidence of the payment of the premiums therefor;
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(g) Financial Statements. The Financial Statements described on
Schedule 4.10;
(h) Balance Sheet. An unaudited consolidated balance sheet of
Holdings and its Subsidiaries as of a date no earlier than sixty (60) days prior
to the Closing Date, certified by a Responsible Officer as fairly presenting the
financial condition of Holdings, evidencing liabilities not materially in excess
of liabilities projected as of the Closing Date in the Projections;
(i) Asset Locations. A detailed description of all material assets
of each Loan Party by location;
(j) Required Consents. Evidence satisfactory to the Administrative
Agent of each Loan Party's having obtained the Required Consents;
(k) Fee Letter. The executed GECC Fee Letter;
(l) Pre-Closing Lien Searches. Lien searches from all jurisdictions
reasonably determined by the Administrative Agent or any Lender to be
appropriate, as of a date reasonably close to the First Borrowing Date, with
respect to each Loan Party (under their present names and any previous names),
reflecting no other Liens (other than Permitted Encumbrances) on any of the
Collateral; and
(m) Landlord Consents. Such Landlord Consents as the Administrative
Agent shall have requested.
5.4 No Material Adverse Change. As of the First Borrowing Date, after
giving effect to any Advances, there shall not have been (i) since December 31,
1998, any Material Adverse Change; (ii) any litigation commenced which, if
successful, would have a Material Adverse Effect or which would challenge the
financing contemplated by this Agreement, except the litigation listed on
Schedule 4.17 and (iii) since December 31, 1998, any material increase in the
liabilities, liquidated or contingent, of Holdings and its Subsidiaries or a
material decrease in the assets of Holdings and its Subsidiaries, taken as a
whole.
5.5 Fees. The fees required to be paid on or prior to the First Borrowing
Date as specified in the GECC Fee Letter shall have been paid.
ARTICLE 6: CONDITIONS OF LENDING
6.1 Conditions to Each Borrowing Date. The obligation of any Lender to
fund any Advance is subject to each Loan Party's performance of its obligations
hereunder and satisfaction of the following further conditions on the Borrowing
Date for any such Advance (including the First Borrowing Date) or the date of
such conversion or continuation:
(a) Borrowing Certificate; Notice of Conversion/Continuation. The
Administrative Agent shall have received a duly executed Borrowing Certificate
in the form of Exhibit B.
(b) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing or would exist upon the consummation of
the transactions to occur on such Borrowing Date.
(c) Representations and Warranties. The representations and
warranties contained in Article 4 shall be true and correct on and as of such
date to the same extent as though made on and as of
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the date, except to the extent such representations and warranties relate to an
earlier date, in which case such representations and warranties shall have been
true and correct in all material respects on and as of such earlier date, both
before and after giving effect thereto.
(d) No Regulatory Event. No Regulatory Event (in the Requisite
Lenders' reasonable determination) shall have occurred and be continuing or
would exist upon the consummation of transactions to occur on such Borrowing
Date.
(e) Expenses. All closing costs and Administrative Agent's and
Lenders' other expenses payable by the Borrower under the terms of any Loan
Document shall have been paid in full (or shall be paid first from such Advance
as provided in Section 2.10).
(f) Details, Proceedings and Documents. All legal details and
proceedings in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory to the Administrative Agent, and the
Administrative Agent shall have received all such counterpart originals or
certified or other copies of such documents and proceedings in connection with
such transactions, in form and substance reasonably satisfactory to the
Administrative Agent, as the Administrative Agent may from time to time request.
(g) Business Plan. The Business Plan shall continue to reflect that
the Loan Parties have sufficient funding, including the Loan, to completely
finance all costs to build-out the Networks contemplated by the Business Plan
and to fund anticipated operating losses, debt service and ongoing capital
requirements.
6.2 Post-Closing Items. The post-closing items described on Schedule 6.2
shall have been completed in the time permitted, and each Loan Party shall have
provided the Administrative Agent and the Requisite Lenders with satisfactory
evidence thereof pursuant to Section 7.29.
6.3 Affirmation of Representations and Warranties. The Borrowing
Certificate, other request for any Advance hereunder or any Notice of
Conversion/Continuation shall constitute a representation and warranty that (a)
the representations and warranties contained in Article 4 are true and correct
on and as of the date of such request with the same effect as though made on and
as of the date of such request, except to the extent such representations and
warranties relate to an earlier date, in which case that such representations
and warranties were true and correct on and as of such earlier date, and (b) on
the date of such request no Default or Event of Default has occurred and is
continuing or exists or will occur or exist after giving effect to such Advance,
conversion or continuation (for this purpose such Advance being deemed to have
been made and the conversion or continuation having occurred, as the case may
be, on the date of such request). Failure of the Administrative Agent to receive
notice from each Loan Party to the contrary before the applicable Borrowing Date
shall constitute a further representation and warranty by such Loan Party that
(x) the representations and warranties of such Loan Party contained in the first
sentence of this Section 6.3 are true and correct on and as of such Borrowing
Date with the same effect as though made on and as of such Borrowing Date,
except to the extent such representations and warranties relate to an earlier
date, in which case that such representations and warranties were true and
correct on and as of such earlier date, (y) on such Borrowing Date, no Default
or Event of Default has occurred and is continuing or exists or will occur or
exist after giving effect to such Advance and (z) on such Borrowing Date, all
conditions set forth in this Article 6 have been satisfied.
6.4 Deadline for Funding Conditions. No Lender shall have any obligation
to make any Advances hereunder if all of the conditions set forth in Article 5
and in Article 6 have not been fully satisfied or waived by the Requisite
Lenders.
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ARTICLE 7: AFFIRMATIVE COVENANTS
The Loan Parties hereby jointly and severally agree that from and after
the date hereof until the Termination Date, the Loan Parties will keep and
perform fully each and all of the following covenants:
7.1 Reporting and Information Requirements.
(a) Annual Audit Reports. As soon as practicable, and in any event
within ninety (90) days after the close of each Fiscal Year of Holdings, the
Borrower shall furnish or cause to be furnished to the Administrative Agent and
the Lenders audited consolidated and unaudited consolidating statements of
income, statements of cash flow and retained earnings of the Loan Parties for
such Fiscal Year and consolidated and consolidating balance sheet as of the
close of such Fiscal Year, and notes to each, all in reasonable detail, and
setting forth in comparative form (i) the corresponding figures for the
preceding Fiscal Year and (ii) the actual and projected figures from the most
recently ended Fiscal Year, with such consolidated statements and balance sheet
(exclusive of the Projections) to be certified without qualification by
independent certified public accountants of recognized regional or national
standing selected by the Borrower and reasonably satisfactory to the
Administrative Agent.
(b) Quarterly Reports. Within forty-five (45) days after the end of
each of the first three Fiscal Quarters of each Fiscal Year, the Borrower shall
furnish to the Administrative Agent and the Lenders (i) unaudited consolidated
and consolidating statements of income, statements of cash flow and retained
earnings for the Loan Parties for such quarter and for the period from the
beginning of Holdings' then current Fiscal Year to the end of such quarter, and
an unaudited consolidated and consolidating balance sheet of the Loan Parties as
of the end of such quarter, all in reasonable detail and certified by a
Responsible Officer of the Borrower as presenting fairly the financial position
of the Loan Parties as of the end of such quarter and the results of their
operations and the changes in their financial position for such quarter, in
conformity with GAAP (except for accompanying notes thereto), subject to
year-end audit adjustments, (ii) setting forth in comparative form the
corresponding figures for the corresponding quarter of the preceding Fiscal Year
and the projected figures for the corresponding quarter, (iii) updates of
revenues, gross margin and EBITDA of Holdings on a consolidating basis for the
Fiscal Year to date and (iv) upon request of the Administrative Agent, an aging
of accounts payable and accounts receivable.
(c) Compliance Certificates. Within forty-five (45) days after the
end of each of the first three Fiscal Quarters of each Fiscal Year, the Borrower
shall deliver to the Administrative Agent and the Lenders a certificate dated as
of the end of such Fiscal Quarter, signed by a Responsible Officer of the
Borrower (i) stating that as of the date thereof no Event of Default has
occurred and is continuing or exists, or if an Event of Default has occurred and
is continuing or exists, specifying in detail the nature and period of existence
thereof and any action with respect thereto taken or contemplated to be taken by
the applicable Loan Party; (ii) stating that the signer has personally reviewed
this Agreement and that such certificate is based on an examination made by or
under the supervision of the signer sufficient to assure that such certificate
is accurate; and (iii) calculating and certifying the Loan Parties' compliance
with the financial covenants set forth on Schedule 7.17.
(d) Accountants' Certificate. Each set of year-end audited
consolidated Financial Statements and balance sheet delivered pursuant to
Section 7.1(a) shall be accompanied by a certificate or report dated the date of
such statement and balance sheet by the accountants who certified such
statements and balance sheet stating in substance that they have reviewed this
Agreement and that in making the examination necessary for their certification
of such statements and balance sheet they did not become aware of any Event of
Default or, if they did become so aware, such certificate or report shall state
the nature and period of existence thereof.
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(e) Projections. If requested by the Administrative Agent, the
Borrower shall deliver to the Administrative Agent and the Lenders (i) within
thirty (30) days after the beginning of each calendar year, quarterly
projections of its anticipated income, expenses, cash flow, assets and
liabilities for the next five (5) calendar years or, if earlier, through the
calendar year in which the Maturity Date occurs and (ii) quarterly updates for
the first four (4) full Fiscal Years following the Closing Date if the Loan
Parties are not meeting or exceeding the Projections, prepared in good faith on
assumptions believed by Holdings to be reasonable and in a manner and format
consistent with other Financial Statements provided by the Borrower to the
Administrative Agent and the Lenders.
(f) Other Reports and Information. Upon the request of the
Administrative Agent, the Borrower shall deliver to the Administrative Agent and
the Lenders copies of (i) all regular or special reports or effective
registration statements which any Loan Party shall file with Governmental
Authorities, the FCC or any PUC (or any successor thereto) or any securities
exchange, (ii) financial statements, material reports, and other information
distributed by any Loan Party to its creditors or the financial community in
general, and (iii) all press releases issued by any Loan Party.
(g) Further Information. Each Loan Party will promptly furnish to
the Administrative Agent or any Lender such other information as the
Administrative Agent or any Lender may reasonably request, including any report
by independent auditors and the information set forth on Schedules 4.12 and 4.16
updated as of the date of such request.
7.2 Other Notices. Promptly upon a Responsible Officer of any Loan Party
becoming aware of any of the following, the Borrower shall give the
Administrative Agent and each Lender notice thereof, together with a written
statement of a Responsible Officer of the Borrower setting forth the details
thereof and any action with respect thereto taken or contemplated to be taken by
such Loan Party:
(a) a Default or Event of Default;
(b) any Material Adverse Change;
(c) any event, circumstance or development that could reasonably be
expected to cause or result in a Material Adverse Change;
(d) any event that has a reasonable likelihood of constituting or
resulting in a Regulatory Event;
(e) the commencement, existence or threat of any proceeding by or
before any Governmental Authority against such Loan Party which, if adversely
decided, would have a Material Adverse Effect;
(f) such Loan Party's discovery of any fact, circumstance or
condition that could result in any Loan Party incurring Environmental
Liabilities or receipt of any notice of or other written communication alleging
the violation of, or liability under, any Environmental Law affecting such Loan
Party or any of its properties, which individually or in the aggregate with all
such other violations and liabilities, would exceed $500,000 in the aggregate;
or
(g) any transaction or proposed transaction that could result in a
Change of Control.
7.3 Notice of Pension-Related Events. Each Loan Party shall promptly
furnish the Administrative Agent with written notice upon the receipt by such
Loan Party or the administrator of any Plan of any notice, correspondence or
other communication from the PBGC, the IRS, the Secretary of
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Treasury, the Department of Labor, or any other Person, as the case may be,
relating to (i) any Reportable Event, (ii) any funding deficiency with respect
to any Plan, (iii) any liability, either primary or secondary. with respect to
complete or partial withdrawal from any Plan, (iv) proceedings to terminate any
Plan or (v) the appointment of a trustee for any Plan that would have a Material
Adverse Effect. Such notice shall be accompanied by any pertinent documents
including the relevant notice, correspondence or other communication and a
statement of a Responsible Officer of such Loan Party describing the event or
the action taken and the reasons therefor.
7.4 Financial Accounting Practices. Each Loan Party shall make and keep
books, records and accounts which, in reasonable detail, accurately and fairly
reflect its transactions and dispositions of its assets and maintain a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization, (b) transactions are recorded as necessary (i) to permit
preparation of financial statements in conformity with GAAP and (ii) to maintain
accountability for assets, (c) access to assets is permitted only in accordance
with management's general or specific authorization and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
7.5 Preservation of Corporate Existence and Qualification. Each Loan Party
shall maintain its existence, good standing and rights in full force and effect
in its jurisdiction of organization except as otherwise permitted pursuant to
Section 8.4. Each Loan Party shall qualify to do business and remain qualified
and in good standing and shall obtain all necessary authorizations to do
business in each jurisdiction in which failure to receive or retain such would
have a Material Adverse Effect.
7.6 Continuation of Business. The Loan Parties shall continue to engage
solely in the Telecommunications Business and shall acquire and maintain in full
force and effect all material rights, privileges, franchises and licenses
necessary therefor (including any license or authorization required by the FCC
or any PUC). The Loan Parties shall maintain in force and renew, as necessary,
all material Right-of-Way Agreements and shall obtain such consents of other
parties to any Right-of-Way Agreement as the Administrative Agent on behalf of
the Secured Parties shall deem reasonably necessary to protect its Lien on and
access to the Network, the Collateral and the Right-of-Way.
7.7 Insurance.
(a) The Loan Parties shall, at their sole cost and expense, provide
and maintain or cause to be maintained at all times insurance in such forms and
covering such risks and hazards and in such amounts and with an insurance
corporation with a Best rating of "A" or above, licensed to do business in the
states where any Network or Loan Party is located, as shown on Schedule 7.7 and
otherwise as may be required by the Security Documents. If any Loan Party at any
time or times hereafter shall fail to obtain or maintain any of the policies of
insurance required above or to pay all premiums relating thereto, the
Administrative Agent may at any time or times thereafter obtain and maintain
such policies of insurance and pay such premiums and take any other action with
respect thereto which the Administrative Agent deems advisable. The
Administrative Agent shall have no obligation to obtain insurance for any Loan
Party or pay any premiums therefor. By doing so, the Administrative Agent shall
not be deemed to have waived any Default or Event of Default arising from any
Loan Party's failure to maintain such insurance or pay any premiums therefor.
All sums so disbursed, including reasonable attorneys' fees, court costs and
other charges related thereto, shall be payable on demand by the Loan Parties to
the Administrative Agent and shall be additional Obligations hereunder secured
by the Collateral.
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(b) The Administrative Agent reserves the right at any time upon any
material change in any Loan Party's risk profile (including any change in the
business conducted by any Loan Party or any Laws affecting the potential
liability of such Loan Party) to require additional forms and limits of
insurance to, in the Administrative Agent's reasonable opinion, adequately
protect both the Administrative Agent's and the Lenders' interests in all or any
portion of the Collateral and to ensure that each Loan Party is protected by
insurance in amounts and with coverage customary for its industry. If requested
by the Administrative Agent, which request shall not be made more frequently
than once in any calendar year, each Loan Party shall deliver to the
Administrative Agent from time to time a report of a reputable insurance broker,
satisfactory to the Administrative Agent, with respect to its insurance
policies.
(c) Each Loan Party shall cause (i) all general liability and
automobile insurance policies to name the Administrative Agent on behalf of the
Secured Parties as an additional insured, (ii) all physical damage insurance
policies to contain a Lender's or mortgagee's loss payable provision acceptable
to the Administrative Agent which acceptance shall not be unreasonably withheld,
(iii) all insurance policies to provide that no assignment, cancellation,
material modification, reduction in amount or adverse change in coverage thereof
shall be effective until at least thirty (30) days after receipt by the
Administrative Agent of written notice thereof, (iv) all insurance policies to
insure the interests of the Administrative Agent on behalf of the Secured
Parties regardless of any breach of or violation by such Loan Party of any
warranties, declarations or conditions contained therein and (v) all insurance
policies to provide that the Administrative Agent and the Lenders shall have no
obligation or liability for premiums, commissions, assessments or calls in
connection with such insurance. The Administrative Agent shall be under no
obligation to verify the adequacy or existence of any insurance coverage. Each
Loan Party shall furnish the Administrative Agent copies of, or acceptable
certificates with respect to, all such policies prior to the date hereof, and
shall provide to the Administrative Agent, at least thirty (30) days prior to
each policy expiration date, evidence of the insurance being maintained by such
Loan Party in compliance with this Section 7.7(c). Certificates for insurance
required under clause (i) above shall be in ACORD Form 25S (attached to Schedule
7.7), and all certificates shall be acceptable in form and substance to the
Administrative Agent, which acceptance shall not be unreasonably withheld.
(d) If any of the Collateral is partially or totally damaged or
destroyed, the Borrower shall give prompt notice to the Administrative Agent,
and all insurance proceeds, less the costs of collection thereof, shall be paid
to or retained by the Administrative Agent. Settlements, adjustments or
compromises of any claims for loss, damage or destruction to the Collateral
shall be made jointly by the Borrower and the Administrative Agent so long as no
Event of Default has occurred and is continuing, and otherwise shall be made
solely by the Administrative Agent. Each Loan Party hereby authorizes and
directs any affected insurance company to pay such proceeds directly to the
Administrative Agent, and to rely on the Administrative Agent's statement as to
whether an Event of Default has occurred. The Loan Parties shall pay all
reasonable out-of-pocket costs of collection of insurance proceeds payable on
account of such damage or destruction. If no Event of Default has occurred and
is continuing on the date any Network is partially or totally damaged or
destroyed, the Administrative Agent shall make available to the Borrower the
proceeds of any physical damage insurance actually paid to the Administrative
Agent in respect of such damage or destruction of any of the Collateral (after
deducting therefrom any sums retained by the Administrative Agent in
reimbursement for costs of collection) to pay the cost of restoration, and the
Borrower shall proceed promptly with the work of restoration of the Collateral
and shall pursue the work of restoration diligently to completion. If any Event
of Default has occurred and is continuing either on the date of such damage or
destruction or on the date such insurance proceeds are paid, or if any Event of
Default shall occur prior to completion of such work of restoration, then the
Administrative Agent, at its option, may apply such insurance proceeds in
payment of any of the Obligations, in such order as set forth in Section 2.10.
Any insurance proceeds remaining after completion of work or restoration shall,
at the Administrative Agent's election, be applied in accordance with Section
2.10, or paid over to the Borrower. Upon completion of any restoration, the
Borrower shall
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deliver to the Administrative Agent a certificate stating that the restoration
has been duly completed and accounting for the use of any insurance proceeds in
such restoration.
7.8 Indemnity.
(a) Each Loan Party that is a signatory hereto shall jointly and
severally indemnify and hold harmless each of the Administrative Agent, the
Lenders and their respective Affiliates, and each such Person's respective
officers, directors, employees, attorneys, agents and representatives (each, an
"Indemnified Person"), from and against any and all suits, actions, proceedings,
claims, damages, losses, liabilities and expenses (including reasonable
attorneys' fees and disbursements and other costs of investigation or defense,
including those incurred upon any appeal) which may be instituted or asserted
against or incurred by any such Indemnified Person as the result of the
execution and delivery of the Loan Documents, credit having been extended under
this Agreement and the other Loan Documents and the administration of such
credit, and in connection with or arising out of the transactions contemplated
hereunder and thereunder, including any and all Environmental Liabilities and
legal costs and expenses arising out of or incurred in connection with the
enforcement of any of the Loan Documents (collectively, "Indemnified
Liabilities") provided, however, that no such Loan Party shall be liable for any
indemnification to an Indemnified Person to the extent that any such suit,
action, proceeding, claim, damage, loss, liability or expense results from that
Indemnified Person's gross negligence or willful misconduct or material and
knowing breach of its obligations under this Agreement. NO INDEMNIFIED PERSON
SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY
SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER
PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A
RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER.
Promptly after receipt by an Indemnified Person of notice of the
commencement of any investigative, administrative or judicial proceeding in
respect of which a claim for indemnification is to be made against a Loan Party
hereunder (any such proceeding being an "Indemnified Proceeding"), such
Indemnified Person will notify the Loan Parties in writing of the commencement
thereof; provided, that (a) the omission to so notify the Loan Parties will not
relieve the Loan Parties from any liability which they may have to any
Indemnified Person except to the extent that the Loan Parties have been
materially prejudiced by such failure to give notice and (b) the omission to so
notify the Loan Parties will not relieve the Loan Parties from any liability
that they may have to any Indemnified Person otherwise than on account of the
indemnity provided for in this Section 7.8.
(b) To induce the Lenders to provide the LIBOR Rate option on the
terms provided in Section 2.8, if (i) any LIBOR Loans are repaid in whole or in
part prior to the last day of any applicable LIBOR Period (whether that
repayment is made pursuant to any provision of this Agreement or any other Loan
Document or is the result of acceleration, by operation of law or otherwise);
(ii) the Borrower shall default in payment when due of the principal amount of
or interest on any LIBOR Loan; (iii) the Borrower shall default in making any
borrowing of, conversion into or continuation of LIBOR Loans after the Borrower
has given notice requesting the same in accordance herewith; or (iv) the
Borrower shall fail to make any prepayment of a LIBOR Loan after the Borrower
has given a notice thereof in accordance herewith, the Borrower shall indemnify
and hold harmless each Lender from and against all losses, costs and expenses
resulting from or arising from any of the foregoing. Such indemnification shall
include any loss (excluding loss of margin) or expense incurred by such Lender
in connection with the reemployment of such funds or the termination of deposits
from which such funds were obtained. For the purpose of calculating amounts
payable to the Lender under this Section, each Lender shall be deemed to
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have actually funded its relevant LIBOR Loan through the purchase of a deposit
which bears interest at the LIBOR Rate in an amount equal to the amount of that
LIBOR Loan and having a maturity comparable to the relevant LIBOR Period;
provided, however, that each Lender may fund each of its LIBOR Loans in any
manner it sees fit, and the foregoing assumption shall be utilized only for the
calculation of amounts payable under this Section. This covenant shall survive
the termination of this Agreement and the payment of the Notes and all other
amounts payable hereunder. As promptly as practicable under the circumstances,
each Lender shall provide the Borrower with its written calculation of all
amounts payable pursuant to this Section 7.8(b), and such calculation shall be
presumed correct (absent manifest error) and shall be binding on the parties
hereto unless the Borrower shall object in writing within thirty (30) Business
Days of receipt thereof, specifying the basis for such objection in detail.
7.9 Access. Each Loan Party shall upon reasonable notice permit such
persons as the Administrative Agent or any Lender may designate to visit and
inspect the Collateral or any other properties of such Loan Party, to examine
its books and records and take copies and extracts therefrom and discuss its
respective affairs with its officers and employees at such times and as often as
the Administrative Agent may reasonably request (provided that any Responsible
Officer of such Loan Party may, if it so chooses, be present at or participate
in any such discussion). Each Loan Party hereby authorizes such officers and
employees to discuss with the Administrative Agent or such Lenders the affairs
of such Loan Party. Without limiting the foregoing, each Loan Party shall,
during normal business hours, from time to time upon five (5) Business Days'
prior notice as frequently as the Administrative Agent may reasonably request:
(a) provide the Administrative Agent and any of its officers, employees and
agents access during normal business hours to the properties, facilities,
advisors and employees (including officers) of such Loan Party and to the
Collateral, (b) permit the Administrative Agent and any of its officers,
employees and agents, to inspect, audit and make extracts from such Loan Party's
books and records and (c) permit the Administrative Agent and its officers,
employees and agents, to inspect, review, evaluate and make test verifications
and counts of the Accounts, Equipment, Inventory and other Collateral of such
Loan Party. If a Default or Event of Default shall have occurred and be
continuing or if access is necessary to preserve or protect the Collateral as
determined by the Administrative Agent, each such Loan Party shall provide such
access to the Administrative Agent and to each Lender at all times and without
advance notice. Furthermore, as long as any Event of Default shall have occurred
and be continuing, each such Loan Party shall (i) provide the Administrative
Agent and each Lender with access to their suppliers and customers, (ii) make
available to the Administrative Agent and its respective counsel, as quickly as
is possible under the circumstances, originals or copies of all books and
records which the Administrative Agent may request and (iii) deliver any
document or instrument necessary for the Administrative Agent, as it may from
time to time request, to obtain records from any service bureau or other Person
which maintains records for such Loan Party. Each Loan Party shall maintain
duplicate records or supporting documentation on media, including computer tapes
and discs owned by such Loan Party. Any Lender or its representatives (other
than any Person in the Telecommunications Business), upon request by such Lender
to the Administrative Agent, may accompany the Administrative Agent on any such
visit.
7.10 Expenses. The Borrower shall (a) pay or reimburse the Administrative
Agent for all of its reasonable out-of-pocket costs, fees, charges and expenses
incurred or arising in connection with the negotiation, review, preparation and
execution of this Agreement, the other Loan Documents, any commitment or
proposal letter, or any amendment, supplement, waiver, modification to, the
administration of and any restructuring of this Agreement, the Obligations or
the other Loan Documents, including reasonable legal fees and disbursements,
expenses, document charges and other charges and expenses of the Administrative
Agent, (b) following the occurrence and during the continuance of an Event of
Default, pay or reimburse the Administrative Agent and each Lender for the
enforcement, protection or preservation of any rights under or in connection
with this Agreement or any other Loan Document, including reasonable legal fees
and disbursements, audit fees and charges, and all out-of-
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pocket expenses, and (c) pay, indemnify and hold each Lender harmless from any
and all recording and filing fees and taxes and any and all liabilities with
respect to, or resulting from any delay by any Loan Party in paying, stamp,
excise and other Taxes (excluding income and franchise taxes and Taxes of
similar nature), if any, which may be payable or determined to be payable in
connection with the execution and delivery or recordation or filing of, or
consummation of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement and the other Loan Documents. All of the amounts described in
this Section are referred to collectively as the "Lenders' Expenses," shall be
payable upon demand, and shall accrue interest at the interest rate for Base
Rate Loans five (5) Business Days after the date of demand until paid in full.
All Lenders' Expenses, and interest thereon, shall be part of the Obligations
and shall be secured by the Collateral. The agreements in this Section 7.10
shall survive repayment of the Obligations. All Lenders' Expenses that are
outstanding on any Borrowing Date shall be paid before or with such Advance. If
the Borrower has not paid to the Lenders the amount of all Lenders' Expenses
billed to the Borrower at least five (5) Business Days before such Borrowing
Date, the Lenders shall be authorized to retain from any Advance on such
Borrowing Date the amount of such Lenders' Expenses that remain unpaid. The
Borrower's obligation to pay Lenders' Expenses shall not be limited by any
limitation on the amount of the Commitment that may be designated as available
for such purposes, and any amounts so designated shall be used to pay Lenders'
Expenses accrued at the time of any Advance before any of the Borrower's legal
fees or similar expenses.
7.11 Payment of Taxes, Charges, Claims and Current Liabilities. Each Loan
Party shall pay or discharge:
(a) on or prior to the date on which penalties thereon accrue, all
Taxes, assessments and other government charges or levies imposed upon it or any
of its properties or income (including such as may arise under Section 4062,
Section 4063 or Section 4064 of ERISA, or any similar provision of Law);
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen and other like Persons which
result in creation of a Lien upon any such property;
(c) on or prior to the date when due, all other lawful claims which,
if unpaid, might result in the creation of a Lien upon any such property (other
than Permitted Encumbrances) or which, if unpaid, might give rise to a claim
entitled to priority over general creditors of such Loan Party in a case under
Title II (Bankruptcy) of the United States Code, as amended, or in any
insolvency proceeding or dissolution or winding-up involving such Loan Party;
and
(d) all other current liabilities so that none is overdue more than
sixty (60) days.
Notwithstanding the foregoing, each Loan Party shall be entitled to
contest or appeal the requirements of any Law or Governmental Authority or the
payment of any asserted Tax, assessment, charge, levy, claim, liability or any
judgment entered against such Loan Party (collectively, in this Section 7.11,
the "requirements") as long as (i) such requirements are being contested in good
faith by appropriate proceedings diligently conducted; (ii) the Borrower has
given the Administrative Agent written notice of such requirements and its
intent to contest them, with supporting reasons for such contest; (iii) such
Loan Party maintains adequate cash reserves or has adequate availability under
this Agreement and makes all appropriate provisions as may be required by GAAP
to provide for any liability arising from such requirements; (iv) the contesting
of, or failure to comply with, such requirements does not in any material way
jeopardize such Loan Party's ability or authority to operate all or any part of
its business or the value or continuing priority of the security interests of
the Administrative Agent on behalf of the Secured Parties in the Collateral; (v)
all such contests of and failures to comply with such
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requirements would not, in the aggregate, have a Material Adverse Effect; and
(vi) any foreclosure, attachment, execution, sale or similar proceeding against
such Loan Party or any of its properties in connection with any such
requirements is duly stayed by posting of a bond or security deposit or by other
action sufficient under applicable Law to stay such foreclosure, attachment,
execution, sale or other proceedings.
7.12 Compliance with Laws. Each Loan Party shall comply in all respects
with all Laws applicable to such Loan Party, including all Environmental Laws;
provided, however, that such Loan Party shall not be deemed to be in violation
of this Section 7.12 as a result of any failure to comply which would not result
in (i) any liability or exposure to the Administrative Agent or the Lenders or
(ii) fines, penalties, injunctive relief or other civil or criminal liabilities
which, in the aggregate would have a Material Adverse Effect.
7.13 Use of Proceeds. The proceeds of the Advances will be used only as
set forth in Section 2.14.
7.14 Government Authorizations; Regulatory Authorizations, Etc. Each Loan
Party shall at all times obtain and maintain in force all of its Regulatory
Authorizations and Permits and all registrations, qualifications, designations,
declarations and other filings with, any Governmental Authority necessary in
connection with execution and delivery of this Agreement, the Notes or any other
Loan Document, consummation of the transactions herein or therein contemplated,
performance of or compliance with the terms and conditions hereof or thereof or
to ensure the legality, validity and enforceability hereof or thereof, provided,
however, that such Loan Party shall not be deemed to be in violation of this
Section 7.14 as a result of any failure that (i) would not result in any
liability or exposure to the Administrative Agent or the Lenders or (ii) that,
together with all such failures, would not result in fines, penalties,
injunctive relief or other civil or criminal liabilities that, in the aggregate,
would have a Material Adverse Effect. The Loan Parties shall promptly provide
the Administrative Agent with a copy of each material Regulatory Authorization
or Permit obtained after the date hereof. together with an update of Schedule
4.5 reflecting the addition thereof and, when each switch becomes operational,
an opinion of regulatory counsel to the effect that the relevant Loan Party has
all Regulatory Authorizations and Permits needed for its operation of such
switch as contemplated by the Business Plan.
7.15 Contracts and Franchises. Each Loan Party shall comply with all
agreements or instruments to which it is a party or by which it or any of its
properties (now owned or hereafter acquired) may be subject or bound and shall
maintain any and all franchises material to its business which it may have or
hereafter acquire; provided, however, that such Loan Party shall not be deemed
to be in violation of this Section 7.15 as a result of failures that in the
aggregate would not have a Material Adverse Effect.
7.16 Site Leases and Consents. Each Loan Party shall maintain in force and
renew as necessary all Site Leases and shall obtain such Landlord Consents as
the Administrative Agent shall reasonably request to protect its and their Liens
and access to the Collateral. All Site Leases entered into after the date hereof
shall have a term (including automatic renewals and such Loan Party's unilateral
renewal rights) equal to or greater than the term of this Agreement and shall
require that the Administrative Agent be given notice of default and the right
to elect to cure defaults and/or assume such agreement upon such Loan Party's
default thereunder upon the occurrence and during the continuation of an Event
of Default under this Agreement.
7.17 Financial Covenants. The Loan Parties shall comply with the financial
covenants set forth on Schedule 7.17.
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7.18 Patent, Trademark and Copyright Collateral. (a) The Borrower shall
notify the Administrative Agent immediately if it knows or has reason to know
that any application or registration relating to any patent, trademark or
copyright (now or hereafter existing) may become abandoned or of any adverse
determination or development (including the institution of, or any such
determination or development in, any proceeding in the United States Patent and
Trademark Office, the United States Copyright Office or any court) regarding any
Loan Party's ownership of any patent, trademark or copyright, its right to
register the same, or to keep and maintain the same, except for adverse
determinations or developments that in the aggregate would not have a Material
Adverse Effect.
(b) Each Loan Party shall take all actions necessary or requested by the
Administrative Agent to maintain and pursue each application, to obtain the
relevant registration and to maintain the registration of each of the patents,
trademarks and copyrights (now or hereafter existing), including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability and
opposition and interference and cancellation proceedings, unless the applicable
Loan Party shall determine that such patent, trademark or copyright is not
material to the conduct of its business and except for such intellectual
property that if not maintained would not have a Material Adverse Effect.
7.19 Sites. For all Sites acquired after the date hereof by any Loan Party
at any time (except for leases of sales offices with terms shorter than three
(3) years), such Loan Party shall provide to the Administrative Agent within
twenty (20) days of such Loan Party's acquisition thereof and before placing any
Collateral thereon:
(a) Site Leases and Right-of-Way Agreements. A copy of the duly
executed counterpart of all of the Site Leases and Right-of-Way Agreements; and
(b) Consent. Duly executed Landlord Consent executed by the owner of
such real property.
7.20 Environmental Site Assessments. For each Site other than a leased
Site, the Borrower shall obtain and deliver to the Administrative Agent, at the
Borrower's expense, an environmental transaction screen for each such Site and
any material portion of any related Right-of-Way, which shall be conducted by
environmental engineers or consultants reasonably acceptable to the
Administrative Agent. Such environmental transaction screen shall cover such
matters as the physical state of the property, the past and present uses of the
relevant property and the surrounding property, a search of relevant federal,
state and local environmental agency records, and such similar matters as may be
generally consistent with environmental investigation of commercial properties
in the state where the property is located. If any environmental transaction
screen discloses any potential environmental problems or conditions or the
possibility of any material Environmental Liability for any Loan Party or any
Lender, as determined by the Administrative Agent, then the Administrative Agent
may require additional audits or investigation of the property and, if not
satisfied with the results thereof, may, at its option, decide not to make any
Advances in respect of such property. The Administrative Agent shall notify the
Borrower in writing of such determination and the Administrative Agent's
selected course of proceeding within a reasonable time after the Borrower's
submission of such assessment.
7.21 Construction. The Loan Parties shall construct and equip each Network
in full compliance in all material respects with all Requirements of Law, shall
safeguard and store all Equipment financed with the proceeds of the Loan until
installed in appropriate storage facilities owned or leased by a Loan Party,
and, in the event of any cessation of construction (until completion of
construction) for more than fifteen (15) successive calendar days, the Loan
Parties shall make adequate provision, reasonably acceptable to the
Administrative Agent, for the protection of all materials stored on site against
deterioration, loss or damage.
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7.22 No Encroachments. The Loan Parties shall construct each Network so
that it shall not encroach upon any easement or right-of-way or the land of
others (unless consented to by the affected property owner), other than an
encroachment that does not have a Material Adverse Effect on the Network.
7.23 Certain Notices. The Borrower shall promptly provide the
Administrative Agent and the Lenders with written notice on each occasion that a
switch is installed and becomes operational in one of the Markets.
7.24 Management Team. The Loan Parties shall engage and continue to retain
a professional and experienced management staff.
7.25 Contracts. Each Loan Party shall comply with the terms of each
Contract, General Intangible and/or Account except for noncompliances which in
the aggregate would not have a Material Adverse Effect. The Borrower shall
deliver to the Administrative Agent copies of all material Contracts entered
into after the date hereof, all modifications made after the date hereof in
existing material Contracts and all demands or notices received by any Loan
Party relating in any way to any material Contract, General Intangible and/or
Account other than in the ordinary course of business.
7.26 Liens on After-Acquired Property. Upon the acquisition after the date
hereof by any Loan Party of any asset acquired of the type defined as Collateral
in this Agreement in which the Administrative Agent on behalf of the Secured
Parties does not have a perfected first-priority Lien other than assets that in
the aggregate do not have any material value, such Loan Party shall (a) promptly
grant or cause to be granted, or confirm or evidence the grant herein of, to the
Administrative Agent on behalf of the Secured Parties a Lien, upon the terms
contained herein, on all such property and interests, free of all other Liens
except Permitted Encumbrances and (b) at its own expense, (i) prepare, execute,
acknowledge and deliver, or cause the preparation, execution, acknowledgment and
delivery of, and thereafter register, file or record, or cause to be registered,
filed or recorded, in an appropriate governmental office, any document or
instrument deemed by the Administrative Agent to be necessary or in the exercise
of its reasonable judgment desirable for the creation, perfection, renewal and
continuation of the foregoing Liens, (ii) pay, or cause to be paid, all Taxes,
fees and legal expenses related to such registration, filing or recording and
(iii) deliver to the Administrative Agent resolutions of Board of Directors and
opinions of counsel, in form and substance as may be reasonably requested by the
Administrative Agent.
7.27 Year 2000 Compliance. Each Loan Party shall take all actions
necessary and commit adequate resources to assure that computer-based and other
systems of the Loan Parties are Year 2000 Compliant (as defined in Section 4.19)
and to minimize any Material Adverse Effect caused by the failure of any system
of such Loan Party which is material to such Loan Party's business to be Year
2000 Compliant.
7.28 Post-Closing Items. Each Loan Party shall comply with the
post-closing items set forth on Schedule 6.2 in the time permitted, if any is
indicated, and shall promptly provide the Administrative Agent with evidence
thereof in form and substance as may be reasonably acceptable to the
Administrative Agent.
7.29 Further Assurances. Each Loan Party shall and shall cause each other
Loan Party to, at such Loan Party's expense and upon request of the
Administrative Agent, duly execute and deliver, or cause to be duly executed and
delivered, to the Administrative Agent and the Lenders such further instruments
and do and cause to be done such further acts as may be necessary or proper in
the reasonable
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opinion of the Administrative Agent to carry out more effectively the provisions
and purposes of this Agreement or any other Loan Document.
ARTICLE 8: NEGATIVE COVENANTS
The Loan Parties hereby jointly and severally agree that, from and after
the date hereof until the Termination Date, the Loan Parties will not:
8.1 Indebtedness. Create, incur, assume or suffer to exist any
Indebtedness, except for (a) the Obligations and (b) Permitted Indebtedness.
8.2 Restrictions on Liens.
(a) Create or suffer to exist any Lien on the Collateral or on any
other property of any Loan Party, or any part thereof, whether superior or
subordinate to the Lien of the Loan Documents, except for the following
permitted encumbrances (the "Permitted Encumbrances"): (i) Liens and
encumbrances in favor of the Administrative Agent on behalf of the Secured
Parties; (ii) government Liens, including Liens for Taxes not yet due or which
are being contested in good faith and by appropriate proceedings provided that
Section 7.11 is complied with; (iii) statutory Liens in connection with workers'
compensation, unemployment insurance and other social security legislation; (iv)
deposits to secure the performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations and other obligations of a like
nature, in each case incurred in the Loan Parties' ordinary course of business;
(v) deposits to secure surety bonds, performance bonds and customs bonds, in
each case obtained in the Loan Parties' ordinary course of business; (vi)
easements, Rights-of-Way, restrictions and other similar encumbrances that are
not substantial in amount, and which do not in any case materially detract from
the value of any Collateral subject thereto or interfere with the ordinary
conduct of the business of such Loan Party; (vii) judgment liens and deposits to
secure appeal bonds, in each case, with respect to judgments not in excess of
$500,000 in the aggregate and with respect to which lien execution has been
stayed within thirty (30) days by appropriate judicial proceedings or the
posting of adequate security which may not be any of the Collateral; (viii)
specific liens, if any, identified on Schedule 8.2 and any renewal or extension
of any such Lien that does not extend to any other property and does not secure
an increased amount of Indebtedness or other greater obligation; (ix) statutory
Liens of landlords, statutory Liens of banks and rights of set-off, statutory
Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen,
statutory Liens in favor of customs and revenue authorities, and other Liens
imposed by Law, in each case incurred in the ordinary course of business (A) for
amounts not yet overdue or (B) for amounts that are being contested in good
faith by appropriate proceedings, as long as the provisions of Section 7.11 are
satisfied; (x) Liens to secure permitted purchase money Indebtedness and
Indebtedness outstanding under the Commerce Equipment Loan; (xi) leases or
subleases granted to third parties in accordance with any applicable terms of
the Loan Documents and not interfering in any material respect with the ordinary
conduct of the business of the Loan Parties or resulting in a material
diminution in the value of or rights of the Administrative Agent and the Lenders
with respect to any Collateral; and (xii) any (A) interest or title of a lessor
or sublessor under any lease permitted by Section 8.7, (B) restriction or
encumbrance that the interest or title of such lessor or sublessor may be
subject to or (C) subordination of the interest of the lessee or sublessee under
such lease to any restriction or encumbrance referred to in the preceding clause
(B) so long as the holder of such restriction or encumbrance agrees to recognize
the rights of such lessee or sublessee under such lease.
(b) Become a party to any agreement, note, indenture or instrument
or take any other action, which would prohibit the creation of a Lien on any of
its properties or other assets in favor of the Administrative Agent on behalf of
the Secured Parties as additional collateral for the Obligations.
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8.3 Limitation on Contingent Obligations. Agree to, or assume, guarantee,
endorse or otherwise in any way be or become responsible or liable for, directly
or indirectly, any Contingent Obligation, except for (i) those created by or
specified in the Loan Documents or with respect to the Obligations of the Loan
Parties, (ii) those described on Schedule 8.3 and (iii) endorsements of
negotiable instruments for collection.
8.4 Prohibition of Mergers, Acquisitions, Sales of Assets, Name, Office or
Business Changes, Etc.
(a) Enter into, or become the subject of, any transaction of merger
or consolidation (other than (i) as permitted by Section 8.4(b) below, (ii) a
merger with Subsidiaries in which the Borrower or, if the merger is among
Subsidiaries a Subsidiary that is a Loan Party, is the surviving entity or (iii)
a reorganization the principal purpose of which is to change the state of
incorporation of any Loan Party), liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, transfer or
otherwise dispose of, in one transaction or a series of transactions, all or
substantially all of such Loan Party's business or assets, whether now owned or
hereafter acquired.
(b) Change its name, chief executive office, principal place of
business, corporate structure, state or form of organization or the location of
any Collateral (other than inventory sold in the ordinary course of business and
the disposition of obsolete equipment) without giving the Administrative Agent
and the Lenders at least thirty (30) days' advance written notice of such
change, and ensuring that any steps that the Administrative Agent may deem
necessary to continue the perfection and priority of security interests of the
Administrative Agent on behalf of the Secured Parties in the Collateral shall
have been taken.
(c) Except for sales and other dispositions of Equipment and
Inventory in the ordinary course of business (including obsolete Equipment),
sell Collateral having a fair value in excess of One Million Dollars
($1,000,000) in the aggregate in any period of twelve (12) consecutive months,
without the prior written consent of the Requisite Lenders, which consent in the
case of Asset Dispositions aggregating not more than Five Million Dollars
($5,000,000) for all sales and dispositions from and after the Closing Date
shall not be unreasonably withheld or delayed by more than ten (10) days and for
sales aggregating in excess of Five Million Dollars ($5,000,000) for all sales
and dispositions from and after the Closing Date may be withheld in the sole
discretion of the Requisite Lenders; provided, however, that the Administrative
Agent for the benefit of the Secured Parties has a perfected first priority
security interest in the proceeds of each such Asset Disposition pending
reinvestment of such proceeds for purchases of Equipment from Nortel or
prepayment of the Loan.
(d) Change the Fiscal Year end of such Loan Party from December 31,
except with the prior written consent of the Requisite Lenders, which consent
shall not be unreasonably withheld.
(e) Amend, restate or otherwise modify, or violate any terms of, its
Organizational Documents in any material respect (except as permitted by Section
8.4(a) or (p)) without the prior written consent of the Requisite Lenders, which
consent will not be unreasonably withheld, except for reorganization into a "C
corporation".
(f) Become or agree to become a general or limited partner in any
general or limited partnership, or a member in a limited liability company or a
joint venturer in any joint venture except as permitted by Section 8.14 or 8.15.
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(g) Acquire or purchase substantially all of the stock or ownership
interests in, or substantially all of the business, assets, customers or
operations of, any other entity for more than $500,000 in any one transaction or
a series of related transactions.
8.5 Limitation on Equity Payments. In the case of Holdings, make any
Equity Payment and, in the case of any other Loan Party, make any Equity Payment
to a Person other than a Loan Party, provided, however, that to the extent that
Holdings receives Additional Contributed Capital in excess of $30,000,000, plus
the unpaid amounts (principal and interest) of Indebtedness outstanding under
the Note Purchase Agreement. Holdings may make Equity Payments aggregating such
excess as long as with respect to any such Equity Payment no Default or Event of
Default exists immediately prior to or after giving effect to such Equity
Payment.
8.6 Assumed Names. Transact or engage in business under any assumed name,
fictitious name, trade style or "d/b/a" except those identified on Schedule
4.39.
8.7 Limitation on Leases. Enter into any agreement, or be or become liable
under any agreement not in existence as of the date hereof for the lease, hire
or use of any real or personal property for annual rentals in excess of $250,000
in the aggregate, including capital or operating leases, except that the Loan
Parties may, in the ordinary course of business and on terms standard in the
industry, enter into Site Leases and leases or agreements for office space,
vehicles or office equipment, transmission capacity and for the location or
storage of any of the Collateral.
8.8 Transactions with Affiliates. Except as described in Schedule 4.40 or
permitted by Section 8.5, enter into any transaction with any Affiliate of
Holdings (other than the Borrower or any of its Subsidiaries), including any
loan or advance, any repayment of a loan or advance or the purchase, sale or
exchange of property or the rendering of any services, or enter into, assume or
suffer to exist any employment or consulting contract with any Affiliate of
Holdings, except in the ordinary course of business of such Loan Party and upon
fair and reasonable terms no less favorable to such Loan Party than could be
obtained, at the time of such transaction, or, if such transaction is pursuant
to a written agreement, at the time of the execution of the agreement providing
therefor, in a comparable arms-length transaction with a Person that is not such
an Affiliate of Holdings.
8.9 Extension of Accounts. With respect to Accounts, General Intangibles
or Contracts, (i) grant any material extension of the time of payment of any
thereof, (ii) compromise, compound or settle for a material amount less than the
full amount thereof, (iii) release any Person liable for the payment thereof or
(iv) allow any credit or discount whatsoever thereon, other than trade discounts
granted in the normal course of business or discounts, compromises, compounds or
settlements that could not reasonably be expected to have a Material Adverse
Effect.
8.10 Unscheduled Payments. Make any voluntary or optional principal or
unscheduled interest payment on any Indebtedness other than the Obligations,
except as permitted under Section 2.14.
8.11 Business Activities. Engage in any business activity that is not
similar, related, ancillary or complementary to the Telecommunications Business
or make any material change in the business objectives, purposes and operations
of the Loan Parties from those contemplated in the Business Plan, including the
Loan Parties entering into Markets in states other than those listed in Schedule
1.
8.12 Capital Expenditures. Until substantially all the Networks in each of
the Markets contemplated by the Business Plan are operating, directly or
indirectly make or commit to make any material expenditure in respect of the
purchase or other acquisition (including installment purchases or Capital
Leases) of fixed or capital assets, except for expenditures in accordance with
the Business Plan
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and permitted by Section 7.17 and normal replacements and maintenance (including
capacity expansions and enhancements for existing Networks) which are properly
charged to current operations or expenditures of Excess Cash Flow not required
to prepay the Loans pursuant to Section 2.7(b)(ii).
8.13 Limitation on Investments, Advances and Loans. Make or commit to make
any advance, loan, guarantee of any Indebtedness, extension of credit or capital
contribution to, or hold or invest in or purchase or otherwise acquire any
Stock, bonds, notes, debentures or other securities of, or make any other
investment in, any Person, including any officer of a Loan Party, any Affiliate
of a Loan Party or any officer of any Affiliate of a Loan Party, except another
Loan Party or, to the extent not prohibited by Section 8.14, another Subsidiary,
except (i) Cash Equivalents (ii) transactions permitted pursuant to Section
8.4(a), (iii) travel advances in the ordinary course of business, relocation
loans to employees but not in excess of $250,000 individually or $1,000,000 in
the aggregate outstanding at any one time, (iv) other loans to any employees of
any Loan Party but in any case in an amount (including principal and interest
outstanding) not to exceed $250,000 individually or $1,000,000 in the aggregate
at any given time, (v) any investment acquired (A) in exchange for any other
investment or Accounts held by such Loan Party in connection with or as a result
of a bankruptcy, workout, reorganization or recapitalization of the issuer of
such investment or Accounts or an Affiliate of such issuer, (B) as a result of
foreclosure by such Loan Party of any secured Indebtedness or (C) in
satisfaction of a judgment, (vi) investments in prepaid expenses, negotiable
instruments held for collection and lease, utility and workers' compensation,
performance and other similar deposits in the ordinary course of business, (vii)
securities received in connection with Asset Dispositions aggregating not more
than Five Million Dollars ($5,000,000) of Asset Disposition Net Proceeds for all
Asset Dispositions from and after the Closing Date and (viii) investments
existing on the Closing Date as described on Schedule 8.13.
8.14 Subsidiaries. Permit any Loan Party to create, organize or acquire a
Subsidiary owning, or any Subsidiary of the Borrower that is not already a
Guarantor to own, assets of more than $100,000 unless such Subsidiary delivers
to the Administrative Agent and Lenders an Additional Guarantor Assumption (an
"Additional Guarantor Assumption"), substantially in the form of Exhibit H,
pursuant to which such Subsidiary becomes a Guarantor, and the conditions set
forth in the Additional Guarantor Assumption are satisfied, to the satisfaction
of the Administrative Agent which satisfaction shall not be unreasonably
withheld.
8.15 Commerce Loan Agreements. Make any amendment or other modification to
the Commerce Loan Agreements, except with the prior written consent of the
Administrative Agent.
ARTICLE 9: EVENTS OF DEFAULT AND REMEDIES
9.1 Events of Default. An Event of Default shall mean the occurrence or
existence of one or more of the following events or conditions (whatever the
reason for such Event of Default and whether voluntary, involuntary or effected
by operation of Law):
(a) Payment Default. The Borrower (i) fails to make any payment of
principal of or Fees owing in respect of, the Loan or any of the other
Obligations when such amount becomes due and payable, (ii) fails to make any
payment of interest on the Loan or any of the other Obligations within three (3)
Business Days after such amount becomes due and payable or (iii) fails to pay or
reimburse the Administrative Agent or the Lenders for any expense reimbursable
hereunder or under any other Loan Document within five (5) Business Days
following demand for such reimbursement or payment of expenses.
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(b) False Statement. If any statement, representation or warranty
made or deemed made pursuant to Section 6.3 by any Loan Party in any Loan
Document or made in any Financial Statement, certificate, report, exhibit or
document furnished to the Administrative Agent or any Lender pursuant to any
Loan Document, proves to have been untrue, incomplete, false or misleading in
any material respect as of the time when made or deemed made (including by
omission of material information necessary to make such representation, warranty
or statement not misleading in any material respect).
(c) Immediate Default. Any Loan Party shall fail or neglect to
perform, keep or observe any of the provisions of Section 7.13, 7.17, 7.26 or
7.27 or Article 8 or to maintain insurance as listed on Schedule 7.7.
(d) Covenant Defaults. If any Loan Party fails or neglects to
perform, keep or observe any provision of this Agreement, and such default
continues for a period of thirty (30) calendar days after the earlier of such
Loan Party's knowledge thereof or receipt of written notice from the Lender
thereof, except that violation of Section 7.11(d) shall become an Event of
Default at the end of the sixty (60) day period stated therein and except for
specific events listed elsewhere in this Section 9.1, as to which no notice or
cure period shall apply unless specified.
(e) Undischarged Judgments. If one or more judgments for the payment
of money have been entered against the Borrower in an amount in excess of
$500,000 in the aggregate and such judgment or judgments are not covered by
insurance and have remained undischarged and unstayed for a period of thirty
(30) calendar days or, if stayed, all of the conditions in Section 8.2(a)(vii)
have not been satisfied.
(f) Attachments, Etc. If a writ or warrant of attachment,
garnishment, execution, distraint or similar process has been issued against any
Loan Party or any of its properties in an amount in excess of $500,000, which
has remained undischarged and unstayed for a period of thirty (30) consecutive
days or, if stayed, all of the conditions in Section 8.2(a)(vii) have not been
satisfied.
(g) Default Under Third Party Agreements. A default or breach occurs
under any Indebtedness other than the Loan to which any Loan Party is a party
which (A) involves the failure to make any payment in the amount of $500,000 in
the aggregate or (B) causes or permits any holder of such Indebtedness or a
trustee to cause, Indebtedness or a portion thereof in excess of $500,000 in the
aggregate to become due prior to its stated maturity or prior to its regularly
scheduled dates of payment, regardless of whether such right is exercised by
such holder or trustee.
(h) Involuntary Bankruptcy or Receivership Proceedings. A case or
proceeding commences against any Loan Party (i) seeking a decree or order in
respect of any Loan Party under Title 11 of the United States Code, as now
constituted or hereafter amended or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) seeking the appointment of a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) for any Loan Party or of any substantial part of any such Person's
assets or (iii) seeking the winding-up or liquidation of the affairs of any Loan
Party and any such case or proceeding remains undismissed, unstayed, unbonded or
undischarged for a period of sixty (60) days.
(i) Voluntary Bankruptcy. Any Loan Party (i) files a petition
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, State or foreign bankruptcy
or other similar law, (ii) consents to the institution of proceedings thereunder
or to the filing of any such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any Loan Party or
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of any substantial part of any such Person's assets, (iii) makes a general
assignment for the benefit of creditors, (iv) takes any corporate action to
authorize any of the foregoing or (v) admits in writing its inability to, or
shall be generally unable to, pay its debts as such debts become due.
(j) ERISA Defaults. If, with respect to any Plan, (i) there has
occurred a Reportable Event reported to or which should be reported to the PBGC
which may reasonably result in any material liability to the PBGC with respect
to any Plan, (ii) a Plan has been terminated with insufficient assets to satisfy
the requirements of Section 4041(b) or ERISA, (iii) a trustee has been appointed
by a United States District Court to administer a Plan, (iv) the PBGC or any
other Person has instituted proceedings to terminate a Plan or to appoint a
trustee to administer any such Plan, (v) any Loan Party or any Affiliate has
withdrawn, completely or partially, from any Plan, (vi) any Loan Party or any
Affiliate has incurred secondary liability for withdrawal liability payments
under any Plan or (vii) a Plan has failed to meet the minimum funding standards
established under the Code or ERISA and such event is not being contested by
such Loan Party in compliance with Section 7.11, if the result of any or all
thereof is that one or more Loan Parties incurs a liability or liabilities in
excess of $500,000 in the aggregate or a Material Adverse Effect.
(k) Defaults Under Other Loan Documents. If any default or breach
should occur under any other Loan Document (other than under any provision of
any other Loan Document referred to in any other Section of this Section 9.1)
and is not cured or waived within thirty (30) days after the earlier of (i) a
Responsible Officer of any Loan Party becoming aware of such default or breach
or (ii) receipt by any Loan Party of notice from the Administrative Agent or any
Lender of such default or breach, or any such Loan Documents should cease to be
in full force and effect, other than with the consent of the Requisite Lenders.
(l) Security Interest. Any material provision of Article 3 or 11 or
Section 9.2 of this Agreement shall for any reason cease to be valid, binding
and enforceable in accordance with its terms (or any Loan Party shall challenge
in writing the enforceability of any such provision or shall assert in writing,
or engage in any action or inaction based on any such assertion, that any such
provision has ceased to be or otherwise is not valid, binding and enforceable in
accordance with its terms) or any security interest created under any Loan
Document shall cease to be a valid and perfected first priority security
interest or Lien (except as otherwise permitted herein or therein) in any of the
Collateral having a value in excess of $1,000,000 purported to be covered
thereby for any reason except the failure of the Administrative Agent or any
Lender to take any action within its control.
(m) Change of Control. If any Change of Control occurs.
9.2 Remedies.
(a) If any Default of Event of Default shall have occurred and be
continuing and the Requisite Lenders shall not have determined to continue to
make Advances so long as that specific Default or Event of Default is
continuing, the Administrative Agent shall (at the written request of the
Requisite Lenders), by written notice to the Borrower, suspend the Commitments
with respect to further Advances, whereupon no further Advances shall be made or
extended (in the sole discretion of the Requisite Lenders) so long as such
Default or Event of Default is continuing. If any Event of Default shall have
occurred and be continuing, the Administrative Agent shall (at the written
request of the Requisite Lenders), without notice except as otherwise expressly
provided herein, increase the rate of interest applicable to the Loans to the
Default Rate.
(b) If any Event of Default shall have occurred and be continuing,
the Administrative Agent may and at the direction of the Requisite Lenders
shall, upon notice to the Borrower from the
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Administrative Agent, (i) terminate the Commitments with respect to further
Advances; (ii) declare all or any portion of the Obligations, including all or
any portion of any Loan to be forthwith due and payable, all without
presentment, demand, protest or further notice of any kind, all of which are
expressly waived by the Borrower and each other Loan Party; and (iii) exercise
any rights and remedies provided to the Administrative Agent on behalf of the
Secured Parties under the Loan Documents and/or at law or in equity, including
all remedies provided under the UCC; provided, however, that upon the occurrence
of an Event of Default specified in Section 9.1(h), or (i), the Commitment shall
be immediately terminated and all of the Obligations, including the Loan, shall
become immediately due and payable without declaration, notice or demand by any
Person.
(c) Voting Rights; Dividends; Etc. If any Event of Default shall
have occurred and be continuing:
(i) Upon notice by the Administrative Agent to Holdings on behalf of
the Loan Parties, all rights of any Grantor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise shall cease,
and all such rights shall thereupon become vested in the Administrative Agent
who shall thereupon have the sole right to exercise such voting and other
consensual rights, subject to compliance with all applicable Communications Law.
(ii) All rights of any Grantor to receive dividends and
distributions in respect of the Collateral shall cease, and all such rights
shall thereupon become vested in the Administrative Agent who shall thereupon
have the sole right to receive and hold as Collateral such dividends and
distributions.
(iii) All amounts received by any Loan Party contrary to the
provisions of Section 9.2(c)(ii) shall be received in trust for the benefit of
the Administrative Agent, shall be segregated from other funds of such Loan
Party and shall be forthwith paid over to the Administrative Agent as Collateral
in the same form as so received (with any necessary indorsement).
(iv) Each Loan Party shall, if necessary to permit the
Administrative Agent to exercise the voting and other rights which it may be
entitled to exercise pursuant to Section 9.2(c)(i) and to receive all dividends
and distributions which it may be entitled to receive under Section 9.2(c)(ii),
execute and deliver to the Administrative Agent, from time to time and upon
written notice of the Administrative Agent, appropriate proxies, dividend
payment orders and other instruments as the Administrative Agent may reasonably
request. The foregoing shall not in any way limit the Administrative Agent's
power and authority granted pursuant to Section 9.9 hereof.
9.3 Waivers by Loan Parties. Except as otherwise provided for in this
Agreement or by applicable Law, each Loan Party waives (including for purposes
of Article 11): (a) presentment, demand and protest and notice of presentment,
dishonor, notice of intent to accelerate, notice of acceleration, protest,
default, nonpayment, maturity, release, compromise, settlement, extension or
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by the Administrative
Agent on behalf of the Secured Parties on which any Loan Party may in any way be
liable, and hereby ratifies and confirms whatever the Administrative Agent on
behalf of the Secured Parties may do in this regard, (b) all rights to notice
and a hearing prior to the Administrative Agent's taking possession or control
of, or to the Administrative Agent's replevy, attachment or levy upon, the
Collateral or any bond or security which might be required by any court prior to
allowing the Administrative Agent on behalf of the Secured Parties to exercise
any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling
and exemption laws. If any notification of intended disposition of any of the
Collateral is required by applicable Law, such notification shall be deemed
reasonably and properly given if given in accordance with Section 12.5 at least
ten (10) days before such disposition.
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9.4 Exercise of Rights. Subject to any requirements for FCC, PUC or other
governmental approval upon the occurrence and during the continuance of any
Event of Default, the rights, powers and privileges provided in this Section 9.4
and all other remedies available to the Administrative Agent and the Lenders
under this Agreement or by statute or by rule of law may be exercised by the
Administrative Agent or any Lender at any time from time to time whether or not
the Obligations shall be due and payable, and whether or not the Administrative
Agent or any Lender shall have instituted any foreclosure or other action for
the enforcement of this Agreement or any other Loan Document. No failure to
exercise, nor any delay in exercising on the part of the Administrative Agent or
any Lender, any right, remedy, power or privilege hereunder or under any of the
other Loan Documents shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege hereunder or thereunder
preclude any other or future exercise thereof or the exercise of any other
right, remedy, power or privilege.
9.5 Rights of Secured Party. In addition to all other rights and remedies
granted to it under this Agreement, the other Loan Documents and under any other
instrument or agreement securing, evidencing or relating to any of the
Obligations, if any Event of Default shall have occurred and be continuing, the
Administrative Agent may exercise all rights and remedies of a secured party
under the UCC.
9.6 Additional Remedies. Remedies of the Administrative Agent and the
Lenders upon the occurrence and during the continuance of an Event of Default
shall include, in addition to, and not in lieu of, such remedies as are
available at law or in equity or provided for in any of the Loan Documents, the
following:
(a) Foreclosure; Receivership. The Administrative Agent shall be
entitled to file one or more suits at law or in equity to collect the
Obligations and/or to foreclose on the Liens on and security interests created
by this Agreement or any other Loan Document. The Administrative Agent may apply
or require any Loan Party to apply for any necessary transfers, assignments,
orders, consents or licenses in connection with the operation or abandonment of
any Network or any part thereof, and shall also be entitled as a matter of right
and without notice and without requiring bond (notice and bond being hereby
waived), without regard to the solvency or insolvency of any Loan Party at the
time of application and without regard to the value of the Collateral at that
time, to have a receiver appointed by a court of competent jurisdiction in order
to manage, protect and preserve the Collateral or any part thereof and to
continue the operation of the business of any Loan Party, and to collect all
revenues and profits thereof and apply the same to the payment of all expenses
and other charges of such receivership until the sale or other final disposition
of the Collateral. Each Loan Party hereby consents to the appointment of such
receiver.
(b) Collection of Accounts, Etc. At any time after the occurrence
and during the continuance of an Event of Default, notify account debtors that
the Accounts have been assigned to the Administrative Agent on behalf of the
Secured Parties and that payments shall be made directly to the Administrative
Agent on behalf of the Secured Parties. Upon the request of Requisite Lenders at
any time after the occurrence and during the continuance of an Event of Default,
the Borrower shall so notify such account debtors. Upon the occurrence and
during the continuance of an Event of Default, the Administrative Agent on
behalf of the Secured Parties shall be entitled, but not obligated, to collect,
compromise, settle and otherwise act with respect to any Accounts, Contracts or
General Intangibles, and shall be authorized to (i) endorse checks and other
instruments, (ii) communicate directly with any Loan Party's customers or other
obligors to collect payments and/or (iii) bring actions to enforce such
collection, and otherwise take any actions necessary to collect and recover any
amounts owing to such Loan Party. Any amounts so received by the Administrative
Agent on behalf of the Secured Parties shall be held for the account of the
Borrower and may be applied to the Obligations at the Administrative
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Agent's option, at the direction of the Requisite Lenders, but shall not be
deemed to be payment of the Obligations until so applied. The Borrower shall, at
the Requisite Lenders' request, deliver to the Administrative Agent copies of
all original and other documents evidencing or relating to the Accounts,
Contracts or General Intangibles, including all original orders, sublease
contracts, invoices, shipping receipts, computer records and databases.
(c) Segregation of Payments. Upon the Administrative Agent's
request, at the direction of the Requisite Lenders, following and during the
continuance of an Event of Default, the Borrower shall immediately deliver to
the Administrative Agent on behalf of the Lenders all Proceeds received by any
Loan Party, in the form received except for the Borrower' endorsement if
required. Alternatively, the Administrative Agent may, at the direction of the
Requisite Lenders, require the Borrower, to immediately deliver, or may require
the delivery of, such Proceeds to a special bank account or post office box from
which only the Administrative Agent on behalf of the Secured Parties can
withdraw them. In either case, all such Proceeds and any payments received by
any Loan Party under or in connection with any of the Collateral received by
such Loan Party following and during the continuance of an Event of Default
shall be held by the Borrower in trust for the Administrative Agent on behalf of
the Secured Parties and shall be segregated from other funds of the Borrower.
Any and all such payments so received by the Administrative Agent on behalf of
the Secured Parties (whether from the Borrower or otherwise) may, in the sole
discretion of the Administrative Agent, be held by the Administrative Agent on
behalf of the Secured Parties as collateral security for, and/or then or at any
time thereafter applied in whole or in part by the Administrative Agent, against
all or any part of the Obligations of the Loan Parties in such order as the
Administrative Agent may determine in its sole discretion. Any balance of such
payments held by the Administrative Agent and remaining after payment in full of
all the Obligations shall be paid over to the Borrower or to any Person lawfully
entitled to receive the same.
(d) Right to Cure. If any Loan Party fails in any material respect
to perform or comply with any of its agreements contained herein or in any of
the other Loan Documents, the Administrative Agent may take whatever actions it
may deem appropriate to perform or comply or otherwise cause performance or
compliance with such agreement, all at the risk, cost and expense of the
Borrower.
(e) Set Off. If the unpaid principal amount of the Loan, interest
accrued thereon or any other amount owing by the Loan Parties hereunder or under
the Loan shall have become due and payable (by acceleration or otherwise), each
Lender and each Affiliate of each Lender shall have the right, in addition to
all other rights and remedies available to it, without notice to the Loan
Parties, to set off against and to appropriate and apply to such due and payable
amounts any debt owing to, and any other funds held in any manner for the
account of, any of the Loan Parties by such Lender or Affiliate. Such right
shall exist whether or not such Lender or Affiliate shall have given notice or
made any demand hereunder or under the other Loan Documents, whether or not such
debt owing to or funds held for the account of the Loan Parties is or are
matured or unmatured, and regardless of the existence or adequacy of any
Collateral, guaranty or any other security, right or remedy available to the
Administrative Agent and the Lenders. Such Lender or Affiliate shall promptly
notify the Borrower after any such set off and application made by such Lender
or Affiliate, provided, however, that the failure to give such notice shall not
affect the validity of any such set off and application. Each Loan Party hereby
consents to and confirms the foregoing arrangements and confirms such Lender's
and Affiliate's rights of set off.
9.7 Application of Proceeds. Any proceeds of any of the Collateral,
received by the Administrative Agent through sale or disposition of the
Collateral or otherwise, shall be applied by the Administrative Agent toward the
payment of the Obligations, including expenses in connection with the Collateral
(including reasonable fees and legal expenses), as provided in Section 2.10.
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9.8 Discontinuance of Proceedings. If the Administrative Agent or any
Lender should proceed to enforce any right or remedy under this Agreement or any
other Loan Document, and then discontinue or abandon such proceeding for any
reason, all rights, powers and remedies of the Administrative Agent and the
Lenders hereunder shall continue as if no such proceeding had been taken.
9.9 Power of Attorney and Proxy. For the purpose of carrying out the
provisions and exercising the rights, powers and privileges granted by the Loan
Documents, including Article 3 and this Article 9, each Loan Party hereby
irrevocably constitutes and appoints the Administrative Agent for the benefit of
the Administrative Agent and the Lenders its true and lawful attorney-in-fact
and proxy to execute, acknowledge and deliver any and all documents and
instruments, vote any Stock and do and perform any acts such as are referred to
in the Loan Documents, including Article 3 and this Article 9, with full
irrevocable power and authority in the name and on behalf of such Loan Party,
from time to time in the Administrative Agent's reasonable discretion after the
occurrence and during the continuance of an Event of Default, in accordance with
the Loan Documents and any statute or rule of law. This power of attorney and
proxy is a power coupled with an interest and cannot be revoked until all
Obligations are paid and this Agreement is terminated. Each Loan Party hereby
ratifies all that said attorney-in-fact and proxy shall lawfully do or cause to
be done by virtue and in accordance with the terms hereof.
Without limiting the generality of the foregoing, the Administrative Agent
may, after the occurrence and during the continuance of an Event of Default, do
the following without notice to or assent by any Loan Party to accomplish the
purposes of this Agreement:
(a) upon failure of such Loan Party to do so, timely pay or
discharge Taxes or Liens levied or placed on or threatened against the
Collateral, effect any repairs or any insurance called for by the terms of this
Agreement or any other Loan Document, and pay all or any part of the premiums
there for and the costs thereof;
(b) file any application, petition or other request with the FCC,
any PUC or any other Governmental Authority for the purpose of obtaining any
consent or approval from or satisfying any filing or notice requirement of any
Governmental Authority in order to effect a sale or transfer of any or all the
Collateral, or a change in control of, or to permit the Administrative Agent to
complete or operate, or both, any Network;
(c) vote any membership interest or other Stock; and
(d) (i) direct any party liable for any payment under any of the
Contracts or Accounts to make payment of any and all monies due and to become
due thereunder directly to the Administrative Agent or as the Administrative
Agent shall direct; (ii) in the name of such Loan Party or its own name or
otherwise, take possession of and endorse and collect any checks, drafts, notes,
acceptances, or other instruments for the payment of monies due under, or
otherwise receive payment of and receipt for any and all monies, claims and
other amounts due and to become due at any time in respect of or arising out of
any Collateral; (iii) sign and endorse any invoices, freight or express bills,
bills of lading, storage or warehouse receipts, drafts against debtors,
assignments, verifications and notices in connection with Accounts and other
documents relating to the Collateral; (iv) commence and prosecute any suits,
actions or proceedings at law or in equity in any court of competent
jurisdiction or before any arbitrator to collect all or any of the Collateral
and to enforce any other right in respect of any Collateral; (v) defend any
suit, action or proceeding brought against such Loan Party with respect to any
Collateral; (vi) settle, compromise or adjust any suit, action or proceeding
described above upon commercially reasonable terms under the circumstances and,
in connection therewith, give such discharges or releases as the Administrative
Agent may reasonably deem appropriate; (vii) cure any default under any Contract
and/or modify and/or assume any such Contract; and (viii) generally sell, use,
operate, transfer, pledge and make
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any agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Administrative Agent were the absolute owner
thereof for all purposes, and, at the Administrative Agent's option and the Loan
Parties' expense, at any time or from time to time after the occurrence and
during the continuance of an Event of Default, all other acts and things that
the Administrative Agent reasonably deems necessary to perfect, preserve or
realize upon the Collateral and the Administrative Agent's security interest
therein on behalf of the Secured Parties, in order to effect the intent of this
Agreement and the other Loan Documents all as fully and effectively as such Loan
Party might do.
9.10 Regulatory Matters.
(a) Loan Parties' Cooperation; Consents. Notwithstanding any
provision to the contrary contained herein or in any other Loan Document, the
Administrative Agent and the Lenders will not exercise any right or remedy under
this Agreement that requires prior FCC or PUC approval without first obtaining
such approval. If counsel to the Administrative Agent reasonably determines that
the consent of the FCC or any PUC is required in connection with any of the
actions that may be taken by the Administrative Agent in the exercise of its
rights hereunder or under any of the other Loan Documents, then Loan Parties, at
their sole cost and expense, agree to use their reasonable best efforts to
secure such consent and to cooperate with the Administrative Agent in any action
commenced by the Administrative Agent to secure such consent. Upon the
occurrence and during the continuation of an Event of Default the Borrower shall
promptly execute and/or cause the execution of all applications, certificates,
instruments and other documents and papers that may be required in order to
obtain any necessary governmental consent, approval or authorization, and if the
Borrower fails or refuses to execute such documents, the clerk of the court with
jurisdiction may execute such documents on behalf of the Borrower.
(b) Loan Parties' Cooperation; Transfers. In connection with the
enforcement by the Administrative Agent of any remedies available to it as a
result of any Event of Default and subject to the provisions of Section 9.10(a)
the Loan Parties shall join and cooperate fully with the Administrative Agent,
and with any receiver or trustee referred to herein and with the successful
bidder or bidders at any foreclosure sale when any of these entities files an
application with the FCC or any PUC, or with any necessary federal, state and
local governmental authorities, requesting their prior approval of (i) the
operation or abandonment of all or any portion of the Collateral and (ii) the
assignment or transfer to such entity of all Permits issued to any Loan Party by
the FCC, any PUC or any such other authorities with respect to the Loan Parties'
business and the operation thereof. The Loan Parties' cooperation shall include
without limitation the furnishing of any information that may be required in
connection with such applications.
(c) Conveyance of Regulatory Authorizations. Subject to any
necessary FCC or PUC approval, each Loan Party agrees to assign, transfer and
convey the Regulatory Authorizations to the Administrative Agent (or its
designee) upon the Administrative Agent's request following the occurrence and
during the continuance of an Event of Default, to the extent that any such
assignment or transfer may be deemed necessary to allow the Administrative Agent
to exercise its remedies hereunder or under the Loan Documents.
(d) Specific Performance. Each Loan Party recognizes that its
Regulatory Authorizations are unique assets that may have to be transferred in
order for the Administrative Agent to adequately realize the value of its
security interests. Each Loan Party further recognizes that a violation of this
provision would result in irreparable harm to the Administrative Agent and the
Lenders for which monetary damages may not readily be ascertainable. Therefore,
in addition to any other remedy that may
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be available to the Administrative Agent and the Lenders at law or in equity,
the Administrative Agent shall have the remedy of specific performance to
enforce the provisions of this Section.
ARTICLE 10: ASSIGNMENT AND PARTICIPATION; APPOINTMENT OF
ADMINISTRATIVE AGENT
10.1 Assignment and Participation.
(a) The Loan Parties signatory hereto consent to any Lender's
assignment of, and/or sale of participations in, at any time or times, the Loan
Documents, and any Commitment or of any portion thereof or interest therein,
including any Lender's rights, title, interests, remedies, powers or duties
thereunder, whether evidenced by a writing or not. Any assignment by the Lender
shall (i) require the consent of the Administrative Agent and the Borrower
(which, in the case of the Borrower, shall not be unreasonably withheld or
delayed); provided, however, that no consent of the Borrower shall be required
if an Event of Default shall have occurred and be continuing, (ii) require the
execution of an assignment agreement (an "Assignment Agreement") substantially
in the form attached hereto as Exhibit G and otherwise in form and substance
reasonably satisfactory to, and acknowledged by, the Administrative Agent; (iii)
if a partial assignment, be in an amount at least equal to $5,000,000, be of the
same Pro Rata Share of the Commitment and the Loan and, after giving effect to
any such partial assignment (together with all other partial assignments), the
assigning the Lender shall have retained Commitments and Loans in an amount at
least equal to $5,000,000; and (iv) include a payment to the Administrative
Agent of an assignment fee of $3,500 by the assigning Lender. The failure of the
Borrower to consent to an assignment to a Person that is or is an Affiliate of a
Person that is engaged in the telecommunications industry and is a competitor of
or supplier to any Loan Party shall not be deemed unreasonable. In the case of
an assignment by any Lender under this Section 10.1, the assignee shall have, to
the extent of such assignment, the same rights, benefits and obligations as it
would if it were named as a Lender hereunder. The assigning the Lender shall be
relieved of its obligations hereunder with respect to its Commitments or
assigned portion thereof from and after the date of such assignment. The
Borrower hereby acknowledges and agrees that any such assignment will give rise
to a direct obligation of the Borrower to the assignee and that the assignee
shall be considered to be a "Lender." In all instances, each Lender's liability
to make Loans hereunder shall be several and not joint and shall be limited to
such Lender's Pro Rata Share of the applicable Commitment. In the event any
Lender assigns or otherwise transfers all or any part of the Obligations, any
such Lender shall so notify the Borrower and the Borrower shall, upon the
request of the Administrative Agent or such Lender, execute a new Note in
exchange for each Note, if any, or portion thereof being assigned.
Notwithstanding the foregoing provisions of this Section 10.1(a), any Lender may
at any time pledge the Obligations held by it and such Lender's rights under
this Agreement and the other Loan Documents to a Federal Reserve Bank, and any
Lender that is an investment fund may assign the Obligations held by it and such
Lender's rights under this Agreement and the other Loan Documents to another
investment fund managed by the same investment advisor; provided, however, that
no such pledge to a Federal Reserve Bank shall release such Lender from such
Lender's obligations hereunder or under any other Loan Document.
(b) Any participation by any Lender in all or any part of its
Commitments shall be made with the understanding that all amounts payable by the
Borrower hereunder shall be determined as if that Lender had not sold such
participation, and that the holder of any such participation shall not be
entitled to require such Lender to take or omit to take any action hereunder
except actions directly affecting (i) any reduction in the principal amount of,
or interest rate or Fees payable with respect to, any Loan in which such holder
participates, (ii) any extension of the scheduled amortization of the principal
amount of any Loan in which such holder participates or the final maturity date
thereof, and (iii) any release of all or substantially all of the Collateral
(other than in accordance with the terms of this
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Agreement and the other Loan Documents). Solely for purposes of Sections 2.12,
2.13, 7.8 and 10.8, the Borrower acknowledges and agrees that subject to the
first sentence of Section 10.1(c), a participation shall give rise to a direct
obligation of the Borrower to the participant and the participant shall be
considered to be a "Lender." Except as set forth in the preceding sentence
neither the Borrower nor any other Loan Party shall have any obligation or duty
to any participant. Neither the Administrative Agent nor any Lender (other than
the Lender selling a participation) shall have any duty to any participant and
may continue to deal solely with the Lender selling a participation as if no
such sale had occurred.
(c) Except as expressly provided in this Section 10.1, no Lender
shall, as between any Loan Party and that Lender, or the Administrative Agent
and that Lender, be relieved of any of its obligations hereunder as a result of
any sale, assignment, transfer or negotiation of, or granting of participation
in, all or any part of the Loans, the Notes or other Obligations owed to such
Lender.
(d) Each Loan Party executing this Agreement shall assist any Lender
permitted to sell assignments or participations under this Section 10.1 as
reasonably required to enable the assigning or selling the Lender to effect any
such assignment or participation, including the execution and delivery of any
and all agreements, Notes and other documents and instruments as shall be
requested and, if requested by the Administrative Agent, the preparation of
informational materials for, and the participation of management in meetings
with, potential assignees or participants. Each Loan Party executing this
Agreement shall certify the correctness, completeness and accuracy of all
descriptions of such Loan Parties and its affairs contained in any selling
materials provided by it and all other information provided by it and included
in such materials, except that any Projections delivered by such Loan Party
shall only be certified by such Loan Party as having been prepared by it in
compliance with the representations contained in Section 4.10.
(e) Any Lender may furnish any information concerning the Loan
Parties in the possession of such Lender from time to time to assignees and
participants (including prospective assignees and participants). Each Lender
shall obtain from assignees or participants confidentiality covenants
substantially equivalent to those contained in Section 12.16.
(f) As long as no Event of Default shall have occurred and be
continuing, no Lender shall assign or sell participations in any portion of its
Loans or Commitments to a potential Lender or participant if, as of the date of
the proposed assignment or sale, the assignee Lender or participant would be
subject to capital adequacy or similar requirements under Section 2.13(a),
increased costs under Section 2.13(b), an inability to fund LIBOR Loans under
Section 2.13(c), or withholding Taxes in accordance with Section 2.12(a).
10.2 Appointment of the Administrative Agent. GECC is hereby appointed to
act on behalf of all the Lenders as the Administrative Agent under this
Agreement and the other Loan Documents. The provisions of this Section 10.2 are
solely for the benefit of the Administrative Agent and the Lenders and no Loan
Party nor any other Person shall have any rights as a third party beneficiary of
any of the provisions hereof. In performing its functions and duties under this
Agreement and the other Loan Documents, the Administrative Agent shall act
solely as an agent of the Lenders and does not assume and shall not be deemed to
have assumed any obligation toward or relationship of agency or trust with or
for any Loan Party or any other Person. The Administrative Agent shall have no
duties or responsibilities except for those expressly set forth in this
Agreement and the other Loan Documents. The duties of the Administrative Agent
shall be mechanical and administrative in nature and the Administrative Agent
shall not have, or be deemed to have, by reason of this Agreement, any other
Loan Document or otherwise a fiduciary relationship in respect of any Lender.
Neither the Administrative Agent nor any of its Affiliates nor any of their
respective officers, directors, employees, agents or representatives shall be
liable to any Lender for any action taken or omitted to be taken by it as
Administrative Agent hereunder or under any
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other Loan Document, or in connection herewith or therewith, except for damages
caused by its or their own gross negligence or willful misconduct.
If the Administrative Agent shall request instructions from the Requisite
Lenders or all Affected Lenders with respect to any act or action (including
failure to act) in connection with this Agreement or any other Loan Document,
then the Administrative Agent shall be entitled to refrain from such act or
taking such action unless and until the Administrative Agent shall have received
instructions from the Requisite Lenders or all Affected Lenders, as the case may
be, and the Administrative Agent shall not incur liability to any Person by
reason of so refraining. The Administrative Agent shall be fully justified in
failing or refusing to take any action hereunder or under any other Loan
Document (a) if such action would, in the opinion of the Administrative Agent,
be contrary to Law or the terms of this Agreement or any other Loan Document,
(b) if such action would, in the opinion of the Administrative Agent, expose the
Administrative Agent to Environmental Liabilities or (c) if the Administrative
Agent shall not first be indemnified to its satisfaction against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. Without limiting the foregoing, no Lender
shall have any right of action whatsoever against the Administrative Agent as a
result of the Administrative Agent acting or refraining from acting hereunder or
under any other Loan Document in accordance with the instructions of the
Requisite Lenders or all affected Lenders, as applicable.
10.3 The Administrative Agent's Reliance, Etc. Neither the Administrative
Agent nor any of its Affiliates nor any of their respective directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it or them under or in connection with this Agreement or the other Loan
Documents, except for damages caused by its or their own gross negligence or
willful misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (a) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives written notice of the assignment or
transfer thereof signed by such payee and in form satisfactory to the
Administrative Agent; (b) may consult with legal counsel, independent public
accountants and other experts selected by it and shall not be liable for any
action taken or omitted to be taken in good faith by it in accordance with the
advice of such counsel, accountants or experts; (c) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations made in or in connection with this
Agreement or the other Loan Documents; (d) shall not have any duty to ascertain
or to inquire as to the performance or observance of any of the terms, covenants
or conditions of this Agreement or the other Loan Documents on the part of any
Loan Party or to inspect the Collateral (including the books and records) of any
Loan Party; (e) shall not be responsible to any Lender for the due execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (f) shall incur no liability under or
in respect of this Agreement or the other Loan Documents by acting upon any
notice, consent, certificate or other instrument or writing (which may be by
telecopy, telegram, cable or telex) believed by it to be genuine and signed or
sent by the proper party or parties.
10.4 GECC and Affiliates. With respect to its Commitments hereunder, GECC
shall have the same rights and powers under this Agreement and the other Loan
Documents as any other Lender and may exercise the same as though it were not
the Administrative Agent; and the term "Lender" or "Lenders" shall, unless
otherwise expressly indicated, include GECC in its individual capacity. GECC and
its Affiliates may lend money to, invest in, and generally engage in any kind of
business with, any Loan Party, any of their Affiliates and any Person who may do
business with or own securities of any Loan Party or any such Affiliate, all as
if GECC were not the Administrative Agent and without any duty to account
therefor to the Lenders. GECC and its Affiliates may accept fees and other
consideration from any Loan Party for services in connection with this Agreement
or otherwise without having to account for the same to the Lenders. Each Lender
acknowledges the potential conflict of interest between GECC as the Lender
holding disproportionate interests in the Loans and GECC as the Administrative
Agent.
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10.5 Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Lender and based on the Financial Statements referred to in Section 4.10 and
such other documents and information as it has deemed appropriate, made its own
credit and financial analysis of the Loan Parties and its own decision to enter
into this Agreement. Each Lender also acknowledges 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 credit decisions in taking or not taking action under
this Agreement. Each Lender acknowledges the potential conflict of interest of
each other Lender as a result of the Lenders holding disproportionate interests
in the Loans, and expressly consents to, and waives any claim based upon, such
conflict of interest.
10.6 Indemnification. The Lenders agree to indemnify the Administrative
Agent (to the extent the Administrative Agent is not reimbursed by Loan Parties
and without limiting the obligations of Loan Parties hereunder), ratably
according to their respective Pro Rata Shares, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against the Administrative Agent in any way
relating to or arising out of this Agreement or any other Loan Document or any
action taken or omitted by the Administrative Agent in connection therewith;
provided, however, that no Lender shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from the Administrative Agent's gross
negligence or willful misconduct. Without limiting the foregoing, each Lender
agrees to reimburse the Administrative Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including counsel fees) incurred by
the Administrative Agent in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement and each other Loan
Document, to the extent that the Administrative Agent is not reimbursed for such
expenses by Loan Parties.
10.7 Successor Administrative Agent. The Administrative Agent may resign
at any time by giving not less than thirty (30) days' prior written notice
thereof to the Lenders and the Borrower. Upon any such resignation, the
Requisite Lenders shall have the right to appoint a successor Administrative
Agent. If no successor Administrative Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within thirty (30)
days after the resigning Administrative Agent's giving notice of resignation,
then the resigning Administrative Agent may, on behalf of the Lenders, appoint a
successor Administrative Agent, which shall be the Lender, if the Lender is
willing to accept such appointment, or otherwise shall be a commercial bank or
financial institution or a subsidiary of a commercial bank or financial
institution if such commercial bank or financial institution is organized under
the laws of the United States of America or of any State thereof and has a
combined capital and surplus of at least $300,000,000. If no successor
Administrative Agent has been appointed pursuant to the foregoing by the 30th
day after the date such notice of resignation was given by the resigning
Administrative Agent, such resignation shall become effective and the Requisite
Lenders shall thereafter perform all the duties of the Administrative Agent
hereunder until such time, if any, as the Requisite Lenders appoint a successor
Administrative Agent as provided above. Any successor Administrative Agent
appointed by the Requisite Lenders hereunder shall be subject to the approval of
the Borrower, such approval not to be unreasonably withheld or delayed;
provided, however, that such approval shall not be required if an Event of
Default shall have occurred and be continuing. Upon the acceptance of any
appointment as the Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall succeed to and become vested
with all the rights, powers, privileges and duties of the resigning
Administrative Agent. Upon the earlier of the acceptance of any appointment as
the Administrative Agent hereunder by a successor Administrative Agent or the
effective date of the resigning Administrative Agent's resignation, the
resigning Administrative Agent shall be discharged
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from its duties and obligations under this Agreement and the other Loan
Documents, except that any indemnity rights or other rights in favor of such
resigning Administrative Agent shall continue. After any resigning
Administrative Agent's resignation hereunder, the provisions of this Section
10.7 shall inure to its benefit as to any actions taken or omitted to be taken
by it while it was the Administrative Agent under this Agreement and the other
Loan Documents.
10.8 Set Off and Sharing of Payments. In addition to any rights now or
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender and each holder of any Note and each of their respective Affiliates
is hereby authorized at any time or from time to time, without notice to any
Loan Party or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all balances held by
it at any of its offices for the account of the Borrower or any Guarantor
(regardless of whether such balances are then due to the Borrower or such
Guarantor) and any other properties or assets at any time held or owing by that
Lender, that holder or that Affiliate to or for the credit or for the account of
the Borrower or any Guarantor against and on account of any of the Obligations
which are not paid when due. Any Lender or holder of any Note or any Affiliate
of either exercising a right to set off or otherwise receiving any payment on
account of the Obligations in excess of its Pro Rata Share of the Obligations
shall purchase for cash (and the other Lenders or holders shall sell) such
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender or holder to share the
amount so set off or otherwise received with each other Lender or holder in
accordance with their respective Pro Rata Shares. Each Loan Party agrees, to the
fullest extent permitted by law, that (a) any Lender or holder may exercise its
right to set off with respect to amounts in excess of its Pro Rata Share of the
Obligations and may sell participations in such amount so set off to other
Lenders and holders and (b) any Lender or holder so purchasing a participation
in the Loans made or other Obligations held by other Lenders or holders may
exercise all rights of set off, bankers, lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender or holder were a
direct holder of the Loans and the other Obligations in the amount of such
participation. Notwithstanding the foregoing, if all or any portion of the set
off amount or payment otherwise received is thereafter recovered from the
Lender, holder or Affiliate that has exercised the right of set off, the.
purchase of participations by that Lender shall be rescinded and the purchase
price restored without interest.
10.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
Concert.
(a) Advances; Payments.
(i) The Administrative Agent shall notify the Lenders, promptly
after receipt of a Borrowing Certificate and in any event prior to 3:00 p.m.
(New York time) on the date such Borrowing Certificate is received, by telecopy,
telephone or other similar form of transmission. Each Lender shall make the
amount of such Lender's Pro Rata Share of such Advance available to the
Administrative Agent in same day funds by wire transfer to the Administrative
Agent's account as set forth in Schedule 10.9 not later than 3:00 p.m. (New York
time) on the requested funding date in the case of a Base Rate Loan and not
later than 11:00 a.m. (New York time) on the requested funding date in the case
of a LIBOR Loan. After receipt of such wire transfers (or, in the Administrative
Agent's sole discretion, before receipt of such wire transfers), subject to the
terms hereof, the Administrative Agent shall make the requested Advance to the
Borrower to the account of the Borrower specified on Schedule 10.9. All payments
by each Lender shall be made without set off, counterclaim or deduction of any
kind.
(ii) All Payments due hereunder and under the Notes shall be made to
the Administrative Agent by wire transfer to the account specified on Schedule
10.9 no later than 1:00 p.m. (New York time) on the date due. Payments received
after such time shall be deemed to have been made
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on the next Business Day. On each Business Day that the Administrative Agent
receives a payment with respect to the Loans, the Administrative Agent will
advise each Lender by telephone or telecopy of the amount of such Lender's Pro
Rata Share of principal, interest and Fees paid for the benefit of the Lenders
with respect to each applicable Loan. Provided that such Lender has funded all
payments or Advances required to be made by it and has purchased all
participations required to be purchased by it under this Agreement and the other
Loan Documents as of such date, the Administrative Agent will pay to each Lender
such Lender's Pro Rata Share of such payment. To the extent that any Lender (a
"Non-Funding Lender") has failed to fund all such payments and Advances or
failed to fund the purchase of all such participations, the Administrative Agent
shall be entitled to set off the funding short-fall against that Non-funding
Lender's Pro Rata Share of all payment's received from the Borrower. Such
payments shall be made by wire transfer to such Lender's account (as specified
by such Lender in Schedule 10.9 or the applicable Assignment Agreement) not
later than 2:00 p.m. (New York time) on the next Business Day following receipt.
(b) Availability of Lenders' Pro Rata Shares. The Administrative
Agent may assume that each Lender will make its Pro Rata Share of each Advance
available to the Administrative Agent on each funding date. If such Pro Rata
Share is not, in fact, paid to the Administrative Agent by such Lender when due,
the Administrative Agent will be entitled to recover such amount on demand from
such Lender without set off, counterclaim or deduction of any kind. If any
Lender fails to pay the amount of its Pro Rata Share forthwith upon the
Administrative Agent's demand, the Administrative Agent shall promptly notify
the Borrower and the Borrower shall immediately repay such amount to the
Administrative Agent. Nothing in this Section 10.9(b) or elsewhere in this
Agreement or the other Loan Documents shall be deemed to require the
Administrative Agent to advance funds on behalf of any Lender or to relieve any
Lender from its obligation to fulfill its Commitments hereunder or to prejudice
any rights that any Loan Party may have against any Lender as a result of any
default by such Lender hereunder. To the extent that the Administrative Agent
advances funds to the Borrower on behalf of any Lender and is not reimbursed
therefor on the same Business Day as such Advance is made, the Administrative
Agent shall be entitled to retain for its account all interest accrued on such
Advance until reimbursed by the applicable Lender or the Borrower, as the case
may be.
(c) Return of Payments.
(i) If the Administrative Agent pays an amount to a Lender under
this Agreement in the belief or expectation that a related payment has been or
will be received by the Administrative Agent from the Borrower and such related
payment is not received by the Administrative Agent, then the Administrative
Agent will be entitled to recover such amount from such Lender on demand without
set off, counterclaim or deduction of any kind.
(ii) If the Administrative Agent determines at any time that any
amount received by the Administrative Agent under this Agreement must be
returned to the Borrower or paid to any other Person pursuant to any insolvency
law or otherwise, then, notwithstanding any other term or condition of this
Agreement or any other Loan Document, the Administrative Agent will not be
required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to the Administrative Agent on demand any portion of such
amount that the Administrative Agent has distributed to such Lender, together
with interest at such rate, if any, as the Administrative Agent is required to
pay to the Borrower or such other Person, without set off, counterclaim or
deduction of any kind.
(d) Non-Funding Lenders. The failure of any Non-Funding Lender to
make any Advance or any payment required by it hereunder shall not relieve any
other Lender (each such other Lender, an "Other Lender") of its obligations to
make such Advance, but neither any Other Lender nor the Administrative Agent
shall be responsible for the failure of any Non-Funding Lender to make an
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Advance or to purchase a participation required hereunder. Notwithstanding
anything set forth herein to the contrary, a Non-Funding Lender shall not have
any voting or consent rights under or with respect to any Loan Document or
constitute a "Lender" (or be included in the calculation of the "Requisite
Lenders" hereunder) for any voting or consent rights under or with respect to
any Loan Document.
(e) Dissemination of Information. The Administrative Agent will use
reasonable efforts to provide the Lenders with any notice of an Event of Default
received by the Administrative Agent from, or delivered by the Administrative
Agent to, any Loan Party, with notice of any Event of Default of which the
Administrative Agent has actually become aware and with notice of any action
taken by the Administrative Agent following any Event of Default; provided,
however, that the Administrative Agent shall not be liable to any Lender for any
failure to do so, except to the extent that such failure is attributable to the
Administrative Agent's gross negligence or willful misconduct. The Lenders
acknowledge that each Loan Party is required to provide Financial Statements to
the Lenders hereunder and agrees that the Administrative Agent shall have no
duty to provide the same to the Lenders.
(f) Actions in Concert. Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of set off) without
first obtaining the prior written consent of the Requisite Lenders, it being the
intent of the Lenders that any such action to protect or enforce rights under
this Agreement and the Notes shall be taken in concert and at the direction or
with the consent of the Administrative Agent.
ARTICLE 11: GUARANTY
11.1 Guaranty. Each of the Guarantors hereby absolutely and
unconditionally guarantees to the Administrative Agent and the Lenders and their
respective successors and assigns the full and prompt payment (whether at stated
maturity, by acceleration or otherwise) and performance of, all Obligations
owing by each of the Guarantors. Each Guarantor agrees that its guaranty
obligation hereunder is a continuing guaranty of payment and performance and not
of collection, that its obligations under this Article 11 shall not be
discharged until payment and performance, in full, of the Obligations has
occurred, and that its obligations under this Article 11 shall be absolute and
unconditional, irrespective of, and unaffected by:
(a) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, this Agreement, any other Loan Document or
any other agreement, document or instrument to which any Loan Party is or may
become a party;
(b) the absence of any action to enforce this Agreement (including
this Article 11) or any other Loan Document or the waiver or consent by the
Administrative Agent and the Lenders with respect to any of the provisions
thereof;
(c) the existence, value or condition of, or failure to perfect its
Lien against, any security for the Obligations or any action, or the absence of
any action, by the Administrative Agent and the Lenders in respect thereof
(including the release of any such security);
(d) the insolvency of any Loan Party; or
(e) any other action or circumstances which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor.
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Each Guarantor's liability with respect to the Obligations is primary, not
secondary, and it shall not be a condition to the obligations of the Guarantors
hereunder that the Lenders or the Administrative Agent pursue or preserve
remedies against any party primarily or secondarily liable on the Obligations.
11.2 Waivers by Guarantors. Each Guarantor expressly waives all rights it
may have now or in the future under any statute, or at common law, or at law or
in equity, or otherwise, to compel the Administrative Agent or the Lenders to
marshall assets or to proceed in respect of the Obligations guaranteed hereunder
against any other Guarantor, any other party or against any security for the
payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, such Guarantor. It is agreed among each
Guarantor, the Administrative Agent and the Lenders that the foregoing waivers
are of the essence of the transaction contemplated by this Agreement and the
other Loan Documents and that, but for the provisions of this Article 11 and
such waivers, the Administrative Agent and the Lenders would decline to enter
into this Agreement.
11.3 Benefit of Guaranty. Each Guarantor agrees that the provisions of
this Article 11 are for the benefit of the Administrative Agent and the Lenders
and their respective successors, transferees, endorsees and assigns, and nothing
herein contained shall impair, as between any Guarantor and the Administrative
Agent or the Lenders, the obligations any Guarantor has under the Loan
Documents.
11.4 Subrogation; Subordination. Notwithstanding anything to the contrary
in this Agreement or in any other Loan Document, and except as set forth in
Section 11.7, each Guarantor hereby expressly and irrevocably subordinates to
payment of the Obligations any and all rights at law or in equity to
subrogation, reimbursement, exoneration, contribution, indemnification or set
off and any and all defenses available to a surety, guarantor or accommodation
co-obligor until the Obligations are paid in full in cash. Each Guarantor agrees
that any and all claims against any other Loan Party or any endorser or any
other guarantor of all or any part of the Obligations, or against any of their
respective properties, shall be subordinate and subject in right of payment to
the prior payment, in full and in cash, of all Obligations. Notwithstanding any
right of any Guarantor to ask, demand, sue for, take or receive any payment from
any other Loan Party, all rights, liens and security interests of such
Guarantor, whether now or hereafter arising and howsoever existing, in any
assets of the other Loan Parties (whether constituting part of the Collateral)
shall be and hereby are subordinated to the rights of the Secured Parties in
those assets. Except as not otherwise prohibited by this Agreement, no Guarantor
shall have any right to possession of any such asset or to foreclose upon any
such asset, whether by judicial action or otherwise, unless and until all of the
Obligations shall have been paid in full in cash and this Agreement has been
terminated. If all or any part of the assets of the Loan Parties, or the
proceeds thereof, are subject to any distribution, division or application to
the creditors of the Loan Parties, whether partial or complete, voluntary or
involuntary, and whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding, or if the business of any Loan Party is dissolved or if (except as
permitted by this Agreement) substantially all of the assets of any Loan Party
are sold, then, and in any such event, any payment or distribution of any kind
or character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any indebtedness of any other
Loan Party to any Guarantor ("Borrower Indebtedness"), shall be paid or
delivered to the Administrative Agent for application on any of the Obligations
then due and payable, until such Obligations shall have first been paid in full
in cash. Each Guarantor irrevocably authorizes and empowers the Administrative
Agent to demand, sue for, collect and receive every such payment or distribution
and give acquittance therefor and to make for and on behalf of such Guarantor
such proofs of claim and take such other action, in the Administrative Agent's
own name or in the name of such Guarantor or otherwise, as the Administrative
Agent may deem necessary or advisable for the enforcement of this Article 11.
The Administrative Agent may vote such proofs of claim in any such proceeding,
receive and collect any and all dividends or other payments or disbursements
made on the Borrower Indebtedness in whatever form the same may be paid or
issued and apply the same on account
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of any of the Obligations then due and payable. If any payment, distribution,
security or instrument or proceeds thereof is received by any Guarantor upon or
with respect to the Borrower Indebtedness prior to the payment in full in cash
of the Obligations and the termination of this Agreement, such Guarantor shall
receive and hold the same in trust, as trustee for the benefit of the
Administrative Agent and the other Secured Parties, and shall forthwith deliver
the same to the Administrative Agent, for the benefit of the Administrative
Agent and the other Secured Parties, in precisely the form received (except for
the endorsement or assignment of such Guarantor where necessary), for
application to any of the Obligations then due and payable, and, until so
delivered, the same shall be held in trust by such Guarantor as the collateral
security of the Administrative Agent, for the benefit of the Administrative
Agent and the other Secured Parties. If any Guarantor fails to make any such
endorsement or assignment to the Administrative Agent, the Administrative Agent
or any of its officers or employees are hereby irrevocably authorized to make
the same. Each Guarantor agrees that until the Obligations have been paid in
full in cash and this Agreement has been terminated, such Guarantor will not
assign or transfer to any Person any claim such Guarantor has or may have
against any other Loan Party. Each Guarantor acknowledges and agrees that this
subordination is intended to benefit the Administrative Agent and the Lenders
and shall not limit or otherwise affect such Guarantor's liability hereunder or
the enforceability of this Article 11 and that the Administrative Agent, the
Lenders and their respective successors and assigns are intended third-party
beneficiaries of the waivers and agreements set forth in this Section 11.4.
11.5 Election of Remedies. If the Administrative Agent or any Lender may,
under applicable Law, proceed to realize its benefits under any of the Loan
Documents giving the Administrative Agent or such Lender a Lien upon any
Collateral, whether owned by any Loan Party or by any other Person, either by
judicial foreclosure or by non-judicial sale or enforcement, the Administrative
Agent or any Lender may, at its sole option, determine which of its remedies or
rights it may pursue without affecting any of its rights and remedies under this
Article 11. If, in the exercise of any of its rights and remedies, the
Administrative Agent or any Lender shall forfeit any of its rights or remedies,
including its right to enter a deficiency judgment against any Loan Party or any
other Person, whether because of any applicable Laws pertaining to "election of
remedies" or the like, each Guarantor hereby consents to such action by the
Administrative Agent or such Lender and waives any claim based upon such action,
even if such action by the Administrative Agent or such Lender shall result in a
full or partial loss of any rights of subrogation which each Guarantor might
otherwise have had but for such action by the Administrative Agent or such
Lender. Any election of remedies which results in the denial or impairment of
the right of the Administrative Agent or any Lender to seek a deficiency
judgment against any Guarantor shall not impair any other Guarantor's obligation
to pay the full amount of the Obligations. In the event the Administrative Agent
or any Lender shall bid at any foreclosure or trustee's sale or at any private
sale permitted by law or the Loan Documents, the Administrative Agent or such
Lender may bid all or less than the amount of the Obligations and the amount of
such bid need not be paid by the Administrative Agent or such Lender but, at the
election of the Administrative Agent or such Lender, shall be credited against
the Obligations. The amount of the successful bid at any such sale, whether the
Administrative Agent, the Lender or any other party is the successful bidder,
shall be conclusively deemed to be the fair market value of the Collateral and
the difference between such bid amount and the remaining balance of the
Obligations shall be conclusively deemed to be the amount of the Obligations
guaranteed under this Article 11, notwithstanding that any present or future Law
or court decision or ruling may have the effect of reducing the amount of any
deficiency claim to which the Administrative Agent or any Lender might otherwise
be entitled but for such bidding at any such sale.
11.6 Limitation. Notwithstanding any provision herein contained to the
contrary, each Guarantor's liability under this Article 11 shall be limited to
an amount not to exceed the amount which could be claimed by the Administrative
Agent and the Lenders from such Guarantor under this Article 11 without
rendering such claim voidable or avoidable under Section 548 of Chapter 11 of
the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer
Act, Uniform Fraudulent Conveyance
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Act or similar statute or common law after taking into account, among other
things, such Guarantor's right of contribution and indemnification from each
other Guarantor under Section 11.7.
11.7 Contribution with Respect to Guaranty Obligations.
(a) To the extent that any Guarantor shall make a payment under this
Article 11 of all or any of the Obligations (a "Guarantor Payment") which,
taking into account all other Guarantor Payments then previously or concurrently
made by any other Guarantor, exceeds the amount which such Guarantor would
otherwise have paid if each Guarantor had paid the aggregate Obligations
satisfied by such Guarantor Payment in the same proportion that such Guarantor's
"Allocable Amount" (as defined below) (as determined immediately prior to such
Guarantor Payment) bore to the aggregate Allocable Amounts of each of Guarantors
as determined immediately prior to the making of such Guarantor Payment, then,
following payment in full in cash of the Obligations and termination of the
Commitments, such Guarantor shall be entitled to receive contribution and
indemnification payments from, and be reimbursed by, each other Guarantor for
the amount of such excess, pro rata based upon their respective Allocable
Amounts in effect immediately prior to such Guarantor Payment.
(b) As of any date of determination, the "Allocable Amount" of any
Guarantor shall be equal to the maximum amount of the claim which could then be
recovered from such Guarantor under this Article 11 without rendering such claim
voidable or avoidable under Section 548 of Chapter 11 of the Bankruptcy Code or
under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent
Conveyance Act or similar statute or common law.
(c) This Section 11.7 is intended only to define the relative rights
of the Guarantors and nothing set forth in this Section 11.7 is intended to or
shall impair the obligations of the Guarantors, jointly and severally, to pay
any amounts as and when the same shall become due and payable in accordance with
the terms of this Agreement, including Section 11.1.
(d) The parties hereto acknowledge that the rights of contribution
and indemnification hereunder shall constitute assets of the Guarantors to which
such contribution and indemnification are owing.
(e) The rights of the indemnifying Guarantors against other Loan
Parties under this Section 11.7 shall be exercisable upon the full and payment
of the Obligations and the termination of the Commitments.
11.8 Liability Cumulative. The liability of the Guarantors under this
Article 11 is in addition to and shall be cumulative with all liabilities of
each Guarantor to the Administrative Agent and the Lenders under this Agreement
and the other Loan Documents to which such Guarantor is a party or in respect of
any Obligations or obligation of the other Guarantors without any limitation as
to amount, unless the instrument or agreement evidencing or creating such other
liability specifically provides to the contrary.
ARTICLE 12: GENERAL CONDITIONS/MISCELLANEOUS
The following conditions shall be applicable throughout the term of this
Agreement:
12.1 Amendments, Modifications and Waivers. No amendment, modification or
waiver, of any provision of this Agreement nor consent to any departure by any
Loan Party therefrom shall in any event be effective unless the same shall be in
writing and signed by the Requisite Lenders, and then any
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such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no amendment,
modification, waiver or consent shall, unless in writing and signed by each
Lender affected thereby, do any of the following: (i) waive any of the
conditions specified in Article 5, except as otherwise provided therein; (ii)
increase the Commitments or subject any Lender to any additional obligations;
(iii) reduce the principal of, or interest on, the Loan or any fees or other
amounts payable hereunder; (iv) amend any of the provisions in Article 2; (v)
release any material amount of the Collateral except as shall otherwise be
provided herein; (vi) release any Guarantor having a material amount of assets;
(vii) amend the definition of the Requisite Lenders; or (viii) amend this
Section 12.1; and provided, further, that no amendment, modification, waiver or
consent shall, unless in writing and signed by the Administrative Agent in
addition to the Lenders required above to take such action, affect the rights or
duties of the Administrative Agent under this Agreement or the other Loan
Documents. No failure on the part of any Lender or the Administrative Agent to
exercise, and no delay in exercising, any right hereunder or under any Loan
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any such right preclude any other or further exercise thereof or the
exercise of any other right.
12.2 Advances Not Implied Waivers. No waiver of the requirements contained
in any Loan Document shall be effective unless in writing duly signed by the
required number of the Lenders provided for herein. No Advance hereunder shall
constitute a waiver of any of the conditions of the Lenders' obligation to make
further Advances, except as otherwise provided herein. Any Advance made by any
Lender and any sums expended by any Lender pursuant to the Loan Documents shall
be deemed to have been made pursuant to this Agreement, notwithstanding the
existence of an uncured Default or Event of Default. No Advance at a time when
an Event of Default exists shall constitute a waiver of any right or remedy by
the Administrative Agent or any Lender existing by reason of such Event of
Default, including the right to accelerate the maturity of the Indebtedness
evidenced by the Loan Documents or to foreclose the Lien on the Collateral or to
refuse to make further Advances hereunder.
12.3 Business Day. Except as otherwise provided herein, whenever any
payment or action to be made or taken hereunder or under any other Loan Document
shall be stated to be due on a day which is not a Business Day, such payment or
action shall be made or taken on the next succeeding Business Day (except as set
forth in the definition of LIBOR Period) and such extension of time shall be
included in computing interest or fees, if any, in connection with such payment
or action.
12.4 Records. From time to time the Administrative Agent may send the
Borrower statements of the unpaid principal amount of the Loan, the unpaid
interest accrued thereon, the interest rate or rates applicable to such unpaid
principal amount, the duration of such applicability, and the amount remaining
available on any Commitment, and each statement shall be deemed correct and
conclusively binding on Borrower (absent manifest error) unless the Borrower
notifies the Administrative Agent of an error in the statement in writing within
thirty (30) days of the date on which any such statement is provided to the
Borrower.
12.5 Notices. All notices, requests, demands, directions and other
communications (collectively, "notices") required under the provisions of this
Agreement or any other Loan Document shall be in writing (including
communication by facsimile transmission) unless otherwise expressly permitted
hereunder and shall be sent by hand, by registered or certified mail (return
receipt requested), by overnight courier service (maintaining records of
receipt) or by facsimile transmission with confirmation of receipt, in all cases
with charges prepaid, and any such properly given notice shall be effective upon
the earliest of (i) receipt, (ii) when delivered by hand, (iii) the third
Business Day after being mailed, (iv) the following Business Day if sent by
overnight courier service or (v) upon transmission when sent by facsimile. All
notices shall be addressed as follows:
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If to any Loan Party, to the Notice Address set forth on Schedule 1, with
copies, if any, as set forth on Schedule 1.
If to Administrative Agent:
General Electric Capital Corporation
Telecom Financial Services
10 Riverview Drive
Danbury, Connecticut 06810
Attention: Portfolio Manager
Telecopy: (203) 749-4531
With a copy to: NTFC Capital Corporation
501 Corporate Center, Suite 600
Franklin, Tennessee 37067
Attention: Legal Department
Telecopy: (615) 771-6187
If to a Lender, to the Notice Address set forth on Annex I or in the
Assignment Agreement by which it became a Lender.
All notices shall be sent to the applicable party at the address stated
above or in accordance with the last unrevoked written direction from such party
to the other party hereto, given in accordance with the terms hereof. The giving
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice.
12.6 FCC and PUC Approval. The exercise of any rights or remedies
hereunder or under any other Loan Document by the Administrative Agent or any
Lender that may require FCC or PUC approval shall be subject to obtaining such
approval. Pending the receipt of any PUC or FCC approval, no Loan Party shall
delay, hinder, interfere with or obstruct the exercise of the Administrative
Agent's or the Lenders' rights or remedies hereunder or the obtaining of such
approvals.
12.7 Lenders Sole Beneficiary. All conditions of the obligation of the
Lenders to make any Advances hereunder are imposed solely and exclusively for
the benefit of the Lenders and their respective assigns; no other Person shall
have standing to require satisfaction of such conditions in accordance with
their terms or be entitled to assume that any Lender will refuse to make any
Advances in the absence of strict compliance with any or all such conditions;
and no other Person shall under any circumstances be deemed to be a beneficiary
of such conditions, any or all of which may be freely waived in whole or in part
by the Lenders at any time if, in their sole discretion, the Lenders deem it
advisable to do so. Each Lender's sole obligation hereunder is to make the
Advances if and to the extent required by this Agreement or any other Loan
Document.
12.8 Lender's Review of Information. Each Loan Party acknowledges and
agrees that any review or analysis by the Administrative Agent or any Lender of
financial information, operating information, marketing data or other
information provided to the Administrative Agent or such Lender by or on behalf
of such Loan Party at any time is and shall be conducted solely for the
Administrative Agent's and such Lender's benefit and internal use and that
neither the Administrative Agent nor any Lender is under any duty or obligation
to make the results of such review or analysis available to any Loan Party. No
Loan Party is relying, and will not rely, on the Administrative Agent or any
Lender for financial or business advice.
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12.9 No Joint Venture. Nothing in this Agreement or any other Loan
Document shall be deemed to constitute any kind of partnership, joint venture or
fiduciary relationship between the Administrative Agent, any Lender or any Loan
Party.
12.10 Severability. The provisions of this Agreement are intended to be
severable. Wherever possible, each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable Law,
but if any provision of this Agreement or any other Loan Document shall be
prohibited by or invalid under applicable Law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
12.11 Rights Cumulative. All rights, powers and remedies herein given to
the Administrative Agent and the Lenders are cumulative and not alternative and
are in addition to all statutes or rules of law.
12.12 Duration; Survival. All representations and warranties of any Loan
Party contained herein or made in connection herewith shall survive the making
of and shall not be waived by the execution and delivery of this Agreement and
the other Loan Documents, any investigation by the Administrative Agent or any
Lender, or the making of any Advances hereunder. All covenants and agreements of
any Loan Party contained herein shall continue in full force and effect from and
after the date hereof so long as the Borrower may borrow hereunder and until
payment in full of the Loans, interest thereon, all Fees and all other
Obligations of the Borrower. Without limitation, it is understood that all
obligations of Loan Parties to make payments to or indemnify the Lenders shall
survive the payment in full of the Loans and of all other Obligations.
12.13 Governing Law. This Agreement, the Notes and each of the other Loan
Documents shall be governed by and construed and enforced in accordance with the
law of the State of New York, without regard to conflicts of laws principles
(other than Section 5-1401 of the General Obligations Law of the State of New
York), except to the extent that the Law of jurisdictions where the Collateral
is located may be required to apply to the Collateral.
12.14 Counterparts. This Agreement may be executed in any number of
counterparts (by facsimile transmission or otherwise) and by the different
parties hereto on separate counterparts, each of which, when so executed, shall
be deemed an original, but all such counterparts shall constitute one and the
same instrument.
12.15 Successors and Assigns. This Agreement and the other Loan Documents
shall be binding on and shall inure to the benefit of each Loan Party, the
Administrative Agent, the Lenders and their respective permitted successors and
assigns (including, in the case of any Loan Party, a debtor-in-possession on
behalf of such Loan Party), except as otherwise provided herein or therein. No
Loan Party may assign, transfer, hypothecate or otherwise convey its rights,
benefits, obligations or duties hereunder or under any of the other Loan
Documents without the prior express written consent of the Administrative Agent
and the Lenders. Any such purported assignment, transfer, hypothecation or other
conveyance by any Loan Party without the prior express written consent of the
Administrative Agent and the Lenders shall be void. The terms and provisions of
this Agreement are for the purpose of defining the relative rights and
obligations of each Loan Party, the Administrative Agent and the Lenders with
respect to the transactions contemplated hereby and no Person shall be a
third-party beneficiary of any of the terms and provisions of this Agreement or
any of the other Loan Documents.
12.16 Disclosures and Confidentiality.
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(a) Each Loan Party agrees that it and each of its Affiliates will
obtain the Administrative Agent's written consent before using or generating any
press release, advertisement, publicity materials or other publication in which
the name or logo of the Administrative Agent or any Lender or any of their
Affiliates is used or may be reasonably inferred and will not distribute any
such materials in the absence of such prior written approval.
(b) Each Loan Party agrees that it will not, directly or indirectly,
disclose to any third party the terms of this Agreement or the other Loan
Documents or prior or future correspondence relating thereto, or the
transactions contemplated hereby, or any other information regarding the
Administrative Agent, any Lender or their Affiliates learned by such Loan Party
during the course of negotiation thereof. The term "third party" shall exclude
only the Loan Parties, their Affiliates and their respective attorney(s) and
certified public accountant(s). This Section 12.16(b) shall not restrict the
disclosure of information if such disclosure is required by Law, by order of any
court or by the order, rule or regulation of any administrative or regulatory
agency, including any requirements of the FCC, any PUC or any state or federal
securities commissions (the "Commissions"); provided, however, that, except for
disclosures required by the FCC, any PUC or the Commissions, the Borrower shall
provide the Administrative Agent with advance notice of any such required
disclosure of information so that the Administrative Agent or the applicable
Lender may seek an appropriate protective order and/or waive compliance with
this Section 12.16(b). Each Loan Party shall not oppose any action taken by the
Administrative Agent or any Lender to obtain an appropriate protective order or
other reliable assurance that the information will be accorded confidential
treatment. The obligations set forth in this Section 12.16(b) shall survive the
termination of this Agreement.
(c) The Administrative Agent and each Lender agree to use
commercially reasonable efforts (equivalent to the efforts the Administrative
Agent or such Lender applies to maintaining the confidentiality of its own
confidential information) to maintain as confidential all confidential
information provided to them by the Loan Parties, except that the Administrative
Agent and each Lender may disclose such information (a) to Persons employed or
engaged by the Administrative Agent or such Lender in evaluating, approving,
structuring or administering the Loans and the Commitments; (b) to any bona fide
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 12.16 (and any such bona fide
assignee or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (b)
above); (c) as required or requested by any Governmental Authority or reasonably
believed by the Administrative Agent or such Lender to be compelled by any court
decree, subpoena or legal or administrative order or process; (d) as, in the
opinion of the Administrative Agent's or such Lender's counsel, required by Law;
(e) in connection with the exercise of any right or remedy under the Loan
Documents or in connection with any litigation to which the Administrative Agent
or such Lender is a party; or (f) which ceases to be confidential through no
fault of the Administrative Agent or such Lender.
(d) The disclosure of information by any of the Administrative
Agent, the Lenders or Loan Parties will not be restricted under this Agreement
if such information (i) has been or becomes published or is now, or in the
future, in the public domain through (A) no fault of the parties, (B) disclosure
other than unauthorized disclosure by the party to whom the information is
disclosed or (C) disclosure to third parties by the disclosing party without
similar restriction; (ii) is property (other than proposal letters, commitment
letters or other correspondence between the Lenders and the Loan Parties) within
the legitimate possession of the receiving party prior to disclosure hereunder;
(iii) subsequent to disclosure hereunder, is lawfully received from a third
party having rights therein without restriction of the third party's or
receiving party's rights to disseminate the information and without notice of
any restriction against its further disclosure; (iv) is disclosed with the
written approval of the other party; or (v) is or becomes publicly available
free of any obligation to keep it confidential.
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(e) Each Loan Party authorizes the Administrative Agent and each
Lender to discuss with and furnish to any Affiliate of the Administrative Agent
or such Lender, any government or self-regulatory agency with jurisdiction over
the Administrative Agent or such Lender, any other Governmental Authority or,
subject to such Person's agreeing to this Section 12.16, any assignee,
successor, participant, successor, or prospective assignee, successor or
participant, all Financial Statements, audit reports and other information
pertaining to such Loan Party and/or its Subsidiaries whether such information
was provided by such Loan Party or prepared or obtained by the Administrative
Agent, the Lenders or third parties. No representation or warranty is made by
the Administrative Agent, the Lenders or any of their employees, officers,
directors or agents to any existing or prospective assignee, successor or
participant regarding any audit reports or other analyses of any Loan Party that
the Administrative Agent or any Lender may distribute, whether such information
was provided by any Loan Party or prepared or obtained by the Administrative
Agent, the Lenders or third parties, nor shall the Administrative Agent, the
Lenders or any of their employees, officers, directors or agents be liable to
any Person receiving a copy of such reports or analyses for any inaccuracy or
omission contained in such reports or analyses or relating thereto.
(f) Every reference in this Agreement to disclosures of any Loan
Party to any Lender or the Administrative Agent (except the Business Plan and
Financial Statements), to the extent that such references refer or are intended
to refer to disclosures at or prior to the execution of this Agreement, shall be
deemed strictly to refer only to written disclosures delivered to the
Administrative Agent or the Lenders concurrently with the execution of this
Agreement and referred to specifically in the Loan Documents. The parties intend
that such disclosures are to be limited to those presented in an orderly manner
at the time of executing this Agreement and are not to be deemed to include
expressly or impliedly any disclosures that previously may have been delivered
from time to time to the Administrative Agent or any Lender, except to the
extent that such previous disclosures are again presented to the Administrative
Agent or such Lender in writing concurrently with the execution of this
Agreement.
12.17 Jurisdiction and Venue. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY CONSENTS TO THE JURISDICTION OF THE STATE OR FEDERAL COURTS LOCATED
IN NEW YORK COUNTY, CITY OF NEW YORK, NEW YORK FOR ANY SUIT BROUGHT OR ACTION
COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
OBLIGATIONS AND AGREES NOT TO CONTEST VENUE IN ANY SUCH COURTS. In any such
litigation, each of the Parties hereto waives personal service of any summons,
complaint or other process, and agrees that the service thereof may be made by
certified or registered mail directly to its address provided in accordance with
Section 12.5. The choice of forum set forth herein shall not be deemed to
preclude the enforcement of any judgment obtained in such forum or the taking of
any action under this Agreement to enforce the same in any appropriate
jurisdiction.
12.18 Jury Waiver. THE PARTIES HERETO HEREBY KNOWINGLY AND WILLINGLY WAIVE
THEIR RIGHTS TO DEMAND A JURY TRIAL IN ANY ACTION OR PROCEEDING INVOLVING THIS
AGREEMENT, ANY OTHER LOAN DOCUMENT, THE OBLIGATIONS OR ANY RELATIONSHIP AMONG
THE ADMINISTRATIVE AGENT, THE LENDERS AND ANY LOAN PARTY. EACH OF THE PARTIES
HERETO REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH
ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
12.19 Limitation on Liability. NONE OF THE ADMINISTRATIVE AGENT, ANY
LENDER OR ANY LOAN PARTY SHALL HAVE ANY LIABILITY UNDER OR IN CONNECTION WITH
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THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS FOR SPECIAL, EXEMPLARY,
PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF ANY SORT IN ANY SUIT
BROUGHT OR ACTION COMMENCED IN CONNECTION WITH THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS OR THE OBLIGATIONS AND, EXCEPT TO THE EXTENT PROHIBITED BY LAW, EACH
PARTY WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH ACTION ANY
SPECIAL, EXEMPLARY, PUNITIVE, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES OF
ANY SORT OTHER THAN ACTUAL DAMAGES.
12.20 Schedules, Exhibits and Annexes. The Schedules, Exhibits and Annexes
attached to this Agreement are an integral part hereof, and are hereby made a
part of this Agreement.
12.21 Agreement to Govern. In case of any conflict between the terms of
this Agreement and any of the other Loan Documents, the terms of this Agreement
shall govern.
12.22 Entire Agreement. This Agreement, the other Loan Documents and other
documents, agreements and certificates executed by the parties contemporaneously
herewith or subsequently hereto constitute the entire agreement of the parties
and supersede all prior understandings and agreements, written or oral, among
the parties hereto relating to the subject matter hereof. None of the parties
hereto is entering into this Agreement in reliance on statements or
representations made by any Person other than as set forth herein.
[SIGNATURE PAGE APPEARS ON THE NEXT PAGE.]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written.
GENERAL ELECTRIC CAPITAL CORPORATION,
as the Administrative Agent
By: /s/ LW Middleton
-------------------------------------
Name: LW Middleton
Title: Att. Secretary
NTFC CAPITAL CORPORATION,
as a Lender
By: /s/ LW Middleton
-------------------------------------
Name: LW Middleton
Title: Vice President
ATI OPERATING COMPANY,
as the Borrower
By: _____________________________________
Name:
Title:
ADVANCED TELECOMMUNICATIONS, INC.,
as a Guarantor
By: _____________________________________
Name:
Title:
CADY COMMUNICATIONS, INC., as a
Guarantor
By: _____________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first above written.
GENERAL ELECTRIC CAPITAL CORPORATION,
as the Administrative Agent
By: _____________________________________
Name:
Title:
NTFC CAPITAL CORPORATION,
as a Lender
By: _____________________________________
Name:
Title:
ATI OPERATING COMPANY,
as the Borrower
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
ADVANCED TELECOMMUNICATIONS, INC.,
as a Guarantor
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
CADY COMMUNICATIONS, INC., as a
Guarantor
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
<PAGE>
AMERICAN TELEPHONE TECHNOLOGY, INC., as a
Guarantor
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
ELECTRO-TEL, INC., as a Guarantor
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
INTELLECOM COMMUNICATIONS, INC., as a
Guarantor
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
CADY TELEMANAGEMENT, INC., as a Guarantor
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
<PAGE>
Exhibit 10.1.17
STOCK PURCHASE WARRANT
AGREEMENT
This WARRANT AGREEMENT ("Warrant Agreement") is entered as of July
19, 1999, by and between Advanced Telecommunications, Inc., a Minnesota
corporation (the "Issuer") and General Electric Capital Corporation, a Delaware
corporation (the "Administrative Agent"). All capitalized terms used but not
otherwise defined herein shall have the meaning given to them in that certain
Loan and Security Agreement dated as of July 16, 1999, by and among the
Borrower, the Issuer and certain of its Subsidiaries as Guarantors, the
financial institutions and other entities from time to time party thereto as
Lenders and the Administrative Agent (as amended or modified from time to time,
the "Loan Agreement").
1. Issuance of Warrants; Term.
(a) For and in consideration of the sum of One Dollar ($1.00) in
cash and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Issuer hereby grants to the Administrative
Agent, subject to the provisions hereinafter set forth and to the adjustments in
the number of shares issuable pursuant to this Warrant Agreement hereinafter
provided, the right to purchase (the "Warrants") 570,600 shares of Common Stock,
one cent ($.0l) par value, of the Issuer (the "Common Stock"), which number of
shares represents four percent (4%) of the aggregate outstanding shares of
capital stock of the Issuer (both common and preferred) as of the date hereof on
a fully diluted basis, assuming exercise by all other holders of all warrants,
stock options, and other rights to purchase capital stock of the Issuer,
including the Warrants hereunder, and the conversion of all other securities
convertible into capital stock of the Issuer. Such outstanding securities of the
Issuer on the date hereof are hereinafter referred to as "Closing Date Stock."
Such percentage is hereinafter referred to as "the Administrative Agent's
Proportionate Share." The shares of Common Stock issuable upon exercise of the
Warrants, subject to adjustment under Section 8 below, are hereinafter referred
to as the "Shares."
(b) The Warrants issued under this Warrant Agreement shall be
evidenced by one or more Warrant Certificates (the "Warrant Certificates") in
the form of Exhibit A hereto. No more than fifty percent (50%) of the Warrants
shall be exercisable on or prior to December 31, 2000. In the event that the
Issuer receives at least $30,000,000 of Additional Contributed Capital on or
prior to December 31, 2000, the Administrative Agent will return to the Issuer
for cancellation fifty percent (50%) of the Warrants. Thereafter, all of the
Warrants shall be exercisable, in whole or in part. All Warrants issued under
this Warrant Agreement shall terminate on (i) the third anniversary of the final
repayment of all Obligations due under the Loan Agreement (the "Termination
Date").
<PAGE>
2. Warrant Price. The exercise price at which all or any of the
Shares may be purchased pursuant to the terms of this Warrant Agreement shall be
One Cent ($.01) per Share (the "Warrant Price").
3. Exercise. Commencing on the First Borrowing Date, prior to
December 31, 2000, the Warrants may be exercised from time to time by the holder
thereof (but only on the conditions hereinafter set forth) as to fifty percent
(50%) of the Warrants and after December 31, 2000, as to all of the Warrants, or
any increment or increments of one (1) Share thereof, upon delivery of written
notice of intent to exercise to the Issuer at the address set forth in Section
16 hereof, together with the Warrant Certificate(s) and a check payable to the
Issuer for the aggregate purchase price of the Shares so purchased. Subject to
any regulatory approvals or notifications required for the Issuer to issue any
Shares, upon exercise of the Warrants, the Issuer shall as promptly as
practicable, and in any event within ten (10) days thereafter, execute and
deliver to the holder of the Warrants a certificate or certificates for the
total number of Shares for which the Warrants are being exercised in the name of
the Administrative Agent or a permitted transferee under Section 4(a) hereof. If
the Warrants are exercised with respect to fewer than all of the Shares, the
holder shall be entitled to receive one or more new Warrant Certificate(s), in
the same form as the original, covering the number of Shares in respect of which
the Warrants have not been exercised ("Replacement Warrant Certificate(s)"). The
Issuer covenants and agrees that it will pay when due any and all state and
federal issue taxes which may be payable in respect of the issuance of the
Warrants, Warrant Certificate(s) or any Replacement Warrant Certificate(s), or
in respect of the issuance of any Shares upon exercise of the Warrants.
4. Covenants and Conditions. The above provisions are subject to the
following terms and conditions:
(a) Neither the Warrants nor the Shares have been registered
under the Securities Act of 1933, as amended (the "Act"), or any
state securities laws ("Blue Sky Laws"). The Administrative Agent
has acquired the Warrants for investment purposes, and not with a
view to distribution or resale, and the Warrants and Shares, if any,
may not be sold or otherwise transferred without an effective
registration statement for such sale or transfer under the Act and
such applicable Blue Sky Laws or an opinion of counsel, reasonably
satisfactory to the Issuer, that registration is not required under
the Act and/or under any applicable Blue Sky Laws, except that the
Administrative Agent may transfer the Warrants to any corporation
directly or indirectly controlling, controlled by or under common
control with the Administrative Agent (each, an "Affiliate") without
opinion of counsel or other restriction.
(b) The Administrative Agent represents that it is experienced
in evaluating companies such as the Issuer, is familiar with
transactions such as the one contemplated by this Warrant Agreement,
has such knowledge and experience in financial and business matters
that it is
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<PAGE>
capable of evaluating the merits and risks of its prospective
investment in the Issuer, and has the ability to bear the economic
risks of the investment.
(c) The holder of any Warrant hereunder and the Issuer agree
to execute such other documents and instruments as counsel for the
Issuer reasonably deems necessary to effect compliance with
applicable federal and state securities laws in connection with the
issuance of the Warrants and any shares of Common Stock issued upon
exercise hereof.
(d) The Issuer covenants and agrees that all Shares which may
be issued upon exercise of the Warrants will, upon issuance and
payment therefor, be legally and validly issued and outstanding,
fully paid and nonassessable, and free from all taxes, liens and
charges with respect thereto or to the issuance thereof. The Issuer
shall at all times reserve and keep available for issuance upon the
exercise of the Warrants such number of authorized but unissued
shares of Common Stock as will be sufficient to permit the exercise
in full of all outstanding Warrants.
5. Transfer of Warrants and/or Shares; Right of First Refusal.
(a) Subject to the provisions of Sections 4(a) and (c),
Section 5(b) and Section 18 hereof, the Warrants or the Shares
issued pursuant hereto or thereto may be transferred, in whole or in
part, to any person or business entity upon thirty (30) days prior
written notice to the Issuer specifying the price and terms of the
proposed sale (the "Transfer Notice"). Unless the Issuer exercises
its "Right of First Refusal" as defined in Section 5(b) below, the
transfer shall be accomplished by presentation of the Warrant
Certificate(s), the Replacement Warrant Certificate(s) or the stock
certificate(s) representing the Shares to the Issuer with written
instructions for such transfer. Upon such presentation for transfer,
the Issuer shall promptly execute and deliver or issue new Warrant
Certificate(s) or Replacement Warrant Certificate(s) in the form
provided for herein with appropriate adjustments to the number of
Shares and such other provisions hereof as may require adjustment
and in the denominations specified in such instructions or stock
certificate(s). The Issuer shall pay all expenses, taxes and other
charges payable in connection with the preparation, issuance and
delivery of Warrant Certificate(s) or stock certificates under this
Section 5(a).
(b) Except for a requested transfer to an Affiliate of the
Administrative Agent, within the thirty (30) day period described in
Section 5(a) above, the Issuer shall have the right to purchase the
Warrants or the shares proposed for transfer at a price and on terms
equal to those specified in the Transfer Notice (the "Right of First
Refusal"). If the Issuer wishes to exercise its Right of First
Refusal, it shall provide notice of that election to the transferor
within ten (10) days of its receipt of the Transfer Notice and shall
pay the offered price on the terms contained in the
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Transfer Notice or if no terms are provided, in immediately
available funds, within twenty (20) calendar days.
(c) Shares issued pursuant to this Warrant Agreement shall
bear the following legend:
PURSUANT TO A WARRANT AGREEMENT BETWEEN ADVANCED TELECOMMUNICATIONS, INC.
AND GENERAL ELECTRIC CAPITAL CORPORATION DATED AS OF JULY 16, 1999, THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS
ON TRANSFER AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT IN COMPLIANCE WITH SUCH WARRANT AGREEMENT. A COPY OF
SAID WARRANT AGREEMENT IS ON FILE AT THE PRINCIPAL BUSINESS OFFICE OF THE
ISSUER.
6. Holder's Right to Put.
(a) At any time after December 31, 1999 and before the
Termination Date, the holder of Warrants that are then exercisable
as provided in Section 1(b) or of Shares previously issued upon
exercise of Warrants shall have the right to sell (the "Put"), and
the Issuer shall have the obligation to buy, all such Warrants
and/or all such Shares previously issued pursuant to Section 3
hereof at a price (the "Put Price") equal to the greater of (i) the
fair market value thereof or (ii) a price reflecting the average
price-to-earnings ratio of ten (10) industry peers (based on the
reported net income of the Issuer calculated in conformance with
GAAP).
(b) The Put shall be exercised upon delivery to the Issuer of
a written notice of exercise of the Put (the "Put Notice"). The Put
Notice shall specify, the holder's determination of the Put Price.
(c) (i) If the Issuer agrees with the Put Price, it shall so
notify the holder within thirty (30) days of the receipt of the Put
Notice. If the Issuer fails to notify the holder of a disagreement
with the Put Price specified by the Put Notice within such thirty
(30) days, the Put Price shall be that set forth in the Put Notice.
Upon receipt of the Issuer's notice of acceptance of the Put Price
(or thirty (30) days after delivery of the Put Notice if no response
is sent), the holder may surrender to the Issuer the Put Warrant
Certificate(s) and/or Shares issued pursuant to Section 3 hereof,
together with fully executed stock powers and the Issuer shall
thereupon pay the Put Price in immediately available funds.
(ii) If the Issuer disagrees with the Put Price, it shall so
notify the holder within thirty (30) days of the receipt of the Put
Notice. If the Issuer and the holder cannot agree on the fair market
value of the Warrants and/or Shares within ten (10) business days
after receipt of the Issuer's
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<PAGE>
notice of disagreement, either party shall have the right to employ
the procedure set forth in subsection 6(f)below.
(d) For purposes of this Section 6(d), the Administrative
Agent shall act as agent for all transferees desiring to exercise
their Put rights unless the Administrative Agent has not elected to
Put any Warrants or any Shares, in which event that transferee
exercising a Put for the highest number of Shares or Warrant(s)
exercisable for the highest number of Shares shall act as agent for
the other transferees. All such transferees shall be bound by the
agent hereunder.
(e) Prior to the Issuer's full and complete performance of all
Obligations under the Loan Agreement, no holder of Warrants or
Shares shall have the right to exercise the Put until such time as
the exercise of the Put as to all outstanding Warrants would not
create a default under the covenants set forth in the Loan
Agreement. This Section 6(e) shall be null and void after the Issuer
satisfies all Obligations under the Loan Agreement.
(f) If the holder disagrees with the Put Price specified in
the Put Notice, it must so notify the Issuer within thirty (30) days
of the receipt of the Put Notice. If the Issuer and the holder
cannot agree on the fair market value of the Warrants and/or Shares
within ten (10) Business Days after the Issuer's receipt of the
holder's notice of disagreement regarding fair market value, either
party shall have the right to designate an independent, mutually
agreeable nationally recognized accounting firm ("Accounting Firm")
to determine such fair market value. The determination of fair
market value by the Accounting Firm or the average of such fair
market value, if two Accounting Firms are used, shall be final and
binding upon both parties. The determination shall be made within
sixty (60) days of the designation of the Accounting Firms. Within
fifteen (15) business days following the receipt by the Issuer of
notice of the determination of fair market value by the Accounting
Firm(s), the Issuer shall pay the Put Price in immediately available
funds in exchange for the Warrant Certificate(s) or Shares, as the
case may be. All fees, costs and expenses relating to the
determination of fair market value shall be paid by the Issuer.
7. Antidilution. The following provisions shall govern dilution of
the Warrants or Shares issuable under this Warrant Agreement.
(a) In the event that the Issuer shall at any time after the
date of this Warrant Agreement (i) declare a dividend on the Common
Stock in shares of its capital stock (whether in shares of Common
Stock or of capital stock of any other class), (ii) split or
subdivide the outstanding Common Stock or (iii) combine the
outstanding Common Stock into a smaller number of shares, the number
and/or kind of shares subject to the
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<PAGE>
Warrants in effect at the time of the record date for such dividend
or of the effective date of such split, subdivision or combination
shall be adjusted so that the holder of any Warrant shall be
entitled to receive, upon payment of the aggregate Warrant Price,
the aggregate number and kind of shares issuable or payable on the
aggregate number of Shares for which the Warrants are exercisable,
without regard to Section 1(b) solely for this purpose, as a result
of such dividend, subdivision or combination. Such adjustment shall
be made successively whenever any event listed above shall occur.
(b) In the event that the Issuer issues any securities or
rights in addition to those outstanding on the date hereof and
defined as "Closing Date Stock" in Section 1 hereof other than to a
public offering in which the Shares are registered or purchased
under Section 8 below, the aggregate number of Shares for which the
Warrants are exercisable, without regard to Section 1(b) solely for
this purpose, shall automatically be adjusted so that following such
an issuance, the Administrative Agent's Proportionate Share shall
remain as in existence immediately prior to such issuance.
(c) If at any time before the Termination Date there shall
occur any capital reorganization or any reclassification of the
stock of the Issuer not specified in Section 7(a) above, or the
consolidation or merger of the Issuer with or into another person
(other than a consolidation or merger in which the Issuer is the
continuing corporation and which does not result in any change in
the Common Stock or the Administrative Agent's Proportionate Share
thereof) or the sale or disposition of all or substantially all of
the properties and assets of the Issuer as an entirety to any other
person, then, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, each outstanding
Warrant shall be exercisable for the kind and number of shares of
stock or other securities or property of the Issuer or of the
corporation resulting from such consolidation or surviving such
merger or to which such properties and assets shall have been sold
or otherwise disposed to which such holder would have been entitled
if it held the Shares issuable upon the exercise of Warrants issued
hereunder immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition.
The provisions of this Section 7(c) shall similarly apply to
successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(d) If at any time, as a result of an adjustment made pursuant
to this Section 7, the holder of any Warrant thereafter exercised
shall become entitled to receive any shares of the Issuer other than
shares of Common Stock, thereafter the number of such other shares
so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions
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<PAGE>
with respect to the Shares contained in this Section 7, and the
provisions of this Warrant Agreement with respect to the Shares
shall apply on like terms to such other shares.
(e) Whenever the number of Shares for which the Warrants are
exercisable shall be subject to adjustment as provided in this
Section 7, the Issuer shall forthwith prepare a statement, signed by
its chief financial officer, showing in detail the facts requiring
such adjustment and the Shares for which the Warrants may be
exercised that shall be in effect after such adjustment. The Issuer
shall cause a copy of such statement to be sent by certified mail,
return receipt requested or by overnight courier (with receipt) to
each holder of the Warrants or Shares at its address appearing on
the Issuer's records.
(f) The Issuer shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of
Shares upon exercise of any Warrant; provided, however, that the
Issuer shall not be required to pay any issue taxes which may be
payable in respect of any transfer involved in the issuance or
delivery of any certificate for such Shares in a name other than
that of the holder of the applicable Warrant.
(g) In the event the Issuer shall propose to take any action
of the types described in this Section 7, the Issuer shall give
notice to the holders of the Warrants, in the manner set forth in
Section 7(e) 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 Shares for which the Warrants are
exercisable 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 exercise of
the Warrants. Such notice shall be given at least twenty (20) days
prior to the taking of such proposed action. Failure to give such
notice, or any defect therein, shall not affect the legality or
validity of any such action or the rights of holders of Warrants or
Shares to receive the benefits of this Section 7.
(h) If any question shall at any time arise with respect to an
adjustment to the number of Shares into which the Warrants may be
exercised, such question shall be determined by the independent
auditors of the Issuer, unless it is demonstrably incorrect, and
such determination shall be binding upon the Issuer and the holders
of the Warrants and the Shares.
(i) Anything in this Section 7 to the contrary
notwithstanding, the Issuer shall be entitled to make such
reductions in the Warrant Price or increase in the number of Shares
purchasable upon the exercise of each
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<PAGE>
Warrant, in addition to those adjustments required by this Section
7, as shall be advisable in order that any consolidation or
subdivision of the Common Stock, or any issuance wholly for cash of
any shares of Common Stock at less than the current market price, or
any issuance wholly for cash or shares of Common Stock or securities
which by their terms are convertible into or exchangeable for shares
of Common Stock, or any stock dividend, or any issuance of rights,
options or warrants referred to hereinabove in this Section 8,
hereinafter made by the Issuer to the holders of its Common Stock
shall not be taxable to them.
(j) Anything contained herein to the contrary notwithstanding,
this Section 7 shall terminate in all respects, and shall have no
further force or effect after the Termination Date.
8. "Piggy-Back" Registration Rights.
(a) If at any time after the date hereof the Issuer shall
propose to file a registration statement on a form suitable for
sales by selling stockholders, it will give notice in writing to
such effect to the holder(s) of the Warrants or any holder(s) of
Shares at least thirty (30) days prior to such filing. Such holders
shall keep such notice confidential until the Issuer shall make a
public announcement of its intention to file a registration
statement. At the written request of any holder(s) of the Warrants
(who shall have elected to purchase Shares within ten (10) days
following receipt of the Issuer's notice) or any holders of Shares,
made within ten (10) days after the receipt of such notice, the
Issuer will include in the registration statement at the Issuer's
cost and expense (except for the fees and expenses of counsel to
such holder(s) and underwriting discounts and commissions
attributable to the Shares included therein) such of the Shares held
by such holder(s) as they shall request (the "Offered Shares");
provided, however, that if the offering being registered by the
Issuer is underwritten and if the representative of the underwriters
certifies that the inclusion therein of the Offered Shares would
materially and adversely affect the sale of the securities to be
sold by the Issuer thereunder, then the public offering of the
Offered Shares so excluded shall be delayed for a period of ninety
(90) days after the commencement of the underwritten public
offering, provided that the representative of the underwriters
certifies that such delay would not materially and adversely affect
the sale of such Offered Shares. If the Offered Shares are not
included in a delayed public offering within this ninety (90) day
period: (i) the Issuer shall then have the obligation, at the option
of the holder(s) of the Offered Shares, to repurchase same at a
price per share equal to the higher of (x) in the event shares of
other stockholders are included in the registration, the net price
to such stockholders of the shares so offered, and (y) in the event
the offering includes only shares offered by the Issuer, the net
price to the Issuer of the shares so offered; (ii) such purchase
shall take place within ninety (90) days of the closing of the
public offering; and (iii)
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<PAGE>
Sections 5 and 6 shall not be applicable to such purchase of the
Shares; provided, however, that prior to the Issuer's full and
complete performance of all Obligations under the Loan Agreement, no
holder of Warrants or Shares shall have the right to require the
Issuer to effect such purchase until such time as such purchase
would not create a default under the covenants set forth in the Loan
Agreement and provided, further, that this provision shall be null
and void after the Issuer satisfies all Obligations under the Loan
Agreement.
The rights of holders of the Warrants, and Shares under this
Section (a) shall apply to an unlimited number of offerings by the
Issuer.
(b) At the time any registration statement filed in accordance
with the provisions of subsection 9(a) above becomes effective, and
at the effective date of a post-effective amendment thereto, the
Issuer will, at its own expense, furnish to the persons whose Shares
are included in such registration statement pursuant to this Section
8, an opinion of the Issuer's counsel to the effect that:
(i) The registration statement and the prospectus contained
therein, and each amendment or supplement thereto, as of their
respective effective or issue dates, comply as to form in all
material respects with the requirements of the Act and the rules and
regulations promulgated thereunder, and the sale of the Offered
Shares will be in compliance with applicable Blue Sky Laws; and
(ii) Such counsel has no reason to believe that, based upon
participation in the preparation thereof and discussions related
thereto, such registration statement, the prospectus contained
therein, or any amendment or supplement thereto, as of their
respective effective or issue dates, contains any untrue statement
of any material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading (except that no opinion need be expressed with respect to
any financial statements, notes thereto or other financial data
contained therein). If for any reason the Issuer's counsel is unable
to give such opinion, the Issuer shall notify the holder(s) of
Offered Shares and shall use its best efforts to remove
expeditiously all impediments to the rendering of such opinion.
(c) The Issuer shall promptly notify the holder(s) of Offered
Shares of the occurrence of any event as a result of which any
prospectus included in a registration statement filed pursuant to
this Section 8 includes any misstatement of a material fact or
omission of any material fact required to be stated therein or
necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading.
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<PAGE>
(d) The Issuer's obligations under this Section 8 with respect
to each holder of Offered Shares are expressly conditioned upon such
holder's furnishing to the Issuer in writing such information
concerning such holder and the terms of such holder's proposed
offering as the Issuer shall reasonably request for inclusion in the
registration statement. If any registration statement including
Offered Shares is filed, the Issuer shall indemnify each holder
thereof (and each underwriter for such holder and each person, if
any, who controls such underwriter within the meaning of the Act)
from any loss, claim, damage or liability arising out of or based
upon any untrue statement of a material fact contained in such
registration statement or any omission to state therein a material
fact required to be stated therein or necessary to make the
statements made therein, in the light of the circumstances under
which they were made, not misleading, except for such statement or
omission based on information furnished in writing by such holder of
Offered Shares expressly for use in such registration statement.
Each holder of Offered Shares shall indemnify the Issuer (and each
of its officers and directors who has signed such registration
statement, each person, if any, who controls the Issuer within the
meaning of the Act, each underwriter for the company and each
person, if any, who controls such underwriter within the meaning of
the Act) against any loss, claim, damage or liability arising from
any statement or omission which was made in reliance upon
information furnished in writing to the Issuer by such holder of
Offered Shares expressly for use in such registration statement.
9. Notice of Actions, Settlement and Contribution. 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 Section 8 above,
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. 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 be responsible for any legal or other expenses
subsequently incurred by the latter 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 defenses available to such indemnified party
which are different from or additional to and are inconsistent 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 Section 8 above, the indemnifying party shall not have the right to
assume the defense of such action on behalf of such indemnified party and such
indemnifying party shall reimburse such indemnified party and any person
controlling such indemnified party for that portion of the fees and expenses of
any counsel retained by the indemnified party which are reasonably related to
the matters covered by the indemnity agreement provided in Section 8 above.
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The indemnifying party shall not make any settlement of any claims
indemnified against hereunder without the written consent of the indemnified
party or parties, which consent shall not be unreasonably withheld.
In the event the indemnity provisions of Section 8 are not
enforceable in the court in which indemnity is sought, the indemnifying party
shall contribute to any cost, loss or liability of the indemnified party in
accordance with the applicable rules and principles of contribution by joint
tortfeasors in that jurisdiction for securities fraud actions.
10. No Fractional Shares to be Issued. The Issuer shall not, upon
any exercise of the Warrants, issue a certificate representing any fraction of a
share of Common Stock. If any adjustment under Section 7 would create a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares subject to the Warrants shall be the next higher number of shares,
rounding all fractions upward.
11. Entire Agreement. This Warrant Agreement contains the entire
agreement between the holders of the Warrants and the Issuer with respect to the
purchase of the Warrants and supersedes all prior arrangements or understandings
with respect thereto.
12. Governing Law. This Warrant Agreement shall be governed by and
construed in accordance with the law of the State of New York.
13. Waiver and Amendment. Any term or provision of this Warrant
Agreement may be waived at any time by the party which is entitled to the
benefits thereof and any term or provision of this Warrant Agreement may be
amended or supplemented at any time by agreement of the holders of the Warrants
and the Issuer, except that any waiver of any term or condition, or any
amendment or supplementation, of this Warrant Agreement must be in writing. A
waiver of any breach or failure to enforce any of the terms or conditions of
this Warrant Agreement shall not in any way affect, limit or waive a party's
rights hereunder at any time to enforce strict compliance thereafter with any
term or condition of this Warrant Agreement.
14. Severability. In the event that any one or more of the
provisions contained in this Warrant Agreement shall be determined to be
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in any other respect and the
remaining provisions of this Warrant Agreement shall not, at the election of the
party for whom the benefit of the provision exists, be in any way impaired.
15. Notice. Any notice or other document required or permitted to be
given or delivered to the Issuer or to the holder of the Warrants or any Shares
shall be delivered personally, or sent by certified or registered mail as
follows:
if to the Issuer:
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Advanced Telecommunications, Inc.
730 Second Avenue South, Suite 1200
Minneapolis, Minnesota 55402
Attention: Richard Smith
Telecopy: (612) 376-4411
or at such other address as the Issuer shall designate in writing to the
Administrative Agent and/or its assignees;
if to the Administrative Agent:
General Electric Capital Corporation
Telecom Financial Services
10 Riverview Drive
Danbury, Connecticut 06810
Attention: Portfolio Manager
Telecopy: (203) 749-4531
with a copy to:
NTFC Capital Corporation
501 Corporate Centre Drive, Suite 600
Franklin, Tennessee 37067
Attention: Legal Department
Telecopy: (615) 771-6187
or at such other address as the Administrative Agent shall designate in writing
to the Issuer;
and if to an assignee or subsequent assignee of the Administrative Agent, at the
last address shown on the books of the Issuer maintained for the registration
of, and the registration of transfer of, the Warrant Certificate(s), any
Replacement Warrant Certificate(s) and any Shares, or at such other address as
the holder hereof or thereof shall have notified the Issuer in writing.
16. Holder of Warrant not a Shareholder. No holder of the Warrants
shall, as such, be entitled to vote or receive dividends (except as otherwise
provided herein) or be deemed to be a shareholder of the Issuer for any purpose.
17. Loss, Destruction, Etc. of Warrant Certificate(s). Upon receipt
of evidence satisfactory to the Issuer of the loss, theft, mutilation or
destruction of any Warrant Certificate(s), and in the case of any such loss,
theft or destruction, upon delivery of a bond of indemnity in such form and
amount as shall be reasonably satisfactory to the Issuer, or in the event of
such mutilation, upon surrender and cancellation of the Warrant Certificate(s),
the Issuer will make and deliver a Replacement Warrant Certificate, of like
tenor, in lieu of such lost, stolen, destroyed or mutilated Warrant
Certificate(s). Any Warrant Certificate(s) alleged to be lost, destroyed or
stolen
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shall be replaced by a replacement Warrant Certificate upon receipt of an
affidavit from the holder. Any such replacement Warrant Certificate or any
Warrant Certificate issued in lieu of any mutilated Warrant Certificate(s),
shall constitute an original contractual obligation on the part of the Issuer.
18. Obligation of Transferee. Any transferee of the Warrants shall
execute a copy of this agreement as a condition to such transfer.
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IN WITNESS WHEREOF, the Issuer and the Administrative Agent have
caused this Warrant Agreement to be executed by their duly authorized officers
as of the date first above written.
ISSUER:
ATTEST: ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Richard Smith By: /s/ Michael A. Donchve
------------------------ -------------------------------------
Name: Richard Smith Name: Michael A. Donchve
Title: CFO Title: Treasurer
ADMINISTRATIVE AGENT:
GENERAL ELECTRIC CAPITAL CORPORATION
By: _____________________________________
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Administrative Agent have
caused this Warrant Agreement to be executed by their duly authorized officers
as of the date first above written.
ISSUER:
ATTEST: ADVANCED TELECOMMUNICATIONS, INC.
By: __________________________ By: _____________________________________
Name: Name:
Title: Title:
ADMINISTRATIVE AGENT:
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ LW Middleton
-------------------------------------
Name: LW Middleton
Title: Att. Secretary
<PAGE>
Exhibit A
To Warrant Agreement
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. SUCH WARRANTS MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE WARRANT
AGREEMENT, DATED AS OF JULY 16, 1999, ("WARRANT AGREEMENT") BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS THEREIN NAMED, A COMPLETE AND CORRECT
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER
AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE. THIS WARRANT CERTIFICATE IS NOT TRANSFERRABLE EXCEPT UPON CONDITIONS SET
FORTH IN AND EXECUTION OF THE WARRANT AGREEMENT.
EXERCISABLE AT ANY TIME FROM TIME TO TIME
UNTIL TERMINATED IN ACCORDANCE WITH
THE WARRANT AGREEMENT
No. W-________
Warrant Certificate
This Warrant Certificate certifies that General Electric Capital
Corporation (the "Administrative Agent"), or registered assigns, is the
registered holder of ___ Warrants (the "Warrants") to purchase shares of Common
Stock of Advanced Telecommunications, Inc., a Minnesota corporation (the
"Issuer"). Each Warrant entitles the holder, subject to the conditions set forth
herein and in the Warrant Agreement, to purchase from the Issuer before 5:00.
P.M., local time, on any business day of the Issuer at any time or from time to
time until terminated in accordance with the Warrant Agreement (the "Expiration
Date"), one fully paid and nonassessable share of the Common Stock of the Issuer
(the "Shares") at a price of $.0I per share (the "Exercise Price"), payable in
lawful money of the United States of America, upon surrender of this Warrant
Certificate, execution of the annexed Form of Election to Purchase and payment
of the applicable Exercise Price at the office of the Issuer at 730 Second
Avenue South, Suite 1200, Minneapolis, Minnesota 55402 or such other address as
the Issuer may specify in writing to the registered holder of the Warrants
evidenced hereby (the "Warrant Office"). The Exercise Price and number of
Warrant Shares purchasable upon exercise of the Warrants are subject to
adjustment prior to the Expiration Date upon the occurrence of certain events as
set forth in Warrant Agreement.
15
<PAGE>
No Warrant may be exercised after 5:00 P.M., local time of the
Warrant Office, on the Expiration Date and all rights of the registered holders
of the Warrants shall cease after 5:00 P.M., local time of the Warrant Office,
on the Expiration Date.
The Issuer may deem and treat the registered holder(s) of the
Warrants evidenced hereby as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof and of any distribution to the holder(s) hereof, and for
all other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the office of the Issuer
at the above-mentioned address by the registered holder hereof in person or by a
legal representative duly authorized in writing, may be exchanged, in the manner
and subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred
to in the Warrant Agreement dated as of _______, 199_ between the Issuer and the
Administrative Agent (the "Warrant Agreement"). Said Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Issuer and the holders.
16
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Warrant Certificate
to be signed by its duly authorized officers on this the 19th day of July, 1999.
ADVANCED TELECOMMUNICATIONS, INC.
By:______________________________________
Name:
Title:
ATTEST:
By: ____________________________
Name:
Title:
17
<PAGE>
FORM OF ELECTION TO PURCHASE
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of __________ shares of Common Stock of
Advanced Telecommunications, Inc., and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to _____________ whose address is ____________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
_________________________________________
(Name of Registered Owner)
_________________________________________
(Signature of Registered Owner)
_________________________________________
(Street Address)
_________________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the Warrant in every particular, without
alteration or enlargement or any change whatsoever.
18
<PAGE>
Exhibit 10.1.18
WARRANT CERTIFICATE
THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT. SUCH WARRANTS MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THE WARRANT
AGREEMENT, DATED AS OF JULY 16,1999, ("WARRANT AGREEMENT") BETWEEN THE ISSUER
AND THE INITIAL HOLDER OF THE WARRANTS THEREIN NAMED, A COMPLETE AND CORRECT
COPY OF WHICH IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER
AND WILL BE FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT
CHARGE. THIS WARRANT CERTIFICATE IS NOT TRANSFERRABLE EXCEPT UPON CONDITIONS SET
FORTH IN AND EXECUTION OF THE WARRANT AGREEMENT.
EXERCISABLE AT ANY TIME FROM TIME TO TIME
UNTIL TERMINATED IN ACCORDANCE WITH
THE WARRANT AGREEMENT
No. W-1
WARRANT CERTIFICATE
This Warrant Certificate certifies that General Electric Capital
Corporation (the "Administrative Agent"), or registered assigns, is the
registered holder of 570,600 Warrants (the "Warrants") to purchase shares of
Common Stock of Advanced Telecommunications, Inc., a Minnesota corporation (the
"Issuer"). Each Warrant entitles the holder, subject to the conditions set forth
herein and in the Warrant Agreement, to purchase from the Issuer before 5:00.
P.M., local time, on any business day of the Issuer at any time or from time to
time until terminated in accordance with the Warrant Agreement (the "Expiration
Date"), one fully paid and nonassessable share of the Common Stock of the Issuer
(the "Shares") at a price of $.01 per share (the "Exercise Price"), payable in
lawful money of the United States of America, upon surrender of this Warrant
Certificate, execution of the annexed Form of Election to Purchase and payment
of the applicable Exercise Price at the office of the Issuer at 730 Second
Avenue South, Suite 1200, Minneapolis, Minnesota 55402 or such other address as
the Issuer may specify in writing to the registered holder of the Warrants
evidenced hereby (the "Warrant Office"). The Exercise Price and number of
Warrant Shares purchasable upon exercise of the Warrants are subject to
adjustment prior to the Expiration Date upon the occurrence of certain events as
set forth in Warrant Agreement.
No Warrant may be exercised after 5:00 P.M., local time of the
Warrant Office, on the Expiration Date and all rights of the registered holders
of the Warrants shall cease after 5:00 P.M., local time of the Warrant Office,
on the Expiration Date.
<PAGE>
The Issuer may deem and treat the registered holder(s) of the
Warrants evidenced hereby as the absolute owner(s) thereof (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the purpose
of any exercise hereof and of any distribution to the holder(s) hereof, and for
all other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the office of the Issuer
at the above-mentioned address by the registered holder hereof in person or by a
legal representative duly authorized in writing, may be exchanged, in the manner
and subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred
to in the Warrant Agreement dated as of July 16, 1999 between the Issuer and the
Administrative Agent (the "Warrant Agreement"). Said Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Issuer and the holders.
2
<PAGE>
IN WITNESS WHEREOF, the Issuer has caused this Warrant Certificate
to be signed by its duly authorized officers on this the 19th day of July, 1999.
ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Michael A. Donchve
-------------------------------------
Name: Michael A. Donchve
Title: Treasurer
ATTEST:
By: /s/ Richard Smith
----------------------------
Name: Richard Smith
Title:
<PAGE>
FORM OF ELECTION TO PURCHASE
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of __________ shares of Common Stock of
Advanced Telecommunications, Inc., and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to ______________ whose address is ____________________ and, if
such shares of Common Stock shall not include all of the shares of Common Stock
issuable as provided in this Warrant, that a new Warrant of like tenor and date
for the balance of the shares of Common Stock issuable hereunder be delivered to
the undersigned.
_________________________________________
(Name of Registered Owner)
_________________________________________
(Signature of Registered Owner)
_________________________________________
(Street Address)
_________________________________________
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the name as
written upon the face of the Warrant in every particular, without
alteration or enlargement or any change whatsoever.
4
<PAGE>
Exhibit 10.1.19
NONCOMPETITION AGREEMENT
THIS AGREEMENT, entered into as of this _____ day of _______, 19__, by and
between ADVANCED TELECOMMUNICATIONS, INC., a Minnesota corporation ("ATI") and
_______________________ ("Employee")
Employee recently commenced [his/her] employment with ATI. ATI has
provided Employee with certain incentive stock options conditioned upon
[his/her] agreement to enter into this Noncompetition Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. Definitions. The following definitions are used in this Agreement:
"Confidential Information" means information learned or acquired by
Employee during Employee's employment by any Related Entity, including
without limitation, (i) all technical information relating to any Related
Entity; (ii) any information concerning any marketing programs or
strategies sued by any Related Entity, or any product or service under
development by, or being tested by, any Related Entity but not yet offered
for sale; (iii) any information concerning the pricing policies or the
prices charged by any Related Entity to any Customer, the volume of orders
of any Customer, any bids or negotiations being submitted by or being
conducted by any Related Entity and all other information concerning the
transactions of any Related Entity with any Customer or proposed Customer;
(iv) any financial information concerning the salaries or wages paid to,
the work records of or any other personnel information relating to any
employee of any Related Entity; and (v) any other information determined
by any Related Entity to be confidential and proprietary and which is
identified as confidential and proprietary prior to or at the time of its
disclosure to Employee.
"Customer" means (i) any person which, at any time during the term
of Employee's employment by any Related Entity purchased products or
services from, or was solicited to purchase products or services from any
Related Entity, and (ii) during the Restricted Period, any person which,
at any time during the 2 year period immediately prior to the date of
termination of Employee's employment with the Related Entities, purchased
products or services from, or was solicited to purchase products or
services from, any Related Entity.
"Related Entity" means ATI and any other person which ATI directly
or indirectly controls and any other affiliate of ATI for which Employee
performs services or about which Employee has Confidential Information at
any time during the 2-year period immediately preceding the termination of
Employee's employment with any such entity.
"Restricted Period" means the 2-year period immediately following
the date Employee ceases to be an employee of any Related Entity.
<PAGE>
"Restricted Territory" means any of those counties in which any
Related Entity makes material sales during the term of Employee's
employment by any Related Entity and any location within 50 miles of such
counties.
"Subject Businesses" means (i) during the term of Employee's
employment with any Related Entity, those businesses conducted by any
Related Entity, and (ii) during the Restricted Period, any businesses
conducted by any Related Entity at any time during the 2-year period
immediately prior to the date of termination of Employee's employment.
"Subject Products" means (i) during the term of Employee's
employment with any Related Entity, the types of products and services
which any Related Entity sold, serviced, leased or maintained, and (ii)
during the Restricted Period, the types of products which any Related
Entity sold, serviced, leased or maintained at any time during the 2-year
period immediately prior to the date of termination of Employee's
employment with the Related Entities.
"Supplier" means (i) during the term of Employee's employment with
any Related Entity, any Person which sold products or services to any
Related Entity, and (ii) during the Restricted Period, any Person which,
at any time during the 2-year period immediately prior to the date of
termination of Employee's employment with the Related Entities, sold
products or services to any Related Entity.
2. Non-Competition. Employee will not, during [his/her] employment by any
Related Entity or after such employment during the Restricted Period, directly
or indirectly, whether as agent, stockholder (except as the holder of not more
than 5% of the stock of a publicly held company, provided Employee does not
participate in the business of that company or render advice or assistance to
it), employee, officer, director, trustee, partner, consultant, proprietor or
otherwise, except on behalf of the Related Entities;
(a) Acquire an ownership interest in, engage in or render advice or
assistance to any business which sells, services, leases or otherwise
maintains any of the Subject Products or which otherwise competes with the
Subject Businesses anywhere within the Restricted Territory.
Notwithstanding the foregoing, Employee may be employed by:
(i) any customer of any of the Subject Businesses after the
termination of Employee's employment with the Related Entities,
provided such customer does not conduct a business which sells,
services, leases or maintains any of the Subject Products or which
otherwise competes with the Subject Businesses anywhere within the
Restricted Territory;
(ii) any competitor of any of the Subject Businesses after the
termination of Employee's employment with the Related Entities,
provided all of the following conditions are satisfied: (A) Employee
does not perform any services for such competitor in the Restricted
Territory; and (B) Employee does not any time violate
2
<PAGE>
any of the other provisions of this Agreement in the course of the
performance of services for such competitor.
(b) Entice or attempt to entice any of the Suppliers or Customers to
cause, or attempt to cause, any Supplier or Customer not to do business,
or reduce its business, with any Related Entity.
(c) Hire or attempt to hire any employees, contractors or agents of
any Related Entity, or attempt to induce any of those parties to leave
their employment relationship with any Related Entity.
3. Confidential Information. Employee will not at any time during the term
of Employee's employment by any Related Entity or thereafter during the
Restricted Period disclose any Confidential Information to any person other than
an employee or agent of any Related Entity having the need to know that
information in the ordinary course of business.
4. Remedies in the Event of Breach. Employee recognizes that irreparable
injury may result to the Related Entities if Employee breaches the restrictions
imposed by this Agreement. Employee's engagement in any act in violation of this
Agreement will entitle the Related Entities, and each of them, in addition to
any other remedies and damages available to them, to an injunction prohibiting
Employee from engaging in such act.
5. Reasonableness of Restrictions. By entering into this Agreement,
Employee acknowledges (i) that Employee is familiar with the nature of the
Subject Businesses and the Subject Products; (ii) that Employee has read and
understands the nature and scope of the restrictions imposed by this Agreement;
and (iii) that the Related Entities have invested and will continue to invest
substantial effort and sums of money to develop and promote the Subject Products
and goodwill of the Related Entities. EMPLOYEE THEREFORE ACKNOWLEDGES AND
REPRESENTS THAT THE SCOPE OF THOSE RESTRICTIONS ARE APPROPRIATE, NECESSARY AND
REASONABLE FOR THE PROTECTION OF THE BUSINESS, GOODWILL AND PROPERTY RIGHTS OF
THE RELATED ENTITIES AND WILL NOT PREVENT EMPLOYEE FROM EARNING A LIVING
SUBSEQUENT TO THE DATE OF THIS AGREEMENT.
6. Assignment. ATI may not assign this Agreement without the written
consent of Employee; provided, however, that (a) upon the transfer of
substantially all of the assets of or a change of control of ATI, this Agreement
will inure to the benefit of the successor employer, and (b) ATI may assign this
Agreement to any person controlled by, controlling or under common control with
ATI. This Agreement will bind and inure to the benefit of the parties to this
Agreement, their respective successors, assigns, heirs and legal
representatives.
7. Invalidity, Modification. If a court rules that any part of this
Agreement is unenforceable, the unenforceable part may be modified by the court
to make it enforceable, or it may be severed and the other parts of the
Agreement will remain enforceable.
3
<PAGE>
8. Governing Law and Choice of Forum. This Agreement is governed by and
will be construed in accordance with the internal laws of the State of
Minnesota. All suits with respect to this Agreement must be heard by courts
having their forum within the State of Minnesota.
ATI:
ADVANCED TELECOMMUNICATIONS, INC.
By________________________________________
Its_______________________________________
EMPLOYEE:
_________________________________________
[insert Employee name]
4
<PAGE>
Exhibit 10.1.21
ADVANCED TELECOMMUNICATIONS, INC.
1433 Utica Avenue South
South Plaza Building, Suite 70
St. Louis Park, Minnesota 55416
July 1, 1996
Mr. Clifford D. Williams
5044 Juanita Avenue South
Edina, MN 55424
Dear Cliff:
This letter will confirm your employment commencing as of the date
of this letter by Advanced Telecommunications Inc., a Minnesota corporation (the
"Company"). This letter is being executed in connection with that certain Stock
Purchase Agreement (the "Purchase Agreement") dated as of even date herewith by
and between the Company and the holders of all of the issued and outstanding
stock of Cady Communications, Inc., a Minnesota corporation ("CCI"), under which
agreement and others the Company has agreed to purchase all of the issued and
outstanding capital stock of CCI.
1. Employment. You are hereby employed by the Company as its Chief
Executive Officer. In that capacity, it is expected that you will perform on a
full-time basis such duties as may from time to time be assigned to you by the
Board of Directors of the Company ("the Board") not inconsistent with your
training and experience.
2. Consideration.
2.1. Salary. Initially, you will receive an annual base salary of
$130,000 payable in equal installments no less frequently than monthly. The
Board or its Compensation Committee will review your base salary on an annual
basis taking into account market conditions in the Minneapolis, Minnesota area
in that review, provided that any increase in your base salary will be as
determined by the Board or its Compensation Committee in its reasonable
discretion, but will be fair and comparable to the market taking into account
base salary, bonuses, stock options, other compensation and benefits.
<PAGE>
2.2. Withholding Taxes. The amounts payable to you under this
Paragraph 2 are before any deductions from such amounts for any taxes required
to be withheld by any federal, state or local government. The Company will have
the right to rely on a written opinion of legal counsel, which may be
independent legal counsel or legal counsel regularly employed by the Company, if
any question should arise as to any such deductions.
2.3. Incentive Stock Options. In addition to your base salary, your
compensation includes the incentive stock options described in that certain
Stock Option Agreement of even date herewith between the Company and you.
2.4. Incentive Pay. For each of the Company's fiscal years during
the term of your employment by the Company, the Board or its Compensation
Committee will establish performance goals which, if achieved, will entitle you
to bonuses, in the amounts as determined by the Board or its Compensation
Committee aggregating up to 120% of your base salary for that fiscal year as
determined by the Company. The bonus payable each year will be determined on the
basis outlined on attached Schedule A. For each fiscal year during your
employment, the Board or its Compensation Committee will make such
determinations and notify you of them within ninety (90) days after the
commencement of such fiscal year. The bonuses payable for any fiscal year will
be paid to you within 120 days of the end of the fiscal year to which such
bonuses are attributable. The bonus payable for the fiscal year during which
your employment terminates will be pro rated to the date of termination, but
payable as provided in the previous sentence.
3. Benefits. You will be entitled to participate in such vacation,
health insurance, disability insurance, retirement, and such other fringe
benefit plans, if any, as provided by the Company to its executive officers from
time to time. Such benefits will at least be comparable to those currently
provided by CCI.
4. Employment Status. Nothing herein shall be construed to result in
any commitment with regard to your continued employment, which the Company and
you agree is at-will.
5. Non-Competition. By your execution of this letter, you agree to
abide by the restriction set forth in this Paragraph 5 and acknowledge that you
have received good and valuable for agreeing to those restrictions.
5.1. Definitions. For purposes of this Paragraph 5, the following
definitions apply:
2.
<PAGE>
(a) "Customer" means (i) during the term of your employment with the
Company, CCI or any other Related Entity, any Person which, at any time during
the term of your employment by the Company, CCI or any other Related Entity
(including, without limitation, your employment by the Company prior to the date
of this letter), purchased products or services from, or was solicited to
purchase products or services from, the Company, CCI or any other Related
Entity, and (ii) during the Restricted Period, any Person which, at any time
during the 2 year period immediately prior to the date of termination of your
employment with the Company, CCI and the Related Entities (including, without
limitation, your employment by the Company prior to the date of this letter),
purchased products or services from, or was solicited to purchase products or
services from, the Company, CCI or any other Related Entity.
(b) "Confidential Information" means information learned or acquired
by you during your employment by the Company, CCI or any other Related Entity
(whether before or after the date of this letter), including without limitation,
(i) all technical information relating to the Company, CCI or any other Related
Entity; (ii) any information concerning any product or service under development
by, or being tested by, the Company, CCI or any other Related Entity but not yet
offered for sale; (iii) any information concerning the pricing policies of the
Company, CCI or any other Related Entity, the prices charged by the Company, CCI
or any other Related Entity to any Customer, the volume of orders of any
Customer, any bids or negotiations being submitted by or being conducted by the
Company, CCI or any other Related Entity and all other information concerning
the transactions of the Company, CCI or any other Related Entity with any
Customer or proposed Customer; (iv) any information concerning the marketing
programs or strategies of the Company, CCI or any other Related Entity; (v) any
financial information concerning the salaries or wages paid to, the work records
of or any other personnel information relating to any employee of the Company,
CCI or any other Related Entity; and (vi) any other information determined by
the Company, CCI or any other Related Entity to be confidential and proprietary
and which is identified as confidential and proprietary prior to or at the time
of its disclosure to you. The foregoing to the contrary notwithstanding, no
information will be considered to be "Confidential Information" which is (x)
disclosed or published after the date of this Agreement through no fault of
yours, or (y) becomes
3.
<PAGE>
general public information without disclosure by you after the date of this
Agreement.
(c) "Person" means an individual, partnership, joint venture,
corporation, business trust, joint stock company, trust, unincorporated
organization, governmental authority or other entity of whatever nature.
(d) "Related Entity" means CCI and any other subsidiary of the
Company.
(e) "Restricted Period" means the 2-year period immediately
following the date you cease to be an employee of the Company, CCI and all
Related Entities.
(f) "Restricted Territory" means the State of Minnesota and the area
within 100 miles of any sales office or other facility operated by the Company,
CCI or any Related Entity anywhere outside of the State of Minnesota at any time
during the term of your employment by the Company, CCI and/or any the Related
Entities.
(g) "Subject Businesses" means (i) during the term of your
employment with the Company, CCI or any other Related Entity, any businesses
which compete with the businesses conducted by the Company, CCI or any other
Related Entity, and (ii) during the Restricted Period, any businesses which
compete with any of those businesses conducted by the Company, CCI or any other
Related Entity at any time during the two (2) year period immediately prior to
the date of termination of your employment with the Company, CCI and the Related
Entities.
(h) "Subject Products" means (i) during the term of your employment
with the Company, CCI or any other Related Entity, those products which the
Company, CCI or any other Related Entity sold, resold, serviced, leased, rented,
distributed or maintained at any time during the term of your employment with
the Company, CCI or any other Related Entity (whether such employment was before
or after the date of this letter), and (ii) during the Restricted Period, those
products which the Company, CCI or any other Related Entity sold, resold,
serviced, leased, rented, distributed or maintained at any time during the two
(2) year period immediately prior to the date of termination of your employment
with the Company, CCI and the Related Entities.
(i) "Supplier" means (i) during the term of your employment with the
Company, CCI or any other Related Entity, any Person which, at any time during
the term of
4.
<PAGE>
your employment by the Company, CCI or any other Related Entity
(including, without limitation, your employment by the Company prior to
the date of this letter), sold products or services to the Company, CCI or
any other Related Entity, or and (ii) during the Restricted Period, any
Person which, at any time during the 2 year period immediately prior to
the date of termination of your employment with the Company, CCI and the
Related Entities (including, without limitation, your employment by the
Company prior to the date of this letter), sold products or services to
the Company, CCI or any other Related Entity.
5.2. Non-Competition. You will not during the term of your
employment or any time thereafter during the Restricted Period, directly or
indirectly, whether as agent, stockholder (except as the holder of not more than
5% of the stock of a publicly held company, provided you do not participate in
the business of that publicly held company or render advice or assistance to
it), employee, officer, director, trustee, partner, consultant, proprietor or
otherwise, except on behalf of the Company, CCI or any other Related Entity:
(a) Acquire an ownership interest in, engage in or render
advice or assistance to any business which sells, resells, services,
leases, rents, distributes or maintains any of the Subject Products or
which otherwise competes with the Subject Businesses anywhere in the
Restricted Territory.
(b) Entice or attempt to entice any of the Suppliers or
Customers, or any Person with whom CCI or any Related Entity is
negotiating or to whom CCI or any Related Entity has submitted a bid, so
as to cause, or attempt to cause, any Supplier or Customer not to do
business, or reduce its business, with the Company, CCI or any Related
Entity or to purchase from any other Person any of the Subject Products.
(c) Hire or attempt to hire any employees, contractors or
agents of the Company, CCI or any other Related Entity, or attempt to
induce any of those parties to leave their employment, agency or
independent contractor relationship with the Company, CCI or any other
Related Entity. Nothing herein shall be construed to limit or restrict you
from hiring any agent of the Company, CCI or any other Related Entity, or
any person providing services to the Company, CCI or any other Related
Entity as an independent contractor.
5.3. Confidential Information. You will not, during your employment
with the Company, CCI or any other Related Entity
5.
<PAGE>
or at any time thereafter during the five (5) year period after the termination
of your employment by the Company, CCI and the Related Entities, disclose any
Confidential Information to any Person other than an employee or agent of the
Company, CCI or any other Related Entity having the need to know that
information in the ordinary course of business, or to a Person to whom a
disclosure has been authorized by the Board of Directors of the Company.
5.4. Remedies in the Event of Breach. You recognize that irreparable
injury may result to the Company, CCI and the other Related Entities and their
businesses and properties in the event of a breach by you of the restrictions
imposed by this Paragraph 5, and your acceptance of those restrictions was a
material factor in the Company's decision to employ you as provided in this
letter. Your engagement in any act in violation of this Paragraph 5 will entitle
the Company, in addition to any other remedies and damages available to it, to
an injunction prohibiting you from engaging in those acts.
5.5. Reasonableness of Restrictions. By entering into this
Agreement, you acknowledge (i) that you are familiar with the nature of the
business of the Company, CCI and CCI's subsidiary, Cady Management, Inc., and
their products and services; (ii) that you have read and understand the nature
and scope of the restrictions imposed by this Paragraph 5; and (iii) that the
Company, CCI and the other Related Entities have invested and will continue to
invest substantial effort any sums of money to develop and promote their
products and services and the goodwill of their respective businesses. YOU
THEREFORE ACKNOWLEDGE AND REPRESENT THAT THE SCOPE OF THOSE RESTRICTIONS ARE
APPROPRIATE, NECESSARY AND REASONABLE FOR THE PROTECTION OF THE BUSINESS,
GOODWILL AND PROPERTY RIGHTS OF THE COMPANY, CCI AND ANY OTHER RELATED PARTY AND
WILL NOT PREVENT YOU FROM EARNING A LIVING SUBSEQUENT TO THE DATE OF THIS
AGREEMENT. Notwithstanding anything contained in this Agreement to the contrary,
the terms of this Agreement do not constitute a waiver by the Company, CCI or
any other Related Entity of any of their rights in, or to protect specific items
of, any information or materials which constitute trade secrets, or a release or
limitation of your legal obligation not to disclose or misappropriate any trade
secrets of the Company, CCI or any other Related Entity at any time during or
after your employment with the Company, CCI or any other Related Entity.
6.
<PAGE>
the benefit of the successor of the Company resulting from such merger,
consolidation or transfer. This letter will not be assignable by you without the
prior written consent of the Company.
6.4. Waiver of Breach. The waiver by the Company of the breach of
any of the provisions of this letter will not be considered a waiver by the
Company of any subsequent breach.
6.5. Binding Effect. This letter will be binding upon and inure to
the benefit of the parties to this letter and their respective heirs,
successors, assigns and legal representatives.
6.6. Partial Invalidity. If any provision of this letter is found to
be invalid or unenforceable for any reason, this letter will be construed with
the invalid or inoperative provision deleted and the remaining covenants,
sections or portions of this Agreement will remain in full force and effect.
6.7. Governing Law. The internal laws of Minnesota will govern this
letter and all questions of its interpretation, performance, enforceability and
the rights and remedies of the parties to this letter will be determined in
accordance with such laws.
If the terms and conditions of this letter are satisfactory to you,
please execute it on the lines provided below and return an executed copy to the
undersigned.
Very truly yours,
ADVANCED TELECOMMUNICATIONS, INC.
By: /s/ Paul D. Cady
-----------------------------
Paul D. Cady, President
Accepted and agreed to as of this
1st day of July, 1996.
/s/ Clifford D. Williams
- ---------------------------------
Clifford D. Williams
8.
<PAGE>
SCHEDULE A
The Company will develop a bonus plan for its fiscal year ending June 30,
1997, and each fiscal year thereafter, which will entitle you to bonuses based
on (a) the Company achieving financial ratios or other financial performance
measurements established by the Board, in its reasonable discretion, (b)
business acquisitions consummated during the fiscal year by the Company,
directly or through one of its subsidiaries, (c) the customer satisfaction level
achieved by the Company for the fiscal year and (d) your job performance as
determined by the Board or its Compensation Committee, in its reasonable
discretion. The Board or its Compensation Committee may, in its sole discretion,
establish other and/or alternative goals from time to time for determining
bonuses in fiscal years beginning on or after July 1, 1997.
The bonus plan will allow you to earn a bonus of up to 60% of your base
salary if you achieve a base level of performance in all categories, up to 90%
of your base salary if performance in all categories is above the
budgeted/target level, and up to 120% of your base salary of performance in all
categories is above the "stretch" level and significantly higher than the base
level. The bonus calculation for each category will be determined by the product
of the percentage applicable to the performance level achieved in each category,
multiplied by the percentage weighting applicable to the category in question,
multiplied by your base salary for the year. The foregoing to the contrary
notwithstanding, the bonus pool established by the Company for the year will be
based on a budget/target level of an appropriate measure of operating cash-flow
("Cash-Flow") of the Company for the year. If Cash-Flow falls below that level,
and the final pool is therefore less than the aggregate amount of the bonuses
otherwise payable by the Company to all its employees for the year based on the
Company bonus schedule applicable to the employees of the Company, the amount
calculated under the bonus schedule described above will be proportionately
reduced along with the bonuses of other employees entitled to bonuses based on
such shortfall in the bonus pool. Furthermore, a bonus will only be payable if
the Company achieves Cash-Flow level base for the fiscal year, as will be
defined in the annual business plan approved each year by the Board or its
Compensation Committee in its reasonable discretion.
9.
<PAGE>
Exhibit 10.1.22
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
To: Satish Tiwari
From: Richard A. Smith, Chief Financial Officer
Date: April 15, 1999
Subject: Outline of Employment Offer to Satish Tiwari
I am pleased to present the following outline of Advanced Telecommunications,
Inc., (ATI) offer to you for the position of Vice President -- Engineering and
Network Implementation.
1. Annual Direct Compensation
Annual compensation will be $140,000 per year.
2. Incentive Compensation
You will be eligible for an annual performance incentive pay package that
could max out at 60% of your annual base pay. The performance targets will
be based on the following metrics:
Revenue
Gross Margin
Consolidated EBITDA
Customer Satisfaction
Performance incentive targets and pay will be assessed and granted
quarterly upon completion of the year-end audit, reviewed and approved by
the ATI Board of Directors.
Base Plan (30%): Will represent the Company's budget on an annual
basis.
Target Plan (45%): Will represent the Company's budget adjusted as
follows:
o Revenue = 104% of Budget
o Margin = 103% of Budget
o EBITDA = 89% of Budgeted Loss
Premier Plan (60%): Will represent targets above budget that
represent truly premier performance.
o Revenue = 107% of Budget
o Margin = 107% of Budget
o EBITDA = 79% of Budgeted Loss
<PAGE>
Page 2
April 15, 1999
3. Change in Control Agreement
Should there be a change in control at ATI, you will be covered with an
agreement that provides for the following:
a) If the Executive's employment is terminated within 24 months after a
change in control without cause, then the employee will receive
severance pay of two (2) times average annual compensation.
b) Up to two (2) years of medical coverage or until the employee
obtains comparable coverage from a new employer.
Note: A formal Change in Control Severance Pay Agreement will be offered
to the Executive to sign on employment that will provide detail on
the above provisions.
4. "Floor" Value of Options Upon Change in Control
In consideration of the immediate value that you would bring to ATI, if a
change in control occurs within the first three (3) years of your
employment, you may elect to transfer all of your options to the Company
in exchange for a lump sum payment of $2,000,000 upon change in control
should you desire. At this point, all of your outstanding stock options
shall, by reason of the "change-in-control" be deemed earned, vested, and
exercisable. If Stolberg Partners L.P. fails to realize a 30% annual
return on its invested capital, then the amount paid to you under this
letter will be ratably reduced by the percentage amount of the shortfall
from the foregoing investment target.
Note: A formal letter will be provided to the Executive to sign on
employment that will provide detail on the above provisions.
5. Relocation
ATI will provide a relocation package to the Executive that is intended to
allow the employee to remain neutral from a compensation perspective. This
package will include the following elements:
a) Out of pocket costs for home search (up to two family trips).
b) All real estate commissions paid to a third party for sale of the
primary dwelling.
c) Points required to make interest rates equivalent to the current
rate that the Executive pays.
d) Closing costs on the sale and purchase of a primary dwelling.
e) Temporary living expenses until a residence is occupied in
Minneapolis if necessary.
f) Home travel every week until Executive's family is relocated.
g) All household moving expenses with a licensed national moving
company.
h) Reimbursement for (health/dental/vision) benefits from your present
employers COBRA in Texas until your family relocates to Minnesota.
<PAGE>
Page 3
April 15, 1999
5. Relocation - continued
i) Tax gross up for all of the above (items a-i) in order for the
Executive to remain cash neutral for the relocation.
6. Performance Stock Options
You will be granted 1,500 performance stock options at a strike price of
$300 per share. The shares will be earned and vested on your anniversary
date as follows:
Share Vesting Percent Vesting
------------- ---------------
End of Year One 300 20%
Two 300 20%
Three 300 20%
Four 300 20%
Five 300 20%
------------- ---------------
Total 1,500 100%
You will also be eligible for additional performance option shares at the
rate of 300 shares per market per voice switch installed (first four (4)),
also at a strike price of $300 per share. At a minimum, our plan calls for
four (4) switches; and could call for as many as twenty-one (21) switches.
The first four (4) switches would carry a strike price of $300 per share
and for switches beyond the first four (4) -- the exercise price will be
the then current calculated or actual market value per share of ATI and at
150 shares per switch.
Should there be a change of control at ATI, all options granted will
immediately be earned and vested.
If the existing private equity funding process does not yield a $300 per
share price, your exercise price will be the lesser of the private equity
price per share or $300, whichever is lower.
It is the objective of management and our key outside investor (Stolberg,
Meehan and Scano) to increase the value of ATI at an annualized rate of at
least 30% per year. See the following analysis for the estimated value
generated by this grant over the next five (5) years:
10% 20% 30% 40% 50%
Growth Growth Growth Growth Growth
------ ------ ------ ------ ------
Initial Grant (1500) $275K $ 670K $1221K $1970K $2967K
4 Switch Options (1200) 220K 536K 977K 1576K 1978K
------ ------ ------ ------ ------
Total $495K $1206K $2198K $3546K $4945K
<PAGE>
Page 4
April 15, 1999
The above estimates of value are all net of original exercise price of
$300 per share. Options granted for switch installations beyond the
initial four (4) markets will have a current value exercise price
associated with them.
Note: These estimates of the value of the option grant do not imply any
guaranteed value -- but are based solely on management's/investor's
expectations and their internal forecasts.
As a key member of the ATI executive team, you will also eligible for
additional option grants based on your individual performance and
performance of ATI.
7. Other Benefits
You will also be eligible for a complete range of company benefits,
including 401(k) (25% match on the first 6% contributed), health club
membership reimbursement (family reimbursement is $35.00 per month),
medical coverage, and company paid parking.
8. Contingencies
This offer is contingent upon successful completion of a physical
examination, reference/background checks, and successful negotiation out
of any/all non-competes that you may have with your existing company.
9. ATI Financing Plan
ATI is currently in the process of obtaining additional funding which will
allow us to proceed with the switch build-out and to add additional
infrastructure necessary for CLEC operations. Because of this -- I want to
make this offer contingent upon securing appropriate financing at a level
that will provide for a minimum level of infrastructure build-out.
10. Investment in ATI
With your employment with ATI and providing for a floor value of options
outlined in #4 above of $2.0M, you will be allowed to purchase $200K of 8%
Convertible Subordinated Promissory Notes convertible into shares of the
Company's Class A common stock at the rate of $300 per share.
Satish -- I am looking forward to working with you.
Accepted by: /s/ Satish Tiwari Date: April 22, 1999
-----------------------------
Satish Tiwari
<PAGE>
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
April 20, 1999
Mr. Satish Tiwari
4208 Toledo Avenue
Fort Worth, TX 76133
Dear Satish:
This letter is intended to supplement the terms of my April 15, 1999 letter to
you detailing the terms of your employment by ATI. ATI has granted you options
to purchase 1,500 shares of ATI common stock at a price of $300.00. These
options will vest over a five year period, so long as ATI achieves the financial
performance targets established each year by its Board of Directors.
You have also purchased a $200,000 Series B 8% Convertible Subordinated
Promissory Note issued by ATI and dated as of April 20, 1999 (the "Note"). The
Note is convertible into shares of ATI Class A common stock at the price of
$300.00 per share.
This will confirm our mutual understanding that in the event of any
"change-in-control" (as defined in the Change-in-Control Severance Pay Agreement
between you and ATI) of ATI on or before April 20, 2002, you may elect to
receive a lump sum cash payment, not later than 30 days after the date of the
"change-in-control," of $2,000,000 (net of the $200,000 purchase price of the
Note) in exchange for your transfer to ATI of the Note and all of your stock
options. All of your outstanding stock options shall, by reason of the
"change-in-control," be deemed earned, vested and exercisable.
If in connection with a "change in control," Stolberg Partners L.P. fails to
realize on its investment in ATI's Preferred Stock sold by it, an annually
compounded rate of return of 30% or more and if Stolberg Partners, L.P. and
Stolberg, Meehan & Scano II, L.P. fail to realize on their investment in any
other ATI securities sold by them, an annually compounded internal rate of
return of 30% or more, then the amount to be paid you under this letter shall be
ratably reduced by the percentage amount (determined on a blended basis) of the
shortfall from the foregoing investment targets. To illustrate the foregoing for
clarification purposes and not by way of limitation, if the blended return is
25%, the guarantied payment will be reduced from $2,000,000 to $1,666,667
(i.e., 25%/30% x $2,000,000).
If the foregoing accurately reflects our mutual understanding, please indicate
your acceptance and agreement by signing where indicated below and returning
such signed copy of this letter to me.
Best regards,
/s/ Richard A. Smith 4/20/99
Richard A. Smith
Chief Financial Officer
RAS/cak
ACCEPTED ON APRIL 22, 1999.
/s/ Satish Tiwari
- ---------------------------
Satish Tiwari
<PAGE>
CHANGE-IN-CONTROL SEVERANCE PAY AGREEMENT
THIS AGREEMENT is made this 22nd day of April, 1999, by and between
ADVANCED TELECOMMUNICATIONS, INC., a Minnesota corporation (the "Company") and
SATISH TIWARI (the "Executive").
RECITALS
A. The Executive is the Vice President-Engineering and Network
Implementation of the Company as of the date of this Agreement.
B. The Board of Directors of the Company desires to retain the Executive
in the employ of the Company.
C. The Board of Director believes that it is essential to preserve and
maintain the stability and continuity of management of the Company by providing
the Executive with economic and other security from the uncertainty of risks
inherent in a potential sale or merger of the Company which might jeopardize the
Executive's employment.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises of the patties hereto, the Company and the Executive agree as follows:
1. Eligibility for Severance Pay. The Executive shall be eligible to
receive severance pay, in the amounts and at the times described in paragraph 3,
if:
(a) the Executive's employment with the Company and all of its
subsidiaries (if any) is terminated within 24 months after there has been
a "change in control," as such term is hereinafter defined; and
(b) the Executive's termination of employment was not:
(i) on account of the Executive's death;
(ii) on account of a physical or mental condition that
entitles the Executive to benefits under any long-term disability
plan maintained by the Company or any of its subsidiaries, as then
in effect;
(iii) for conduct involving willful misconduct (such as
commission by the Executive of a felony or a common law fraud
against the Company) which is detrimental in a significant way to
the business of the Company or any of its subsidiaries; or
(iv) on account of the Executive's voluntary
resignation; provided, that a resignation shall not be considered to
be voluntary for the purposes of this Agreement if it occurs under
the circumstances described in paragraph 10(a), or if,
-1-
<PAGE>
subsequent to the change in control, there has been: (1) a reduction
in the Executive's base compensation; or (2) a change in the place
in which the Executive is required to perform his or her duties, if
the new place is more than 50 miles from the place Executive
performed his services immediately prior to the "change in control."
2. Change in Control. For the purposes of this Agreement, a "change in
control" shall be deemed to have occurred if:
(a) there occurs any sale or other disposition to a person unrelated
to the Company or any of the holders of its securities of (i)
representing, after sale or disposition, more than 50% of the outstanding
voting securities of the Company as measured by voting power on an as if
converted basis or (ii) more than 50% of the aggregate assets of the
Company and its subsidiaries, in the single transaction or series of
transactions; or
(b) the Company or any combination of the Company and its
subsidiaries aggregating more than fifty percent (50%) of the consolidated
assets of the Company and its wholly-owned subsidiaries becomes a party to
any merger or consolidation (excluding a merger or consolidation where the
Company or one of such subsidiaries is the surviving corporation);
and in the case of either (a) or (b) above, Stolberg Partners, L.P. and
Stolberg, Meehan and Scano II, L.P. liquidate more than 50% of their aggregate
voting stock and voting stock equivalents of the Company as measured by the
total votes represented thereby.
3. Certain Change in Control and Severance Payments. The Executive shall
receive:
(a) a lump sum cash payment, no later than 30 days after the date on
which the Executive's employment terminates, in an amount equal to two
times the Executive's average annual compensation (as defined below); and
(b) continuation of coverage under the Company's group medical,
group life, and group long-term disability plans, if any, and under any
individual policy or policies of life insurance maintained by the Company,
with the same rate of employer contributions as for active employees,
until the earlier to occur of
(i) the expiration of 24 months from the date on which
the Executive's employment terminates; or
(ii) the date on which the Executive obtains comparable
coverage provided by a new employer.
(c) a lump sum cash payment, payable no later than 30 days after the
date on which the Executive's employment terminates, in an amount equal to
the sum of:
-2-
<PAGE>
(i) the amount by which the fair market value of that
number of shares of stock subject to any stock option which is
forfeited or which otherwise becomes nonexercisable by the Executive
by reason of the termination of his or her employment (determined as
of the date of such termination) exceeds the option price for such
shares; and
(ii) such additional amounts (or the fair market value
of such additional property) in excess of the amount determined
pursuant to subparagraph (1) that would have been paid or
distributed to the Executive upon the exercise of any such forfeited
stock options, had such options been exercisable, and exercised, by
the Executive as of the date his or her employment terminated.
It is understood and agreed that this payment under this paragraph 3(c) is
to occur only to the extent the Executive is not entitled to exercise his
options after the termination of his or her employment under the
provisions of the Executive's stock option agreements.
For purposes of this paragraph 3, the term "average annual compensation" shall
mean the average rate of annual salary payable to the Executive for the calendar
year in which the Executive's employment terminates and for the two immediately
preceding calendar years, plus the average annual bonus or incentive payments
awarded to the Executive for the same three calendar years; provided, that if
bonus or incentive compensation awards have not been determined for the calendar
year in which the Executive's employment terminates prior to the date of such
termination, such average shall be determined using the bonuses or incentive
payments awarded to the Executive for the three calendar years immediately
preceding the year in which the Executive's employment terminates; and provided
further, that if the Executive has not been employed by the Company for two full
calendar years preceding the year in which the Executive's employment
terminates, "average annual compensation" shall be based on the Executive's
average annual rate of salary plus the average annual bonus or incentive
payments determined as described above, for the entire period of the Executive's
employment. The Executive's average annual compensation shall be determined
prior to any reduction for deferred compensation, "401(k)" plan contributions,
and similar items, and any reduction in the Executive's rate of salary occurring
within 24 months after a change in control shall be disregarded. In addition,
the insurance coverage provided under this paragraph shall be governed by the
insurance coverage provided to such the Executive immediately prior to any
reduction in such coverage occurring within 24 months after any change in
control.
4. No Funding of Severance Pay. Nothing herein contained shall require or
be deemed to require the Company or a subsidiary to segregate, earmark, or
otherwise set aside any funds or other assets to provide for any payments
required to be made hereunder, and the rights of the terminating Executive to
severance pay hereunder shall be solely those of a general, unsecured creditor
of the Company.
5. Death. In the event of the Executive's death, any amount or benefit
payable or distributable to the Executive pursuant to paragraph 3(a), 3(b) and
3(c) shall be paid to the beneficiary designated by the Executive for such
purpose in the last written instrument, if any, received by the Boards of
Directors of the Company prior to the Executive's death, or, if no beneficiary
has been designated, to the Executive's estate.
-3-
<PAGE>
6. Rights in the Event of Dispute. If a claim or dispute arises concerning
the rights of the Executive or a beneficiary to benefits under this Agreement,
regardless of the party by whom such claim or dispute is initiated, the
prevailing party in such dispute shall be entitled to recover its legal
expenses, including reasonable attorneys' fees, court costs, and ordinary and
necessary out-of-pocket costs of attorneys incurred in connection with the
bringing, prosecuting, defending, litigating, negotiating, or settling such
claim or dispute; provided, that:
(a) the prevailing party obtains a judgment in its favor from a
court of competent jurisdiction from which no appeal may be taken, whether
because the time to do so has expired or otherwise; and provided further,
that
(b) in the case of any claim or dispute initiated by the Executive,
such claim shall be made, or notice of such dispute given, with specific
reference to the provisions of this Agreement, to the Board of Directors
of the Company within one year after the occurrence of the event giving
rise to such claim or dispute.
7. Amendment. This Agreement may not be amended or modified except by a
written instrument signed by both parties as of a date contemporaneous herewith
or subsequent hereto.
8. No Obligation to Mitigate Damages. In the event the Executive becomes
eligible to receive benefits hereunder the Executive shall have no obligation to
seek other employment in an effort to mitigate damages. To the extent the
Executive shall accept other employment after the termination of his or her
employment, the compensation and benefits received from such employment shall
not reduce any compensation and benefits due under this Agreement, except as
provided in paragraph 3(b).
9. Other Benefits. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein, be in addition to,
and not in derogation or diminution of, any benefits that the Executive or the
Executive's beneficiary may be entitled to receive under any other plan or
program now or hereafter maintained by the Company or by any of its
subsidiaries.
10. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would
be required to perform them if no such succession had taken place unless,
in the opinion of legal counsel mutually acceptable to the Company and the
Executive, such obligations have been assumed by the successor as a matter
of law. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession (unless the foregoing opinion is
rendered to the Executive) shall entitle the Executive to terminate his or
her employment and to receive the payments provided for in paragraph 3
above; provided that Executive has given notice of such failure to the
Company after such effectiveness and such agreement is not so assumed
within ten (10) days after the Company's receipt of such notice. As used
in this Agreement, "Company" shall mean the Company, as presently
constituted, and any successor
-4-
<PAGE>
to its business and/or assets which executes and delivers the agreement
provided for in this paragraph 10 or which otherwise becomes bound by all
the terms and provisions of this Agreement as a matter of law.
(b) The Executive's rights under this Agreement shall inure to the
benefit of, and shall be enforceable by, the Executive's legal
representative or other successors in interest, but shall not otherwise be
assignable or transferable.
11. Notices. Any notices referred to herein shall be in writing and shall
be sufficient if delivered in person or sent by U.S. registered or certified
mail to the Executive at his or her address on file with the Company (or to such
other address as the Executive shall specify by notice), or to the Company at
730 Second Avenue South, Suite 1200, Minneapolis, Minnesota 55402 Attn: Chief
Executive Officer.
12. Waiver. Any waiver of any breach of any of the provisions of this
Agreement shall not operate as a waiver of any other breach of such provisions
or any other provisions, nor shall any failure to enforce any provision of this
Agreement operate as a waiver of any party's right to enforce such provision or
any other provision.
13. Severability. If any provision of this Agreement or the application
thereof is held invalid or unenforceable by a court of competent jurisdiction,
the invalidity or unenforceability thereof shall not affect any other provisions
or applications of this Agreement which can be given effect without the invalid
or unenforceable provision or application.
14. Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Minnesota, except to the extent superseded by applicable federal law.
15. Headings. The headings and paragraph designations of this Agreement
are included solely for convenience of reference and shall in no event be
construed to affect or modify any provisions of this Agreement.
16. Gender and Number. In this Agreement where the context admits, words
in any gender shall include the other genders, words in the plural shall include
the singular, and words in the singular shall include the plural.
-5-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
first above written.
COMPANY: ADVANCED TELECOMMUNICATIONS, INC.
By /s/ Richard A. Smith 4/20/99
-----------------------------------
Richard A. Smith
Chief Financial Officer
EXECUTIVE:
By /s/ Satish Tiwari April 22, 1999
-----------------------------------
Satish Tiwari
Vice President - Engineering
and Network Implementation
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<PAGE>
Exhibit 10.1.23
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
August 4, 1999
Michael J. Robinson
460 Sausalito Boulevard
Sausalito, CA 94965
Dear Michael:
Further to our telephone conversation of this afternoon, I am pleased to confirm
the following terms and conditions associated with our offer to employ you as
our Executive Vice President and General Manager of our Western Region. This
region will include our Seattle and Portland Business Units, and expansion into
Boise, Spokane, Eugene, Salem and Tacoma. You will have responsibility for
integrating the interconnect and network services operations throughout the
region.
1. Base Compensation
Your starting salary will be $130,000 per year. In addition, you will be
eligible for an annual $25,000 override for agreed upon achievement of
budgeted results. Your first year override will be split between a $12,500
starting bonus payable upon your first paycheck and $12,500 against agreed
upon first year results.
2. Incentive Plan
You will be eligible for an annual performance incentive pay package that
could equal up to 60% of your annual base pay (not including the $25,000
salary override). The performance targets are based on the following
measures:
Revenue
Gross Margin
Consolidated EBITDA
Customer Satisfaction
Performance incentive targets and pay will be assessed and granted
annually upon completion of the year-end audit, reviewed and approved by
the ATI Board of Directors.
Base Plan (30%): Will represent the Company's budget on an annual
basis.
<PAGE>
Target Plan (45%): Will represent the Company's budget adjusted as
follows:
o Revenue = 104% of Budget
o Margin = 103% of Budget
o EBITDA = 89% of Budgeted Loss
Premier Plan (60%): Will represent targets above budget that represent
truly premier performance.
o Revenue = 107% of Budget
o Margin = 107% of Budget
o EBITDA 55% of Budget
3. Performance Stock Options
You will be granted 60,000 performance stock options (the equivalent of 2
years base salary) at a strike price of $5.00 per share. The shares will
be earned and vested on your anniversary date as follows:
Share Vesting Percent Vesting
------------- ---------------
End of Year One 12,000 20%
Two 12,000 20%
Three 12,000 20%
Four 12,000 20%
Five 12,000 20%
------ ---
Total 60,000 100%
In addition, you will have the option of purchasing up to an additional
60,000 share at $5.00 per share during your first year of service.
4. Change in Control Agreement
I will provide best efforts to issue you a change in control agreement
that provides acceleration on the vesting of your options and at minimum
provides one year's compensation should your position be terminated
without cause due to a change in control.
5. Relocation Expenses
The Company will reimburse any and all reasonable expenses associated with
your relocation.
<PAGE>
6. Other Benefits
You will also be eligible for a complete range of company benefits,
including 401(k) (25% match on the first 6% contributed), health club
membership reimbursement, medical coverage, and company paid parking.
7. Contingencies
This offer is contingent upon successful completion of physical
examination and reference/background checks.
Mike, I am looking forward to a great future working relationship with you at
Advanced Telecommunications, Inc.
Sincerely,
/s/ Cliff D. Williams
Cliff D. Williams
Chief Executive Officer
Advanced Telecommunications, Inc.
Accepted by: /s/ Michael Robinson Date: 8/23/99
-------------------------
Michael Robinson
cc: Rick Smith
Peter VanGenderen
David Mitchell
<PAGE>
Exhibit 10.1.24
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
To: David A. Kunde
From: Richard A. Smith. Chief Financial Officer
Date: March 19, 1999
Subject: Outline of Employment Offer to David A. Kunde
I am pleased to present the following outline of Advanced Telecommunications,
Inc., (ATI) offer to you for the position of Vice President -- Network
Operations and Technology Planning.
1. Annual Direct Compensation
Annual compensation will be $150,000 per year.
2. Incentive Compensation
You will be eligible for an annual performance incentive pay package that
could max out at 60% of your annual base pay. The performance targets will
be based on the following metrics:
Revenue
Gross Margin
Consolidated EBITDA
Customer Satisfaction
Performance incentive targets and pay will be assessed and granted
quarterly upon completion of the year-end audit, reviewed and approved by
the ATI Board of Directors.
Base Plan (30%): Will represent the Company's budget on an annual
basis.
Target Plan (45%): Will represent the Company's budget adjusted as
follows:
o Revenue = 104% of Budget
o Margin = 103% of Budget
o EBITDA = 89% of Budgeted Loss
Premier Plan (60%): Will represent targets above budget that
represent truly premier performance.
o Revenue = 107% of Budget
o Margin 107% of Budget
o EBITDA = 79% of Budgeted Loss
<PAGE>
Page 2
March 19, 1999
3. Change in Control Agreement
Should there be a change in control at ATI, you will be covered with an
agreement that provides for the following:
a) If the Executive's employment is terminated within 24 months after a
change in control without cause, then the employee will receive
severance pay of two (2) times average annual compensation.
b) Up to two (2) years of medical coverage or until the employee
obtains comparable coverage from a new employer.
Note: A formal Change in Control Severance Pay Agreement will be offered
to the Executive to sign on employment that will provide detail on
the above provisions.
4. "Floor" Value of Options Upon Change in Control
In consideration of the immediate value that you would bring to ATI, if a
change in control occurs three (3) years after your employment starts, you
may elect to transfer all of your options to the Company in exchange for a
lump sum payment of $1,000,000 upon change in control should you desire.
At this point, all of your outstanding stock options shall, by reason of
the "change-in-control" be deemed earned, vested, and exercisable. If
Stolberg Partners L.P. fails to realize a 30% annual return on its
invested capital, then the amount paid to you under this letter will be
ratably reduced by the percentage amount of the shortfall from the
foregoing investment target.
Note: A formal letter will be provided to the Executive to sign on
employment that will provide detail on the above provisions.
5. Relocation
ATI will provide a relocation package to the Executive that is intended to
allow the employee to remain neutral from a compensation perspective. This
package will include the following elements:
a) Out of the pocket costs for home search (up to two family trips).
b) All real estate commissions paid to a third party for sale of the
primary dwelling.
c) Points required to make interest rates equivalent to the current
rate that the Executive pays (6.75%).
d) Closing costs on the sale and purchase of a primary dwelling.
e) Temporary living expenses until a residence is occupied in
Minneapolis if necessary.
f) Home travel every two (2) weeks until Executive's family is
relocated.
g) All household moving expenses with a licensed national moving
company.
h) One (1) month salary for incidentals, decorating. etc.
i) Reimbursement for (health/dental/vision) benefits from your present
employers COBRA in Texas until your family relocates to Minnesota.
<PAGE>
Page 3
March 19, 1999
5. Relocation - continued
j) Tax gross up for all of the above (items a-i) in order for the
Executive to remain cash neutral for the relocation.
6. Performance Stock Options
You will be granted 1,500 performance stock options at a strike price of
$300 per share. The shares will be earned and vested on your anniversary
date as follows:
Share Vesting Percent Vesting
------------- ---------------
End of Year One 300 20%
Two 300 20%
Three 300 20%
Four 300 20%
Five 300 20%
------------- ---------------
Total 1,500 100%
You will also be eligible for additional performance option shares at the
rate of 375 shares per market per voice switch installed (first four (4)),
also at a strike price of $300 per share. At a minimum, our plan calls for
four (4) switches; and could call for as many as twenty-one (21) switches.
The first four (4) switches would carry a strike price of $300 per share
and for switches beyond the first four (4) -- the exercise price will be
the then current calculated or actual market value per share of ATI and at
200 shares per switch.
Should there be a change of control at ATI, all options granted will
immediately be earned and vested.
If the existing private equity funding process does not yield a $300 per
share price, your exercise price will be the lesser of the private equity
price per share or $300, whichever is lower.
It is the objective of management and our key outside investor (Stolberg,
Meehan and Scano) to increase the value of ATI at an annualized rate of at
least 30% per year. See the following analysis for the estimated value
generated by this grant over the next five (5) years:
10% 20% 30% 40% 50%
Growth Growth Growth Growth Growth
------ ------ ------ ------ ------
Initial Grant (1500) $275K $ 670K $1221K $1970K $2967K
4 Switch Options (1500) 275K 670K 1221K 1970K 2967K
------ ------ ------ ------ ------
Total $550K $1340K $2442K $3940K $5934K
<PAGE>
Page 4
March 19, 1999
The above estimates of value are all net of original exercise price of
$300 per share. Options granted for switch installations beyond the
initial four (4) markets will have a current value exercise price
associated with them.
Note: These estimates of the value of the option grant do not imply any
guaranteed value--but are based solely on management's/investor's
expectations and their internal forecasts.
7. Other Benefits
You will also be eligible for a complete range of company benefits,
including 401(k) (25% match on the first 6% contributed), health club
membership reimbursement (family reimbursement is $35.00 per month),
medical coverage, and company paid parking.
8. Contingencies
This offer is contingent upon successful completion of a physical
examination, reference/background checks, and successful negotiation out
of any/all non-competes that you may have with your existing company.
9. ATI Financing Plan
ATI is currently in the process of obtaining additional funding which will
allow us to proceed with the switch build-out and to add additional
infrastructure necessary for CLEC operations. Because of this --I want to
make this offer contingent upon securing appropriate financing at a level
that will provide for a minimum level of infrastructure build-out.
David, I am looking forward to a great future working relationship with you at
Advanced Telecommunications, Incorporated. After you receive, please call me at
(612) 519-6626 to discuss.
Accepted by: /s/ David A. Kunde Date: 4/21/99
------------------------
David A. Kunde
/smk
<PAGE>
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
April 20, 1999
Mr. David A. Kunde
2116 Argyle Drive
Plano, TX 75023
Dear Dave:
This letter is intended to supplement the terms of my March 19, 1999 memorandum
to you detailing the terms of your employment by ATI. ATI has agreed to grant
you options to purchase 1,500 shares of ATI common stock initially at the a
price of $300.00 and additional options as and when switches are installed in
additional markets, all as described in my earlier memo. The initial options
will vest over a five year period from the commencement date of your employment
by ATI, so long as ATI achieves the financial performance targets established
each year by its Board of Directors.
This will confirm our mutual understanding that in the event of any
"change-in-control" (as defined in the Change-in-Control Severance Pay Agreement
between you and ATI) of ATI on or before April 20, 2002, you may elect to
receive a lump sum cash payment, not later than 30 days after the date of the
"change-in-control," of $1,000,000 in exchange for your transfer to ATI of all
of your stock options. All of your outstanding stock options shall, by reason of
the "change-in-control," be deemed earned, vested and exercisable.
Win connection with the "change in control" Stolberg Partners L.P. fails to
realize on its investment in ATI Preferred Stock sold by it, an annually
compounded rate of return of 30% or more and if Stolberg Farmers, L.P. and
Stolberg, Meehan & Scano II, L.P. fail to realize on their investment in any
other ATI securities sold by them, an annually compounded internal rate of
return of 30% or more, then the amount to be paid you under this letter shall be
ratably reduced by the percentage amount (determined on a blended basis) of the
shortfall from the foregoing investment targets. To illustrate the foregoing for
clarification purposes and not by way of limitation, if the blended return is
25%, the guarantied payment will be reduced from $1,000,000 to $833,333 (i.e.,
25%/30% x $1,000,000).
If the foregoing accurately reflects our mutual understanding, please indicate
your acceptance and agreement by signing where indicated below and returning
such signed copy of this letter to me.
Best regards,
/s/ Richard A. Smith
Richard A. Smith
Chief Financial Officer
RAS/dim
ACCEPTED ON APRIL 21, 1999.
/s/ David A. Kunde
- ---------------------------
David A. Kunde
<PAGE>
CHANGE-IN-CONTROL SEVERANCE PAY AGREEMENT
THIS AGREEMENT is made this 21st day of April, 1999, by and between
ADVANCED TELECOMMUNICATIONS, INC., a Minnesota corporation (the "Company") and
DAVID A. KUNDE (the "Executive").
RECITALS
A. The Executive is the Vice-President - Network Operations and Technology
Planning, of the Company as of the date of this Agreement.
B. The Board of Directors of the Company desires to retain the Executive
in the employ of the Company.
C. The Board of Director believes that it is essential to preserve and
maintain the stability and continuity of management of the Company by providing
the Executive with economic and other security from the uncertainty of risks
inherent in a potential sale or merger of the Company which might jeopardize the
Executive's employment.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises of the parties hereto, the Company and the Executive agree as follows:
1. Eligibility for Severance Pay. The Executive shall be eligible to
receive severance pay, in the amounts and at the times described in paragraph 3,
if:
(a) the Executive's employment with the Company and all of its
subsidiaries (if any) is terminated within 24 months after there has been
a "change in control," as such term is hereinafter defined; and
(b) the Executive's termination of employment was not:
(i) on account of the Executive's death;
(ii) on account of a physical or mental condition that
entitles the Executive to benefits under any long-term disability
plan maintained by the Company or any of its subsidiaries, as then
in effect;
(iii) for conduct involving willful misconduct (such as
commission by the Executive of a felony or a common law fraud
against the Company) which is detrimental in a significant way to
the business of the Company or any of its subsidiaries; or
(iv) on account of the Executive's voluntary
resignation; provided, that a resignation shall not be considered to
be voluntary for the purposes of this Agreement if it occurs under
the circumstances described in paragraph 10(a), or if,
-1-
<PAGE>
subsequent to the change in control, there has been: (1) a reduction
in the Executive's base compensation; or (2) a change in the place
in which the Executive is required to perform his or her duties, if
the new place is more than 50 miles from the place Executive
performed his services immediately prior to the "change in control."
2. Change in Control. For the purposes of this Agreement, a "change in
control" shall be deemed to have occurred if:
(a) there occurs any sale or other disposition to a person unrelated
to the Company or any of the holders of its securities of (i)
representing, after sale or disposition, more than 50% of the outstanding
voting securities of the Company as measured by voting power on an as if
converted basis or (ii) more than 50% of the aggregate assets of the
Company and its subsidiaries, in the single transaction or series of
transactions; or
(b) the Company or any combination of the Company and its
subsidiaries aggregating more than fifty percent (50%) of the consolidated
assets of the Company and its wholly-owned subsidiaries becomes a party to
any merger or consolidation (excluding a merger or consolidation where the
Company or one of such subsidiaries is the surviving corporation);
and in the case of either (a) or (b) above, Stolberg Partners, L.P. and
Stolberg, Meehan and Scano II, L.P. liquidate more than 50% of their aggregate
voting stock and voting stock equivalents of the Company as measured by the
total votes represented thereby.
3. Certain Change in Control and Severance Payments. The Executive shall
receive:
(a) a lump sum cash payment, no later than 30 days after the date on
which the Executive's employment terminates, in an amount equal to two
times the Executive's average annual compensation (as defined below); and
(b) continuation of coverage under the Company's group medical,
group life, and group long-term disability plans, if any, and under any
individual policy or policies of life insurance maintained by the Company,
with the same rate of employer contributions as for active employees,
until the earlier to occur of:
(i) the expiration of 24 months from the date on which
the Executive's employment terminates; or
(ii) the date on which the Executive obtains comparable
coverage provided by a new employer.
(c) a lump sum cash payment, payable no later than 30 days after the
date on which the Executive's employment terminates, in an amount equal to
the sum of:
-2-
<PAGE>
(i) the amount by which the fair market value of that
number of shares of stock subject to any stock option which is
forfeited or which otherwise becomes nonexercisable by the Executive
by reason of the termination of his or her employment (determined as
of the date of such termination) exceeds the option price for such
shares; and
(ii) such additional amounts (or the fair market value
of such additional property) in excess of the amount determined
pursuant to subparagraph (i) that would have been paid or
distributed to the Executive upon the exercise of any such forfeited
stock options, had such options been exercisable, and exercised, by
the Executive as of the date his or her employment terminated.
It is understood and agreed that this payment under this paragraph 3(c) is
to occur only to the extent the Executive is not entitled to exercise his
options after the termination of his or her employment under the
provisions of the Executive's stock option agreements.
For purposes of this paragraph 3, the term "average annual compensation" shall
mean the average rate of annual salary payable to the Executive for the calendar
year in which the Executive's employment terminates and for the two immediately
preceding calendar years, plus the average annual bonus or incentive payments
awarded to the Executive for the same three calendar years; provided, that if
bonus or incentive compensation awards have not been determined for the calendar
year in which the Executive's employment terminates prior to the date of such
termination, such average shall be determined using the bonuses or incentive
payments awarded to the Executive for the three calendar years immediately
preceding the year in which the Executive's employment terminates; and provided
further, that if the Executive has not been employed by the Company for two full
calendar years preceding the year in which the Executive's employment
terminates, "average annual compensation" shall be based on the Executive's
average annual rate of salary plus the average annual bonus or incentive
payments determined as described above, for the entire period of the Executive's
employment. The Executive's average annual compensation shall be determined
prior to any reduction for deferred compensation, "401(k)" plan contributions,
and similar items, and any reduction in the Executive's rate of salary occurring
within 24 months after a change in control shall be disregarded. In addition,
the insurance coverage provided under this paragraph shall be governed by the
insurance coverage provided to such the Executive immediately prior to any
reduction in such coverage occurring within 24 months after any change in
control.
4. No Funding of Severance Pay. Nothing herein contained shall require or
be deemed to require the Company or a subsidiary to segregate, earmark, or
otherwise set aside any finds or other assets to provide for any payments
required to be made hereunder, and the rights of the terminating Executive to
severance pay hereunder shall be solely those of a general, unsecured creditor
of the Company.
5. Death. In the event of the Executive's death, any amount or benefit
payable or distributable to the Executive pursuant to paragraph 3(a), 3(b) and
3(c) shall be paid to the beneficiary designated by the Executive for such
purpose in the last written instrument, if any, received by the Boards of
Directors of the Company prior to the Executive's death, or, if no beneficiary
has been designated, to the Executive's estate.
-3-
<PAGE>
6. Rights in the Event of Dispute. If a claim or dispute arises concerning
the rights of the Executive or a beneficiary to benefits under this Agreement,
regardless of the party by whom such claim or dispute is initiated, the
prevailing party in such dispute shall be entitled to recover its legal
expenses, including reasonable attorneys' fees, court costs, and ordinary and
necessary out-of-pocket costs of attorneys incurred in connection with the
bringing, prosecuting, defending, litigating, negotiating, or settling such
claim or dispute; provided, that:
(a) the prevailing party obtains a judgment in its favor from a
court of competent jurisdiction from which no appeal may be taken, whether
because the time to do so has expired or otherwise; and provided further,
that
(b) in the case of any claim or dispute initiated by the Executive,
such claim shall be made, or notice of such dispute given, with specific
reference to the provisions of this Agreement, to the Board of Directors
of the Company within one year after the occurrence of the event giving
rise to such claim or dispute.
7. Amendment. This Agreement may not be amended or modified except by a
written instrument signed by both parties as of a date contemporaneous herewith
or subsequent hereto.
8. No Obligation to Mitigate Damages. In the event the Executive becomes
eligible to receive benefits hereunder the Executive shall have no obligation to
seek other employment in an effort to mitigate damages. To the extent the
Executive shall accept other employment after the termination of his or her
employment, the compensation and benefits received from such employment shall
not reduce any compensation and benefits due under this Agreement, except as
provided in paragraph 3(b).
9. Other Benefits. The benefits provided under this Agreement shall,
except to the extent otherwise specifically provided herein, be in addition to,
and not in derogation or diminution of any benefits that the Executive or the
Executive's beneficiary may be entitled to receive under any other plan or
program now or hereafter maintained by the Company or by any of its
subsidiaries.
10. Successors.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform the Company's obligations under this
Agreement in the same manner and to the same extent that the Company would
be required to perform them if no such succession had taken place unless,
in the opinion of legal counsel mutually acceptable to the Company and the
Executive, such obligations have been assumed by the successor as a matter
of law. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession (unless the foregoing opinion is
rendered to the Executive) shall entitle the Executive to terminate his or
her employment and to receive the payments provided for in paragraph 3
above; provided that Executive has given notice of such failure to the
Company after such effectiveness and such agreement is not so assumed
within ten (10) days after the Company's receipt of such notice. As used
in this Agreement, "Company" shall mean the Company, as presently
constituted, and any successor
-4-
<PAGE>
to its business and/or assets which executes and delivers the agreement
provided for in this paragraph 10 or which otherwise becomes bound by all
the terms and provisions of this Agreement as a matter of law.
(b) The Executive's rights under this Agreement shall inure to the
benefit of, and shall be enforceable by, the Executive's legal
representative or other successors in interest, but shall not otherwise be
assignable or transferable.
11. Notices. Any notices referred to herein shall be in writing and shall
be sufficient if delivered in person or sent by U.S. registered or certified
mail to the Executive at his or her address on file with the Company (or to such
other address as the Executive shall specify by notice), or to the Company at
730 Second Avenue South, Suite 1200, Minneapolis, Minnesota 55402 Attn: Chief
Executive Officer.
12. Waiver. Any waiver of any breach of any of the provisions of this
Agreement shall not operate as a waiver of any other breach of such provisions
or any other provisions, nor shall any failure to enforce any provision of this
Agreement operate as a waiver of any party's right to enforce such provision or
any other provision.
13. Severability. If any provision of this Agreement or the application
thereof is held invalid or unenforceable by a court of competent jurisdiction,
the invalidity or unenforceability thereof shall not affect any other provisions
or applications of this Agreement which can be given effect without the invalid
or unenforceable provision or application.
14. Governing Law. The validity, interpretation, construction, and
performance of this Agreement shall be governed by the laws of the State of
Minnesota, except to the extent superseded by applicable federal law.
15. Headings. The headings and paragraph designations of this Agreement
are included solely for convenience of reference and shall in no event be
construed to affect or modify any provisions of this Agreement.
16. Gender and Number. In this Agreement where the context admits, words
in any gender shall include the other genders, words in the plural shall include
the singular, and words in the singular shall include the plural.
-5-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
first above written.
COMPANY: ADVANCED TELECOMMUNICATIONS, INC.
By /s/ Richard A. Smith 4/20/99
-----------------------------------
Richard A. Smith
Chief Financial Officer
EXECUTIVE:
By /s/ David A. Kunde 4/21/99
-----------------------------------
David A. Kunde
-6-
<PAGE>
Exhibit 10.1.25
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
To: John E. Beesley
From: Richard A, Smith, Chief Financial Officer/ Chief Operating Officer
Date: July 16, 1999
Subject: Outline of Employment Offer to John E. Beesley
I am pleased to present the following outline of Advanced Telecommunications,
Inc., (ATI) offer to you for the position of Vice President -- Minnesota Sales.
1. Annual Direct Compensation
Annual compensation will be $125.000.
2. Incentive Compensation
You will be eligible for an annual performance incentive pay package that
could max out at 60% of your annual base pay. The performance targets will
be based on the following metrics:
Revenue
Gross Margin
Consolidated EBITDA
Customer Satisfaction
Performance incentive targets and pay will be assessed and granted quarterly
upon completion of the year-end audit, reviewed and approved by the ATI Board of
Directors.
Base Plan (30%): Will represent the Company's budget on an annual
basis.
Target Plan (45%): Will represent the Company's budget adjusted as
follows:
o Revenue = 104% of Budget
o Margin = 103% of Budget
o EBITDA = 89% of Budgeted Loss
Premier Plan (60%): Will represent targets above budget that
represent truly premier performance.
o Revenue = 107% of Budget
o Margin = 107% of Budget
o EBITDA = 79% of Budgeted Loss
<PAGE>
Page 2
July 16, 1999
3. Option Grants
Your will be granted a total of 138,00 stock options broken down as
follows:
Tranche I Tranehe II Total
--------- ---------- -----
Shares 90,000 48,000 138,000
Strike Price $5.41 $.01 NA
Tranehe II options are provided to you in order to replace the value of
your MeLeod options (5,000 shares at a strike price of $38.00 per share
and 3,000 shares at a strike price of $22.50 per share) as of the McLeod
closing price on July 14th, 1999 of $64.75. The options will be annual and
vested on your anniversary as follows;
Share Vesting Percent Vesting
------------- ---------------
End of Year One 27,600 20%
Two 27,600 20%
Three 27,600 20%
Four 27,600 20%
Five 27,600 20%
------------- ---------------
Total 138,000 100%
Should there be a change of control at ATI, all options granted will
immediately be earned and vested.
If the existing private equity funding process does not yield a $5.41 per
share price, your exercise price will be the lesser of the private equity
price per share or $5.41, whichever is lower.
It is the objective of management and our key outside investor (Stolberg,
Meehan and Scano) to increase the value of ATI at an annualized rate of at
least 30% per year. See the following analysis for the estimated value
generated by this grant over the next five (5) years:
Estimated Value of J. Beesley Stock Options
<TABLE>
<CAPTION>
10% 20% 30% 40% 50%
Growth Growth Growth Growth Growth
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Initial Grant (138,000 shares) $.7M $1.4M $2.3M $3.5M $5.2M
</TABLE>
Note: These estimates of the future projected value of the option grant
do not imply any guaranteed value -- but are based solely on
management's/investor's expectations and their internal forecasts.
<PAGE>
Page 3
July 16, 1999
As a key member of the ATI executive team, you will also eligible for
additional option grants based on your individual performance and
performance of ATI.
4. Other Benefits
You will also be eligible for a complete range of company benefits,
including 401(k) (25% match on the first 6% contributed), health club
membership reimbursement (family reimbursement is $35.00 per month),
medical coverage, and company paid parking.
5. Contingencies
This offer is contingent upon successful completion of a physical
examination, reference/background cheeks, a positive interview with Jim
Lawrence, and successful negotiation out of any/all non-competes that you
may have with your existing company.
6. Reporting Structure
Until the position of Executive Vice President of Sales can be filled, you
will report directly to me and will have direct and dotted line
responsibility for Minnesota sales to include:
a) Network Services Voice Sales Teams and ramp up
b) Network Services Data Sales Teams and ramp up
c) Network Services Sales Support Personal and ramp up
d) Interconnect Sales
e) Deploying direct and indirect sales channels
7) Non Compete Potential Litigation
The Company will provide legal counsel (ATI choice) fees to a maximum of
$50,000 for any potential litigation that may develop as a result of you
accepting a position with ATI.
John -- I am looking forward to working with you at ATI an know that under your
leadership, the Minnesota sales effort will add significant value to the
shareowners of our Company.
Accepted by: /s/ John E. Beesley Date: August 1, 1999
-------------------------
John E. Beesley
<PAGE>
Exhibit 10.1.26
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
To: Geoffrey Boyd
From: R. A. Smith
Chief Operating Officer / Chief Financial Officer
Date: March 7, 2000
Re: Outline of Employment Offer to Geoffrey Boyd
- --------------------------------------------------------------------------------
I am pleased to present the following outline of Advanced Telecommunications,
Inc. (ATI) offer to you for the position of Chief Financial Officer.
1. Annual Direct Compensation
Annual Compensation will be $170,000 per year.
2. Incentive Compensation
You will be eligible for an annual performance incentive pay package that
could max out at 60% of your annual base pay.
Performance incentive targets and pay (Annual Direct Compensation) will be
assessed and granted quarterly and trued-up on completion of the year-end
audit, reviewed and approved by the ATI Board of Directors and the
CEO/COO. The levels of the performance incentive package are included
below:
Base 30%
Target 45%
Premier 60%
3. Relocation
ATI will provide a relocation package to the Executive that is intended to
allow the employee to remain neutral from a compensation perspective. This
package will include the following elements:
a) Out of pocket costs for home search (up to two family trips).
b) All real estate commissions paid to a third party for sale of the
primary dwelling.
c) Points required to make interest rates equivalent to the current rate
that the Executive pays.
d) Closing costs on the sale and purchase of a primary dwelling.
e) Temporary living expenses until a residence is occupied in Minneapolis
if necessary.
f) Home travel every week until Executive's family is relocated.
g) All household moving expenses with a licensed national moving company.
h) One (1) month salary for incidentals, decorating, etc.
i) Reimbursement for (health/dental/vision) benefits from your present
employers COBRA
<PAGE>
in Oklahoma until your family relocates to Minnesota.
Page Two
March 7, 2000
Geoffrey Boyd
4. Severance
In the event your employment is terminated during your first three years
of employment by ATI without cause, you shall be paid a severance payment
equal to one years base salary.
Additionally, ATI will accelerate the vesting of your options by one year,
should the above event occur.
5. Options
You will be granted 250,000 stock option at an exercise puce of $6.54 per
share. The shares are vested and earned on your anniversary as follows:
Share Vesting Percent Vesting
------------- ---------------
Start Date 50,000 20%
1st Day of Year 2 50,000 20%
1st Day of Year 3 50,000 20%
1st Day of Year 4 50,000 20%
1st Day of Year 5 50,000 20%
------------- ---------------
250,000 100%
Should there be a change in control at ATI, all options granted win
immediately be earned and vested.
End of year values (net of exercise price) based on various IPO prices are
given as follows:
$15 $20 $25 $30 $35 $40
--- --- --- --- --- ---
CFO Options Value $2.1M $3.4M $4.6M $5.9M $7.1M $8.4M
Your option value based on a $20 end of year IPO price with four (4) years
of additional growth is estimated below:
10% 20% 30% 40%
--- --- --- ---
CFO Options Value $5.7M $8.7M $12.6M $17.6M
Note/Important: These estimates of the value of the option grant do not
imply any guaranteed value -- but are based solely on
management's/investor's expectations and their internal
forecasts.
<PAGE>
Page Three
March 7, 2000
Geoffrey Boyd
6. Other Benefits
You will also be eligible for a complete range of company benefits,
including 401(k) (35% match on the first 6% contributed), health club
membership reimbursement (family reimbursement is $35.00 per month),
medical coverage, and company paid parking.
7. Contingencies
This offer is contingent upon successful completion of a physical
examination, reference/background checks, and successful negotiation out
of any/all non-competes that you may have with your existing company.
Please indicate your acceptance below.
Geoff--I am looking forward to working with you.
Accepted by: /s/ Geoffrey Boyd Date: 3/8/00
----------------------------
Geoffrey Boyd
<PAGE>
Exhibit 10.1.27
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
To: Steven K. Wachter
From: Richard A. Smith, Chief Financial Officer/ Chief Operating Officer
Date: July 19, 1999
Subject: Outline of Employment Offer to Steven K. Wachter
I am pleased to present the following outline of Advanced Telecommunications,
Inc., (ATI) offer to you for the position of Senior Vice President -- Sales.
1. Annual Direct Compensation
Annual compensation will be $130,000.
2. Incentive Compensation
You will be eligible for an annual performance incentive pay package that
could max out at 60% of your annual base pay. The performance targets will
be based on the following metrics:
Revenue
Gross Margin
Consolidated EBITDA
Customer Satisfaction
Performance incentive targets and pay will be assessed and granted
quarterly upon completion of the year-end audit, reviewed and approved by
the ATI Board of Directors.
Base Plan (30%): Will represent the Company's budget on an annual
basis.
Target Plan (45%): Will represent the Company's budget adjusted as
follows:
o Revenue = 104% of Budget
o Margin = 103% of Budget
o EBITDA = 89% of Budgeted Loss
Premier Plan (60%): Will represent targets above budget that
represent truly premier performance.
o Revenue = 107% of Budget
o Margin = 107% of Budget
o EBITDA = 79% of Budgeted Loss
<PAGE>
Page 2
July 19, 1999
3. Option Grants
You will be granted a total of 123,000 stock options broken down as
follows:
Tranche I Tranche II Total
--------- ---------- -----
Shares 90,000 33,000 123,000
Strike Price $5.41 $.01 NA
Tranche II options are provided to you in order to replace the value of
your Ameritech options and pension if you do not receive them. The options
will be earned and vested on your anniversary as follows;
Share Vesting Percent Vesting
------------- ---------------
End of Year One 24,600 20%
Two 24,600 20%
Three 24,600 20%
Four 24,600 20%
Five 24,600 20%
------------- ---------------
Total 123,000 100%
Should there be a change of control at ATI, all options granted will
immediately be earned and vested.
If the existing private equity funding process does not yield a $5.41 per
share price, your exercise price will be the lesser of the private equity
price per share or $5.41, whichever is lower.
It is the objective of management and our key outside investor (Stolberg,
Meehan and Seano) to increase the value of ATI at an annualized rate of at
least 30% per year. See the following analysis for the estimated value
generated by this grant over the next five (5) years:
Estimated Value of S. Wachter Stock Options
10% 20% 30% 40% 50%
Growth Growth Growth Growth Growth
------ ------ ------ ------ ------
Initial Grant (123,000 shares) $.6M $1.2M $2.0M $3.1M $4.6M
Note: These estimates of the future projected value of the option grant do
not imply any guaranteed value -- but are based solely on
management's/investor's expectations and their internal forecasts.
<PAGE>
Page 3
July 19, 1999
As a key member of the ATI executive team, you will also eligible for
additional option grants based on your individual performance and
performance of ATI.
4. Other Benefits
You will also be eligible for a complete range of company benefits,
including 401(k) (25% match on the first 6% contributed), health club
membership reimbursement (family reimbursement is $35.00 per month),
medical coverage, and company paid parking.
5. Contingencies
This offer is contingent upon successful completion of a physical
examination, reference/background checks, and successful negotiation out
of any/all applicable non-competes that you may have with your existing
company.
6. Relocation
ATI will provide a relocation package to the Executive that is intended to
allow the employee to remain neutral from a compensation perspective. This
package will include the following elements:
a) Out of pocket costs for home search (up to two family trips).
b) All real estate commissions paid to a third party for sale of the
primary dwelling.
c) Points required to make interest rates equivalent to the current rate
that the Executive pays.
d) Closing costs on the sale and purchase of a primary dwelling.
e) Temporary living expenses until a residence is occupied in Minneapolis
if necessary.
f) Home travel every two (2) weeks until the Executive's family is
relocated.
g) All household moving expenses with a licensed national moving company.
h) One (1) month salary for incidentals, decorating, etc.
Steve -- I am looking forward to working with you at ATI and know that under
your leadership. the sales effort will add significant value to the shareowners
of our Company. After you receive, please call me at (612) 519-6626 to discuss.
Accepted by: /s/ Steven K. Wachter Date: July 20, 1999
------------------------------
Steven K. Wachter
xc: File -- Steven K. Wachter
<PAGE>
Exhibit 10.1.28
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
Mr. Richard Smith
3940 137th Street West
Rosemount, MN 55068
June 4, 1998
Dear Rick:
Thank you for your renewed interest in our Chief Financial Officer position. The
following represents my renewed offer as previously presented:
Performance Stock Options
You will be granted 1,600 performance stock options (up from original proposal
of 1,200) at a strike price of $124.93 per share. The shares will be earned and
vested on your anniversary date as follows:
End of Year One 530 Shares 33.3%
Two 530 Shares 33.3%
Three 540 Shares 33.4%
You will also be eligible for additional performance option shares at the rate
of 125 shares per new major market acquisition and entry.
The stock option performance criteria will be set annually by the ATI Board of
Directors.
Incentive Pay
You will be eligible for an annual performance incentive pay package that could
max out at 120% of your annual base pay. Your fiscal 1998 performance targets
will be:
Loading Base Target Stretch
% Plan Plan Plan
1) Revenue 20% 25,340 29,000 32,000
2) Gross Profit 20% 11,400 13,000 15,000
3) EBITDA 40% (2,770) (2,200) (1,700)
4) Cust Satisfaction 10% 7.8 8.2 8.4
5) Empl Satisfaction 10% 7.8 8.2 8.4
<PAGE>
Performance incentive targets and pay will be assessed and granted annually upon
completion of the year end audit, reviewed and approved by the ATI Board of
Directors.
BASE PLAN: Will represent the Company's updated long range plan on an
annual basis.
TARGET PLAN: Will represent the Company's annual plan and budgets.
STRETCH PLAN: Will represent targets above budget that could and/or might
happen with a potential home-run scenario.
Benefits
You will be eligible for a complete range of company benefits including 401K,
health club membership reimbursement, and parking.
Expenses
You will be reimbursed for all company related expenses including but not
necessarily limited to: travel, lodging, meals, vehicle mileage, association and
educational expenses.
Employment Assurance
At minimum, you will receive six months of continuing base pay should your
employment be terminated without cause.
Annual Compensation -- $130,000 to start on /s/ Richard A. Smith 6/19/98
or before October 8th, 1998 /s/ Richard A. Smith 6/19/98
Rick, I trust that this letter adequately covers our Thursday, June 4, 1998
discussion, and I sincerely look forward to your positive response to the same.
Best regards,
/s/ Cliff D. Williams
/s/ Richard A. Smith 6/19/98
Cliff D. Williams ---------------------------- -------------
Chief Executive Officer Accepted by Richard A. Smith Date
CDW/ms
<PAGE>
Exhibit 10.1.29
[LETTERHEAD OF ADVANCED TELECOMMUNICATIONS, INC.]
March 10, 1999
Mr. Richard A. Smith
3940 137th St. W.
Rosemount, MN 55068
Dear Rick:
This letter represents an amendment to and modification of the terms of my June
4, 1998 letter to you detailing the terms of your employment by ATI. ATI has
granted you options to purchase 1,600 shares of ATI common stock at a price of
$124.93 and 1,067 shares of ATI common stock at $170.00 per share. These options
will vest over three and five years, respectively, so long as ATI achieves the
financial performance targets established each year by its Board of Directors.
You have also purchased a $200,000 Series B 8% Convertible Subordinated
Promissory Note issued by ATI and dated as of March 10, 1999 (the "Note"). The
Note is convertible into shares of ATI Class A common stock at the price of
$124.93 per share.
This will confirm our mutual understanding that in the event of any
"change-in-control" (as defined in the Change-in-Control Severance Pay Agreement
between you and ATI) of ATI on or before October 8,2001, you may elect to
receive a lump sum cash payment, not later than 30 days after the date of the
"change-in-control," of $2,000,000 (net of the $200,000 purchase price of the
Note) in exchange for your transfer to ATI of the Note and all of your stock
options. All of your outstanding stock options shall, by reason of the
"change-in-control" be deemed earned, vested and exercisable.
If in connection with the "change in control" Stolberg Partners L.P. fails to
realize on the ATI's Preferred Stock sold by it a profit equal to the greater of
271% of its investment in such Preferred Stock and an annually compounded rate
of return thereon of 30% or more and if Stolberg Partners, L.P. and Stolberg,
Meehan & Scano II, L.P. fail to realize on their investment in any other ATI
securities sold by them, an annually compounded internal rate of return of 30%
or more, then the amount to be paid you under this letter shall be ratably
reduced by the percentage amount (determined on a blended basis) of the
shortfall from the foregoing investment targets. To illustrate the foregoing for
clarification purposes and not by way of limitation, if the blended return is
25%, the guarantied payment will be reduced from $2,000,000 to $1,666,667 (i.e.,
25%/30% x $2,000,000).
<PAGE>
Mr. Richard A. Smith
March 10, 1999
Page 2
If the foregoing accurately reflects our mutual understanding, please indicate
your acceptance and agreement by signing where indicated below and returning
such signed copy of this letter to me.
Best regards,
/s/ Cliff D. Williams
Cliff D. Williams
Chief Executive Officer
CDW/cak
ACCEPTED ON MARCH 12th, 1999.
/s/ Richard A. Smith
- -----------------------------
Richard A. Smith
<PAGE>
Exhibit 21
Advanced Telecommunications, Inc. Subsidiaries
ATI Operating Company
Cady Communications, Inc.
Cady Telemanagement, Inc.
American Telephone Technology, Inc.
Electro-Tel, Inc.
Fishnet.com, Inc.
Intellecom Communications, Inc.
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 7, 2000 in the Registration Statement (Form
S-1) and related Prospectus of Eschelon Telecom, Inc. (formerly known as
Advanced Telecommunications, Inc.).
/s/ Ernst & Young LLP
Minneapolis, Minnesota
April 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 34,473 1,014 0
<SECURITIES> 0 0 0
<RECEIVABLES> 6,793 4,993 0
<ALLOWANCES> 353 240 0
<INVENTORY> 2,252 2,202 0
<CURRENT-ASSETS> 44,709 8,585 0
<PP&E> 22,054 3,784 0
<DEPRECIATION> 2,253 1,330 0
<TOTAL-ASSETS> 77,277 21,214 0
<CURRENT-LIABILITIES> 8,959 5,887 0
<BONDS> 0 0 0
0 0 0
196 56 0
<COMMON> 17 20 0
<OTHER-SE> 63,444 11,451 0
<TOTAL-LIABILITY-AND-EQUITY> 77,277 21,214 0
<SALES> 41,716 28,509 18,787
<TOTAL-REVENUES> 41,716 28,509 18,787
<CGS> 26,966 17,977 9,964
<TOTAL-COSTS> 26,966 17,977 9,964
<OTHER-EXPENSES> 24,122 16,431 11,782
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 2,192 1,202 432
<INCOME-PRETAX> (10,982) (7,015) (3,321)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> (10,982) (7,015) (3,321)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (10,982) (7,015) (3,321)
<EPS-BASIC> (6.18) (5.50) (3.68)
<EPS-DILUTED> (6.18) (5.50) (3.68)
</TABLE>
<PAGE>
Exhibit 10.1.30
ADVISORY AGREEMENT
This Advisory Agreement (this "AGREEMENT") is entered into as of the 30th
day of September, 1999 by and among Advanced Telecommunications, Inc., a
Delaware corporation (the "COMPANY"), Bain Capital Partners VI, L.P., a Delaware
limited partnership ("BAIN"), and Stolberg Partners, L.P., a New York limited
partnership ("STOLBERG").
WHEREAS, Stolberg, Bain and certain funds associated with Bain are
making significant equity investments (the "EQUITY INVESTMENTS") in the
Company by purchasing shares of the Company's Series C Preferred Stock, par
value $0.01 per share, pursuant to the Series C Preferred Stock Purchase
Agreement dated as of the date hereof by and among the Company, Stolberg,
Bain and certain funds associated with Bain; and
WHEREAS, in connection with the Equity Investments, Stolberg and Bain
will from time to time spend time and incur expenses in connection with
monitoring the Equity Investments or consulting with, advising or assisting
the Company.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. PAYMENT OF FEES. The Company hereby agrees to:
a. during the Term (as defined in Section 3), pay to Bain (or a single
affiliate of Bain designated by it) an advisory fee in the amount of
$50,000 per annum, such fee being payable by the Company quarterly in
advance, the first such payment to be made on September 30, 1999; and
b. during the Term, pay to Stolberg (or a single affiliate of Stolberg
designated by it) an advisory fee in the amount of $50,000 per annum,
such fee being payable by the Company quarterly in advance, the first
such payment to be made on September 30, 1999.
2. EXPENSES. The Company agrees to pay on demand all reasonable costs and
expenses incurred by Bain or Stolberg or their designated representatives
in connection with monitoring the Equity Investments or consulting with,
advising or assisting the Company with respect to the Company's business,
operations, strategy, marketing, financings, mergers and acquisitions or
other activities, including without limitation (i) any out-of-pocket
expenses incurred by Bain, Stolberg or their designated representatives in
connection therewith, and (ii) the fees and disbursements arising in
connection therewith of counsel, accountants or other consultants or
advisors retained by Bain or Stolberg.
<PAGE>
3. TERM. This Agreement shall continue in full force and effect, unless and
until terminated by mutual consent of the parties; PROVIDED, HOWEVER, that
this Agreement shall terminate as to Bain at such time as Bain and its
affiliates cease to own at least 10% of the outstanding shares of capital
stock of the Company; and PROVIDED, HOWEVER, that this Agreement shall
terminate as to Stolberg at such time as Stolberg and its affiliates cease
to own at least 10% of the outstanding shares of capital stock of the
Company.
4. INDEMNIFICATION AND LIABILITY. In consideration of the execution and
delivery of this Agreement by Stolberg and Bain and the provision of the
Equity Investments by Stolberg and Bain, the Company hereby agrees to
indemnify, exonerate and hold each of Stolberg and Bain, and each of their
respective partners, shareholders, affiliates, directors, officers,
fiduciaries, employees and agents and each of the partners, shareholders,
affiliates, directors, officers, fiduciaries, employees and agents of each
of the foregoing (collectively, the "INDEMNITEES") free and harmless from
and against any and all actions, causes of action, suits, losses,
liabilities an damages, and expenses in connection therewith, including
without limitation attorneys' fees and disbursements (collectively, the
"INDEMNIFIED LIABILITIES"), incurred by the Indemnitees or any of them as a
result of, or arising out of, or relating to the Equity Investments, the
execution, delivery, performance, enforcement or existence of this
Agreement, the Purchase Agreement or the Stockholders Agreement dated as of
September 30, 1999 by and among the Company, Stolberg, Bain and certain
other stockholders of the Company, or the transactions contemplated hereby
or thereby, except for any such Indemnified Liabilities arising on account
of such Indemnitee's gross negligence or willful misconduct. None of the
Indemnitees shall be liable to the Company or any of its affiliates for any
act or omission suffered or taken by such Indemnitee that does not
constitute willful misconduct.
5. AMENDMENTS AND WAIVERS. No amendment or waiver of any term, provision or
condition of this Agreement shall be effective, unless in writing and
executed by each of Bain, Stolberg and the Company. No waiver on any one
occasion shall extend to or effect or be construed as a waiver of any right
or remedy on any future occasion. No course of dealing of any person nor
any delay or omission in exercising any right or remedy shall constitute an
amendment of this Agreement or a waiver of any right or remedy of any party
hereto.
6. CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the domestic substantive laws of the State of Delaware
without giving effect to any choice of law provision or rule that would
cause the application of the domestic substantive laws of any other
jurisdiction.
[the remainder of this page is intentionally left blank]
-2-
<PAGE>
Advisory Agreement
September 30, 1999
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf as an instrument under seal as of the date first above
written by its officer or representative thereunto duly authorized.
THE COMPANY: ADVANCED TELECOMMUNICATIONS, INC.
By /s/ Michael A. Donohue
------------------------------
Name: Michael A. Donohue
Title: Treasurer
[Signatures continue on following page]
<PAGE>
Advisory Agreement
September 30, 1999
BAIN: BAIN CAPITAL PARTNERS VI, L.P.
By Bain Capital Investors VI, Inc.,
its general partner
By /s/ Michael A. Krupka
------------------------------
Name: Michael A. Krupka
Title: Managing Director
[Signatures continue on following page]
<PAGE>
Advisory Agreement
September 30, 1999
STOLBERG: STOLBERG PARTNERS, L.P.
By SGMS, L.P.,
its general partner
By Stolberg, Meehan & Scano, Inc.
its general partner
By /s/ E. Theodore Stolberg
------------------------------
Name: E. Theodore Stolberg
Title: Partner
