<PAGE>
As filed with the Securities and Exchange Commission on March 31, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
Diveo Broadband Networks, Inc.
(Exact name of registrant as specified in its charter)
Delaware 4899 52-1996836
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification Number)
incorporation or Classification Code
organization) Number)
---------------
Diveo Broadband Networks, Inc.
3201 New Mexico Ave., N.W., Suite 320
Washington, DC 20016
(202) 274-0040
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------
David H. Rutchik
Diveo Broadband Networks, Inc.
3201 New Mexico Ave., N.W., Suite 320
Washington, DC 20016
(202) 274-0040
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Joseph G. Connolly, Jr., Esq. Hogan Bruce Czachor, Esq. Shearman &
& Hartson L.L.P. 555 Thirteenth Sterling Commerce Court West 199 Bay
Street, N.W. Washington, D.C. 20004 Street, Suite 4405 Toronto, Ontario,
(202) 637-5600 Canada M5L 1E8 (416) 360-8484
</TABLE>
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
maximum
aggregate
Title of each class of offering Amount of
securities to be registered price (1)(2) registration fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.0001 par value................................. $150,000,000 $39,600
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase solely
to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o).
---------------
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, 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 preliminary prospectus is not complete and may be +
+changed. These securities may not be sold until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+preliminary prospectus is not an offer to sell nor does it seek an offer to +
+buy these securities in any jurisdiction where the offer or sale is not +
+permitted. +
+ +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated March 31, 2000
Shares
Diveo Broadband Networks, Inc.
Common Stock
-----------
This is an initial public offering of shares of common stock of Diveo
Broadband Networks, Inc. All of the shares of common stock are being sold by
Diveo.
Prior to this offering, there has been no public market for the common stock.
We currently estimate that the initial public offering price per share will be
between $ and $ . We have applied to have the common stock quoted on The
Nasdaq National Market under the symbol " ".
See "Risk Factors" beginning on page 7 to read about factors you should
consider before buying the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price................................ $ $
Underwriting discount........................................ $ $
Proceeds, before expenses, to Diveo.......................... $ $
</TABLE>
To the extent that the underwriters sell more than shares of common
stock, the underwriters have the option to purchase up to an additional
shares from us at the initial offering price less the underwriting discount.
-----------
The underwriters expect to deliver the shares of common stock in New York,
New York on , 2000.
Goldman, Sachs & Co.________________________________________Salomon Smith Barney
-----------
Prospectus dated , 2000.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information that you will find elsewhere in this
prospectus. This summary does not contain all of the information you should
consider before buying shares in this offering. You should carefully read the
entire prospectus and the risk factors beginning on page 7. In this prospectus,
the "company," "Diveo," "we," "us" and "our" refer to Diveo Broadband Networks,
Inc. and its subsidiaries. All share and per share data has been adjusted to
reflect a proposed 7 to 1 reverse stock split expected to occur prior to the
closing of this offering.
Diveo
Overview
We seek to become a leading facilities-based provider of high capacity, high
speed Internet, data and voice services in the major urban markets throughout
Latin America. Through local fixed wireless access networks which we own and
operate, we currently provide broadband (i.e., high capacity, high speed) data
transport and dedicated Internet access to large and medium-sized businesses,
telecommunications carriers, Internet service providers, Internet content
providers, e-commerce providers and systems integrators. We currently offer Web
hosting services and are investing substantially in Internet infrastructure to
enable us to provide advanced Web hosting, co-location, facilities-based
Internet transport services and other enhanced Internet services on a large
scale. We also intend to complement our broadband Internet and data offerings
with voice services.
We have obtained substantial regional and national grants of spectrum as
well as telecommunications operating licenses in Argentina, Brazil, Colombia,
Panama, Peru and Uruguay, covering a total population of more than 135 million
people. In addition, we have obtained voice operating licenses in Argentina and
Peru. We are currently in various stages of designing, building and operating
local fixed wireless broadband access networks in 16 major urban markets in
those six countries. We have launched commercial service in Buenos Aires,
Argentina, Sao Paulo, Brazil, and Bogota, Colombia. At December 31, 1999, we
had 309 employees, 219 buildings on our networks and 102 customers with 1,516
dedicated data and Internet circuit equivalents in service. We count circuit
equivalents on the basis of 64 kilobits per second per circuit. The 102
customers in December 1999 represented an increase of 89 from 13 customers in
March 1999. In addition, for the year ended December 31, 1999 we had revenues
of $1,143,000, an increase of $1,119,000 from $24,000 for the year ended
December 31, 1998.
Market Opportunities in Latin America
We intend to capitalize on the increasing demand for broadband data and
Internet services in the major urban markets in Latin America. An industry
report, commissioned by us and dated April 1999, estimates that in Buenos
Aires, Sao Paulo and Bogota, revenues for dedicated Internet access and
dedicated broadband access will grow in the aggregate compounded annual rates
of 77% and 73%, respectively from 1999 to 2004. Another industry report dated
August 1999 estimates that Web hosting and co-location services related revenue
in Argentina, Brazil and Colombia in the aggregate will grow at a compounded
annual rate of 58% from 1999 to 2004.
Our Competitive Strengths
We believe that we distinguish ourselves through several competitive
strengths, including:
. Pan regional presence and holdings. We have secured one of the largest
holdings of broadband wireless spectrum and regional and national
operating licenses in Latin America. We also have established an early
presence in major urban markets in Latin America, particularly in Brazil
and Argentina.
1
<PAGE>
. Fixed wireless broadband access technology. We primarily use fixed
wireless broadband access technology to enable us to quickly deploy our
local networks on a cost-effective basis. We are also building and
leasing fiber optic cable to increase the backbone capacity of our local
networks in certain markets.
. Flexible owned and operated networks. As a facilities-based provider, we
are able to control the quality, capacity and availability of our
broadband data, dedicated Internet access and enhanced Internet services.
. Focused sales, marketing and customer service. We have built and continue
to develop a targeted sales and marketing approach as well as proactive
customer service groups in each market.
. Proven management. We effectively combine the substantial experience that
our corporate management team has obtained in the competitive U.S.
telecommunications and data industries with the local knowledge, contacts
and expertise of our in-country management and sales forces.
. Strong investor and strategic vendor relationships. We have strong equity
investors, including Goldman Sachs Capital Partners, Alta Communications,
Norwest Equity Capital, Texas Pacific Group/Newbridge Latin America and
Rothschild, as well as strong strategic and financing relationships with
Ericsson and Lucent.
Business Strategy
Our objective is to be a leading facilities-based provider of broadband
Internet, data and voice services in the major urban markets throughout Latin
America. Our strategy consists of the following key initiatives:
. Accelerate the development of current markets and the roll-out of
additional markets by leveraging our substantial spectrum holdings,
significant operating rights and experience in entering new markets.
. Lead with dedicated Internet and broadband data services and complement
with staged introduction of voice services.
. Expand our large and medium-sized business customer base through a
focused direct sales force, third-party alliances and proactive customer
service.
. Invest substantially in Internet infrastructure to provide enhanced
Internet services.
. Pursue strategic acquisitions, partnerships and joint ventures to
accelerate growth and complement our service offerings.
. Continue to attract, retain and motivate skilled Latin American and U.S.
personnel by granting stock options to all employees.
Local Fixed Wireless Broadband Access Networks
We are currently in various stages of designing, building and operating
local fixed wireless broadband access networks in 16 major urban markets
throughout Latin America. We have built out local networks and launched
operations in Buenos Aires, Sao Paulo and Bogota and plan to launch operations
in Rio de Janeiro, Brazil, Belo Horizonte, Brazil, Lima, Peru and Panama City,
Panama by the end of 2000.
2
<PAGE>
We primarily use fixed wireless broadband access technology as a high
quality alternative to copper and fiber-based systems because it enables us to
quickly deploy our local networks on a cost-effective basis. We believe that
our costs to launch service in a market and to connect each customer are lower
than for providers using copper or fiber-based networks. Fixed wireless
technology enables our start-up costs for each new market to be only
approximately 25% of our expected total costs for that market and our
subsequent capital expenditures to be success-based, meaning that we do not
incur significant capital expenditures until we have identified sufficient
customer demand. As demand for service grows in each market, we will increase
the backbone capacity of our local networks by adding fixed wireless links or
building or leasing fiber optic cable.
Internet Infrastructure
We are investing substantially in Internet infrastructure to enable us to
offer Web hosting, co-location, facilities-based Internet transport services
and other enhanced Internet services on a large scale. Our planned investment
includes constructing Internet data centers, securing high quality national and
international Internet connections and hiring additional skilled personnel.
Recent Developments
On March 29, 2000, we raised $127 million in private equity financing. The
investors in this financing included a new investor to the company, Texas
Pacific Group/Newbridge Latin America, as well as several of our existing
investors including Goldman Sachs Capital Partners, Booth American, Columbia
Management, Meritage Private Equity Fund, Norwest Equity Capital and
Rothschild. The completion of this financing brought our total funded equity
capital raised since inception to over $273 million.
On February 25, 2000, we entered into an agreement to acquire INEA Internet,
S.A., a company that offers Internet access and related services to businesses
in Buenos Aires. The total purchase price is approximately $8 million,
consisting of cash, notes and stock. INEA had revenues of $2.2 million for the
year ended December 31, 1999. We expect that this transaction will close in
April 2000.
On March 31, 2000, we entered into an agreement to acquire two companies
that hold certain spectrum and operating rights in Colombia and Peru from
VeloCom, Inc. for $8.25 million in cash. We expect that this transaction will
close in April 2000.
On March 23, 2000, we entered into an agreement with Thomson-CSF Systems
Argentina S.A. to acquire certain assets consisting of ongoing contracts to
provide primarily broadband access services in Buenos Aires to large and
medium-sized businesses for a purchase price of up to approximately $3 million
in cash. We expect that this transaction will close in May 2000.
---------------
We were incorporated as a Delaware corporation in October 1996 under the
name Diginet Americas, Inc, and in March 2000, we changed our name to Diveo
Broadband Networks, Inc. Our principal executive offices are located at 3201
New Mexico Avenue, N.W., Suite 320, Washington, D.C. 20016 and our telephone
number is (202) 274-0040.
3
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered................................ shares
Common stock to be outstanding after this offering.. shares (assuming no
exercise of over-
allotment option granted
to the underwriters)
Proposed Nasdaq National Market symbol..............
Over-allotment option............................... shares
Voting rights....................................... One vote per share
We intend to use the net
Use of proceeds..................................... proceeds:
. to make capital
expenditures relating
to the build out of our
local fixed wireless
broadband access
networks and our
investment in Internet
infrastructure;
. for potential
acquisitions; and
. for working capital and
general corporate
purposes, including to
fund losses.
Dividend policy..................................... We do not intend to pay
dividends on our common
stock. We plan to retain
earnings, if any, for use
in the operation of our
business and to fund
future growth. In
addition, our vendor
financing agreements
severely restrict our
ability to pay dividends.
See "Description of Our
Financing Arrangements."
</TABLE>
Common stock to be outstanding after this offering is based on shares
outstanding as of March 31, 2000, as adjusted to give effect to:
<TABLE>
<S> <C>
. the conversion of all shares of preferred stock outstanding
immediately prior to the offering into 47,953,475
shares of common stock upon the closing of this offering;
and
. the issuance of shares of common stock in this offering.
</TABLE>
The number of shares of common stock to be outstanding after this offering
does not include (1) 4,042,449 shares of common stock that may be issued upon
the exercise of outstanding options, (2) 576,355 shares of common stock that
may be issued upon the exercise of certain warrants outstanding after
consummation of this offering, or (3) 368,723 shares of common stock that may
be issued should holders of certain preferred stock warrants elect to exercise
their warrants prior to the consummation of this offering.
4
<PAGE>
Summary Consolidated Financial and Operating Data
You should read the following summary consolidated financial and operating
data together with "Selected Consolidated Financial and Operating Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our audited consolidated financial statements and related
footnotes included elsewhere in this prospectus.
Our pro forma net loss per share gives effect to the conversion of the
shares of preferred stock outstanding immediately prior to this offering into
shares of common stock as if the conversion had occurred at the beginning of
the periods presented.
<TABLE>
<CAPTION>
Period from
October 1, 1996
(inception)
through Year Ended December 31,
December 31, ---------------------------------
1996 1997 1998 1999
--------------- --------- --------- -----------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Statement Of Operations
Data:
Revenues
Digital Dedicated Access
services................ $ -- $ -- $ 24 $ 927
Dedicated Internet
services ............... -- -- -- 216
--------- --------- --------- -----------
Total revenues........... -- -- 24 1,143
Costs and expenses
Technical and operating.. -- -- 692 3,276
Sales and marketing...... -- -- 260 2,403
General and
administrative.......... 90 922 3,134 6,535
Salaries and benefits.... -- 415 4,503 13,032
Depreciation and
amortization............ -- 3 376 2,511
--------- --------- --------- -----------
Total costs and expenses... 90 1,340 8,965 27,757
--------- --------- --------- -----------
Loss from operations....... (90) (1,340) (8,941) (26,614)
Other income (expense),
net....................... (1) (240) 110 1,781
Provision for income
taxes..................... -- -- -- (105)
--------- --------- --------- -----------
Net loss................... $ (91) $ (1,580) $ (8,831) $ (24,938)
========= ========= ========= ===========
Net loss per share, basic
and diluted(1)............ $ (0.05) $ (0.85) $ (4.66) $ (12.23)
========= ========= ========= ===========
Pro forma net loss per
share, basic and
diluted(1)................ $ (0.94)
===========
Shares used in calculation
of net loss per share:
Basic and diluted(1)..... 1,857,142 1,867,296 1,894,598 2,039,097
========= ========= ========= ===========
Pro forma basic and
diluted(1).............. 26,451,334
===========
Other Financial Data:
EBITDA(2).................. $ (90) $ (1,337) $ (8,595) $ (24,350)
Cash flow provided by (used
in):
Operating activities...... (121) (572) (8,549) (18,628)
Investing activities...... (78) (3,833) (4,429) (100,734)
Financing activities...... 201 4,659 25,676 123,945
Capital expenditures...... -- (114) (2,807) (28,682)
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
As of December 31, 1999
----------------------------
Pro Forma
Pro As
Actual Forma(3) Adjusted(4)
------- -------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-term
investments............................... $82,288 $207,988
Total current assets....................... 88,298 213,998
Property and equipment, net................ 34,339 34,339
Total assets............................... 137,733 263,433
Total current liabilities.................. 14,819 14,819
Total long-term debt....................... 14,806 14,806
Total stockholders' equity................. 108,108 233,808
<CAPTION>
As of December 31,
----------------------------------
1996 1997 1998 1999
------- -------- ----------- -----
<S> <C> <C> <C> <C>
Operating Data:
Digital Dedicated Access customers......... -- -- 7 52
Dedicated Internet service customers....... -- -- -- 50
Digital Dedicated Access circuits.......... -- -- 13 186
Dedicated Internet circuits................ -- -- -- 50
64 kilobit circuit equivalents............. -- -- 50 1,516
Customer buildings......................... -- -- 12 173
Hub sites.................................. -- -- 4 24
Gateway sites.............................. -- -- 9 22
------- -------- --- -----
Total on-net buildings................... -- -- 25 219
======= ======== === =====
</TABLE>
- -------
(1) Net loss per share and pro forma net loss per share are calculated on the
basis described in note 2 to our audited consolidated financial statements
included elsewhere in this prospectus.
(2) EBITDA consists of net loss before depreciation and amortization, net
interest income or expense and income taxes. EBITDA is a measure commonly
used in the telecommunications industry. It is presented to enhance an
understanding of our operating results and is not intended to represent
cash flow or results of operations for the periods presented. EBITDA is not
a measurement under U.S. GAAP or financial performance and may not be
similar to EBITDA measures of other companies.
(3) Pro forma balance sheet data gives effect to the issuance of $127 million
in private equity capital in March 2000 net of equity issuance costs of
$1.3 million and the automatic conversion of all shares of preferred stock
outstanding immediately prior to this offering.
(4) Pro forma as adjusted balance sheet data gives effect to the sale of
shares of common stock in this offering at an assumed offering price of
$ per share after deducting underwriting discounts and estimated
offering expenses.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below before making an
investment decision. The risks and uncertainties described below are not the
only ones facing our company. Additional risks not presently known to us or
that we currently believe to be immaterial may also impair our business
operations.
Our business, financial condition and results of operations could be
materially adversely affected by any of the following risks. The trading price
of shares of our common stock could decline due to any of these risks, and you
might lose all or part of your investment.
This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including the risks faced by us described below or elsewhere.
We have had operating losses since our inception, and we expect to continue to
experience operating losses in the next several years.
We have had significant operating losses and negative cash flow from
operations since our inception. For the year ended December 31, 1999, we had a
loss from operations of $26.6 million and a net loss of $24.9 million. We
expect to continue to incur significant operating losses and have negative cash
flow from operations in the future as we build out our local fixed wireless
broadband access networks and make substantial investments in Internet
infrastructure. If our revenues do not increase significantly, we may not
achieve or sustain profitability or generate positive cash flow.
Our limited history of operations may make it difficult to evaluate our
prospects.
Our company was formed in October 1996. As of March 31, 2000, we have
commenced operations in three markets and have only limited operating
experience in those markets. In addition, we are only beginning to make the
substantial investments in Internet infrastructure necessary to enable us to
provide enhanced Internet services on a large scale. Accordingly, prospective
investors have limited historical financial and operating information to use in
evaluating our performance and determining whether they should purchase our
common stock.
Our success depends on market acceptance of, and customer demand for, our
services, and we are only beginning to introduce many of the services that we
expect to offer.
Our success will depend heavily on the extent to which prospective
customers use our services. For us to succeed, demand for existing services
must increase significantly and there must be strong demand for the enhanced
Internet services we intend to introduce in the future. Demand for such
services in our markets in Latin America, however, is uncertain and our success
in creating demand will be subject to business, economic, regulatory and
competitive factors that are beyond our control. Moreover, demand for our
existing and planned services at price levels that will permit us to become
profitable in the long term or to sustain profitability is uncertain.
We may have to delay or abandon our business plan if our anticipated
significant future capital requirements exceed the capital available to us.
We will require significant amounts of additional capital to fund our
business plan. We estimate that we will need at least $275 million in 2000 to
fund:
. deployment of our local fixed wireless broadband access networks,
including the costs to build and lease fiber optic cable to increase the
capacity of the backbone of our local networks;
7
<PAGE>
. substantial investments in Internet infrastructure to offer enhanced
Internet services; and
. new opportunities, including acquisitions of businesses or investments
in, or strategic alliances with, companies that are complementary to our
current or planned operations.
The actual amount and timing of our future capital requirements may differ
materially from our estimates as a result of prevailing economic conditions and
financial, business and other factors, many of which are beyond our control. We
cannot assure you that the capital actually required to complete our network in
our initial target markets will not exceed our expectations. If demand in these
markets exceeds current expectations, our capital requirements may increase
materially. In addition, we may identify new markets in the future and, as
opportunities develop, we may be required to make additional investments in our
networks and facilities or pursue strategic alliances to consummate those
opportunities.
If required, we expect to raise additional capital through the sale of debt
and equity securities and through vendor financing. We cannot assure you that
we will be able to raise sufficient capital or that such funding will be
available on a timely basis or on terms acceptable to us, if at all. If we
raise capital through the sale of equity securities, you may experience
substantial dilution. If we fail to raise additional funds when and if
required, we may have to delay or abandon expansion of our network into certain
markets, which could prevent revenue growth and would hinder our ability to
compete.
We face significant competition throughout Latin America.
We face varying degrees of competition in each of our markets, and we
expect to encounter increasing competition in the future.
Incumbent exchange carriers pose a threat to our operations because
they possess certain competitive advantages.
In most of our markets, the primary competitor is the incumbent exchange
carrier, or its affiliate. Although the incumbent exchange carriers have
historically focused more heavily on local and long-distance voice services,
they are now focusing much more on providing data services for corporate users.
The incumbent exchange carriers generally have significant competitive
advantages, including:
. significantly greater financial and other resources, including greater
access to financing;
. close ties with national regulatory authorities;
. control over connections to local telephone lines;
. ability to subsidize competitive services with revenues generated from
services they provide on a monopoly basis; and
. reluctance of regulators to adopt policies and grant regulatory approvals
that will result in increased competition.
In the future, the incumbent exchange carriers may devote substantially
more resources to the sale, marketing and provision of data and other services
that compete with us, which could have a material adverse effect on our
business, results of operations and financial condition.
International telecommunications carriers have greater resources than
we do.
We expect to face competition from large international telecommunications
carriers, such as Telefonica, AT&T, Global One and MCI Worldcom, and from other
industry participants. While international telecommunications carriers have
focused on voice services, they may focus on the private telecommunications
network systems as deregulation of the telecommunications market continues. For
example, when the Argentine government permits full competition in long
distance voice, which is
8
<PAGE>
expected in November 2000, these large telecommunications carriers may enter
the Argentine voice market and provide data transmission services as well. Many
of these potential competitors have substantially greater financial and other
resources than we do. In addition, consolidation of telecommunications
companies and the formation of strategic alliances within the
telecommunications industry could give rise to significant new competitors.
AT&T recently formed a new company, AT&T Latin America, by merging the
operations of a U.S. telecommunications company, FirstCom Corp., and Brazil-
based Netstream. AT&T Latin America has assets in Brazil, Colombia and Peru and
is expected to expand into Argentina through its acquisition of Keytech. To the
extent that new competitors enter our markets, it could have a material adverse
effect on our business.
Other competitors have announced their intention to launch enhanced
Internet services in our markets and their ability to establish a
significant early presence could threaten our planned business.
We expect to face substantial competition in providing enhanced Internet
services from various Internet service providers, particularly PSINet, a U.S.-
based global provider of Internet services to businesses. PSINet has acquired a
number of Internet service providers in Argentina, Brazil and Panama. Via
Net.Works, Inc. is another international provider of Internet access and
services with which we expect to compete in Argentina and Brazil. In addition,
we expect to face competition from incumbent exchange carriers, international
telecommunications providers and others in the market for enhanced Internet
services, such as Impsat and MetroRED. If PSINet or other providers are able to
establish a significant early presence before we can, it could have an adverse
effect on our ability to achieve and sustain significant enhanced Internet
service revenues.
We may incur substantial future debt obligations which may hinder our growth
and put us at a competitive disadvantage.
We may need to incur significant additional debt in the future to fund our
business plan. As of December 31, 1999, we had approximately $15 million in
long-term debt outstanding, and we had an additional $386 million available
under our vendor financing agreements, assuming we can incur such debt in
compliance with the covenants set forth in these agreements. Incurrence of
substantial debt in the future could adversely affect our business and
operating results, including:
. requiring us to use a substantial portion of our operating cash flow to
pay interest, which reduces funds available to build out our local fixed
wireless broadband access networks and to invest in Internet
infrastructure and for other purposes;
. placing us at a competitive disadvantage compared to our competitors that
have less debt;
. making us more vulnerable to economic and industry downturns and reducing
our flexibility in responding to changing business and economic
conditions;
. limiting our ability to pursue business opportunities; and
. limiting our ability to borrow more money for operations or capital in
the future.
Our inability to effectively manage our growth could adversely affect our
business.
Our future performance depends on our ability to develop our networks,
successfully invest in Internet infrastructure, implement our business strategy
and effectively manage our growth. Our planned
9
<PAGE>
growth and expansion will place significant demands on our management and
operations. Our ability to manage this growth successfully will depend on:
. expanding our management resources, network infrastructure, information
and reporting systems and controls;
. expanding, training and managing our employee base, including attracting
and retaining skilled personnel;
. evaluating new markets;
. monitoring operations; and
. controlling costs.
If we are not successful in managing our growth effectively, our business,
financial condition and results of operations could be materially adversely
affected.
If we are unable to obtain and maintain the necessary building access rights or
enter into fiber agreements on favorable terms, it could adversely affect the
development of our local fixed wireless broadband access networks.
Our ability to construct our local fixed wireless broadband access networks
and to offer our existing as well as planned services in each market depends
upon our success in securing building access rights. For each customer building
that we connect to our local network and for each hub that we construct, we
must obtain building access rights from the relevant building owner or
customer. If we are unable to successfully negotiate with building owners or if
negotiations become protracted, it would delay the development of our local
networks. In addition, for some of our connected buildings, we do not have a
lease agreement or other contractual right of access. If our building access
were challenged, it may have an adverse effect on our ability to provide
service to the affected customers.
In addition, our ability to increase the capacity of our backbone within
each market depends in part on our ability to enter into third-party agreements
with fiber optic cable providers. If we are not able to enter into fiber lease
agreements or to purchase the fiber optic cable necessary to accommodate
expected increases in demand on favorable terms, our costs may increase or we
may not be able to meet anticipated demand for our services.
Furthermore, our networks need clear lines of sight between our radio
transmitters and our receivers to provide the best service. We cannot assure
you that we will be able to obtain the necessary building access rights to the
most desirable buildings in our markets.
Our ability to offer enhanced Internet services on a large scale is subject to
numerous risks.
Enhanced Internet services is a new area of business for us and is subject
to many substantial risks, including:
. our ability to obtain vital interconnection, also known as peering,
agreements with other communications providers;
. our ability to obtain sites for construction of our Internet data
centers;
. our ability to build out the necessary facilities in a timely manner; and
. our ability to develop service and support operations, including hiring
and training employees and developing corporate standards and systems.
If we are unable to enter into the necessary peering agreements, obtain
sites necessary to build data centers of sufficient size or develop service and
support operations, it could have a material adverse impact on our ability to
offer or develop our enhanced Internet business and operating results.
Moreover, we cannot assure you that we have identified all risks and accurately
estimated the costs associated with offering enhanced Internet services.
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The success of our Web hosting services will depend in part on the level of
interest among business customers in Latin America in having their websites
hosted locally. If the demand for such service is less than we anticipate, it
could materially adversely affect our business.
The installation of various planned undersea cables will increase Latin
American connectivity to Internet access points in the United States. This
could result in overcapacity which could in turn depress the prices we can
charge for our enhanced Internet services.
Our 10 largest customers account for a significant portion of our service fee
revenues and the loss of one or more of these customers could materially
adversely affect our business and results of operations.
Because of our relatively short operating history, a significant portion of
our consolidated revenues has been derived from a small number of customers.
Our 10 largest customers accounted for 45% of our service fee revenues for the
year ended December 31, 1999. Telefonica de Argentina, our largest customer,
accounted for approximately 17% of our service fee revenues in 1999. The loss
of one or more of our 10 largest customers could materially adversely affect
our business and results of operations.
The non-exclusive nature of our national grant of spectrum in Brazil could
interrupt or threaten our ability to provide service in each of the major urban
markets we expect to serve in Brazil.
Our national grant of spectrum in Brazil is non-exclusive and therefore may
require us to coordinate with competitors and other third parties regarding
access to the same spectrum frequencies, which could increase our costs of
doing business there and threaten our ability to provide service. To date, we
have encountered one instance in which another telecommunications provider in
Sao Paulo was granted access to an overlapping spectrum frequency. We resolved
the issue without interruption to our service, but we cannot assure you that in
the future there will not be other providers who are granted overlapping
frequencies or that such grants will not overcrowd the spectrum frequencies
that we use to provide broadband services.
We depend on our suppliers of switches, radios and other equipment and may
experience delays in receiving required components.
We rely on other companies to supply key components of our local network
infrastructure, including data routing and switching equipment, radios,
operating and billing software and facilities construction. These components
are only available in the quantities and quality we require from limited
sources. We have already experienced some delays and may experience further
delays in receiving components or may not be able to obtain these components in
the amounts that we need or on a timely basis or at an affordable cost, or at
all. We also have experienced delays in the construction of our facilities due
to our suppliers.
We intend to pursue acquisitions of spectrum, services, technologies or
businesses, which could result in stockholder dilution and involve other risks.
To implement our growth strategy, we intend to pursue acquisitions of
spectrum, services, technologies or businesses that are complementary to our
existing operations and our planned operations. Our ability to grow our
existing services and to introduce our planned enhanced Internet services will
depend in part on our ability to make certain acquisitions at prices and terms
that are attractive to us. Acquisitions involve many risks, including
difficulties in assimilating new operations, technologies, services and
products of acquired companies and diversion of management's attention from
other business concerns. We cannot assure you that we will successfully
consummate any acquisitions on acceptable terms, or at all.
Any acquisitions we complete could result in dilutive issuances of equity
securities, incurrence of debt and contingent liabilities and increased
amortization expenses related to goodwill and other intangible assets.
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Damage to our networks, system failure or design defects could result in a loss
of revenue and a loss of customers.
Our success in marketing our services to business customers and other high
volume users will require that we provide a high level of reliability, capacity
and security via our network infrastructure. Our local networks will be subject
to possible physical damage (including from natural disasters), power loss,
capacity limitations, software defects and breaches of security (by computer
virus, break-ins or otherwise), all of which may cause interruptions in service
or reduced capacity for customers. In addition, any defects in the design of
our local network architecture may cause interruptions in service until
remedied. If any of these events occur, we may lose customers and market share,
which could harm our business and operating results.
If we fail to upgrade or replace our billing, customer service and information
systems as necessary or our systems do not operate as we expect, we will not be
able to conduct our business efficiently.
Integrated and flexible management information and processing systems are
vital to our growth and our ability to monitor costs, process and provision
customer orders, bill and collect from customers and operate efficiently. We
are in the process of implementing new operating systems to integrate important
facets of our operations. For example, our current billing system is not
adequate to accommodate billing for usage-based services such as voice, which
we currently intend to offer beginning in 2001. We expect to install a new
billing system in 2001, which will enable us to bill for additional services,
including usage-based services such as voice. We cannot assure you that such
systems will be installed in time to launch voice services as currently planned
or that, upon installation, the systems will perform adequately or as expected.
The development and implementation of our new systems relies in part on the
products and services of third-party vendors over which we have no control.
Unanticipated problems with our systems may harm our business and operating
results.
We will not be able to introduce voice services until we obtain the necessary
operating licenses and until we are able to secure the necessary
interconnection agreements with other telecommunications providers.
We do not yet have operating licenses to provide voice services in many of
our markets, and we cannot assure you that we will be able to obtain such voice
operating licenses on acceptable terms or at all. In addition, our ability to
offer voice services in countries in which we do have operating licenses
depends on securing and maintaining interconnection agreements with other
providers, which agreements we currently do not have in place.
New competing technologies may pose a threat to our business.
We cannot predict the effect on our business of technological changes, such
as changes relating to emerging wireline and wireless transmission technologies
and the use of the Internet for traditional voice, data or other broadband
services. Technological changes that render our equipment out of date, less
efficient or more expensive to operate than newer equipment could cause us to
incur substantial increases in capital expenditures to upgrade or replace such
equipment. We believe our future success will depend, in part, on our ability
to anticipate or adapt to such changes and to offer, on a timely basis,
services that meet customer demands. We rely on vendors with whom we have
financing agreements to anticipate and adapt to new technology and to make
products that incorporate such technology available to us. We
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cannot assure you that we will obtain access to new technology on a timely
basis or on satisfactory terms. If we fail to obtain new technology it could
have a material adverse effect on our ability to complete successfully.
New competing technologies may enhance the ability of competitors to
provide the same services that we offer and therefore adversely affect our
business. For example, new technologies such as digital subscriber line, or
DSL, can significantly enhance the speed of traditional copper lines. DSL or
other technologies could enable our incumbent exchange carrier competitors to
offer new high-speed services without incurring the expense of replacing their
existing copper networks. Widespread use of DSL in our markets could have a
material adverse effect on our ability to compete successfully.
Restrictions in our vendor financing agreements may constrain our ability to
operate our business as we desire.
Each of our vendor financing agreements with Ericsson and Lucent contains
numerous conditions and limitations on the way in which we can operate our
business, including limitations on our ability to raise debt, sell or acquire
assets and pay dividends as well as various covenants that require us to
maintain specific financial ratios. These limitations may force us to pursue
less than optimal business strategies or forego business arrangements which
could have been financially advantageous to us and our shareholders. See
"Description of Our Financing Arrangements".
Our ability to compete in Latin American telecommunications markets is subject
to extensive regulation, which may be changed or administered in a manner
harmful to our business.
We are subject to extensive regulation in each of the countries in which we
operate. In many of these countries, the opening of competition in the
telecommunications industry occurred only recently, and there is necessarily
some uncertainty as to how regulations and policies that affect our business
will develop. Changes in regulations governing matters such as interconnection
arrangements, capital investment, pricing and foreign ownership could have a
material adverse effect on our business and operations. Accordingly, we cannot
assure you that we will be able to provide our planned services in each of our
markets, and it is possible that regulations could be adopted that would
preclude us from offering some of the services that we expect to provide in the
future. In addition, the government of each of the countries in which we
operate imposes extensive licensing, installation, and build-out requirements,
many of which are difficult to comply with. We cannot assure you that we will
be able to meet these requirements, and our failure to do so could subject us
to the loss of licenses that are important to our business. Many of our
licenses are subject to renewal or expiration, and we cannot assure you that
our licenses will be renewed or that we will be able to obtain new licenses on
favorable terms or at all when our current licenses expire. In addition, we
expect competition for radio spectrum licenses to be strong and if we are
unable to obtain licenses in the future, our ability to expand our business may
be materially adversely affected. Finally, our dependence on licenses and
permits subjects us to the risk that administrative delays could have a
substantial adverse impact on our business and operations.
Moreover, the government of any of the countries in which we operate may
impose new fees or increase the amount of fees relating to our spectrum grant
or operating licenses that could adversely affect our business, financial
condition and results of operations. For example, in December 1999, we received
notice from the Argentine telecommunications authorities that we will be
required to pay a usage fee which we expect to be no more than $1.4 million
with respect to our 10.5, 23 and 38 GHz spectrum frequencies. We believe that a
usage fee will be payable on an annual basis in the future.
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Our performance will depend, in part, upon how well we anticipate and adapt
to rapid regulatory changes occurring in the communications industry and
whether we are able to offer, on a timely basis, services that meet evolving
industry standards. The enactment of new adverse regulations or regulatory
requirements may increase our costs, which could have a harmful effect on us.
We cannot assure you that we will be able to adapt to these regulatory
developments or offer the necessary services on a timely basis or establish or
maintain a competitive position.
Our operations are subject to special economic and political risks throughout
Latin America.
All of our operations are conducted in Latin America. Accordingly, we will
be subject to significant economic, political and social instability and other
risks not typical of investments in businesses conducted in the United States.
An investment in our common stock is subject to risks of doing business in
Latin America. Each country where we operate has experienced political and
economic instability in recent years. Moreover, as events in Latin America have
demonstrated, negative economic or political developments in one country in the
region can lead to or exacerbate economic or political crises elsewhere in the
region. In addition, events in recent years in other developing markets have
placed pressures on the stability of the currencies of a number of countries in
Latin America, including Argentina, Brazil and Colombia. Continued pressures on
the local currencies in the countries in which we operate are likely to have a
material adverse effect on many of our customers, which could in turn
materially adversely affect us. Volatility in regional currencies and capital
markets has also had an adverse effect on our ability and that of our customers
to gain access to the international capital markets for necessary financing and
refinancing. A lack of international capital sources for emerging market
borrowers could have a material adverse effect on us and many of our customers.
The imposition by the governments of the countries where we operate of capital
controls, exchange controls, or any other mechanisms that would restrict the
flow of funds from our local subsidiaries to us could significantly impair our
ability to honor our obligations under our vendor financing agreements.
We do not expect fundamental improvements in macroeconomic conditions in
Latin America in the short term. We cannot assure you that economic
difficulties in Latin America will cease, including volatility in regional
currencies and capital markets, which would have a material adverse effect on
our business, results of operations and financial condition and the market
price of our common stock.
Many of our targeted markets are in countries in which the rate of
inflation is significantly higher than that in the United States and which have
experienced significant volatility in currency exchange rates. We cannot assure
you that the effect of inflation on our operations in these countries can be
offset, in whole or in part, by corresponding price increases we impose, even
over the long term. Nor can we assure you that currency exchange rates will not
change in a way adverse to us or that currency controls will not be imposed.
Argentina
While we anticipate that our business outside Argentina will increase in
the coming years, Argentina is expected to remain our most significant market
in 2000 and, accordingly, developments in Argentina are of particular
importance to our future success.
The instability and volatility in the world financial markets, which began
with the crisis in the markets of Southeast Asia in 1998 and spread to Russia
and Brazil, has negatively affected the Argentine economy and financial
markets. In addition to the effects of the economic difficulties experienced in
Brazil, Argentina's largest trading partner, in the first nine months of 1999,
Argentina experienced a decline in investor confidence as a result of domestic
political and economic developments. In October 1999, Moody's Investor Services
cut Argentina's long-term foreign currency rating to B1 from Ba3. The
International Monetary Fund recently provided Argentina with a three-year
credit facility amounting to $7.4 billion which is conditioned upon Argentina
achieving fiscal tightening and consistent structural
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reforms. We are unable to predict the effects of these reforms on our business,
financial condition and results of operations or the market price of our common
stock. Additionally, Argentina's exchange-rate policy remains a major concern
and we cannot assure you that Argentine monetary authorities will be able to
support the existing parity of the Argentine peso and the U.S. dollar.
Brazil
Brazil is our second largest market in terms of revenues generated and we
fully expect that Brazil will become our largest market. Throughout the 1980s
and into the 1990s, the Brazilian economy has suffered from periods of
extremely high rates of inflation and recession. Historically, Brazil's
currency has frequently depreciated in relation to the U.S. dollar. At the end
of 1998, foreign exchange reserves in Brazil had declined to $44.6 billion from
nearly $67.3 billion at the end of August 1998. As of January 2000, Brazil had
exchange reserves of approximately $37.56 billion. These capital outflows,
which resulted from the Russian economic crisis (and the subsequent impact on
risk perception of investments in emerging market countries in general) and
high rates of inflation prevailing in the Brazilian economy, put pressure on
the Brazilian real. The Brazilian government permitted the Real to float freely
against the U.S. dollar in January 1999. Since that time, the Real has devalued
to a low of R$2.17 = $1.00 on March 3, 1999. At March 17, 2000, the Real traded
at a rate of R$1.74 = $1.00. We cannot assure you that the Real will not again
be devalued relative to the U.S. dollar, or that the Real will not fluctuate
significantly relative to the U.S. dollar. A continued downturn in Brazil's
economy could further affect other Latin American countries through the loss of
investor confidence and shocks to intra-regional trade.
Rapid changes in Brazilian political and economic conditions require us to
continually assess the risks associated with our operations in Brazil and
adjust our business and operating strategy. Although the Brazilian government
has indicated that it is committed to solving the economic crisis caused by the
devaluation of the Brazilian real, it will have to overcome internal political
resistance to austerity measures if the economic recession worsens and
unemployment figures rise. Economic forecasts suggest that the Brazilian
economy could suffer a recession in the future as economic austerity measures
and high interest rates depress consumption and investments. Brazil's large
financing needs remain a risk to stability and could cause material adverse
effects on our business, results of operations and financial condition or the
price of our common stock.
Colombia
We have recently launched operations in Bogota, and Colombia currently
represents our third largest market in terms of revenues generated. Colombia is
experiencing an economic recession, with unemployment over 20%. The Colombian
economy began experiencing a severe economic crisis in 1998. A combination of
low international commodity prices, a decline in global lending to emerging
markets, a decrease in domestic consumption and high interest rates have
resulted in an economic recession and a negative economic performance.
Preliminary figures indicate that the Colombian economy contracted in 1999 and
that Colombia's gross domestic product fell by 5% through the end of 1999. In
June 1999, Colombia's central bank effectively devalued the Colombian peso by
9% by widening the foreign exchange band for the peso, and in September 1999,
the central bank discontinued the use of the foreign exchange band and
permitted the peso to float freely against the U.S. dollar. In the third
quarter of 1999, citing Colombia's macroeconomic imbalances and rising levels
of government debt, Moody's Investors Services and Standard & Poor's downgraded
the country's credit rating to below "investment grade." In addition to
increasing borrowing costs for Colombian companies, the impairment of
Colombia's credit rating lowered investor confidence in that country and
compounded its economic difficulties.
Colombia has experienced periods of violence over the past four decades,
primarily from leftist guerrilla groups, right wing paramilitary groups and
drug trade. Despite the promise of peace negotiations between the Colombian
government and the main left-wing guerilla group, known as the FARC,
hostilities between the parties have continued. These hostilities led the
Colombian government to cede effective control of certain portions of the
country to guerilla forces, order a curfew in certain regions of the country
and place the military on a heightened state of alert. We cannot assure you
that these
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matters, individually or cumulatively, will not materially adversely affect our
business, results of operations and financial condition and the market price of
our common stock.
Peru
After having grown at an annual rate of 7.3% from 1993 through 1997, the
Peruvian economy was hit in 1998 by the wave of international financial crises
and the El Nino phenomenon. This slowed the previous level of growth
considerably. The international economic instability led to a severe liquidity
crisis in the Peruvian financial system, a speculative attack against the
currency and the contraction of credit to the private sector. However, economic
forecasts indicate the economy will continue to grow in the next few years,
though at a lower rate than during the period from 1993 to 1997. During 1999 the
economy expanded by only an estimated 3%, inhibited by tight liquidity and high
interest rates. We cannot assure you that future fluctuation in the world market
will not negatively affect the Peruvian economy, or that the annual growth rate
will return to previous rates.
Panama
Following more than two decades of political and economic instability,
since 1994 a democratically elected government has implemented economic policy
reforms to restructure debt, liberalize the trade regime, privatize state-owned
enterprises, lower tariffs and attract foreign investment. Nonetheless,
Standard & Poor's has rated the outlook for local currency and foreign currency
as negative. Moreover, in the wake of the withdrawal by the United States from
its military facilities and control of the Panama Canal, there is some
uncertainty concerning the Panamanian government's ability to attract foreign
investment and manage the vast properties received upon the United States'
withdrawal. Accordingly, we cannot assure you that economic reform will
continue and that uncertainties will not materially adversely affect investor
confidence and financial markets, which could harm our business and financial
condition.
Uruguay
Uruguay has strong economic ties to Brazil and Argentina. The February 1999
Brazilian currency devaluation reduced the rate of growth of loans and deposits
in Uruguay. As a result, the Uruguayan economy went through a slump that caused
the unemployment rate to rise above 10%. We cannot assure you that Uruguay's
economy will not be materially adversely affected by continuing economic
instability in Brazil and Argentina, which could harm our business and
financial condition.
We are vulnerable to currency fluctuations, devaluations and restrictions that
may increase our losses and cause fluctuations in our operating results.
We are exposed to changes in foreign exchange rates because certain of our
revenues and costs are denominated in foreign currencies while a significant
portion of our liabilities are and will continue to be denominated in U.S.
dollars. To date, we have not adopted any hedging strategies to manage our
exposure to foreign currency exchange risk. Our exposure to exchange rate
fluctuations that could negatively affect our business, results of operations,
and common stock price is particularly significant in Brazil. Under Brazilian
law, our contracts with customers cannot be linked to the exchange rate between
the Brazilian real and the U.S. dollar, and we anticipate that a significant
portion of our future growth in sales will come from Brazilian markets. More
generally, our results of operations and business prospects are influenced by
the overall financial and economic conditions in Latin America. Many of the
countries in which we operate have experienced political and economic
volatility in recent years, and each of those countries has experienced some
level of economic contraction and financial difficulties during 1999. We cannot
predict whether prevailing economic conditions in Latin America will improve or
worsen, or what effect these conditions will have on the countries in which we
operate or upon our business.
Labor regulations and strong labor unions in Latin American markets could
increase our expenses.
In general, labor regulations in Latin America are more favorable to
employees than in the United States. Most Latin American countries also require
higher rates of mandatory social security and similar contributions by
employers than the United States. In addition, labor unions in most Latin
American
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countries are considered to be strong and influential. Our employees in Brazil
are currently unionized. Although we have not experienced any strikes in Brazil
yet and none of our operations are currently unionized in any other countries,
we may experience strikes or other significant types of conflicts with labor
unions or our personnel.
Departure of key personnel could harm our business.
Our business is managed by a small number of key executive officers and
operating personnel. The loss of services of one or more of our key executives
could harm our business and our prospects.
Further, we believe that our success will depend, in large part, on our
ability to attract and retain skilled and qualified personnel with experience
in each area of our business, including hiring new personnel to operate our
enhanced Internet services business. In particular, our ability to recruit
personnel throughout Latin America, especially for our planned offering of
enhanced Internet services, may be constrained by the relatively small pool of
talent available. If we are unable to recruit the necessary personnel, it could
harm our business and operating results.
We depend on payments from our subsidiaries to pay our obligations.
We are a holding company, which means that we conduct all of our operations
and derive all of our operating income from our subsidiaries. Our ability to
pay our obligations in the future depends on receiving dividends and other
payments from our subsidiaries, raising additional funds in public or private
debt or equity offerings or selling assets. Our subsidiaries constitute
separate legal entities and their ability to pay dividends or make other
payments or advances to us will depend on their operating results and the
requirements of applicable law.
We are currently restricted from paying dividends and we do not plan to pay
dividends in the foreseeable future.
We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy." Moreover, our ability to pay dividends is limited by the
terms of our vendor financing agreements with Ericsson and Lucent. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Financial Resources."
Shares of our common stock becoming available for sale could materially
adversely affect the market price of our common stock and may impair our
ability to raise capital through the sale of additional stock.
The shares sold in this offering will generally be freely tradable
without restriction. We will have 51,394,331 shares of our common stock
outstanding upon completion of this offering that will be "restricted
securities" as that term is defined in Rule 144 under the Securities Act.
Stockholders holding 50,703,198 shares of our common stock will be entitled to
registration rights.
Immediately after this offering, we also will have an additional 4,618,804
shares of common stock that are the subject of options and warrants.
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Our directors, officers, the most senior employee of each operating
subsidiary and most of our stockholders have executed lock-up agreements that
limit their ability to sell such common stock. These stockholders have agreed
not to sell or otherwise dispose of any shares of our common stock for a period
of at least 180 days after the date of this prospectus without the prior
written approval of Goldman, Sachs & Co. When the lock-up agreements expire,
these shares and the shares underlying the options will become eligible for
sale, in some cases subject to the volume, manner of sale and notice
requirements of Rule 144. The availability of these shares may depress the
market price of our common stock. See "Shares Eligible for Future Sale."
There is no prior public market for our common stock, the price of shares of
our common stock may be volatile and we cannot assure you that our share price
will not decline after this offering.
Prior to this offering, there has not been a public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The initial public offering price for our common
stock will be determined by negotiations between us and the representatives of
the underwriters and may not be indicative of prices that will prevail in the
trading market. Moreover, the market price of our common stock could be subject
to significant fluctuation after this offering. Some of the factors that could
materially adversely affect our share price include:
. quarterly variations in our operating results;
. changes in revenue or earnings estimates or publication of research
reports by analysts;
. strategic decisions by us or our competitors, such as changes in business
strategy, acquisitions or restructurings;
. actions by institutional stockholders;
. speculation in the press or investment community;
. general market conditions; and
. economic factors unrelated to our performance.
Recently, stock markets in the United States have experienced significant
price and volume fluctuations and the market prices of securities of
telecommunications service providers and technology companies, particularly
Internet-related companies, have been highly volatile. Investors may not be
able to resell their shares of common stock at or above the initial public
offering price. In the past, periods of volatility in the marketplace for a
company's securities often have been followed by the initiation of securities
class action litigation in the United States against that company. The
institution of such litigation against us could result in substantial costs and
a diversion of our management's attention and resources, which could materially
adversely affect our business and financial condition.
If you purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution.
The initial public offering price of our common stock is substantially
higher than the book value per share of the outstanding common stock.
Accordingly, if you purchase shares of common stock in this offering, you will
experience immediate dilution of approximately $ in the book value per share
of common stock. This means that the net tangible book value of each share
purchased by you will be less than the purchase price you paid. Moreover, to
the extent that outstanding options to purchase our common stock are exercised,
or options reserved for issuance are issued and exercised, each person
purchasing common stock in this offering will experience further substantial
dilution.
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Unauthorized actions of our local representatives or agents could subject us to
liability under the Foreign Corrupt Practices Act.
We are subject to the Foreign Corrupt Practices Act, which generally
prohibits U.S. companies and their intermediaries from bribing foreign
officials for the purpose of obtaining or keeping business. We have enacted and
adhere to a Foreign Corrupt Practices Program, and we have taken precautions and
instituted a number of procedures to comply with the FCPA. However, we cannot
assure you that such precautions will protect us against liability under the
FCPA. In particular we may be held responsible for actions taken by our local
representatives or agents, regardless of our ability actually to control them.
Any determination that we have violated the FCPA could have a material adverse
effect on our business and operations.
If our forward-looking statements in this prospectus are incorrect, our results
may differ materially from those expressed or implied by such forward-looking
statements.
This prospectus contains forward-looking statements in "Prospectus Summary"
beginning on page 1, "Risk Factors" beginning on page 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 27, "Business" beginning on page 36 and elsewhere. These
statements relate to future events or our future financial performance. You
generally can identify forward-looking statements by terminology such as "may",
"will", "should", "expects", "plans", "intends", "anticipates", "believes",
"estimates", "predicts", "potential" or "continue" or the negative of these
terms or other comparable terminology. These statements are only predictions
and involve known as well as unknown risks, uncertainties and other factors,
including the risks described under "Risk Factors", that may cause our or our
industry's actual results, levels of activity, performance or achievements to
differ materially from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable based on information available to us as of the date
of this prospectus, we cannot guarantee future results, levels of activity,
performance or achievements. Finally, we do not assume and no other person
assumes responsibility for the accuracy and completeness of these statements.
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FORWARD-LOOKING STATEMENTS
Some of the statements in this prospectus are forward-looking statements.
These statements involve known and unknown risks, uncertainties and other
factors which may cause our actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Forward-looking
statements include but are not limited to:
. our expectations and estimates as to completion dates, construction costs
and subsequent maintenance and growth of the local fixed wireless
broadband access networks we plan to build;
. our ability to implement successfully our operating strategy and to sell
capacity on our planned local fixed wireless broadband access network;
and
. future financial performance, including growth in sales and income.
The following factors, among others, could cause our actual results to
differ materially from those expressed in any forward-looking statements we
make:
. the rate of expansion of our network and/or customer base;
. inaccuracies in our forecasts of customer or market demand;
. loss of a customer that provides us with significant revenues;
. highly competitive market conditions;
. changes in or developments under laws, regulations and licensing
requirements;
. changes in telecommunications technology;
. currency fluctuations; and
. changes in economic conditions in the Latin American countries where we
operate.
These factors should not be construed as exhaustive. We will not update or
revise any forward-looking statements.
MARKET DATA AND FORECASTS
This prospectus includes statistical data and forecasts concerning the
telecommunications industry that we obtained from industry publications. These
publications generally indicate that they have obtained information from
sources that they believe are reliable, but that they do not guarantee the
accuracy and completeness of the information. In particular, we do not know
what rates of general economic growth in the countries in which we operate were
assumed in preparing forecasts. Forecasts of developing industries, such as
ours, are not based upon sophisticated analysis of a substantial amount of
historical data as is the case for more mature industries. Often, interviews
with corporate leaders in developing industries, such as ours, form the basis
for much statistical data and forecasts. Thus, statistical data and forecasts
for developing industries, such as ours, are much less likely to be accurate.
We also have not sought the consent of any of these sources to refer to their
data in this prospectus.
20
<PAGE>
USE OF PROCEEDS
We will receive net proceeds from this offering of approximately $
million. If the over-allotment option granted to the underwriters is exercised
in full we will receive approximately $ million. This assumes that our common
stock is offered at $ per share, the midpoint of the range set forth on the
cover page of this prospectus, and is after deducting underwriting discounts
and commissions and the estimated expenses of this offering. We intend to use
the net proceeds to make capital expenditures for the build out of our local
fixed wireless broadband access networks, for our investment in Internet
infrastructure, for potential acquisitions and for working capital and general
corporate purposes, including to fund losses. We have not yet determined the
specific allocation of amounts of the proceeds among the purposes described. As
a result, our management will have significant discretion in applying the net
proceeds of this offering. Pending such application, we will invest the net
proceeds in short-term U.S. dollar denominated liquid securities.
Consistent with our business strategy, we continually consider acquisition
opportunities that will enhance our business. As of the date of this
prospectus, we have no understandings, commitments or agreements with respect
to any material acquisitions other than those described in this prospectus.
21
<PAGE>
DILUTION
As of December 31, 1999, our pro forma net tangible book value, after
giving effect to (i) the issuance of $127 million in private equity capital in
March 2000 net of approximately $1.3 million in equity issuance costs, (ii) a
proposed 7 to 1 reverse stock split expected to occur prior to the closing of
this offering, and (iii) the automatic conversion of all shares of preferred
stock outstanding immediately prior to this offering into 47,953,475 shares of
our common stock upon this offering, was $220.5 million, or $4.40 per share of
common stock. Net tangible book value per share represents the amount of our
total tangible assets reduced by the amount of our total liabilities, divided
by the number of shares of common stock outstanding. As of December 31, 1999,
our pro forma net tangible book value, as adjusted for the sale of shares in
this offering at an assumed initial public offering price of $ per share (the
midpoint of the range indicated on the cover of this prospectus), after
deducting the estimated underwriting discounts and commissions and other
expenses, and assuming no exercise of the underwriter's over-allotment option,
would have been approximately $ per share of common stock. This represents an
immediate increase of $ per share to existing stockholders and an immediate
dilution of $ per share to new investors. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Net tangible book value per share as of December 31, 1999........... $4.40
Increase in net tangible book value per share attributable to
purchasers in this offering........................................ $
-----
Net tangible book value per share after this offering...............
---
Dilution per share to new investors................................. $
===
</TABLE>
The following table summarizes, as of December 31, 1999, after giving
effect to the automatic conversion of all shares of preferred stock outstanding
immediately prior to this offering into 47,953,475 shares of our common stock
upon the closing of this offering, a proposed 7 to 1 reverse stock split and to
the issuance of $127 million in private equity capital net of approximately
$1.3 million in equity issuance costs in March 2000, the total consideration
paid to us and the average price per share paid by the existing stockholders
and by the investors purchasing shares of common stock in this offering (before
deducting the estimated underwriting discounts and commissions and other
expenses and assuming no exercise of the underwriters over-allotment option):
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
------------------ -------------------- Per
Number Percent Amount Percent Share
---------- ------- ------------ ------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... 50,101,201 $273,287,822 $5.45
New investors in this
offering..................
---------- --- ------------ ---
Total.................. $
========== === ============ ===
</TABLE>
If the underwriters' over-allotment option is exercised in full:
. the number of shares of common stock held by the existing stockholders
would be reduced to % of the total number of shares of common stock to
be outstanding after this offering
. the number of shares of common stock held by new investors would be
increased to or % of the total number of shares of common stock
to be outstanding after this offering
The tables above exclude as of December 31, 1999, (1) 2,800,544 shares of
common stock subject to outstanding options and (2) 368,723 shares of common
stock that may be issued should holders of certain preferred stock warrants
elect to exercise their warrants prior to the consummation of this offering.
22
<PAGE>
Upon consummation of this offering, there will be 576,355 shares of common
stock subject to additional outstanding stock purchase warrants. To the extent
outstanding options and warrants are exercised, there will be further dilution
to new investors. See "Capitalization," "Management--Executive Compensation"
and "Management--1996 and 1999 Stock Option Plans."
DIVIDEND POLICY
We have not paid any cash dividends on our common stock and we do not
intend to pay cash dividends in the foreseeable future. We plan to retain
earnings, if any, for use in the operation of our business and to fund future
growth. In addition, our vendor financing agreements currently severely
restrict the payment of dividends on our common stock. See "Description of Our
Financing Arrangements."
23
<PAGE>
CAPITALIZATION
The following table shows our cash and cash equivalents and short-term
investments, and total capitalization as of December 31, 1999:
. on an historical basis;
. on a pro forma basis to give effect to (i) the issuance of $127 million
in private equity capital in March 2000, net of approximately $1.3
million in equity issuance costs, (ii) the automatic conversion of all
shares of our preferred stock outstanding immediately prior to this
offering into 47,953,475 shares of our common stock and (iii) a proposed
7 to 1 reverse stock split expected to occur prior to the closing of this
offering; and
. on a pro forma as adjusted basis to give effect to the issuance and sale
of shares of common stock in this offering.
This table should be read in conjunction with our audited consolidated
financial statements and the notes to the financial statements beginning on
page F-1. Our pro forma as adjusted capitalization assumes no exercise of the
underwriters' over-allotment option.
<TABLE>
<CAPTION>
December 31, 1999
-------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- -------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents and short-term
investments................................... $ 82,288 $207,988 $
======== ======== ========
Long term debt, including current portion(1)... $ 16,083 $ 16,083 $
Stockholders' equity:
Class A convertible preferred stock, $0.0001
par value, 101,750,000 shares authorized,
8,077,782 shares issued and outstanding,
actual; 0 shares issued and outstanding, pro
forma and pro forma, as adjusted............ 30,529 --
Class B convertible preferred stock, $0.0001
par value, 201,200,000 shares authorized,
26,546,899 shares issued and outstanding,
actual; 0 shares issued and outstanding, pro
forma and pro forma, as adjusted............ 112,720 --
Common stock, $.0001 par value, 400,000,000
shares authorized, 2,147,726 shares issued
and outstanding, actual; 50,101,201 shares
issued and outstanding, pro forma;
shares issued and outstanding, pro
forma, as adjusted.......................... -- 5
Additional paid-in capital................... 299 269,243
Accumulated deficit.......................... (35,440) (35,440)
-------- -------- --------
Total stockholders' equity................... 108,108 233,808
-------- -------- --------
Total capitalization....................... $124,191 $249,891 $
======== ======== ========
</TABLE>
- --------
(1)Current portion of long term debt was $1,277,000.
24
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following tables set forth certain historical financial and operating
data of the Company for the period from October 1, 1996 (inception) through
December 31, 1996 and for the three years ended December 31, 1999. We derived
our selected historical consolidated financial data as of December 31, 1998 and
1999 and for each of the three years ended December 31, 1999 from our audited
consolidated financial statements included elsewhere in this prospectus. We
derived our selected historical consolidated financial data as of December 31,
1996 and 1997 and for the period from October 1, 1996 (inception) through
December 31, 1996 from our audited consolidated financial statements that are
not included in this prospectus. You should read the following selected
consolidated financial data together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our audited consolidated
financial statements and related footnotes included elsewhere in this
prospectus.
Our pro forma net loss per share gives effect to the conversion of the
shares of preferred stock outstanding immediately prior to this offering into
shares of common stock as if the conversion had occurred at the beginning of
the periods presented.
<TABLE>
<CAPTION>
Period from
October 1,
1996
(inception)
through Year Ended December 31,
December 31, ---------------------------------------
1996 1997 1998 1999
-------------------------- ----------- -------------
(in thousands, except share and per share data)
<S> <C> <C> <C> <C>
Statement Of Operations
Data:
Revenues
Digital Dedicated
Access services...... $ -- $ -- $ 24 $ 927
Dedicated Internet
services ............ -- -- -- 216
----------- ----------- ----------- -------------
Total revenues........ -- -- 24 1,143
Costs and expenses
Technical and
operating............ -- -- 692 3,276
Sales and marketing... -- -- 260 2,403
General and
administrative....... 90 922 3,134 6,535
Salaries and
benefits............. -- 415 4,503 13,032
Depreciation and
amortization......... -- 3 376 2,511
----------- ----------- ----------- -------------
Total costs and
expenses............... 90 1,340 8,965 27,757
----------- ----------- ----------- -------------
Loss from operations.... (90) (1,340) (8,941) (26,614)
Other income (expense),
net.................... (1) (240) 110 1,781
Provision for income
taxes.................. -- -- -- (105)
----------- ----------- ----------- -------------
Net loss................ $ (91) $ (1,580) $ (8,831) $ (24,938)
=========== =========== =========== =============
Net loss per share,
basic and diluted(1)... $ (0.05) $ (0.85) $ (4.66) $ (12.23)
=========== =========== =========== =============
Pro forma net loss per
share, basic and
diluted(1)............. $ (0.94)
=============
Shares used in
calculation of net loss
per share..............
Basic and diluted..... 1,857,142 1,867,296 1,894,598 2,039,097
=========== =========== =========== =============
Pro forma basic and
diluted.............. 26,451,334
=============
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
Period from
October 1,
1996
(inception)
through
December 31,
1996 1997 1998 1999
------------ ------- ------- ---------
(in thousands, except share and per
share data)
<S> <C> <C> <C> <C>
Other Financial Data:
EBITDA(2)........................... $ (90) $(1,337) $(8,595) $ (24,350)
Cash flow provided by (used in):
Operating activities............... (121) (572) (8,549) (18,628)
Investing activities............... (78) (3,833) (4,429) (100,734)
Financing activities............... 201 4,659 25,676 123,945
Capital expenditures............... -- (114) (2,807) (28,682)
<CAPTION>
As of December 31,
----------------------------------------
1996 1997 1998 1999
------------ ------- ------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents and short-
term investments................... $ 2 $ 256 $12,954 $ 82,288
Total current assets................ 2 1,783 13,953 88,298
Property and equipment, net......... -- 113 5,014 34,339
Total assets........................ 110 4,286 24,180 137,733
Total current liabilities........... 201 5,412 3,598 14,819
Total long-term debt................ -- 544 477 14,806
Total stockholders' equity
(deficit).......................... (91) (1,670) 20,105 108,108
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------
1996 1997 1998 1999
---- ---- ---- -----
<S> <C> <C> <C> <C>
Operating Data:
Digital Dedicated Access customers......................... -- -- 7 52
Dedicated Internet service customers....................... -- -- -- 50
Digital Dedicated Access circuits.......................... -- -- 13 186
Dedicated Internet circuits................................ -- -- -- 50
64 kilobit circuit equivalents............................. -- -- 50 1,516
Customer buildings......................................... -- -- 12 173
Hub sites.................................................. -- -- 4 24
Gateway sites.............................................. -- -- 9 22
--- --- --- -----
Total on-net buildings................................... -- -- 25 219
=== === === =====
</TABLE>
- --------
(1) Net loss per share and pro forma net loss per share are calculated on the
basis described in Note 2 to our audited consolidated financial statements
included elsewhere in this prospectus.
(2) EBITDA consists of net loss before depreciation and amortization, net
interest income or expense and income taxes. EBITDA is a measure commonly
used in the telecommunications industry. It is presented to enhance an
understanding of our operating results and is not intended to represent
cash flow or results of operations for the periods presented. EBITDA is not
a measurement under U.S. GAAP or financial performance and may not be
similar to EBITDA measures of other companies.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We seek to become a leading facilities-based provider of broadband
Internet, data and voice services in the major urban markets throughout Latin
America. Through local fixed wireless access networks which we own and operate,
we currently provide broadband data transport and dedicated Internet access to
large and medium-sized businesses, telecommunications carriers, Internet
service providers, Internet content providers, e-commerce providers and systems
integrators.
From our inception to June 1998, our primary focus was to acquire spectrum
and operating licenses in Argentina, Brazil and Colombia. Since that time, we
have continued to obtain spectrum and operating licenses in these countries as
well as in Panama, Peru and Uruguay. In June 1998, we began constructing
substantial portions of our initial local network in Buenos Aires and in June
1999 we began constructing our local networks in Sao Paulo and Bogota.
We launched commercial operations and sales in our first market, Buenos
Aires, in March 1999. From March to December 1999, we expanded our sales and
marketing force and continued to expand our local network in Buenos Aires. We
subsequently launched operations in Sao Paulo in December 1999 and Bogota in
March 2000.
In March 2000, we made a strategic decision to enter the market for
enhanced Internet services. Concurrently with the build out of our local
networks, we are investing substantially in Internet infrastructure to enable
us to provide enhanced Internet services. We expect to use a substantial
portion of the proceeds of this offering to fund our investment as well as our
operating losses related to the build out of our local fixed wireless broadband
access networks and our investment in Internet infrastructure.
To support our plan to build out local fixed wireless broadband access
networks in major urban markets in Latin America, we have raised $273 million
in private equity capital from our inception to March 31, 2000. In addition, we
entered into strategic supply and credit agreements with Ericsson and Lucent in
June and November 1999, respectively, which currently provide for, among other
things, $400 million of financing for equipment, services and related items.
We currently expect to complete the initial build out of our local
broadband access networks and to launch operations in Rio de Janeiro, Belo
Horizonte, Lima and Panama City by the end of 2000. In Buenos Aires, Sao Paulo
and Bogota, we are expanding our networks to enhance the services we presently
provide and to expand the geographical coverage area of those networks. We are
expanding the capacity of the backbone of our networks by either purchasing
additional fixed wireless links or by building or leasing high capacity fiber
optic cable. As part of our investment in Internet infrastructure, we also
expect to obtain significant backhaul capabilities through leases or
indefeasible rights of use, commonly referred to as IRUs, of undersea fiber
optic and/or satellite capacity.
We plan to offer voice services in Argentina and Peru beginning in 2001 and
we intend to offer voice services in each of our other markets in Latin America
as these markets are deregulated and we obtain the necessary operating
licenses. In order to offer usage-based services such as voice, we are
implementing new operating and business support systems and expect to invest
approximately $10 million in 2000 for such systems.
Revenues and Expenses
Revenues
We provide services to customers under contracts that typically range from
one to three years. The customer generally pays an installation charge at the
beginning of the contract and a fixed monthly fee based on the speed of the
circuit and type of equipment installed. Services, other than installation
fees,
27
<PAGE>
are billed on a flat monthly rate. We recognize installation fees when the
installation is complete and accepted by the customer. We recognize monthly
fees in the month in which the services are provided. We report revenues net of
deductions for sales taxes.
We have experienced pricing declines in Argentina during our first year of
operations, and we anticipate that we will experience pricing declines as
competition increases in Argentina and each of the other markets where we
operate or intend to operate.
Expenses
Our expenses principally include:
. Technical and operating
. Sales and marketing
. General and administrative
. Salaries and benefits
. Depreciation and amortization
The principal items comprising technical and operating expenses are:
. License and spectrum fees. These are fees we pay to maintain our
rights under concessions in accordance with government regulations in
the jurisdictions where we, or a company we acquired, were granted
radio frequencies. These fees are usually based on the amount of
spectrum granted or in use in a specific market. We expect these fees
to increase in the future in Argentina, Brazil, Colombia, Panama and
Peru as our networks, customer base and revenues increase.
. Building access rental payments. Wireless transmission equipment
requires the placement of equipment on the roof of a building and in
some cases, the rental of interior space for housing electronics. As
the market for building access rights becomes more competitive, we
expect the cost of leasing roof and interior space to increase both
for hubs and customer buildings.
. Network maintenance. We employ our own engineers in addition to
engaging outside engineering contracting firms to maintain our local
fixed wireless broadband access networks in each market. As our
networks expand, these costs will increase.
. Capacity leasing costs. We incur operating expenses related to the
leasing of bandwidth from third parties. While these costs have not
been significant to date, we expect increases in these expenses as
part of our investment in Internet infrastructure.
The principal items comprising our sales and marketing expenses are:
. Commissions. Our sales personnel are paid a fixed salary and monthly
or quarterly commissions based on sales productivity.
. Advertising and Public Relations. We advertise in major print media
in each market where we have operations or intend to launch
operations in the near future. We also advertise on the Internet.
The principal items comprising general and administrative expenses are:
. Professional services. These are fees for recruiting, accounting and
legal costs.
. Office rent. As of March 31, 2000, we had offices in Belo Horizonte,
Bogota, Buenos Aires, Lima, Panama City, Rio de Janeiro, Sao Paulo,
and Washington, D.C. (the corporate headquarters). We also maintain a
small corporate satellite office in New York City.
28
<PAGE>
The principal items comprising salaries and benefits expenses include:
. Salaries and hourly wages of all employees except for commissions of
the sales force. The sales force commissions are classified as sales
and marketing. We recently have experienced increased costs in hiring
employees, and we anticipate that such costs will continue to
increase in the near future. Our total number of employees increased
from 70 as of December 31, 1998 to 309 as of December 31, 1999. We
currently anticipate that our total number of employees will increase
to approximately 800 by the end of 2000, and therefore we expect our
salaries and benefits to increase substantially as we develop and
expand our operations.
. Government mandated bonuses and benefits. Several countries in which
we operate have laws or regulations that mandate the payment of
bonuses, vacation pay, an extra month's salary or other continuing
employment benefit that we account for as those benefits accrue.
. Discretionary bonuses and benefits.
Between January and March 2000, we granted to certain employees options to
purchase 1,671,440 shares of common stock at exercise prices ranging between
$4.34 and $10.15 per share. In March 2000, we will record a deferred stock
compensation charge of $7,761,324 for the difference between the estimated fair
market value of our common stock and the exercise price of the options on the
grant date. Such amount will be amortized over the vesting term of the options.
The principal items comprising depreciation and amortization expense
include:
. Depreciation of network and office equipment and leasehold improvements.
These assets are depreciated over their remaining useful lives after they
are placed in service. We acquire and continue to acquire spectrum rights
in the future through acquisitions of companies and directly through
government grants.
. Amortization of capitalized spectrum and license costs. These costs are
amortized over the life of the license. As we obtain such rights, we will
incur increased amortization expense.
. Amortization of goodwill. We anticipate future acquisitions, which may
result in goodwill, which will be amortized in future periods.
Results of Operations
Year ended December 31, 1999 compared to year ended December 31, 1998
Revenues. Revenues for the year ended December 31, 1999 were $1,143,000,
compared to $24,000 for the same period in 1998. The increase in revenues in
1999 was due to our launch of operations in Buenos Aires in March 1999 and in
Sao Paulo in December 1999 and revenues from some early test customers in
Bogota.
The breakdown of our customers, revenues and number of circuits for 1999
and 1998 by country and service offering is as follows:
<TABLE>
<CAPTION>
Argentina Brazil Colombia
--------- ------ --------
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
------------ ------------ ------------
1998 1999 1998 1999 1998 1999
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Digital Dedicated Access
Revenues (in thousands)...... $24 $834 $-- $59 $-- $34
Customers.................... 7 37 -- 11 -- 4
Number of circuits........... 13 163 -- 17 -- 6
Dedicated Internet service
Revenues (in thousands)...... $-- $216 $-- $-- $-- $--
Customers.................... -- 50 -- -- -- --
Number of circuits........... -- 50 -- -- -- --
</TABLE>
29
<PAGE>
Technical and operating expenses. Technical and operating expenses for the
year ended December 31, 1999 were $3,276,000, an increase of $2,584,000
compared to the same period in 1998. The increase in these expenses was due
primarily to:
. An increase in spectrum and licensing fees that totaled $1,568,000 for
the year ended December 31, 1999, compared to $343,000 for the year ended
December 31, 1998. This increase was primarily due to increased spectrum-
based fees in Argentina. We also incurred additional licensing fees and
taxes on additional spectrum we obtained in Argentina, Peru and Panama in
1999.
. An increase in site rental expense for the year ended December 31, 1999
was $592,000 compared to $82,000 for the year ended December 31, 1998.
The increase was directly related to the number of leased hubs and
customer buildings we added, as we expanded our local fixed wireless
broadband access network in Buenos Aires. Also contributing to this
increase was an expense incurred from leasing building access rights for
our backbone sites in Belo Horizonte, Bogota, Lima, Rio de Janiero and
Sao Paulo.
. An increase in network maintenance for the year ended December 31, 1999
was $200,000 compared to $1,000 for the year ended December 31, 1998.
This increase was due to work that began after completing our network in
Sao Paulo and continued maintenance costs for our network in Buenos
Aires.
. An increase in the costs of leasing capacity from other
telecommunications providers to carry traffic from our network to the
Internet backbone in the United States and elsewhere out of Latin
America.
Sales and marketing expenses. Sales and marketing expenses were $2,403,000
for the year ended December 31, 1999, an increase of $2,143,000 compared to the
same period in 1998. The increase in these expenses was due primarily to:
. An increase in direct marketing expenses in Argentina, Brazil and
Colombia.
. An increase in advertising in support of our launch of operations in
Buenos Aires and Sao Paulo in 1999. Also, we increased spending on the
development of sales materials to support future region wide marketing
efforts, including the development of our Web site.
. Sales commissions paid to our sales representatives based on the growth
of customer circuits in Buenos Aires and Sao Paulo.
General and administrative expenses. General and administrative expenses
were $6,535,000 for the year ended December 31, 1999, an increase of $3,401,000
compared to the same period in 1998. The increased general and administrative
expenses reflect growth in our operations, including the development and
implementation of our networks. In particular the increase in these expenses
was due primarily to:
. An increase in recruiting costs as we expanded our management team in
Latin America and in the United States.
. An increase in the size of office and network operations center space
rented. We opened offices in Belo Horizonte, Bogota, Lima, Panama City,
Rio de Janeiro and Sao Paulo, expanded the office space in the
Washington, D.C. headquarters and expanded the office/network operations
space in Buenos Aires.
. An increase in accounting and legal costs as we grow our business.
30
<PAGE>
Salaries and benefits expenses. Salaries and benefits expenses were
$13,032,000 for the year ended December 31, 1999, an increase of $8,529,000
compared to the same period in 1998.
The increase in salaries and benefits was due primarily to:
. An increase in the number of employees, from 70 as of December 31,1998,
to 309 as of December 31, 1999. These additional employees were added to
support the development of our network and operating activities in
Argentina, Colombia and Brazil. We also added employees to support
capital formation and business development efforts at our corporate
headquarters.
. Increases in the salaries and benefits of our personnel to recruit
personnel with the expertise we require. Despite significant rates of
unemployment in some of the markets where we operate, we are facing tight
labor markets for qualified employees with experience in the
telecommunications and Internet industries.
Depreciation and amortization expense. Depreciation and amortization
expense was $2,511,000 for the year ended December 31, 1999, an increase of
$2,135,000 from the same period in 1998. The increase is directly related to
depreciation for customer telecommunications equipment placed into service in
Buenos Aires since March 1999 and network equipment placed into service in Sao
Paulo in December 1999. We expect these expenses to increase in future periods
due to construction of our networks in several markets. During 1999 and 2000,
we completed certain acquisitions and expect to amortize goodwill in connection
with these acquisitions.
Other income (expense), net. Other income (expense), net was $1,781,000 for
the year ended December 31, 1999, an increase of $1,671,000 from the same
period in 1998. The increase was primarily due to increased interest income
earned on our short-term investments and invested cash balances, partially
offset by increased interest expense incurred under our vendor financing
agreements and losses on foreign currency translation.
Provision for income taxes. Provision for income taxes was $105,000 for the
year ended December 31, 1999, compared to $0 for the same period in 1998. The
tax for 1999 was incurred by our operations in Colombia due to the deferral of
start-up costs and recognition of inflation adjustment income under Colombian
tax regulations and a minimum income tax assessed in Argentina. Since inception
we have been incurring losses and expect to continue to accumulate losses for
the next several years. These operating losses could, with certain restrictions
produce a tax benefit in future years. We have reserved fully against the tax
benefit, as we are unsure as to our future ability to produce net taxable
income in time to utilize the net loss carry forwards.
Year ended December 31, 1998 compared to year ended December 31, 1997
Revenues. Revenues were $24,000 for the year ended December 31, 1998
compared to $0 for the year ended December 31, 1997. Revenues for the year
ended December 31, 1998 were derived from services provided to customers in
Buenos Aires, during the testing phase of the network.
Technical and operating expenses. Technical and operating expenses were
$692,000 for the year ended December 31, 1998 compared to $0 for the year ended
December 31, 1997. The increase in these expenses was due primarily to:
. An increase in spectrum and licensing fees that totaled $343,000 for the
year ended December 31, 1998 compared to $0 for the year ended December
31, 1997. This increase was due to fees related to maintaining our
spectrum grant in Colombia.
. An increase in travel fees that totaled $138,000 for the year ended
December 31, 1998 compared to $0 for the year ended December 31, 1997.
This increase was due to travel by the engineering staff as we were
designing and building the initial network in Buenos Aires.
31
<PAGE>
. An increase in site rentals that totaled $82,000 for the year ended
December 31, 1998 compared to $0 for the year ended December 31, 1997.
This increase was due to our renting roof-top and interior space to
facilitate building the network backbone in Buenos Aires.
Sales and marketing expenses. Sales and marketing expenses were $260,000
for the year ended December 31, 1998 compared to $0 for the year ended December
31, 1997. The increase was due to public relations expenditures to support our
brand awareness building efforts.
General and administrative expenses. General and administrative expenses
were $3,134,000 for the year ended December 31, 1998 compared to $922,000 for
the year ended December 31, 1997. The increase in these expenses was due
primarily to:
. An increase in recruiting costs that totaled $563,000 for the year ended
December 31, 1998 compared to $0 for the year ended December 31, 1997.
The increase is a result of efforts to build the U.S. and Argentine
management teams and technical staff.
. An increase in accounting and legal costs that totaled $1,062,000 for
the year ended December 31, 1998 compared to $636,000 for the year ended
December 31, 1997. The increase was a result of our increasing need for
these services as we grow our business.
. An increase in travel costs that totaled $508,000 for the year ended
December 31, 1998 compared to $100,000 for the year ended December 31,
1997. The increase was related to travel by our employees in support of
business development, spectrum and license development and fundraising
efforts.
Salaries and benefits expenses. Salaries and benefits expenses were
$4,503,000 for the year ended December 31, 1998 compared to $415,000 for the
year ended December 31, 1997. The increase was due to an increase in the number
of employees from 12 as of December 31, 1997 to 70 as of December 31, 1998.
Depreciation and amortization expense. Depreciation and amortization
expense was $376,000 for the year ended December 31, 1998 compared to $3,000
for the year ended December 31, 1997. The increase in these expenses was
directly related to the amortization of the spectrum and license assets in
Argentina and Colombia, depreciation on office equipment and amortization of
leasehold improvements. There was no depreciation of network equipment during
the year ended December 31, 1998 or 1997 as network equipment was not in
service during those years.
Other income (expense), net. Other income (expense), net was $110,000 for
the year ended December 31, 1998 compared to $(240,000) for the year ended
December 31, 1997. The increase was primarily due to increased interest income
earned on invested cash balances partially offset by increased interest expense
incurred under our related party notes payable and vendor financing agreements.
Provision for income taxes. There was no provision for income taxes in the
years ended December 31, 1997 or 1998.
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Quarterly Results of Operations
The following table sets forth unaudited quarterly statement of operations
data for each of the eight quarters ended prior to December 31, 1999. In the
opinion of management, this information has been prepared substantially on the
same basis as the audited financial statements, appearing elsewhere in this
document, and all necessary adjustments, consisting only of normal recurring
adjustments, have been included in the amounts stated below to present fairly
the unaudited quarterly results of operations data. The quarterly data should
be read with our consolidated financial statements and the notes to those
statements appearing elsewhere in this document.
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------------------
1998 1999
---------------------------------- ----------------------------------
Mar 31 Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31
------- ------- ------- ------- ------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues
Digital Dedicated Access
services.................. $ -- $ -- $ 3 $ 21 $ 82 $ 159 $ 234 $ 452
Dedicated Internet
services.................. -- -- -- -- 1 2 50 163
Costs and expenses
Technical and operating.... 19 30 281 362 592 656 805 1,223
Sales and marketing........ 13 30 49 168 223 495 684 1,001
General and
administrative............ 669 683 778 1,004 1,053 1,408 1,677 2,397
Salaries and benefits...... 559 915 1,205 1,824 2,320 2,720 3,500 4,492
Depreciation and
amortization.............. 5 9 24 338 356 422 595 1,138
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations......... 1,265 1,667 2,334 3,675 4,461 5,540 6,977 9,636
Other income (expense), net.. (93) (197) 135 265 51 53 822 855
------- ------- ------- ------- ------- ------- ------- -------
Loss before income taxes..... (1,358) (1,864) (2,199) (3,410) (4,410) (5,487) (6,155) (8,781)
Provision for income taxes... -- -- -- -- -- -- -- (105)
------- ------- ------- ------- ------- ------- ------- -------
Net loss..................... $(1,358) $(1,864) $(2,199) $(3,410) $(4,410) $(5,487) $(6,155) $(8,886)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The operating results for any quarter are not necessarily indicative of the
operating results for any future period.
Our future revenues and results of operations may significantly fluctuate
due to a combination of factors, including:
. growth and acceptance of the Internet in Latin America that will directly
affect the demand for the services that we offer;
. our ability to attract and retain customers;
. our ability to expand our networks into new markets and within existing
markets to cover larger geographical areas at a lower per link cost;
. our ability to maintain the quality of our networks and keep them
technologically up to date with the latest enhancements;
. our ability to retain key personnel;
. technical difficulties associated with the manufacturers of the equipment
we use in our networks and their ability to deliver products and services
on a timely basis; and
. general economic and regulatory conditions in the markets where we
operate or intend to operate throughout Latin America.
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Liquidity and Capital Resources
The telecommunications and Internet infrastructure business is capital
intensive. We have incurred significant operating and net losses and expect
that such losses will continue for the next several years as we develop, build
and operate our local fixed wireless broadband access networks and as we invest
in Internet infrastructure. Cash provided by our operations will not be
sufficient to cover these operating and net losses. As of December 31, 1999, we
had $82.3 million of cash and short-term investments and net working capital of
$73.5 million.
Cash used in operating activities was $8.5 million in 1998 and $18.6 million
in 1999, an increase of $10.1 million that was primarily due to increased
technical and operating, sales and marketing, general and administrative, and
salaries and benefits expenses. We used cash for investing activities of $4.4
million in 1998 and $100.7 million in 1999. Investing activities were primarily
for property and equipment expenditures, purchases of short-term investments
and spectrum and operating license acquisitions.
From our inception to March 31, 2000, we have raised $273 million in private
equity investments.
In June 1999, our wholly-owned operating subsidiary, Diveo, Inc., entered
into a vendor financing agreement with Ericsson Credit AB to provide us with
$100 million in equipment financing which was amended in November 1999 to
provide us with a total of $300 million in equipment financing. In November
1999 Diveo, Inc. also entered into a vendor financing agreement with Lucent
Technologies, Inc. whereby they will provide us with $100 million in equipment
financing. As of March 31, 2000, we had borrowed $26.8 million under the vendor
financing agreements with Ericsson and Lucent.
We are using the amounts available under these agreements to fund the design
and construction of our local fixed wireless broadband access networks in
Argentina, Brazil, Colombia, Peru, Panama and Uruguay. The vendor financing
agreements together are available in tranches of $250 million and $150 million.
The second tranche of $150 million is available beginning on January 1, 2001
provided that we have borrowed all of the first tranche of $250 million and we
are in compliance with all of the terms of the agreements, including covenants.
We must use any funds that we borrow under these agreements to pay for
equipment, services and other related expenditures for the build out of our
networks. In addition, each of the vendor financing agreements includes various
financial and other covenants and restrictions that limit our ability to, among
other things, pay dividends, incur additional indebtedness, dispose of assets
and effect merger and consolidation transactions. For a detailed description of
these agreements, see "Description of our Financing Agreements" beginning on
page 60.
As of December 31, 1999, our commitments consisted of various lease and
equipment purchase commitments totalling $48 million through 2004. In addition,
on February 25, 2000 we entered into an agreement to acquire INEA Internet,
S.A. and we are obligated to pay $3.5 million as part of the purchase price in
connection with such acquisition. See notes 12 and 14 to our audited
consolidated financial statements.
Capital expenditures were $2.8 million in 1998 and $28.7 million in 1999. We
made these capital expenditures for property and equipment, including software,
necessary to deploy local fixed wireless broadband access networks in our
initial markets.
Based on our current plans, we expect that we will make aggregate capital
expenditures of approximately $185 million in 2000 and $125 million in 2001. We
believe that the proceeds from this offering, earlier private equity capital
financing and funds available to us under our vendor financing agreements will
be sufficient to fund our capital expenditures and operating losses through
2001.
If our plans change, the assumptions supporting our business plan prove
wrong, we expand or accelerate our business plan or we complete acquisitions,
the sources of funds described above may not
34
<PAGE>
be sufficient to fully fund our capital requirements. We may be required to
seek public or private equity or debt financings, capital or operating leases
and other financing arrangements. To the extent we are unable to obtain
sufficient funding, we may be required to limit the number of markets we enter
or reduce our level of investment within a particular market.
Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risk
We are exposed to changes in currency exchange rates because certain of our
revenues and costs are denominated in foreign currencies, while a substantial
portion of our liabilities will be denominated in U.S. dollars. Although we
believe that our geographic diversification provides some protection against
economic downturns in any particular country, our results of operations and
business prospects are influenced by the overall financial and economic
conditions in Latin America. Many of the countries in which we operate have
experienced political and economic volatility in recent years. Each of the
countries in which we operate has experienced some level of economic
contraction and financial difficulties during 1999. We cannot predict whether
prevailing economic conditions in Latin America will improve or worsen, or what
effect these conditions will have on the countries in which we operate or upon
our business. As a result, our financial condition and results of operations
may be affected by changes in the value of the local currencies in which we
transact business.
To date, we have not adopted any hedging strategies to manage our exposure
to foreign currency exchange rate risk. We will continue to evaluate whether to
adopt hedging strategies if a market develops to limit exposure to fluctuations
in the currencies of any of the countries in Latin America in which we operate.
Except in Brazil, fees set forth in our customer contracts are generally
tied to the exchange rate between the local currency and the U.S. dollar or are
denominated in U.S. dollars directly. Under Brazilian law, our contracts with
customers in Brazil cannot be linked to the exchange rate between the Brazilian
real and the U.S. dollar. We anticipate that a significant portion of our
future growth in sales will come from Brazilian markets and therefore there is
significant exposure to exchange rate fluctuations that could negatively affect
our business, results of operations.
Our excess cash balances in the United States are invested in high-grade,
short and medium term commercial paper, money market accounts with U.S. banking
institutions and U.S. government securities. We fund our Latin American
operations from the United States on a monthly basis, balancing the need for
timely payments of in-country payables with maintaining low cash balances in
any foreign country, thereby minimizing risk from currency devaluation.
While we intend to take steps to minimize exchange rate risks to the extent
available, we cannot assure you that we will not be materially adversely
affected by variations in currency exchange rates.
Interest Rate Sensitivity
We have interest rate risk exposure related to funds we borrow under our
vendor financing agreements with Ericsson and Lucent. Interest is charged at
the London Interbank Overnight Rate (LIBOR) plus 5.75% and therefore our
repayment obligations will be subject to interest rate risk resulting from
future increases in LIBOR. We currently do not mitigate the risk of interest
rate movements through the use of interest rate swaps or other hedging
techniques, but we may choose to do so in the future.
35
<PAGE>
BUSINESS
Overview
We seek to become a leading facilities-based provider of broadband
Internet, data and voice services in the major urban markets throughout Latin
America. Through local fixed wireless broadband access networks which we own
and operate, we currently provide broadband data transport and Internet access
services to large and medium-sized businesses, telecommunications carriers,
Internet service providers, Internet content providers, e-commerce providers
and systems integrators. We currently offer Web hosting services and are
investing substantially in Internet infrastructure to enable us to provide
advanced Web hosting, co-location, facilities-based Internet transport services
and other enhanced Internet services on a large scale. We also intend to
complement our broadband Internet and data offerings with voice services.
We have obtained substantial regional and national grants of spectrum and
telecommunications operating licenses in Argentina, Brazil, Colombia, Panama,
Peru and Uruguay, covering a total population of more than 135 million people.
In addition, we have obtained voice operating licenses in Argentina and Peru.
We are currently in various stages of designing, building and operating local
fixed wireless broadband access networks in 16 major urban markets in those six
countries. We have launched service in Buenos Aires, Sao Paulo and Bogota. In
addition, we have obtained voice operating licenses in Argentina and Peru. At
December 31, 1999, we had 309 employees, 219 buildings on our networks and 102
customers with 1,516 dedicated data and Internet circuit equivalents in
service. The 102 customers in December 1999 represented an increase of 89 from
13 customers in March 1999. In addition, for the year ended December 31, 1999
we had revenues of $1,143,000, an increase of $1,119,000 from $24,000 for the
year ended December 31, 1998.
We were incorporated as a Delaware corporation in October 1996 under the
name Diginet Americas, Inc., and in March 2000, we changed our name to Diveo
Broadband Networks, Inc. We are a holding company and operate our business
through direct and indirect wholly-owned subsidiaries. Our principal executive
offices are located at 3201 New Mexico Avenue, N.W., Suite 320, Washington,
D.C. 20016 and our telephone number is (202) 274-0040.
Recent Developments
On March 29, 2000, we raised $127 million in private equity financing.
Investors in this financing included a new investor to the company, Texas
Pacific Group/Newbridge Latin America, as well as several of our existing
investors including Goldman Sachs Capital Partners, Booth American, Columbia
Management, Meritage Private Equity Fund, Norwest Venture Partners and
Rothschild. The completion of this financing brought our total funded equity
capital raised since inception to over $273 million.
On February 25, 2000, we entered into an agreement to acquire INEA Internet
S.A., a company that offers Internet access and related services to businesses
in Buenos Aires. This acquisition increases our corporate dedicated Internet
access business in Buenos Aires by adding over 50 new corporate customers and
additional personnel with Internet experience. The total purchase price is
approximately $8 million, payable in a combination of cash, promissory notes
and shares of our common stock. The closing of the transaction is subject to,
among other things, obtaining regulatory approval. We expect that this
transaction will close in April 2000. INEA had revenues of $2.2 million for the
year ended December 31, 1999.
On March 31, 2000, we entered into an agreement to acquire two companies
that hold certain spectrum and operating rights in Colombia and Peru from
VeloCom, Inc. for $8.25 million in cash. The acquisition of these companies
allows us to nearly double our holdings of 38 GHz spectrum in Colombia and
Peru. We expect that this transaction will close in April 2000.
On March 23, 2000, we entered into an agreement with Thomson-CSF Systems
Argentina S.A. to acquire certain assets consisting of ongoing contracts to
provide primarily broadband access services in Buenos Aires to large and
medium-sized businesses for a purchase price of up to approximately $3 million
in cash. The closing of the transaction is subject to customary closing
conditions. We expect that this transaction will close in May 2000.
36
<PAGE>
Market Opportunities in Latin America
The data and Internet services markets are two of the fastest growing
segments of the Latin American telecommunications market. These markets are
being reshaped by the increasing demand for bandwidth among corporate
customers, including significant increases in Internet usage. An industry
report, commissioned by us and dated April 1999, estimates that in Buenos
Aires, Sao Paulo and Bogota, revenues for dedicated Internet access and
dedicated data access will grow in the aggregate at compounded annual rates of
77% and 73%, respectively from 1999 to 2004. Another industry report dated
August 1999 estimates that Web hosting and co-location services related revenue
in Argentina, Brazil and Colombia in the aggregate will grow at a compounded
annual rate of 58% from 1999 to 2004.
Broadband Data
The limited nature of existing infrastructure in Latin America and the
widespread effect of many years of underinvestment in the broadband data sector
have limited the ability of existing telecommunications providers in Latin
America to address the increasing need of business customers for connectivity
between local access networks (LANs). This need is the result of the growth in
demand for bandwidth intensive applications, such as graphic files, video
conferencing capability, multimedia applications and remote client services
offered by certain industries.
Basic Internet Access and Enhanced Internet Services
Industry reports indicate that, as businesses in Latin America increasingly
adopt the Internet as a business tool, the demand for basic Internet access as
well as enhanced Internet services will increase significantly. For example,
one industry report estimates that the number of business Web sites will
increase an average of 120% annually during the next five years. To meet this
anticipated demand, we plan to offer a full range of broadband data services
and enhanced Internet services to large and medium-sized businesses in each of
our markets.
Introduction of Voice Services
As markets for voice services in Latin America become deregulated, we
intend to capitalize on the opportunity to provide those services. We believe
that demand for voice services will increase as these markets are deregulated
and the prices charged by existing providers are reduced. Although incumbent
exchange carriers currently hold dominant positions in the market for voice
services, we believe that there will be an attractive opportunity to enter the
market and we intend to offer such services as soon as we are able to obtain
the necessary operating licenses.
Our Primary Markets in Latin America
We believe there is a significant opportunity to provide Internet, data and
voice services to large and medium-sized businesses in the major urban markets
in Latin America in which we operate or intend to operate. In particular, we
anticipate that our operations in Brazil and Argentina together will represent
a majority of our revenues in the foreseeable future.
The table below sets forth total population covered by our national
operating licenses and total population covered by our regional and national
spectrum grants for 1999 for the countries indicated, according to industry
sources:
<TABLE>
<CAPTION>
Population Population
Covered by Covered by
Operating Spectrum
Country of Operation Total Population License Grant
-------------------- ---------------- ------------- ----------
(in millions)
<S> <C> <C> <C>
Argentina....................... 36.6 36.6 36.6
Brazil.......................... 168.5 168.5 47.2
Colombia........................ 41.6 41.6 41.6
Panama.......................... 2.8 1.1 1.1
Peru............................ 25.2 7.3 7.3
Uruguay......................... 3.3 1.4 1.4
----- ----- -----
Total....................... 278.0 256.5 135.1
</TABLE>
37
<PAGE>
Our Target Customers
Our target customers are large and medium-sized businesses,
telecommunications carriers, Internet service providers, Internet content
providers, e-commerce providers and systems integrators. We believe these
customers generally have:
. high current and future demand for our services;
. high demand for additional services;
. high average revenues;
. low churn rates; and
. low credit risk.
Our Competitive Strengths
We believe that we distinguish ourselves through several competitive
strengths, including:
Pan regional presence and holdings. We are leveraging our substantial
holdings of broadband wireless spectrum and regional and national operating
licenses to establish an early presence in Latin America, particularly in
Brazil and Argentina. Our regional and national grants of spectrum cover a
total population of more than 135 million people throughout Latin America. We
have already launched operations in Sao Paulo, Buenos Aires and Bogota and plan
to launch operations in Rio de Janeiro, Belo Horizonte, Lima and Panama City by
the end of 2000. We have developed significant expertise in securing building
access rights and leases to key buildings in business districts in each of the
markets in which we operate.
Fixed wireless broadband access technology. We primarily use fixed wireless
broadband access technology as a high quality alternative to existing copper
and fiber-based systems because it enables us to rapidly deploy our local
networks on a cost effective basis. In addition, employing fixed wireless
technology enables our capital expenditures to be success-based, meaning that
we do not incur significant capital expenditures until we have identified
sufficient customer demand. Moreover, we are able to reach customer buildings
in areas where it may not be cost-effective for other providers to lay fiber
optic cable.
Flexible owned and operated networks. As a facilities-based provider, we
are able to control the quality, capacity and availability of our broadband
data, dedicated Internet access and enhanced Internet services.
Focused sales, marketing and customer service. We have built and continue
to develop a targeted sales and marketing approach as well as proactive
customer service groups in each market.
Proven management. We effectively combine the substantial experience that
our corporate management team has obtained in the competitive U.S.
telecommunications and Internet industry with the local knowledge, contacts and
expertise of our in-country management and sales forces. We believe the
quality, experience and teamwork of our management team will be critical
factors in the implementation of our growth strategy. Our corporate and local
management teams together have an average of approximately 20 years of
experience in the telecommunications and data industries. Our local sales
forces in each country are knowledgeable about their respective markets and
have enabled us to rapidly penetrate our markets and increase our customer
base.
Strong investor and strategic vendor relationships. We have strong equity
investors, including Goldman Sachs Capital Partners, Alta Communications,
Norwest Equity Capital, Texas Pacific Group/Newbridge Latin America and
Rothschild, as well as strong strategic and financing relationships with
Ericsson and Lucent. Each of the Goldman Sachs, Alta, Norwest and Texas Pacific
Group/Newbridge Latin America investors has representation on our board of
directors. We believe that the presence of these investors and vendors provides
us with beneficial strategic advantages as we expand our market presence.
38
<PAGE>
Business Strategy
Our objective is to be a leading facilities-based provider of broadband
Internet, data and voice services in the major urban markets throughout Latin
America. Our strategy consists of the following key initiatives:
Accelerate the development of current markets and the roll-out of
additional markets by leveraging our substantial spectrum holdings,
significant operating rights and experience in entering new markets.
Demand for broadband data connectivity and Internet access is growing
quickly in Latin America. We are building out our local fixed wireless
broadband access networks in urban markets in Argentina, Brazil, Colombia,
Peru, Panama, and Uruguay. We believe the most attractive market opportunities
are in Brazil and Argentina, and we are focusing a majority of our investment
to build broadband infrastructure in these two countries. We intend to launch
operations in Rio de Janeiro, Belo Horizonte, Lima and Panama City by the end
of 2000. We intend to continue to apply for and obtain additional operating
licenses and spectrum in existing as well as additional markets.
Lead with dedicated Internet access and dedicated broadband services and
complement with staged introduction of voice services.
We intend to focus on providing dedicated Internet and broadband data
services, which we believe will be the fastest growing segment of the
telecommunications services market in Latin America. Our primary services
currently include dedicated broadband access and dedicated Internet access. We
are investing substantially in Internet infrastructure in order to offer Web
hosting, co-location, facilities-based Internet transport services and other
enhanced Internet services. We have an operating license in Argentina that will
allow us to begin providing local voice services, as well as national and
international long distance voice services beginning in November 2000 and are
currently licensed in Peru to offer national and international long distance
voice services. We plan to offer such services in both countries beginning in
2001. As soon as we are able to obtain the necessary operating rights in each
of our other markets, we intend to add local and long distance voice services
as an additional product for existing customers.
Expand our large and medium-sized business customer base through a focused
direct sales force, third-party alliances and proactive customer service.
We are directing our primary marketing efforts to capture large and medium-
sized business customers through a focused sales effort based on detailed
market research. Our approach and focus on corporate end users seeks to
establish a sustainable growing customer base through rapid service
installations, superior quality of connectivity, competitive pricing and
responsive customer service. As we expand our business customer base, we will
continue to provide high speed data transport and dedicated Internet access to
telecommunications carriers, Internet service providers, Internet content
providers, e-commerce providers and systems integrators.
Invest substantially in Internet infrastructure to provide enhanced
Internet services.
We believe there is a significant opportunity to provide enhanced Internet
services and our goal is to establish an early presence in each of the markets
in which we operate or intend to operate. We are investing substantially in
Internet infrastructure to enable us to provide Web hosting, co-location,
facilities-based Internet transport service and other enhanced Internet
services. Our investments include constructing Internet data centers, securing
high quality national and international Internet connections and hiring
additional skilled personnel.
Pursue strategic acquisitions, partnerships and joint ventures.
We intend to continue to pursue acquisitions, partnerships and joint
ventures relating to companies, assets and technologies that complement our
current product offerings and enhance our business.
39
<PAGE>
Continue to attract, retain and motivate skilled personnel.
We intend to continue to attract, retain and motivate skilled Latin
American and U.S. personnel by granting stock options to all employees.
Local Fixed Wireless Broadband Access Networks
Fixed Wireless Technology
In most markets, we use the 23 to 38 GHz frequency range to connect
customers to our central hub sites. That frequency range provides for distances
from a hub of 1.5 to 5 kilometers, depending on such variables as topography,
rain and line of sight. The 23 to 38 GHz frequency range can typically carry
data at speeds ranging from 64 Kbps to 155 Mbps, suitable for the vast majority
of first mile customer requirements. We also use lower frequencies, 7 to 20
GHz, to interconnect our hub sites. Because of the characteristics of 7 to 20
GHz frequency range, our hubs can be placed at distances ranging from 2 to 30
kilometers from each other. This allows for capital efficiency by using fewer
hubs to cover a market or to provide coverage to an area of a city with many
potential customers such as an industrial park that is situated outside the
downtown area.
We are deploying proven point-to-point technology to build out our local
fixed wireless broadband access networks. With this technology, each customer
building is connected to our local network through a dedicated, point-to-point,
two-way radio link that is set up between a pair of narrow-beam antennae
pointing at each other. This approach has been used for many years throughout
the world, and standardized equipment is currently widely available from a
variety of suppliers.
Fixed wireless technology provides the following advantages:
Rapid deployment. We install a radio on the roof of a customer building
with line of sight to another radio installed on one of our hubs. Unlike copper
or fiber-based systems, we do not have to dig up streets or string wires on
poles to establish connections to customers. Therefore, we can complete
installations and provide service more quickly than wireline service providers.
Success-based capital expenditures. The amount and timing of capital
expenditures for the build-out of our local networks depends greatly upon
customer demand. Our initial costs to install the core network elements for a
market, including the hubs, service gateways and a network operations center is
approximately 25% of our expected total costs for a new market. After this
investment, we are able to initiate service in that market as we connect
customer buildings to our local network. We make the remaining 75% of our total
investment over time as customer demand drives our decision of when to purchase
and install the equipment necessary to connect a new customer building to our
local network.
Lower build-out costs. We believe that our costs to launch service in a
market and to connect each customer are lower than for copper and fiber-based
network providers. Unlike copper and fiber-based providers that must install
and maintain a significant amount of wire and cable, our fixed wireless
technology does not require installation of wires and cable, except for minimal
amounts within customer buildings. Consequently, our installation and labor
costs are significantly lower compared to copper and fiber-based systems, and
we believe we can reach customer buildings more efficiently.
We are also currently testing point-to-multipoint technology. This
technology enables the network side of the radio link to be connected through a
"multipoint transceiver" in which an antenna with a larger beam (typically 45
to 180 degrees) communicates with several customer buildings simultaneously.
Point-to-multipoint technology offers certain cost benefits in reaching
buildings with fewer customers as well as in less dense suburban areas. If it
proves to be commercially viable, we intend to employ such technology to
maximize the application of our network assets, reach more customers in
existing coverage areas and expand the reach of our local networks. However,
the success of our current business strategy does not depend on our ability to
implement point-to-multipoint technology.
40
<PAGE>
Network Architecture
Set forth below is a representative diagram of our local fixed wireless
broadband access networks:
[Network Diagram]
The architecture of our local networks consists of five critical parts:
Building hubs. Our typical urban market initially will consist of 3 to 8
hubs, which are strategically located in high demand areas with good line-of-
sight characteristics and which we believe will cover between 50 to 80% of the
addressable large and medium-sized businesses that we have identified. Each
hub is constructed to provide access to an average of 30 customer buildings.
Interconnecting the hubs. Initially, all hubs are interconnected within a
market to form the backbone of our network, using fixed wireless links that we
own, which can accommodate data traffic up to 622 Mbps. Hubs are
interconnected in a configuration with redundancy that is optimized according
to the characteristics of each urban market. As demand for service grows, we
will increase the capacity of our network backbone by adding additional fixed
wireless links or building or leasing fiber optic cable. We have recently
begun to deploy fiber to increase the capacity of the backbones in Buenos
Aires and Sao Paulo. We construct our local fixed wireless broadband access
networks using Asynchronous Transfer Mode (ATM) switching technology. This
technology supports true multi-protocol service networking, including Internet
protocol, digital private line, frame relay, ATM, voice and video all in the
same network backbone. This approach gives us the flexibility to rapidly
deploy new services on a cost-effective basis without disrupting services that
are already existing on our networks.
Connecting customers to hubs. We deploy fixed wireless technology to
connect each customer building to a central hub with an average service radius
of approximately 1 to 2 kilometers. The hubs are strategically located in high
demand areas with good line-of-sight characteristics. Each customer building,
referred to as a tributary, has its own equipment, which consists of two major
components: (1) an integrated antenna/radio outdoor unit, which is installed
on the roof of the building or a nearby building and (2) the indoor customer
interface equipment, which is installed within the customer building. Based on
our experience to date, it requires an average of 21 days to connect a
customer building to a hub from the time an order is received. This process
includes (1) obtaining the building access rights, which typically
41
<PAGE>
requires the most time, (2) installing the necessary equipment and (3)
establishing the connection to our network operations centers. Once we have
connected a customer building to a hub, it requires an average of five days to
connect an additional customer within that building.
Network operations center. Our network operations centers are staffed to
provide real-time alarm, status and performance information 24 hours each day,
seven days each week, 365 days of the year. As of March 31, 2000, we had
network operations centers operating in Argentina, Brazil and Colombia and we
intend to add a center in Peru. The network operations centers in Argentina and
Colombia will also cover markets in Uruguay and Panama, respectively. We employ
network management systems at each center to assure consistent and reliable
performance. We also plan to build back-up facilities to further enhance our
network reliability.
The service gateway, taking traffic from the first mile to points outside
our networks. Service gateway nodes are installed to act as interconnection
points to send traffic to destinations covered by other network service
providers, including Internet service providers, digital private line providers
and other data and voice service providers outside our network. Data routing
equipment and switches direct a data packet, digital private line or voice
signal from its origin to its correct destination according to its network
address technology or telephone number.
Build-out of Local Networks
We are currently in various stages of designing, building and operating our
local fixed wireless broadband access networks in 16 major urban markets
throughout Latin America. We have substantially built out local fixed wireless
broadband access networks and launched operations in Buenos Aires, Sao Paulo
and Bogota and plan to launch operations in Rio de Janeiro, Belo Horizonte,
Lima and Panama City by the end of 2000.
The table below sets forth for each country the number of major urban
markets where we operate, the number of hubs built and the number of customer
buildings connected as of December 31, 1999:
<TABLE>
<CAPTION>
Number of
Number of Customer
Major Urban Markets Number of Buildings
Country of Operation Being Served Hubs Built Connected
-------------------- ------------------- ---------- ---------
<S> <C> <C> <C>
Argentina........................ 1 13 146
Brazil........................... 1 8 22
Colombia......................... 1 3 5
Panama........................... -- -- --
Peru............................. -- -- --
Uruguay.......................... -- -- --
---- ---- ----
Total........................ 3 24 173
</TABLE>
Internet Infrastructure
We are investing substantially in Internet infrastructure to enable us to
provide Web hosting, co-location, facilities-based Internet transport services
and other enhanced Internet services on a large scale. Our planned investment
includes:
Construction of Internet Data Centers
We plan to lease appropriate space within each market in which we intend to
offer enhanced Internet services in order to construct high quality Internet
data centers. The Internet data centers will contain the necessary
infrastructure support services and data equipment in order to offer enhanced
Internet services. We currently anticipate that our Internet data centers will
range in size from 10,000 square feet to 100,000 square feet and expect to have
operational Internet data centers in Argentina, Brazil, Colombia and south
Florida by the end of 2000. Each Internet data center will be designed with
back up power, be protected
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against damage from natural hazards, and contain 24 hours a day, seven days per
week staffing and security. We also plan to establish new network operations
centers to support each Internet data center and to operate these network
operations centers on a 24 hours a day, seven days per week basis as well.
Securing High Quality National and International Connectivity
In order to offer enhanced Internet services, we must secure high quality
national and international connections to the Internet. We are obtaining
dedicated connections to Internet access points in the United States and within
the region from satellite providers and/or undersea fiber optic cable
providers. In addition, we expect to enter into local peering agreements with
other Internet service providers to directly connect our network with the major
Internet service providers within each country. The local peering agreements
will create several advantages, including enabling us to route Internet traffic
efficiently by avoiding the congestion created by the inefficient Latin
American infrastructure.
Hiring Additional Personnel
We are hiring additional personnel to manage and operate our Internet data
centers. Depending on the size of each data center, we anticipate hiring
between 30 and 60 additional personnel to operate and maintain each center. In
addition, we plan to hire a new sales and marketing force within each market
dedicated to sales and support of the enhanced Internet services offering.
Set forth below is a diagram depicting our typical local fixed wireless
broadband access network, our planned Internet data center and Internet access
points:
[Internet data center Diagram]
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Third-Party Agreements
Real Estate Site Acquisition
Identifying and securing sites is critical to our success. Upon entering a
new market, we immediately hire local site acquisition staff, who are
knowledgeable about local real estate, zoning, and commercial customs and
codes. To facilitate a rapid deployment, our site acquisition team may also
contract with a local firm that has experience working in the industry. We
enlist such local agents to identify, pre-qualify and negotiate with landlords
on our behalf.
Our site acquisition process typically includes several phases. First, our
engineering staff together with our marketing team designates areas of a market
that represent significant potential customer demand. Our site acquisition team
identifies site candidates that meet certain criteria. Once we have identified
candidates for each search area, the site acquisition team performs a detailed
analysis of each candidate in accordance with these requirements and
subsequently begins negotiations with potential candidates. Prior to signing
any lease, the site acquisition team performs due diligence regarding building
access rights and the existence of any liens or lawsuits against the building
or management company. After signing a lease, our site acquisition team is
responsible for maintaining an ongoing relationship with landlords so that upon
the occurrence of lease renewals, renegotiations or cancellations, we will have
a positive relationship with all parties involved.
Building Space Lease or Use Agreements
As part of the build-out of our fixed wireless broadband access networks
and prior to providing service to customers, we obtain real property leases or
building access rights from building owners to lease or use a portion of the
roof and internal space of the building. We use the roof space to install our
radio towers, radios and other equipment and use interior space to house
equipment and drop connections from our roof towers to the customer premise.
We use different forms of agreements for hubs and customer buildings. Our
hub site agreements are real property leases with at least a five-year term and
an option for us to extend for another five years, and often include the lease
of office space in the building to house our local offices or local network
operations. Our customer building agreements are generally for a shorter term
of three to five years and are either real property leases of specific roof top
space or use agreements that provide us with substantially similar rights.
The costs to obtain building space for both hub, and customer buildings
generally are payable in local currency and provide us with building access 24
hours a day, 7 days a week, 365 days a year, utilities connections, and
covenants against line of sight interference by other rooftop users. Our
building space and use agreements may only be terminated by the building owner
upon certain limited events, such as nonpayment of rent, bankruptcy and
regulatory noncompliance. In some jurisdictions, monthly rent payments for
customer buildings are a function of revenues produced from sales to customers
in the building. Most of our building space lease and use agreements are non-
exclusive.
Fiber Lease Agreements
We recently have entered into two fiber optic cable lease agreements to
increase the capacity of the backbone of our local networks. In December 1999,
we entered into a fiber optic cable lease agreement to increase the capacity of
our network backbone in Buenos Aires and on December 30, 1999, we entered into
a fiber optic cable lease agreement to increase the capacity of our network
backbone in Sao Paulo. We will continue to decide on a market by market basis
whether to increase the capacity of the backbone of each of our local networks
either by entering into additional fiber lease agreements, building fiber or
through installing additional fixed wireless links that we will purchase.
Supply Agreements
Ericsson and Lucent Agreements. Through our operating subsidiary, Diveo,
Inc., we are party to five-year purchasing agreements with Ericsson Telecom AB
and Lucent Technologies World Services, Inc.
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The agreements extend through June 2004 and November 2004, respectively. In
accordance with the framework established by our agreement with Ericsson,
country-specific purchasing agreements have been entered into between
respective Diveo and Ericsson subsidiaries in Argentina, Brazil, Colombia and
Panama, and such agreements may be set up between the parties' respective
subsidiaries in any other area of Latin America where we operate or intend to
operate. Our agreement with Lucent enables us to purchase equipment and
services in each of the markets in Latin America where we operate or intend to
operate.
The Ericsson agreement provides that our subsidiaries may, in the
aggregate, purchase up to $300 million in products and services under the
various country-specific agreements. Under the Lucent agreement, we have a
commitment to purchase $25 million in products and services over the initial
five-year term. This commitment is subject to, among other things, a number of
terms, including the performance of Lucent and refinancing of the agreement.
Products that may be purchased under the Ericsson and Lucent agreements
include:
. transmission equipment
. transport equipment
. data switching equipment
. access equipment
. network management hardware and software
Services that may be purchased under the agreements include:
. project management . training
. microwave systems engineering . operations support
. professional consulting services. hardware repair
. project engineering . hardware field maintenance
. site preparation . software maintenance
. site engineering and installation
. comprehensive maintenance and management
services
. network integration and verification
Available products and services under the Ericsson agreement include those
offered directly by Ericsson, third-party products and services offered on a
preferred basis through Ericsson, and, with some limitations, other third-party
products and services. Under the Lucent agreement, available products and
services include those offered directly by Lucent and third party products and
services offered through Lucent.
Our agreements with Ericsson and Lucent (and each of the country-specific
agreements) contain detailed provisions governing performance, pricing, and
service levels and customary legal protections relating to representations and
warranties, indemnities, limitations of liability, and compliance with
applicable laws and regulations.
Our Services
We currently provide the following services:
Digital Dedicated Access
We provide dedicated broadband access designed to provide high-speed,
reliable and secure transmissions. With this service companies can connect to
their subsidiaries, branch offices and clients to
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exchange broadband data, voice or video with a high level of security and
reliability. We also provide this service to Internet service providers,
telecommunications carriers and systems integrators to permit them to provide
service to their end user customers.
Dedicated Internet Access
We provide dedicated Internet access service to large and medium-sized
businesses. These customers are able to receive always-on Internet access at
speeds ranging from 64 Kbps to 155 Mbps.
Enhanced Internet Services
Through the Internet data centers we are constructing, we will provide a
number of different enhanced Internet services that include Web hosting, co-
location services and facilities-based Internet transport services.
Web hosting. We will offer both dedicated hosting and shared hosting
services in our Internet data centers. For dedicated hosting customers, we will
provide one or more servers to customers for their exclusive use. For shared
hosting customers, we will provide up to 150 customer websites on one server,
with each customer provided a portion of the space on that server. In both
cases these hosting servers will be owned and maintained by us and connected to
our facilities-based Internet backbone.
Co-location. Under our co-location service, we will provide space for a
customer's Internet and telecommunications equipment in our Internet data
centers. This equipment will be connected to our facilities-based Internet
backbone. The service will include both space in the Internet data center as
well as specified amounts of bandwidth on our facilities-based Internet
backbone.
Facilities-based Internet transport services. We will offer facilities-
based Internet transport services to customers that connect to our facilities
from other locations but may otherwise not be co-location or Web hosting
customers because their equipment is physically located in another location. We
expect to be able to offer services such as heightened levels of privacy and
security, as well as service level agreements whereby customers pay different
prices for different guaranteed levels of Internet service.
Voice
We expect to offer local and national and international long distance
services to corporate customers and resellers in each of our markets upon
obtaining voice operating licenses. We have an operating license in Argentina
that will allow us to begin providing local and long distance voice services
beginning in November 2000 and are currently licensed in Peru to offer national
and international voice services. We plan to offer such services in both
countries beginning in 2001. We intend to offer local and long distance voice
services in each of our remaining markets throughout Latin America as these
markets are deregulated and we obtain the necessary operating licenses. We
expect to offer voice services to existing customers as well as new customers
in existing customer buildings.
Customers
We serve large and medium-sized businesses, telecommunications carriers,
Internet service providers, Internet content providers, e-commerce providers
and systems integrators. Since we commenced operations in early 1999, we have
increased our customer base from 13 in March 1999 to 102 in December 1999.
Because of our relatively short operating history, a significant portion of our
consolidated revenues has been derived from a small number of customers. In
addition, because we have operated primarily in Argentina and Brazil, a
significant number of our customers, including our largest customers, currently
are located in those two countries. Our 10 largest customers accounted for
approximately 45% of our service fee revenues in 1999. One customer alone
accounted for approximately 17% of our service fee revenues in 1999.
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Corporate Customers
We focus on offering high quality services to large and medium-sized
businesses because we believe this segment offers the most significant
opportunities in our markets. Generally, we believe these companies have the
largest underserved demand for data services and high-speed dedicated Internet
access. As of December 31, 1999, we had 66 corporate customers.
Telecommunications Carriers
We provide local broadband services to other telecommunications carriers,
including the incumbent telecommunications services providers in our markets.
By providing service to carriers, we are able to add new buildings by using
such carriers as anchor customers. As of December 31, 1999, we provided service
to 18 telecommunications carriers.
Internet Service Providers
We offer dedicated Internet access to Internet service providers so that
their customers can access the Internet through our networks. As of December
31, 1999, we provided services to nine Internet service providers.
Internet Content Providers and E-Commerce Providers
We are currently expanding our offerings for Internet content providers and
e-commerce providers to include Web hosting and co-location services, mirroring
and cacheing services and Internet transport services to facilitate and enhance
the performance of their product offerings.
Systems Integrators
We provide local broadband services to systems integrators to enable them
to offer a complete solution to their customers. As of December 31, 1999, we
provided services to nine systems integrators.
Customer Contracts
Contracts with our customers typically range in duration from one to three
years. To reduce churn, we impose penalties for early termination of customer
contracts. Our customers generally pay a one-time installation fee and a fixed,
monthly fee for service.
Except in Brazil, our contracts generally provide for payment in U.S.
dollars where permitted or for payment in local currency linked to the exchange
rate at the time of invoicing between the local currency and the U.S. dollar.
The revenues of our customers are generally denominated in local currencies.
Although our customers include some of the largest and financially sound
institutions in each country, devaluation of local currencies relative to the
U.S. dollar could have a material adverse effect on the ability of our
customers to pay for our services. A currency devaluation could also result in
our customers seeking to renegotiate their contracts with us or, alternatively,
defaulting on or canceling their contracts.
Marketing, Sales and Customer Care
We view our relationship with our customers as a long-term partnership in
which customer satisfaction is critically important. For this reason we employ
a methodical marketing, sales and customer service strategy in each of our
local markets. This strategy is supported by our local marketing teams and our
U.S.-based corporate sales and marketing professionals. We employ these
strategies with the goal of acquiring and retaining the most attractive
customers in each of our local markets.
Marketing
Each of our local markets has a marketing staff which supports the sales
efforts by two primary efforts. The first is through targeted marketing and
advertising efforts such as print promotions, event
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participation, public relations and local advertising. Our local staffs
coordinate closely with our U.S.-based marketing professionals to ensure
consistency of our brand across our markets. The second is through market
research and geographic and market segmentation. Our local marketing staffs
assist our sales professionals in identifying new customers in targeted new
buildings.
Sales
In each of our markets we use three different sales channels to reach our
target customers and plan to introduce a fourth channel.
Carriers, Integrators and Internet service providers. Each local market has
a group of experienced sales professionals who focus on other carriers, systems
integrators and Internet service providers. This segment of the market is an
attractive customer base given their significant use and need for bandwidth.
Key Accounts. Our key account sales professionals focus on large corporate
end users who demand maximum availability and unlimited usage at high speeds
and quality levels.
Building-Centric Sales. Our building-centric sales staffs in each local
market are designed to complement and leverage the work of the two other sales
channels. These professionals focus on selling to new customers in buildings in
which we already have a customer in order to maximize building penetration as
well as to customers in targeted new buildings.
Enhanced Internet Service Sales. We plan to hire a new sales and marketing
force within each market dedicated to enhanced Internet services.
Our sales representatives receive a competitive base salary and a series of
individual bonuses. Their bonuses are based on their attaining certain sales
quotas measured on a monthly basis. The fixed and variable mix of compensation
varies by individual and by market. We believe that our compensation plan will
motivate our sales representatives to provide top quality attention and
service.
Customer Care
We believe that our ability to provide our customers with a superior level
of service gives us an important competitive advantage. For this reason, we
seek to provide each of our customers with the highest quality service
available. We provide customer service 24 hours a day, 7 days a week, 365 days
a year and commit to giving customers quick and effective responses to
questions or problems they may have with their service.
Operations and Business Support Systems
Overview
Our current operations and business support systems are organized to
support four main areas: network management, customer provisioning, billing and
accounting and financial management systems. These systems adequately support
our existing needs.
We are in the process of replacing our existing operational support systems
with new enhanced systems that we expect will allow us to manage our
anticipated growth and increased service offerings, as well as integrate the
components of our operations. We believe that the systems we have chosen will
allow us to increase the level of sophistication as needed by the business.
Once implemented, these systems should enable us to effectively manage and
monitor our network, process orders, provide customer services, track usage and
accurately bill our clients with one integrated bill. A goal of our operations
and business support systems is to provide each of our departments with an
integrated view of all provisioning, billing, customer service and collection
activities. We expect to complete the installation of our operating and
business support systems in 2001.
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Service Order Entry and Provisioning
Our strategy has been to acquire sophisticated off-the-shelf technology
that can be easily and cost-effectively configured by our in-house information
technology staff. Our order processing system provides:
. One point of entry for orders;
. Customer access to systems to monitor the performance of services
provided to them;
. Ability to enter orders online and track orders throughout the process;
and
. Inventory integration to enable ease of provisioning and circuit
selection.
Billing
Our current billing system consists of commercially available software for
flat rate billing. This system allows us to effectively produce invoices and
bill customers for all services we presently offer. However, our current
billing system is not sufficient to accommodate the full billing needs we will
have once we introduce voice and enhanced Internet services. We are in the
process of identifying new billing systems that will allow us to provide these
additional services on a broad scale.
Customer Service
Our current systems have allowed us to meet our goals to deliver a high
level of personalized service to our clients and to be proactive. As our
products and services expand, we will need to have customer care functions that
will support a "single view" of all customer data, including billing, order
processing, trouble ticket and call history.
Competition
We face varying degrees of competition in each of our markets and we expect
to encounter increasing competition in the future. The principal competitive
factors in our markets include network capability and flexibility, scope and
quality of services and timely introduction of new services, brand name
recognition, customer service, technical expertise and functionality, system
engineering expertise, ability to maintain and expand distribution channels,
financial resources and management capabilities. We compete on the basis of the
high quality of our local fixed wireless broadband access networks, short
installation time (including our experience in securing access to customer
buildings) and customer service.
Our competitors fall into three broad categories:
. Incumbent exchange carriers in each country in which we operate;
. Large communications carriers that compete with us on a pan-regional
basis; and
. Private local communications carriers in each country in which we
operate.
Incumbent Exchange Carriers
In the past 10 years, most incumbent exchange carriers in Latin America
have been privatized. Representative examples of acquiring companies have
included large international telecommunications providers such as Telefonica
(in Argentina, Brazil and Peru), France Telecom and Telecom Italia (joint
venture in Argentina) and Cable and Wireless (in Panama). Historically, the
incumbent carriers have focused on local and long-distance voice services. In
addition, the incumbent carriers have a dominant share of the underdeveloped
data access services market in each of the countries in which we compete. In
the future, the incumbent exchange carriers may dedicate an increasing amount
of resources to providing data access as this market grows and to offering
basic Internet access and enhanced Internet services. These entities have
significantly greater financial and other resources than we do, including
greater access to financing. See "Risk Factors--We face significant competition
throughout Latin America."
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Pan-regional competitors
Our primary competitors on a pan-regional basis include:
. AT&T Latin America, a company recently formed by AT&T through its
acquisition of NetStream (Brazil) and its pending merger with FirstCom
(Colombia and Peru), each a fiber-based network provider and Keytech (in
Argentina). Upon completion of these acquisitions, AT&T Latin America
will compete with us in various markets, including Brazil, Colombia, Peru
and to a lesser degree in Argentina.
. COMSAT Corp., a provider of voice, data and Internet communications
services to corporate customers using satellite and other technologies in
various countries in Latin America, including Argentina, Brazil, Colombia
and Peru.
. GLOBAL ONE, an international provider of telecommunications services for
corporate clients, controlled by France Telecom and focused in Brazil and
Latin America generally.
. IMPSAT Fiber Networks, Inc., a provider of private telecommunications
networks, data and Internet services to corporate customers in various
Latin American countries, including Argentina, Brazil, Colombia and Peru.
. MetroRED Telecommunications, a fiber-based local communications provider
in Argentina, Brazil and Mexico that competes directly with us in many of
our service offerings.
. PSINet, a US-based global provider of Internet services and
infrastructure to businesses, which provides Internet connectivity and
Web hosting services. PSINet has acquired a number of Internet service
providers in Latin America, specifically in Argentina, Brazil, Panama,
and Uruguay and has announced its intention to dedicate an increasing
amount of its resources to offering dedicated Internet access and
enhanced Internet services.
. VIA NET.WORKS, Inc., an international provider of Internet access and
services focused on small and mid-sized businesses in Europe and Latin
America, specifically in Argentina and Brazil.
Private Local Communications Carriers
The third category of competitors includes private local communications
carriers that primarily have only a metropolitan or national presence.
Representative examples of data and Internet services providers in this
category are: in Argentina, Fibertel, Techtel and Telelatina; in Brazil, VIS
and Vicom; in Colombia, Americatel, Capitel and Colomsat; in Panama, Charter
Communications; and in Peru, Maurta. Our voice services competitors in this
category include Vesper and Intelig, both in Brazil.
Rates for data services are not regulated in our countries of operation,
and the prices for our services are strongly influenced by market forces. We
believe that increasing competition will result in pricing declines. We have
faced and expect to continue to face declining prices and may experience
declining margins as the incumbent operators in the countries where we have
operations modernize their facilities, adapt to a competitive marketplace and
place greater emphasis on data telecommunications, and as other companies enter
the Latin American telecommunications market. These price and margin declines
may accelerate if new competitors enter our markets.
The principal barriers to entry for prospective providers of private
telecommunications network services such as ours are the need to obtain
operating rights and licenses, spectrum licenses if fixed wireless technology
is to be used, the development of the requisite understanding of customer needs
and the technological, commercial and real estate experience and know-how,
infrastructure to provide quality services to meet those needs and capital.
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Regulation
General
The licensing of telecommunications services and networks and the renewal
of applicable licenses and spectrum grant allocations are regulated by
governmental entities in the markets in which we conduct business. These
matters and other aspects of telecommunications network operations, including
rates charged to customers, may also be subject to public utility regulation in
the countries in which we provide service. Moreover, statutes and regulations
in certain of the markets in which we conduct business impose limitations on
the amount of spectrum that may be owned by telecommunications companies.
Changes in the current regulatory environments in such countries affecting
matters such as interconnection arrangements, requirements for increased
capital investment, regulations affecting our ability to differentiate among
the prices for our services and foreign ownership limitations could have a
material adverse effect on our business and operations. Because of the
uncertainty as to the interpretation of regulations in certain jurisdictions,
there can be no assurance that we will be able to provide planned services in
each jurisdiction and it is possible that we may be prohibited from providing
services we intend to provide in the future in certain jurisdictions.
We believe that we have a sound and well-informed understanding of and
basis for interpreting the current regulatory framework and that we will be
able to implement our business plans as currently contemplated. However, some
aspects of the law, rules and regulations in the countries in which we operate
are relatively new and still developing. As a result, it is difficult to
determine how regulators will interpret rules, assess compliance and exercise
their powers of enforcement. We expect that in the future further clarifying
interpretations and refinements will be promulgated by the governmental and
regulatory authorities in the countries in which we have operating and spectrum
licenses.
Telecommunications operating and spectrum licenses are often subject to
ongoing review and, in some cases, modification or early termination for
failure to comply with applicable regulations. Our operating and spectrum
licenses have fixed terms that are renewable. Although there is a presumption
of renewal, there can be no assurance that the renewal of licenses will occur
or that renewal will be on acceptable terms. Failure to meet service or build-
out requirements can result in financial penalties or revocation of the
operating and spectrum licenses. Operating and spectrum licenses may be revoked
for violation of other regulatory authority rules and regulations.
Compliance with Network Construction, Operation or Build-out Requirements
We are required to comply with the terms of our licenses and certain
regulatory requirements, such as deadlines by which service must be offered
and/or minimum build-out requirements. We cannot assure you that we will meet
these requirements or that we will not lose any applicable telecommunications
licenses as a result of our failure to meet the requirements. Failure to get
waivers, extensions or similar relief of the relevant deadlines or to otherwise
comply with these requirements may result in financial penalties or revocation
of the affected licenses. As we acquire additional licenses, we expect to be
required to comply with applicable build-out and spectrum usage requirements.
Argentina
Regulatory and legal overview. The Secretariat of Communications (SECOM)
and the National Communications Commission (CNC) are the Argentine
telecommunications authorities responsible for the administration and
regulation of the telecommunications industry. The government of Argentina
enacted a series of laws in 1989 to deregulate the telecommunications sector.
In March 1998, the Argentine government announced the demonopolization of
telephony services of Telecom Argentina and Telefonica Argentina, and the
deregulation of local and long distance telephony markets commenced in November
1999. The telecommunications sector is expected to be completely open to
competition in November 2000. Argentina imposes no limitation on foreign
ownership of telecommunications licenses with
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the exception of the General License for Telephony Services, the holder of
which must have a local partner as direct or indirect shareholder with an
equity interest of not less than 10% of the capital stock.
Operating licenses of Diveo Argentina. We have a license to provide
national and international value-added services, including Internet access.
This operating license and applicable regulations issued by the SECOM and CNC
permit us to provide our own national Internet transmission services. We also
have a national license to provide data transmission services. We may only use
our own facilities to provide the international transmission of data and value-
added services beginning in November 2000. At present, only four companies may
provide facilities-based international transmission services. In addition, we
have local and national and international long distance voice
telecommunications licenses. All of our operating licenses have an indefinite
term provided that we fulfill our obligations and do not materially violate any
regulation or law. We may begin to provide local, national and international
voice telecommunications services beginning in November 2000. We have the right
of interconnection with the public switched telephone network (PSTN) as a
result of our local, national and international telephony licenses and pursuant
to applicable laws. Furthermore, interconnection with the PSTN must be on a
nondiscriminatory basis.
Spectrum licenses of Diveo Argentina. We have the exclusive right to use
600 MHz at 38 GHz, 224 MHz at 23 GHz, and 60 MHz at 10.5 GHz on a block basis
with national coverage. We are authorized to deploy point-to-point and point-
to-multipoint technologies using our 38 GHz and 10.5 GHz frequencies, and
point-to-point technologies using our 23 GHz frequencies. We were also granted
various point-to-point links at 6 GHz, 8 GHz and 15 GHz. All of our spectrum
licenses are for an indefinite period of time.
Build-out and spectrum usage requirements. The applicable
telecommunications regulations and our installation schedule approved by the
CNC require us to build-out our network and provide service using our
frequencies in cities and regions of Argentina over a five-year period. We were
required to install our initial network and provide service using our
frequencies in Buenos Aires within twelve months from the date when the
installation schedule was approved by the CNC. In addition, we were required to
guarantee our build-out and spectrum usage requirements by contracting with a
bank to issue a performance bond to the SECOM. To date, we have met our build-
out and spectrum usage requirements in a timely fashion, and the performance
bond issued in connection with our build-out obligations expired and no longer
needs to be replaced. The performance bond issued in connection with the
operating and spectrum licenses acquired from Eritown Corporation Argentina
S.A. remains in effect for our build-out and spectrum usage requirements in the
cities of Rosario, Cordoba and Mendoza. Eritown received its spectrum license
in June 1999. We expect to meet our build-out and spectrum usage requirements
in our other Argentine markets in accordance with our installation schedule and
the applicable regulations.
License and spectrum usage fees and taxes. We are required to pay a usage
fee in connection with the 10.5 GHz, 23 GHz and 38 GHz spectrum licenses. We
received two spectrum fee invoices from the CNC in December 1999; one for
Eritown's 38 GHz spectrum and the other for Diveo's 10.5 GHz spectrum. Both of
these invoices covered the use of the respective spectrum for a period of
several months in 1999. Prior to paying these invoices, in January 2000 the
SECOM suspended frequency payments for the period from January 1, 1999 to March
31, 2000. In February 2000 the SECOM issued a resolution declaring a temporary
administrative state of emergency for a period of 120 days with respect to the
administration and management of the frequency spectrum in Argentina. Despite
receiving spectrum usage invoices for the foregoing bands of spectrum, we
cannot pay these invoices until the CNC verifies the amounts invoiced by the
prior SECOM administration and determines the actual amounts owed for the
period from 1997 to date. Prior to and as a result of the foregoing resolutions
we have not been billed for any other spectrum. Once this 120-day period
expires we believe the CNC will accept payment for the previous invoices, and
we will probably receive additional spectrum fee invoices. We anticipate that
any payments we are ultimately required to make will not restrict or materially
adversely affect our operations.
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We must make a variable payment to the CNC in an amount that increases each
year from 0.6% of our monthly gross revenues in 2000 to 1% in 2004.
Brazil
Regulatory and legal overview. The Brazil Ministry of Communications (BMC)
and the National Telecommunications Agency (ANATEL) are the Brazilian
telecommunications authorities responsible for the administration and
regulation of the telecommunications industry. ANATEL is an independent agency
in charge of regulating telecommunications services and performing many of the
tasks formerly performed by the BMC. ANATEL issues specific regulations and
licenses (concessions, authorizations and permissions) and applies the relevant
penalties for any violations of such regulations and licenses.
Operating licenses of Diveo Brazil. We were granted two licenses from
ANATEL in July 1998, both of which are for indefinite terms. Our Specialized
Network Service license authorizes us to provide a wide range of
telecommunications services, including Internet, data transmission,
international virtual private network services, value-added services, video,
national and international Internet and data transmission.
Although our Specialized Circuit Service license permits us to provide
point-to-point and point-to-multipoint telecommunications services to final
customers by using wireless, wireline local access circuits or any other type
of technology available from time to time, our spectrum licenses only allow us
to deploy point-to-point technology. The coverage of the Specialized Circuit
Service license is the entire territory of Brazil. Pursuant to our Specialized
Circuit Service license we may use this license to provide the
telecommunications services authorized under our Specialized Network Service
license.
We have fulfilled our current obligations with respect to our Specialized
Circuit Service and Specialized Network Service licenses, including our
payments for such licenses.
Spectrum licenses of Diveo Brazil. We have block grants to use 11 GHz, 23
GHz and 38 GHz in each of the following states: Sao Paulo, Rio de Janeiro,
Minas Gerais, Rio Grande do Sul, Santa Catarina and Parana. We also have block
grants to use 7 GHz, 15 GHz and 18 GHz in Minas Gerais, Rio de Janeiro and Sao
Paulo. Our spectrum licenses must be used in connection with our Specialized
Circuit Service license. Our spectrum licenses are non-exclusive. The spectrum
licenses were granted for a term of ten years from the date of the initial
grant.
Build-out and spectrum usage requirements. We must register each fixed
wireless link in ANATEL's Technical Information System for the Administration
of Radio-Communications and obtain a permit for each microwave station. Upon
registering each link and receiving the corresponding permit for the microwave
station, we have six months in which to install the relevant microwave station
and operate each registered link. This installation time may be extended for an
additional six-month period. Should we fail to install a microwave station for
which a permit has been obtained and consequently fail to operate a link that
was registered within one-year from the grant of the corresponding frequency,
we could lose our right to use that frequency for that particular link if
another company petitions ANATEL to use the same frequency and link within the
same area. We have met this requirement and currently are fulfilling all of our
build-out and spectrum usage requirements in the markets in which we are
operating and in which we plan to commence operations.
License and spectrum usage fees and taxes. We must pay a spectrum usage fee
for the right to use the spectrum granted to us. This fee is for the term of
the respective license. We have paid this fee for each of our spectrum licenses
and we will not have to pay it again until the end of the first ten-year term.
We are also required to pay two specific telecommunications taxes. A one-time
installation tax (TFI) must be paid within sixty days after installing a radio
and an operation tax (TFF) must be paid in March of each year. The TFF is based
on the capacity of the number of voice channels per bandwidth of spectrum
employed. The TFF is the only variable payment that we must make to ANATEL or
the BMC.
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Colombia
Regulatory and legal overview. The Colombian Ministry of Communications
(the CMC) and the Telecommunications Regulatory Commission (CRT) regulate the
telecommunications sector in Colombia. The CMC has general rulemaking
authority, supervises and audits the performance of licensees' legal and
contractual obligations, and is responsible for awarding licenses. In
particular, the CMC focuses on obligations related to the technical project
proposals, including frequency use, investment schedules, and range of service
offerings submitted with each license application. The CRT has jurisdiction
over the pricing of certain telecommunications services and is charged with
issuing regulations intended to promote open competition in the
telecommunications industry. In addition, the CRT regulates the pricing aspects
of the relationship between wireless and wireline operators, including
interconnection terms and rates.
Operating licenses of Diveo Colombia. We have a value-added license with
national coverage. In accordance with this license and the frequencies
discussed below, we may provide national and international value-added
services. Value-added services include, but are not limited to, national
Internet and data transmission services. The term of the license is 10 years,
with a presumption of renewal for an additional period of 10 years provided we
meet the license obligations.
We have a local carrier license to provide "clear channel" services in and
between the cities of Bogota, Cali and Medellin. The term of the concession is
10 years, with a presumption of renewal for additional periods of ten years
provided we meet the license obligations.
Spectrum licenses of Diveo Colombia. We have the exclusive right to use 400
MHz at 38 GHz on a block basis, with national coverage. The frequency grant and
the applicable regulations expressly permit point-to-point links and are silent
regarding point-to-multipoint links. However, we believe that point-to-
multipoint links are permissible based on our exclusive right to use the
spectrum. The term of this license is 10 years, with a presumption of renewal
for additional periods of 10 years provided we fulfill our license obligations.
In accordance with the 38 GHz license, we have met our build-out requirements.
In addition to our block grant, we also have been granted exclusive rights
to use various point-to-point links at 11 GHz, 18 GHz and 23 GHz.
Build-out and spectrum usage requirements. In accordance with our original
technical project proposal, the value-added license and applicable regulations,
we have fulfilled our obligations to provide value-added service in six cities.
We are currently providing value-added services to clients in Bogota, Medellin,
Cali, Barranquilla, Bucaramanga and Pereira. To date, we have met our value-
added license payments and other obligations, including the issuance of a
performance bond to guarantee our build-out and quality of service
requirements.
With respect to our local carrier license, we are currently providing
carrier services in Bogota, Cali and Medellin and have met our payments and
other obligations.
Colombian law requires us to contract with a bank or insurance company to
issue a performance bond in favor of the CMC for each of the value-added and
local carrier licenses for the duration of the licenses. These performance
bonds guarantee service quality and the fulfillment of build-out obligations.
We have performance bonds for both of our operating licenses.
License and spectrum usage fees and taxes. We are required to pay an annual
spectrum usage fee in connection with the 38 GHz spectrum license. We are also
required to make a variable payment to the CMC (i) with respect to our local
carrier license, in an amount equal to 3% of our gross revenues, less any
payments to telecommunications providers for services such as access and
interconnection charges and (ii) with respect to our value-added license, in an
amount equal to 5% of our gross revenues, less any payments to
telecommunications providers for services such as access and interconnection
charges.
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Panama
Regulatory and legal overview. The Regulatory Entity of Public Services
(Regulatory Entity) regulates the telecommunications, electricity, water and
sewerage sectors in Panama. The Regulatory Entity issues regulations, grants
all licenses and concessions, and oversees compliance with telecommunications
laws and regulations. In addition, among other functions, the Regulatory Entity
promotes competition, establishes formulas necessary to calculate tariff rates,
imposes sanctions, and resolves disputes among operators. There are currently
no restrictions on foreign ownership in the telecommunications sector in
Panama.
Telecommunications services in Panama are classified into Type A and Type B
services. Type A services are reserved for Cable & Wireless Panama, S.A., the
incumbent local, national and international exchange carrier, and cellular
services provided by BSC de Panama, S.A. (BellSouth) and Cable & Wireless
Panama, S.A. Cable & Wireless Panama, S.A. has an exclusive monopoly to provide
Type A telecommunications services until January 2003.
Type B telecommunications services are completely open to competition. Such
services include Internet access, private voice, data transmission and
switching, video, and facsimile retransmission services. Authorization to
provide such services, including the frequencies that may be used in providing
such services, are granted pursuant to an administrative concession by the
Regulatory Entity, and are for a term of 20 years.
Operating licenses of Diveo Panama. We currently have the following three
operating licenses in Panama to provide Type B services: (i) Internet for
Public Use, which permits the Company to provide Internet access to customers,
with national coverage; (ii) Data Switching with national coverage; and (iii)
Links for High Fidelity Audio, Video and/or Data for Private Use with or
without the Use of the Frequency Spectrum, with coverage in the cities of
Panama City and Colon. This last license permits the deployment of wireless
technology to effect point-to-point and point-to-multipoint transmission. We
also may provide private voice telephony to customers under this last
concession pursuant to regulations issued by the Regulatory Entity provided
that no part of the network carrying the voice transmission is connected to the
PSTN in Panama or abroad unless we receive authorization from Cable & Wireless
Panama S.A. All of our operating licenses are for a period of 20 years, with a
presumption of renewal for additional 20-year periods.
Spectrum licenses of Diveo Panama. We have the exclusive right to use 896
MHz at 38 GHz and 112 MHz at 18 GHz on a block basis, with coverage in the
cities of Panama City and Colon, using point-to-point and point-to-multipoint
links in connection with our license to provide links for private audio, video
and data signals described above. Transmission requires that one of the two end
points of the link be represented by one of four pre-determined hub sites in
Panama City, or the one designated hub site in Colon. Our spectrum licenses are
for a period of 20 years, with the presumption of renewal for additional 20-
year periods.
Build-out and spectrum usage requirements. We are required to begin
operations and use our frequencies within sixteen months from the date that the
operating and spectrum licenses were granted.
License and spectrum usage fees and taxes. We are required to pay annual
spectrum usage fees for our spectrum licenses. We are also required to make a
variable payment of up to 1% of our gross revenues to the Regulatory Entity.
The amount of this payment is set by the Regulatory Entity each year.
Peru
Regulatory and legal overview. The Ministry of Transportation,
Communications, Housing and Construction (MTC) and the Organization for
Supervision of Private Investments in Telecommunications
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(OSIPTEL) regulate and supervise the telecommunications industry in Peru. The
MTC issues regulations governing the telecommunications industry. The
Specialized Telecommunications Concession Unit (UECT), an agency within the
MTC, is charged with various functions, including: (i) to grant, renew and
cancel concessions, authorizations, permits and licenses; and (ii) to manage
the frequency spectrum and approve the assignment of frequencies. OSIPTEL is
responsible for overseeing private investments in the telecommunications
industry and has jurisdiction over certain telecommunications matters such as
promoting competition, establishing certain tariffs, advising the MTC, and
arbitrating disputes, including interconnection disputes.
Operating licenses of Diveo Peru. All of our operating licenses have a term
of 20 years, with a presumption of renewal for an additional period of 20
years. We entered into a local carrier license agreement with the MTC. This
agreement grants us the right to operate a local carrier services network to
provide dedicated broadband fixed wireless "clear channel" carrier services to
customers within the department of Lima and the province of Callao. Within 12
months of June 1999, we must have initiated operation with at least one
wireless link in operation in the department of Lima, and we expect to satisfy
this requirement.
We also have a local carrier license covering the following nine
departments and three provinces: Arequipa, Callao, Chiclayo, Cusco, Huancayo,
Ica, Lima, Maynas, Piura, Santa, Tacna, and Trujillo. Within 12 months of July
1999, we must have initiated operation with at least one wireless link in
operation in the department of Lima and we expect to satisfy this requirement.
In each of the other departments and provinces, we are required to satisfy a
similar requirement within five years of July 1999.
We have a national and international long distance carrier license for the
transportation of all types of telecommunications signals originating and
terminating within the country and for the transportation of telecommunications
signals originating or terminating in Peru or abroad. Within twelve months of
July 1999, we must offer national and international long distance carrier
services in Lima. We intend to meet this obligation by offering either Internet
or data services during the first year of operations and voice services
beginning in 2001.
Spectrum licenses of Diveo Peru. All of our spectrum licenses have a term
of 20 years, with a presumption of renewal for additional periods of 20 years.
Concurrently with the granting of the local carrier license, we were assigned
exclusive rights to use 400 MHz at 38 GHz on a block basis, for the Lima and
Callao comprising four principal hubs in Lima and Callao, using point-to-point
and point-to-multipoint links. We also hold various point-to-point links at 11
GHz and 13 GHz for use with the same license. We are not required to use our
frequencies during the first year from the date they were granted. However, we
will use our frequencies in connection with our local carrier license
requirement of providing service within the first year from the date of the
execution of the license agreement. Our spectrum use requirements increase each
year over a period of five years. We currently have an application pending to
secure additional spectrum in Lima.
We have the exclusive right to use 48 MHz at 2.4 GHz on a block basis in
connection with the local carrier license covering twelve provinces, which is
described above. We are required to use certain frequencies by the end of the
second year from the date the license was granted and the channels we must use
increase each year so that by the end of the fifth year of operations we must
use all our frequencies in Lima and the other cities.
We also have the exclusive right to use frequencies in connection with
satellite up-links and downlinks for our national and international carrier
license described above. We intend to use this spectrum in conjunction with a
satellite dish located in Lima, and intend to use portions of the same
frequencies for up-links and downlinks within Peru. We must use our frequencies
according to a five-year frequency use schedule, and the channels we must use
increase each year so that by the end of the fifth year of operations we must
use all our frequencies in Peru.
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Pursuant to the Telecommunications Law and the General Regulations, all
public local carrier licensees have the right to connect to the PSTN.
Furthermore, interconnection with the PSTN must be on an equal and
nondiscriminatory basis and the terms and conditions of interconnection
agreements must be negotiated in good faith between the parties in accordance
with the interconnection regulations and procedures issued by OSIPTEL. Peru
imposes no limitation on foreign ownership of local companies holding
telecommunications licenses.
In conformity with the Telecommunications Law, the General Regulations, and
OSIPTEL's regulations, all telecommunications operators must pay certain fees,
tariffs, and other charges on an on-going basis. We may set our own tariff
levels for our services, subject to certain maximum tariff levels set by
OSIPTEL.
License and spectrum usage fees and taxes. We are required to pay annual
spectrum usage fees in connection with the spectrum licenses. We are also
required to make a variable payment to the MTC in an amount equal to 2% of our
gross revenues.
Uruguay
Regulatory and legal overview. The executive branch of the Uruguay federal
government establishes national telecommunications policy with advice from the
National Telecommunications Board (DNC), the administrative agency that
coordinates and executes such policies. The executive branch, through the
National Ministry of Defense, directly authorizes and controls the installation
of "new telecommunications services." Although that term has yet to be legally
defined, to date the executive branch and the DNC have interpreted it to mean
value-added services, including Internet access, data transmission, and
services that are more technologically advanced than those services rendered
mainly by the analog transmission of basic telephony services. Our services
fall under this concept of "new telecommunications services."
The National Telecommunications Administration (ANTEL), Uruguay's incumbent
local, national and international exchange carrier, currently has a monopoly to
provide basic local, national and international voice telephony. However, there
is an exception to this rule with respect to certain free trade zones in
Uruguay where several companies were granted authority to provide international
switched voice telephony to PSTNs abroad, provided that their networks are not
connected to ANTEL's network.
Operating licenses of Diveo Uruguay. In May 1999, the executive branch
authorized us to install and operate a commercial wireless broadband network in
the city of Montevideo for the provision of data transmission services. This
authorization was granted for an indefinite term. The services that we may
provide include Internet access, national and international Internet and data
transmission, and voice telecommunications services not connected to the PSTN.
Any international voice services that require connection to the PSTN must be
authorized by ANTEL.
Spectrum licenses of Diveo Uruguay. In December 1999, the DNC granted us
the exclusive right to use 480 MHz at 38 GHz on a block basis for an indefinite
period of time, with national coverage, using point-to-point and point-to-
multipoint links. Transmission requires that one of the two end points of the
link be represented by one of two predetermined hub sites.
Build-out and spectrum usage requirements. We were required to file a final
technical project with the DNC, which includes our hub sites and coverage areas
in Montevideo. This final technical project was filed with the DNC. We have
installed our first hub site to meet our obligation to install the first hub
site by March 31, 2000. We were also required to post a performance bond for
fifteen months, which guarantees the completion of our technical project. The
performance bond was issued to fulfill this obligation. Requirements of an
administrative nature include the registration and approval of radio equipment
by the DNC and annual certifications of our investments.
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License and spectrum usage fees and taxes. We are required to pay annual
spectrum usage fees in connection with the spectrum license. We have fulfilled
our obligation to pay the applicable fee for our 38 GHz frequencies for the
first two years. There is no variable payment currently in effect.
United States of America
Regulatory and legal overview. We have a Section 214 Authorization granted
to us by the Federal Communications Commission (FCC). We currently are not
providing any services under this license. To the extent we offer international
telecommunications services to, from, or through the United States, we will be
subject to the Communications Act of 1934, as amended, the 1996
Telecommunications Act and the regulations of the FCC thereunder. With respect
to FCC regulations, we will be required to file documents with the FCC such as
applicable tariffs, international traffic, circuit status and addition reports,
and copies of operating agreements entered into with foreign correspondents.
Operating licenses of Diveo, Inc. In September 1999, Diveo, Inc. was
granted a Section 214 Authorization from the FCC. This authorization permits us
to (i) acquire capacity in any international facilities authorized by the FCC
such as submarine fiber optic cable and satellite systems to provide
international telecommunications services including voice, data, Internet,
video, and private line services between the United States and any authorized
international point, (ii) resell the foregoing services of any authorized
carrier to any authorized international point, except for the services of
affiliated carriers that are regulated as dominant on proposed routes, (iii)
resell international private lines services to provide private line services
not interconnected to the PSTN between the United States and any authorized
international point, and (iv) resell international private line services to
provide switched telecommunications services, interconnected to the PSTN at one
or both ends, between the United States and any authorized international point.
We do not have any build-out obligations under this license.
Employees
As of December 31, 1999, we employed a total of 309 persons, of whom 41
were located in the U.S. headquarters, 81 were employed by our Argentine
operations, 140 by our Brazilian operations, 44 by our Colombian operations,
two by our operations in Peru and one by our operations in Panama. We
anticipate that the number of our employees will increase significantly as we
launch operations in additional markets and introduce new services,
particularly our enhanced Internet services. We believe that our future success
will depend on our continued ability to attract and retain highly skilled and
qualified employees. We do not have any long-term employment contracts with any
of our operating employees in the region and except for in Brazil none of our
employees is currently being represented by labor unions. We have not
experienced any work stoppages and we believe we enjoy good relationships with
our employees.
Properties
Our corporate headquarters are located at 3201 New Mexico Avenue, N.W.,
Suite 320, Washington, D.C. 20016. Our facilities include administrative and
sales offices, central offices and other facilities to house our network
equipment. The table below describes our material properties, all of which are
leased:
<TABLE>
<CAPTION>
Lease
Expiration Approximate
Location Purpose Date Square Footage
-------- -------------------------- ---------- --------------
<S> <C> <C> <C>
Washington, D.C............ Principal executive office 9/30/03 13,209
Buenos Aires............... Principal local office 9/30/03 12,917
Sao Paulo.................. Principal local office 3/31/04 21,527
Rio de Janiero............. Local branch office 7/31/02 7,752
Belo Horizonte............. Local branch office 9/30/04 6,458
Bogota..................... Principal local office 9/30/04 11,726
Lima....................... Principal local office 11/14/04 7,561
Panama City................ Principal local office 11/30/04 2,368
</TABLE>
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Legal Proceedings
We are currently a party to litigation involving the exchange of shares of
our subsidiary, Diginet Colombia, for shares of our common stock in our August
1999 restructuring. The litigation, which was filed on December 23, 1999, is
pending in the United States District Court for the District of Columbia.
Communications Resources, Inc. and Datacom Investments Limited, former minority
stockholders of Diginet Colombia, allege fraudulent inducement in connection
with their purchase of shares of Diginet Colombia and that the valuation
underlying the August 1999 share exchange was improperly conducted. The former
minority stockholders have asserted a loss to them of over $10 million and
claims of breach of contract, fraud and breach of fiduciary duty. As relief,
the stockholders seek recission of the August 1999 share exchange, the
performance of another valuation of Diginet Colombia and monetary damages. We
are contesting the stockholders' claims and believe that the claims are without
merit.
Except for the above action, we are not a party to any material litigation
or proceedings.
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DESCRIPTION OF OUR FINANCING ARRANGEMENTS
The following is a summary of the material provisions of agreements
governing some of our indebtedness. This summary is subject to, and qualified
in its entirety by reference to, all of the provisions of these agreements,
including the definition of certain terms therein. Terms used and not defined
herein have the meanings given to them in the documents described herein.
In June and November 1999, we executed agreements with Ericsson Credit AB
and Lucent Technologies Inc, to borrow up to $300 million and $100 million,
respectively, of long-term vendor financing. The vendor financing agreements
are available in aggregate in tranches of $250 million and $150 million. The
first tranche is currently available while the second tranche of $150 million
is available beginning on January 1, 2001 provided that we have borrowed all of
the first tranche of $250 million and we are in compliance with the terms of
the agreement holding the covenants. The borrower under our financing
agreements is our wholly-owned subsidiary, Diveo, Inc., a Delaware corporation.
Copies of our financing agreements with Ericsson and Lucent are filed as
exhibits to the registration statement of which this prospectus is a part.
We must use any funds that we borrow under the financing agreements to pay
for equipment and services and other related items purchased from Ericsson or
Lucent, as applicable. We also are able to use a portion of the proceeds to
purchase from third-party vendors equipment and services that are reasonably
related to the design and construction of our network.
Under the terms of the financing agreements, Ericsson and Lucent have a
secured interest in generally all of our assets, including the equipment
financed under the agreements, as well as the common and preferred stock of the
operating subsidiaries of Diveo, Inc. that we hold.
Subject to mandatory or optional prepayment under the terms of the
financing agreements, the principal amounts that we borrow will be repayable
over a four year period, beginning in 2002. Our borrowings under the financing
agreements will accrue interest at LIBOR plus an applicable margin. The
financing agreements permit us to make voluntary prepayments of the amounts
that we borrow, but we may not reborrow any amounts that we repay or prepay.
The agreements have standard one-time financing fees and recurring unused
commitment fees.
Under certain conditions, if we sell or otherwise dispose of or suffer
material losses with respect to our property and fail to reinvest the proceeds,
then we must use such proceeds to prepay the amounts we have borrowed under the
financing agreements. In addition, under specified circumstances, we must also
make mandatory prepayments out of excess cashflow or funds that we receive upon
the issuance of debt securities.
The obligations of Ericsson and Lucent to make each disbursement under the
financing agreements will be subject to our satisfaction of several ongoing
conditions, including the continued validity of customary representations and
warranties made in connection with the agreements, the maintenance of required
governmental and third-party consents and the continuation of our supply
agreements with Ericsson and Lucent. The financing agreements also contain a
number of covenants that, among other things, limit our ability to:
. pay dividends;
. incur additional indebtedness;
. create liens and other encumbrances;
. merge or consolidate with another entity;
. enter into transactions with affiliates;
. engage in any business other than the telecommunications or Internet
access provider business;
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. amend our material contracts;
. sell or otherwise dispose of our assets;
. invest in other entities;
. enter into lease agreements; and
. engage in the speculative build out of our network.
In addition, the financing agreements require us to comply on an ongoing
basis with certain financial and operating covenants relating to, among other
things, the maintenance of: specified amounts of our gross property, plant and
equipment; specified amounts of revenue; levels of the use of our services by
our customers; our EBITDA; and ratios of debt and secured debt to contributed
capital, secured debt to EBITDA and EBITDA to total cash debt service.
The financing agreements contain customary events of default.
An additional basis for default under the financing agreements is a change
of control event, which the agreements define to include: the acquisition by
any entity of more than 40% of the voting power of our securities; our ceasing
to own all of the equity interests of Diveo, Inc. The financing agreements
specify cure periods for some of the events of default listed above, but not
for all of them.
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MANAGEMENT
Directors and Executive Officers
Our directors and executive officers are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
David R. Schmieg 50 Chairman of the Board and Chief Executive Officer
Leon Garza 40 President and Chief Operating Officer
Laurence A. Hinz 37 Executive Vice President and Chief Financial Officer
David H. Rutchik 33 Executive Vice President Corporate Development & General Counsel
John B. Holmblad 49 Executive Vice President and Chief Technology Officer
Robert Benbow 63 Director
Robert Gheewalla 33 Director
Robert J. Goad 45 Director
Paulo Guidi 56 Director
Muneer A. Satter 39 Director
Richard P. Schifter 47 Director
David L. Solomon 40 Director
Kevin Somerville 54 Director
Blair Whitaker 37 Director
</TABLE>
David R. Schmieg. Mr. Schmieg has served as our Chief Executive Officer
since February 1999 and was named Chairman of our board of directors in January
2000. Prior to joining Diveo, from June 1998 to January 1999, Mr. Schmieg was
Group Executive, President & Chief Operating Officer of WinStar International,
Inc., a U.S.-based fixed wireless competitive telecommunications company. From
April 1996 to May 1998, Mr. Schmieg was President & Chief Operating Officer of
WinStar Telecommunications. Prior to joining WinStar, beginning in 1990, Mr.
Schmieg was at Sprint Long Distance, most recently serving as Chief of Staff.
He has also held senior management positions at AT&T and Southwestern Bell. Mr.
Schmieg received his B.A. in Political Science and Economics from Central
Methodist College in Missouri and graduated magna cum laude. He also serves on
the Latin America Telecommunications Advisory Board.
Leon Garza. Mr. Garza has served as our President and Chief Operating
Officer since March 2000. Prior to joining Diveo, beginning in July 1999, Mr.
Garza was Vice President, Mobile Communications for Telefonica Internacional
USA. From July 1998 to July 1999 he was Vice President and General Manager at
PrimeCo Personal Communications, a cellular communications provider. From April
1992 to July 1998, Mr. Garza was a Director of paging network operations at
Motorola, Inc. Mr. Garza received B.S. and M.S. degrees in Electrical
Engineering from the University of Illinois and an M.B.A. from Seattle
University.
Laurence A. Hinz. Mr. Hinz has served as our Executive Vice President and
Chief Financial Officer since May 1998. From August 1995 until he joined Diveo,
Mr. Hinz was Vice President, Finance and Business Development at Skytel Latin
America. Before assuming that position, beginning in September 1994, Mr. Hinz
was the General Director of Skytel Argentina. In addition, Mr. Hinz has served
as a corporate banker for First Chicago's Communications/Media/Telecom Group.
Mr. Hinz received his M.B.A. with a concentration in Finance from The
University of Chicago. He also holds a B.S. degree with a double major in
Computer Science and Finance from Northern Illinois University.
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David H. Rutchik. Mr. Rutchik has served as our Executive Vice President,
Corporate Development and General Counsel since July 1999. Prior to joining
Diveo, from January 1997 to July 1999, Mr. Rutchik was Vice President,
Commercial & Legal Operations at WinStar Communications. From September 1994
until he joined WinStar, he was an attorney with Shaw Pittman in Washington,
D.C., practicing in the telecommunications and high technology areas. Mr.
Rutchik graduated magna cum laude from the University of Pennsylvania and
earned his law degree from the Vanderbilt University School of Law, where he
served as Associate Editor of the Vanderbilt Law Review.
John B. Holmblad. Mr. Holmblad has served as our Executive Vice President
and Chief Technology Officer since September 1999 and from October 1997 to that
time he was our Senior Vice President of Operations and Chief Technology
Officer. Before joining Diveo, from 1996 to 1997, Mr. Holmblad was President of
Telverage International, a telecommunications consulting firm. From 1976 to
1996, Mr. Holmblad worked for Telenet/Sprint International/Global One. During
1993, he served as Sprint's Russia country manager and was Vice President and
General Manager for Sprint International Network Systems. Mr. Holmblad has a
B.S. in Physics and a C.C.E.S. in Electrical Engineering from The Johns Hopkins
University where he graduated summa cum laude. Additionally, Mr. Holmblad has
an M.S. degree in Computer Science from George Washington University and an
M.B.A. from The College of William and Mary.
Robert F. Benbow. Mr. Benbow has been a director of Diveo since July 1998.
He is a designee and founder of Alta Communications, a private equity fund
formed to make investments in the telecommunications, media and Internet
industries. Mr. Benbow currently serves as the managing general partner of
Alta. Mr. Benbow joined Burr, Egan, Deleage & Co., a predecessor to Alta, in
1990, after 22 years with the Bank of New England, N.A. At the Bank of New
England, Mr. Benbow was Senior Vice President responsible for special
industries lending in the areas of media, project finance and energy.
Mr. Benbow serves on the boards of directors of Preferred Networks, Inc. and
Advanced Telecom Group, Inc. Mr. Benbow graduated from the University of
Illinois with a B.S. in Finance and Economics.
Robert Gheewalla. Mr. Gheewalla has been a director of Diveo since April
1999. He is a designee of an affiliate of Goldman, Sachs & Co., where he is a
Vice President in the Principal Investment Area. Mr. Gheewalla joined Goldman
Sachs in 1994. He received an M.B.A. from the Harvard Graduate School of
Business Administration, an M.S. from The London School of Economics and a B.S.
from Tufts University. Mr. Gheewalla currently serves on the boards of
directors of Digital Access, Inc., GT Group Telecom Inc., EMusic.com, Inc.,
Interelate, Inc. and North America RailNet Inc.
Robert J. Goad. Mr. Goad has been a director of Diveo since May 1999. He is
a designee of Columbia Management, a private equity fund formed to make
investments in the telecommunications and media industries, of which he has
been President since 1984. From May 1994 through March 1999, Mr. Goad was the
Chief Executive Officer of Diamond Cable Communications PLC, a U.K. cable
company. He served as that company's Chief Financial Officer from May 1994
through July 1995. In addition, Mr. Goad is a founder of and principal in ECE
Management International, LLC, a company that specializes in managing cable
properties in the United Kingdom. Mr. Goad is a member of the boards of
directors of NTL, Incorporated, Grupo Clarin, S.A. and Columbia Management,
Inc.
Paolo Guidi. Mr. Guidi has been a director of Diveo since June 1998. He is
currently the Chairman and Chief Executive Officer of Teleglobe Communications
Corporation since joining Teleglobe in February 1995. Prior to joining
Teleglobe, Mr. Guidi was at Sprint International since July 1986. From 1986 to
1990, Mr. Guidi was President of Telenet Communications Corp., a global
supplier of data and value-added services and systems. Mr. Guidi serves on the
boards of directors of Universal Access, Inc., and Alcatel Network Systems. Mr.
Guidi holds an M.S. degree in Electrical Engineering from the University of
Buenos Aires, Argentina.
Muneer A. Satter. Mr. Satter has been a director of Diveo since May 1999.
He is a designee of an affiliate of Goldman, Sachs & Co., where he is a
Managing Director in the Principal Investment Area in New York. Previously, Mr.
Satter was head of the Principal Investment Area in Europe and was based in
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<PAGE>
London. Mr. Satter joined Goldman Sachs in 1988 and became a Managing Director
in 1996. He serves on the boards of directors of Dollar Financial Group, Inc.,
EMPE Holding GmbH, Point Holdings Limited and Grupo Clarin S.A. Mr. Satter
earned a B.A. from Northwestern University, a J.D. from Harvard Law School and
an M.B.A. from the Harvard Graduate School of Business Administration.
Richard P. Schifter. Mr. Schifter has been a director of Diveo since March
2000. He is the designee of Newbridge Diginet Investors, L.P., an investment
vehicle of Texas Pacific Group, of which he has been a managing partner since
1994, and Newbridge Latin America, a private equity fund focused on making
investments in Latin America of which he has also been a managing partner since
its formation in 1996. Prior to joining Texas Pacific Group, from 1986 through
1994, Mr. Schifter was a partner at the law firm of Arnold & Porter in
Washington, D.C. Mr. Schifter graduated cum laude from the University of
Pennsylvania Law School in 1978. He received a B.A. with distinction from
George Washington University in 1975. Mr. Schifter currently serves on the
boards of directors of America West Holdings, Inc., Grupo Milano, S.A., Ryanair
Holdings, L.L.C., Alpargatas, S.A.I.C., Bristol Group, Productora de Papel,
S.A. de C.V. and Empresas Chocolates La Corona, S.A. de C.V.
David L. Solomon. Mr. Solomon has been a director of Diveo since July 1998.
He is currently Chief Executive Officer and a director of Gabriel
Communications, a U.S.-based domestic telecommunications company. Mr. Solomon
also currently serves as an Investment Director for Meritage. Mr. Solomon is a
designee of Meritage Private Equity Fund, a private equity fund formed to make
investments in the communications industry. From 1994 until January 1998, he
served as Executive Vice President and Chief Financial Officer of Brooks Fiber
Properties, Inc. Prior to joining Brooks Fiber, a U.S.-based telecommunications
company, Mr. Solomon worked for 13 years in financial management and reporting
with KPMG Peat Marwick LLP, most recently as a partner. He is a member of the
American Institute and Tennessee Society of CPAs. Mr. Solomon received a B.S.
degree from David Lipscomb University.
Kevin Somerville. Mr. Somerville has been a director of Diveo since July
1998. He is the founder and Chief Executive Officer of Somerville & Co., a
business psychology consulting firm specializing in work with venture-backed
companies. Mr. Somerville is a director of Advanced Telecom Group, Inc. He
holds board certification in Organizational Psychology and his undergraduate
and Ph.D. degrees are from St. Louis University.
Blair Whitaker. Mr. Whitaker has been a director of Diveo since June 1998
and is a designee of Norwest Venture Partners, a U.S.-based venture capital
firm where he has been a general partner since October 1997. From January 1996
until October 1997, Mr. Whitaker was Chief Financial Officer and Vice President
for Business Development of Exactis.Com. From August 1990 until December 1995,
he was a vice president at Centennial Funds, a money management firm. Mr.
Whitaker holds a B.S. in Electrical Engineering from Rutgers University, a
Master of Engineering in Computer and Information Science from the University
of Pennsylvania and an M.B.A. from Amos Tuck School of Business Administration.
Mr. Whitaker is also a director of Advanced Telecom Group, Inc., CO Space Inc.,
Allied Riser Communications Holdings, Inc., Wired Business, Inc. and Pangea
Ltd.
Board of Directors
Our board of directors consists of 10 directors. Our directors hold office
until the next annual meeting of stockholders and until successors of such
directors have been elected as qualified or until their earlier death,
resignation or removal.
Committees of the Board of Directors
The board of directors currently has the following committees: audit,
compensation, finance and planning and legal compliance.
The audit committee reports to the board regarding the appointment of our
independent public accountants, the scope and results of our annual audits,
compliance with our accounting and financial
64
<PAGE>
policies and management's procedures and policies relative to the adequacy of
our internal accounting controls. The audit committee members are Messrs.
Solomon and Gheewalla.
The compensation committee of the board of directors reviews and makes
recommendations to the board regarding our compensation policies and all forms
of compensation to be provided to our executive officers and directors. In
addition, the compensation committee reviews bonus and stock compensation
arrangements for all of our other employees. The compensation committee members
are Messrs. Somerville, Benbow, Goad, Satter and Solomon.
The finance and planning committee of the board of directors counsels the
board regarding capital formation and merger and acquisition activities. The
finance and planning committee members are Messrs. Whitaker, Benbow, Gheewalla,
Schmieg, Solomon and Somerville.
The legal compliance committee oversees and administers our legal
compliance program, which seeks to ensure compliance with the Foreign Corrupt
Practices Act. The legal compliance committee member is Mr. Whitaker and he is
assisted with legal compliance issues by Messrs. Hinz and Rutchik.
Director Compensation
The members of our board of directors do not receive any compensation for
their services on our board, except for two directors, each of whom receives
10,714 common stock options annually. However, we do reimburse our directors
for reasonable travel expenses incurred in connection with their attendance at
board meetings.
Executive Compensation
The following table sets forth the total compensation paid to our chief
executive officer and to our four other most highly compensated executive
officers whose compensation exceeded $100,000 during the fiscal year ended
December 31, 1999. We use the term "named executive officers" to refer to these
people in this prospectus.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
------------------ -----------------
Shares Underlying Other
Name and Principal Position Salary Bonus Options Compensation(1)
- --------------------------- -------- -------- ----------------- ---------------
<S> <C> <C> <C> <C>
David R. Schmieg (2)...... $350,000 $310,000 770,571 $5,408
Chairman and Chief
Executive Officer
Leon Garza (3)............ -- -- -- --
President and Chief
Operating Officer
Laurence A. Hinz.......... 195,000 97,500 57,142 --
Executive Vice President
and Chief
Financial Officer
David H. Rutchik (4)...... 93,661 72,500 100,000 --
Executive Vice President,
Corporate Development and
General Counsel
John B. Holmblad.......... 190,000 85,955 35,000 4,506
Executive Vice President
and Chief
Technology Officer
</TABLE>
- --------
(1) The amounts indicated represent the premiums paid by us for term life and
disability insurance for the benefit of the executive officer.
(2) The information presented reflects salary and bonus earned since
commencement of employment in February 1999. See "--Employment Agreements."
(3) Mr. Garza became our President and Chief Operating Officer in March 2000.
Under his employment agreement, Mr. Garza's salary is $250,000 and he is
eligible to receive a bonus of up to 65% of his base salary. He has been
granted options to purchase 257,142 shares of our common stock.
(4) The information presented reflects salary and bonus earned since
commencement of employment in July 1999. See "--Employment Agreements".
65
<PAGE>
Option Grants in 1999
The following table sets forth information regarding the grant of stock
options for the year ended December 31, 1999 to each of the named executive
officers. The percentages in the table below are based on options to purchase
1,836,321 shares of common stock, granted under our stock option plans in the
year ended December 31, 1999 to our directors, employees, and consultants. The
exercise price per share of each option was equal to the fair market value of
the common stock on the date of grant as determined by the board of directors.
Potential realizable values are net of exercise price before taxes and are
based on the assumption that our common stock appreciates at the annual rate
shown, compounded annually, from the date of grant until the expiration of the
10-year term. These numbers are calculated based on the requirements of the SEC
and do not reflect our estimate of future stock price growth.
<TABLE>
<CAPTION>
Potential
Realizable
Individual Grants Value at Assumed
-------------------------------------------- Annual Rates of
Number of Percent of Stock Price
Securities Total Options Exercise Appreciation for
Underlying Granted to Price Option Term
Options Employees in Per Expiration -------------------
Granted Fiscal Year Share Date 5% 10%
---------- ------------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
David R. Schmieg........ 770,571 41.96% $1.40 3/10/09 $678,452 $1,719,329
Leon Garza(1)........... -- -- -- -- -- --
Laurence A. Hinz........ 28,571 1.56 1.40 3/10/09 25,156 63,750
28,571 1.56 3.43 6/09/09 61,632 156,187
David H. Rutchik........ 100,000 5.45 3.43 10/6/09 215,711 546,654
John B. Holmblad........ 10,714 0.58 1.40 3/10/09 9,433 23,906
24,286 1.32 3.43 6/09/09 52,387 132,759
</TABLE>
- --------
(1) In March 2000, Mr. Garza was granted options to purchase 257,142 shares at
an exercise price of $10.15 per share. These options expire on March 20,
2010.
Option Exercises in 1999 and Fiscal Year-End Option Values
The following table shows information with respect to unexercised stock
options held by each of our named executive officers as of December 31, 1999
and with respect to stock options exercised by the named executive officers
during the fiscal year ended December 31, 1999. There was no public trading
market for the common stock as of December 31, 1999. Accordingly, the values of
unexercised in-the-money options shown below have been calculated on the basis
of the initial public offering price of $ per share, less the applicable
exercise price per share, multiplied by the number of shares underlying those
options.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Number of Shares December 31, 1999 at December 31, 1999
Acquired Value ------------------------- -------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
---- ---------------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David R. Schmieg........ 77,057 $40,426 -- 693,514 $ $
Leon Garza.............. -- -- -- --
Laurence A. Hinz........ -- -- 19,408 73,809
David H. Rutchik........ -- -- 25,000 75,000
John B. Holmblad........ 16,369 -- 53,035 67,736
</TABLE>
66
<PAGE>
Common Stock and Options Owned as of March 31, 2000
The following table sets forth information regarding the number of shares
of common stock owned and the number of shares of common stock underlying
outstanding options held by each of our named executive officers as of March
31, 2000:
<TABLE>
<CAPTION>
Number of Securities
Underlying Options
-------------------------
Numbers of
Name Shares Owned Exercisable Unexercisable
- ---- ------------ ----------- -------------
<S> <C> <C> <C>
David R. Schmieg......................... 478,357 -- 863,643
Leon Garza............................... -- -- 257,142
Laurence A. Hinz......................... -- 27,976 229,167
David H. Rutchik......................... -- 25,000 225,000
John B. Holmblad......................... 55,059 21,488 153,455
</TABLE>
Employment Agreements
David R. Schmieg. We entered into an agreement with Mr. Schmieg to employ
him as our President and Chief Executive Officer, effective April 16, 1999. In
December 1999, Mr. Schmieg was elected Chairman of the Board. The agreement is
for a three-year term, but calls for an automatic two-year renewal unless
either Mr. Schmieg or we give advance notice to the contrary. Mr. Schmieg's
base salary is $400,000 per year, with the possibility for increases at the
discretion of the board of directors. In addition, Mr. Schmieg is eligible for
an annual performance-based bonus of up to 100% of his base salary.
If we terminate Mr. Schmieg's employment without cause or if he leaves the
company for various reasons set forth in the agreement, Mr. Schmieg is entitled
to continued payment of his base salary for one year from the date of
termination, provided he complies with the agreement's confidentiality, non-
solicitation, and non-competition provisions. If Mr. Schmieg's employment is
terminated as a result of death or disability, he is entitled to continued
payment of his base salary for a period of six months. The agreement also calls
for accelerated vesting of certain stock options held by Mr. Schmieg if his
employment is terminated on grounds other than for cause or by mutual agreement
between Mr. Schmieg and us.
Leon Garza. We have entered into an employment agreement with Mr. Garza to
employ him as our President and Chief Operating Officer, effective March 20,
2000. The agreement is for an initial term of three years, but calls for an
automatic two-year renewal unless either Mr. Garza or we give advance notice to
the contrary. Mr. Garza's base salary is $250,000 per year and he is eligible
for annual bonuses of up to 65% of his base salary.
If, within one year of the start of his employment, we terminate
Mr. Garza's employment without cause or if he leaves the company for various
reasons set forth in the agreement, Mr. Garza is entitled to six months'
severance pay and three months' accelerated vesting of stock option grants;
after more than one year of employment, he is entitled to 12 months' severance
pay and six months' accelerated vesting of stock option grants. Otherwise, the
severance provisions in Mr. Garza's employment agreement are the same as the
corresponding provisions in our employment agreement with Mr. Schmieg,
described above. Under the terms of his employment agreement, stock options
held by Mr. Garza will vest fully upon a change of control of the company.
Laurence A. Hinz. We have entered into an employment agreement with Mr.
Hinz to serve as our Chief Financial Officer, effective March 31, 2000. The
agreement is for a two-year term. Mr. Hinz's base salary is $195,000 and he is
eligible for annual bonuses of up to 50% of his base salary. Under the terms of
the agreement, stock options held by Mr. Hinz will vest upon a change of
control of the company. Upon the involuntary termination of his employment, Mr.
Hinz is entitled to nine months' severance pay and one year of accelerated
vesting of his stock options.
67
<PAGE>
David H. Rutchik. We have entered into an employment agreement with Mr.
Rutchik to employ him as our Executive Vice President, Corporate Development
and General Counsel, effective July 5, 1999. The agreement is for an initial
term of three years, but calls for an automatic two-year renewal unless either
Mr. Rutchik or we give advance notice to the contrary. Mr. Rutchik's base
salary is $190,000 per year and he is eligible for annual bonuses of up to 50%
of his base salary.
The severance provisions of Mr. Rutchik's employment agreement are the same
as the corresponding provisions in our employment agreement with Mr. Schmieg,
described above. Our agreement with Mr. Rutchik further provides that any stock
options held by him will vest upon an initial public offering or a change of
control of our company.
John B. Holmblad. We have entered into an agreement with Mr. Holmblad to
serve as our Executive Vice President and Chief Technology Officer. The
agreement does not have a fixed term. Mr. Holmblad's base salary is $190,000,
and the agreement calls for a performance-based bonus of up to 50%. Under the
terms of the agreement, stock options held by Mr. Holmblad will fully vest upon
a change of control of the company. Upon the involuntary termination of his
employment, Mr. Holmblad is entitled to nine months' severance pay and one year
accelerated vesting of stock options.
Each of Messrs. Schmieg, Garza, Hinz, Rutchik and Holmblad has entered into
a confidentiality and non-competition agreement with us. These agreements place
certain restrictions on the individuals' ability to own interests in or be
employed by entities that provide data and/or voice telecommunications services
in Latin America following their employment by us.
1996 and 1999 Stock Option Plans
Our 1996 stock option plan became effective on October 1, 1996 and was
recently amended on March 22, 2000. Our 1999 stock option plan became effective
on August 12, 1999, and was recently amended on January 26, 2000. The purposes
of the plans are to attract and retain personnel, to provide additional
incentive to employees, directors and consultants by increasing their ownership
interests in our company, and to promote the success of our business. We use
our 1996 plan to provide stock options for our own directors and employees and
we use the 1999 plan for the benefit of the directors and employees of our
subsidiaries. Our board of directors and compensation committee administer the
plans, determine the persons who will receive awards and establish the terms
and conditions of those awards.
Options granted under the plans may be either incentive or non-qualified
stock options, as determined by the board of directors and/or compensation
committee at the time of grant. Our employees, including officers and
directors, are eligible to receive both incentive and nonqualified stock
options. However, non-employee directors and consultants are eligible to
receive only nonqualified stock options.
The per share exercise price of incentive stock options granted to an
employee who, at the time of the grant, owns stock representing more than 10%
of the voting power of all classes of stock of Diveo or of any subsidiary, must
be no less than 110% of fair market value on the date of grant. The exercise
price of incentive stock options granted to any other employee must be no less
than fair market value on the date of grant. The board of directors and/or
compensation committee determines the exercise price of nonqualified stock
options at the time of grant.
The term of each option is established by the board of directors and/or
compensation committee, but may not be longer than ten years. In the case of an
incentive option granted to an employee who, at the time of the grant, owns
stock representing more than 10% of the voting power of all classes of our
stock or of any of our subsidiaries, the term may be no longer than 5 years.
Individual option grants vest over time, as determined by the board of
directors and/or compensation committee, which is generally four years. All
stock options granted under the 1996 plan vest automatically upon a change of
control, as defined in that plan.
Under the 1996 and 1999 plans, the maximum number of shares that may be
subject to outstanding awards is 3,379,205 and 1,107,976, respectively. As of
March 22, 2000, options for 5,310,346 shares had been granted. Each of the
plans has a 10 year term.
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<PAGE>
Compensation Committee Interlocks and Insider Participation
The members of the compensation committee of our board of directors are
Robert Benbow, Robert J. Goad, Muneer A. Satter, David L. Solomon and Kevin
Somerville. No member of the compensation committee serves as a member of the
board of directors or the compensation committee of any entity that has one or
more executive officers serving as a member of our board of directors or
compensation committee.
Certain of our stockholders who purchased our preferred stock in various
private equity offerings entered into a stockholders' agreement and a
registration rights agreement with us at the time of their investment. The
stockholders' agreement provided generally for representation on the board,
veto rights over certain corporate transactions, certain preemptive rights and
rights of first refusal on sales by fellow stockholders. The stockholders'
agreement will terminate upon closing of this offering. Affiliates of Goldman,
Sachs & Co. participated in the first, second and third tranches of our Class B
preferred stock offering in April, June and August 1999, respectively. Muneer
Satter is a Managing Director in the Principal Investment Area of Goldman
Sachs. In connection with this transaction, on April 16, 1999, we amended and
restated our stockholders' agreement to add affiliates of Goldman Sachs as
parties.
Affiliates of Columbia Management participated in the first and second
tranches of our Class B preferred stock offering in April and June 1999. Robert
J. Goad is President of Columbia Management. Meritage Private Equity Fund
participated in the second and third tranches of our Class B preferred stock
offering in June and August 1999. David L. Solomon is an Investment Director
for Meritage.
Certain other stockholders participated in our Class B preferred stock
offering, including Alta Communications. Robert F. Benbow currently serves as
the managing general partner of Alta.
During fiscal year 1999, we paid David L. Solomon approximately $110,000
under a consulting agreement that called for Mr. Solomon to provide us with
certain financial advisory services. We have terminated the agreement.
In a series of transactions that took place throughout fiscal year 1999, we
paid approximately $70,000 to Somerville & Company. Somerville & Company, of
which Kevin Somerville is the founder and Chief Executive Officer, provided
human resources consulting services including interviewing and hiring senior
personnel.
In addition, we granted several directors options to purchase shares of
common stock. The following table provides information regarding stock options
granted to the following directors:
<TABLE>
<CAPTION>
No. of
Securities Exercise
Underlying Price
Options Per Date of
Name Granted Share Grant
- ---- ---------- -------- -------
<S> <C> <C> <C>
Robert Goad......................................... 230,542 $4.34 4/19/99
David Solomon....................................... 31,250 $1.40 3/10/99
5,357 $4.34 1/26/00
Kevin Somerville.................................... 2,678 $1.40 3/10/99
35,714 $4.34 1/26/00
Somerville & Company................................ 3,714 $1.40 3/10/99
</TABLE>
For a description of certain other transactions, see "Related Party
Transactions."
69
<PAGE>
RELATED PARTY TRANSACTIONS
Agreement with Our Stockholders
Certain of our stockholders who purchased our preferred stock in various
private equity offerings entered into a stockholders agreement and a
registration rights agreement with us. The stockholders agreement will
terminate upon the closing of this offering. Affiliates of Goldman, Sachs & Co.
participated in the first, second and third tranches of our Class B preferred
stock offering in April, June and August 1999, respectively. Robert Gheewalla,
one of our directors, is a Vice President in the Principal Investment Area of
Goldman Sachs. In connection with this transaction, on April 16, 1999, we
amended and restated our stockholders' agreement with shareholders, to add
affiliates of Goldman Sachs as parties. For a description of the stockholders'
agreement, see "Management--Compensation Committee Interlocks and Insider
Participation."
Certain other stockholders participated in our Class B preferred stock
offering including Norwest Equity Capital. Blair Whitaker, another of our
directors, is the general partner of Norwest Venture Partners.
Affiliates of Texas Pacific Group, together with many of our existing
stockholders participated in our Class C preferred stock offering in March
2000. Richard Schifter, one of our directors, is a managing partner of Texas
Pacific Group. In connection with this transaction, on March 29, 2000, we
amended and restated our stockholders' agreement with our stockholders to,
among other things, add affiliates of Texas Pacific Group as parties.
Registration Rights Agreement
On March 29, 2000, we amended and restated our existing registration rights
agreement. The current registration rights restated agreement:
. provides certain of the stockholders with the ability to require us to
register their shares with the SEC beginning 180 days after we have made
a public offering of our shares;
. provides the stockholders with the ability to have their shares included
with any registration statement to be filed by us with the SEC; and
. provides for the circumstances in which these rights may be exercised
and the restrictions of such rights, including the number of times such
requests may be made, our ability to refuse such rights, the number of
shares to be registered and the payment of stockholders' expenses.
Option Grants to Director
Since January 1, 1999, we granted to Paolo Guidi, one of our directors, an
option to purchase 2,678 shares of common stock at an exercise price of $1.40
per share and an additional option to purchase 21,428 shares of common stock at
an exercise price of $4.34 per share.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to us regarding
the beneficial ownership of our common stock as of March 31, 2000, as adjusted
to reflect the sale of shares of common stock in this offering, the
conversion of all outstanding shares of our convertible preferred stock into
shares of common stock upon the closing of this offering and the proposed seven
to one reverse stock split, by:
. each person or group known by us to own beneficially more than 5% of our
outstanding common stock;
. each of our directors;
. each named executive officer; and
. all of our directors and executive officers as a group.
We have determined beneficial ownership in accordance with the rules of the
SEC. Unless otherwise indicated, the persons included in the table have sole
voting and investment power with respect to all shares beneficially owned.
Shares of common stock subject to options that are currently exercisable or are
exercisable within 60 days of March 31, 2000 are treated as outstanding and
beneficially owned, with respect to the person holding these options for the
purpose of computing the percentage ownership of that person. However, these
shares are not treated as outstanding for purposes of computing the percentage
ownership of any other person. Unless otherwise indicated, the business address
of the persons included in the table is Diveo Broadband Networks, Inc., 3201
New Mexico Ave., NW, Washington, D.C. 20016. The percentages in the "After the
Offering" column assume that the underwriters do not exercise their over-
allotment option to purchase up to additional shares.
<TABLE>
<CAPTION>
Percent of
Common Stock
Shares of Beneficially Owned
Common Stock --------------------
Beneficially Before the After the
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ ---------- ---------
<S> <C> <C> <C>
Beneficial Owners of more than 5% of common
stock
Alta Communications, Inc.(1)................ 6,824,502 13.2% %
Booth American Company(2)................... 3,464,786 6.7
GS Capital Partners III, L.P.(3)............ 11,437,074 22.0
Meritage Private Equity Fund, L.P.(4)....... 4,366,195 8.4
NAZCA Limited Partnership(5)................ 2,659,297 5.1
Newbridge Diginet Investors, L.P.(6)........ 4,735,596 9.1
Norwest Equity Capital, L.L.C.(7)........... 9,698,508 18.7
One Liberty Fund IV, L.P.(8)................ 3,267,597 6.3
</TABLE>
71
<PAGE>
<TABLE>
<CAPTION>
Percent of
Common Stock
Shares of Beneficially Owned
Common Stock --------------------
Beneficially Before the After the
Name and Address of Beneficial Owner Owned Offering Offering
- ------------------------------------ ------------ ---------- ---------
<S> <C> <C> <C>
Directors and Executive Officers
David R. Schmieg(9)......................... 703,107 1.4% %
Leon Garza.................................. -- --
Laurence A. Hinz(10)........................ 30,357 *
David H. Rutchik(11)........................ 25,000 *
John B. Holmblad(12)........................ 71,042 *
Robert Benbow(13)........................... -- --
Robert Gheewalla(3)......................... -- --
Robert J. Goad(14).......................... 489,361 *
Paolo Guidi(15)............................. 8,929 *
Muneer Satter(3)............................ -- --
Richard P. Schifter......................... -- --
David L. Solomon(16)........................ 211,398 *
Kevin Somerville(17)........................ 1,032,326 2.0
Blair Whitaker(7)........................... -- --
All directors and executive officers as a
group (14 persons)......................... 2,571,519 4.9
</TABLE>
- --------
* Less than 1%.
(1) Represents shares of common stock beneficially owned by investment funds
affiliated with AHA Communications Inc., of which Robert F. Benbow is a
managing general partner, including 2,881,776 shares and 115,271 shares
issuable upon the exercise of currently exercisable warrants held by Alta
Communications VII, 3,742,268 shares held by Alta Communications VI, L.P.
and 85,186 shares held by Alta Comm S by S. Mr. Benbow disclaims beneficial
ownership of the shares of common stock held by these funds, except to the
extent of his proportionate pecuniary interest in such funds. The address
of Alta Communications is One Embarcadero Center, Suite 4050, San
Francisco, CA 94111-3729.
(2) Includes 51,872 shares issuable upon the exercise of currently exercisable
warrants. The address of Booth American Company is 333 West Fort Street,
Detroit, MI 48226.
(3) Represents 8,100,179 shares and 124,339 shares issuable upon the exercise
of currently exercisable warrants held by GS Capital Partners III, L.P.,
2,226,834 shares and 34,182 shares issuable upon the exercise of currently
exercisable warrants held by GS Capital Partners III Offshore, 373,945
shares and 5,740 shares issuable upon the exercise of currently exercisable
warrants held by Goldman, Sachs & Co. Verwaltungs GmbH and 563,208 shares
and 8,645 shares issuable upon the exercise of currently exercisable
warrants held by Stone Street Fund 1999, L.P. Muneer A. Satter and Robert
Gheewalla are designees of GS Capital Partners. Each disclaims beneficial
ownership of shares except to the extent of his pecuniary interest therein,
if any. The address of GS Capital Partners III, L.P. is 85 Broad Street,
New York, NY 10004.
(4) Represents 3,828,280 shares held by Meritage Private Equity Fund, L.P.,
468,056 shares held by Meritage Private Equity Parallel Fund and 69,859
shares held by Meritage Entrepreneurs Fund, L.P. David Solomon is a
designee of Meritage Private Equity Fund. The address of Meritage Private
Equity Fund is 1600 Wynkoop Street, Suite 300, Denver, CO 80202.
(5) Represents 1,800,676 shares and 160,127 shares issuable upon the exercise
of currently exercisable warrants held by NAZCA Limited Partnership and
620,752 shares and 77,742 shares issuable upon the exercise of currently
exercisable warrants held by FRANCAREP. NAZCA and FRANCAREP are
72
<PAGE>
affiliates of the Rothschild family. The address of NAZCA Limited
Partnership is Anchorage Centre, Second Floor, P.O. Box 30715 SMB, Harbour
Drive, George Town, Grand Cayman, British West Indies.
(6) Richard Schifter is a designee of Newbridge Diginet Investors, L.P. The
address of Newbridge Diginet Investors is 1133 Connecticut Ave., NW, Suite
700, Washington, D.C. 20036.
(7) Blair Whitaker is a designee of Norwest Equity Capital, L.L.C. Mr.
Whitaker has reported that all voting and investment power with respect to
the shares is held solely by the Managing Members of Norwest Equity
Capital and he disclaims beneficial ownership of the shares, except to his
pecuniary interest therein. The address of Norwest Equity Capital, L.L.C.
is 245 Litton Avenue, Suite 250, Palo Alto, CA 94301.
(8) Represents 3,066,438 shares and 34,581 shares issuable upon the exercise
of currently exercisable warrants held by OneLiberty Fund IV, L.P. and
164,849 shares and 1,729 shares issuable upon the exercise of currently
exercisable warrants held by OneLiberty Advisors Fund IV, L.P. The address
of OneLiberty Fund IV is 150 Cambridge Park Drive, Cambridge, MA 02140.
(9) Includes 224,750 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.
(10) Represents shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.
(11) Represents shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.
(12) Includes 24,911 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000.
(13) The address of Robert Benbow is One Embarcadero Center, Suite 4050, San
Francisco, CA 94111-3729.
(14) Includes 5,764 shares issuable upon the exercise of currently exercisable
warrants and 83,251 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000. These securities are held
of record by Columbia Management, Inc., of which Mr. Goad is President.
Mr. Goad is the designee of Columbia Management on our board of
directors.
(15) Represents shares issuable upon the exercise of options exercisable
within 60 days of March 31, 2000. The address of Paolo Guidi is 11480
Commerce Park Drive, Reston, VA 20191.
(16) Includes 2,786 shares issuable upon the exercise of currently exercisable
warrants and 49,405 shares issuable upon the exercise of options
exercisable within 60 days of March 31, 2000.
(17) Represents 193,281 shares and 10,417 shares issuable upon the exercise of
options exercisable within 60 days of March 31, 2000 held by Kevin
Somerville, 128,663 shares held by Somerville & Co. and 682,674 shares
and 17,291 shares issuable upon the exercise of currently exercisable
warrants held by Norwest Bank Colorado, N.A., Trustee of the Somerville &
Co. PSP, FBO Kevin Somerville. Mr. Somerville has reported that he shares
voting and dispositive power over the shares held by Somerville & Co. and
the Somerville & Co. PSP. The address of Mr. Somerville is 727 E. 16th
Ave., Denver, CO 80203.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect our common stock's prevailing market price. Upon completion of
this offering, and after the automatic conversion of shares of preferred stock
outstanding prior to this offering, we will have outstanding an aggregate of
shares of our common stock, assuming no exercise of the underwriters over-
allotment option and no exercise of outstanding options. Of these shares, all
of the shares sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless the shares are
purchased by our "affiliates" as that term is defined in Rule 144 under the
Securities Act.
The remaining 51,394,331 shares of common stock held by existing
stockholders are "restricted securities" as that term is defined in Rule 144
under the Securities Act. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Securities Act Rule 144 or 701. We summarize these two rules below. Rules
144 and 701 provide that the restricted securities will be available for sale
in the public market on the date that is one year from the date they were
issued, subject to the volume limitations and other conditions of Rule 144.
The information presented herein is adjusted to reflect the conversion of
all outstanding shares of our convertible preferred stock into shares of common
stock upon closing of this offering and the proposed seven to one reverse stock
split.
Lock-Up Agreements
All of our officers and directors, the most senior employee of each
operating subsidiary and several of our stockholders, who will own an aggregate
of 52,087,151 shares (of which 2,274,780 shares are issuable upon the exercise
of options) of common stock after this offering closes, have signed lock-up
agreements. Under these agreements, they have agreed, among other things, not
to transfer or dispose of any shares of common stock, or any securities
convertible into shares of common stock, for a period of 180 days after the
date of this prospectus. Transfers or dispositions can be made sooner with the
prior written consent of Goldman, Sachs & Co. This consent may be given at any
time without public notice.
Rule 144
Under Rule 144, 39,645,336 shares of common stock will be freely tradable
90 days after this offering closes. Of these shares of common stock, 39,099,425
shares are subject to lock-up agreements. In general, under Rule 144, beginning
90 days after the closing of this offering, a person who has owned shares of
our common stock for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
. one percent of the number of shares of common stock then outstanding,
which will equal approximately shares immediately after this
offering; or
. the average weekly trading volume of the common stock on The Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to manner of sale provisions and
notice requirements and to the availability of current public information about
us. Persons who are our affiliates must also comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement,
in order to sell shares of our common stock in the public that are not
restricted securities.
Under Rule 144(k), 585,226 shares of common stock will be freely tradable
after this offering closes. Under Rule 144(k), a person who is not one of our
affiliates at any time during the 90 days preceding a sale, and who has owned
the shares proposed to be sold for at least two years, is entitled to sell the
shares without complying with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Therefore, unless otherwise
restricted, "Rule 144(k) shares" may be sold immediately upon the completion of
this offering.
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<PAGE>
Rule 701
As of the date of this prospectus, a total of 4,905,421 shares of common
stock have been issued or are issuable upon the exercise of options. All of
these shares, subject to option vesting, will be eligible for sale in reliance
on Rule 701 beginning 90 days after the closing of this offering. Of these
shares of common stock, 2,274,780 are subject to lock-up agreements. In
general, under Rule 701 as currently in effect, any of our employees,
consultants or advisors who has purchased shares from us in connection with a
compensatory plan or other agreement is eligible to resell such shares 90 days
after the effective date of this offering in reliance on Rule 144, but without
compliance with restrictions, including the holding period, contained in Rule
144.
Registration Rights
180 days after the completion of this offering, most of our stockholders,
who will own an aggregate of 51,071,921 shares of common stock, will have
registration rights as to their shares. Of these shares of common stock,
50,055,786 shares are subject to lock-up agreements. Under certain
circumstances, these stockholders, or their transferees, will be entitled to
demand that we register their shares. In addition, all of the stockholders who
have registration rights are entitled to piggyback registration. See "Related
Party Transactions--Registration Rights Agreement." After registration, these
shares will be freely tradable without restriction under the Securities Act,
unless the shares are purchased by affiliates. Any sales of securities by these
stockholders could have a material adverse effect on the trading price of our
common stock.
Stock Option Plans
We intend to file a registration statement under the Securities Act
covering 4,923,743 shares of common stock reserved for issuance under our stock
option plans. As of the date of this prospectus, options to purchase shares
of common stock were outstanding. The registration statement is expected to be
filed and become effective after the effective date of this offering.
Accordingly, shares registered under such registration statement will, subject
to vesting provisions and Rule 144 volume limitations applicable to our
affiliates, be available for sale in the open market shortly after this
offering closes, and in the case of our officers, directors, the most senior
employee of each operating subsidiary, and most stockholders who have entered
into lock-up agreements, after the 180-day lock-up agreements expire.
75
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
The information presented herein is adjusted to reflect the conversion of
all outstanding shares of our convertible preferred stock into shares of common
stock upon the closing of this offering and the proposed seven to one reverse
stock split. Our authorized capital stock consists of 477,324,819 shares of
common stock, 67,159,073 shares of non-voting common stock and 403,865,714
shares of preferred stock, each with a par value of $.0001 per share.
Common Stock
As of the date of this prospectus, there were 3,440,807 shares of common
stock outstanding and held of record by 21 stockholders. Based upon the number
of shares outstanding as of the date of this prospectus and giving effect to
the issuance of shares of common stock by us in this offering and the
conversion of the outstanding preferred stock upon the closing of this offering
there will be shares of common stock outstanding upon completion of this
offering.
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of stockholders. They do not have cumulative voting
rights. As a result, holders of a majority of the shares of common stock
entitled to vote in any election of directors may elect all of the directors
standing for election. Holders of common stock are entitled to receive ratably,
dividends, if any, as the board of directors may declare out of funds legally
available, subject to any preferential dividend rights of any then-outstanding
preferred stock. Upon our liquidation, dissolution or winding up, the holders
of common stock are entitled to receive ratably the net assets available after
the payment of all our debts and other liabilities and subject to the prior
rights of any then-outstanding preferred stock. Holders of the common stock
have no preemptive, subscription, redemption or conversion rights. The
outstanding shares of common stock are, and the shares offered by us in the
offering will be, when issued in consideration for payment, fully paid and
nonassessable. The rights, preferences and privileges of holders of common
stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future. See "--Preferred Stock."
Non-voting Common Stock
We have one stockholder who, because of certain bank holding company
regulatory restrictions, owns shares of our non-voting common stock. Our non-
voting common stock is identical to our common stock except in two respects.
First, our non-voting common stock is not entitled to any voting rights, except
as required by law. Second, holders of our non-voting common stock may, at the
option of the holder (unless the holder is subject to certain restrictions
under the Bank Holding Company Act of 1956, as amended, and the regulations
thereunder), convert shares of non-voting common stock into fully paid and non-
assessable shares of common stock on a share-for-share basis.
Preferred Stock
Upon the consummation of this offering, all of our preferred stock
outstanding immediately prior to this offering will be converted into shares of
our common stock. Therefore, the following information pertains to any
preferred stock that we may issue in the future pursuant to our certificate of
incorporation.
Following the closing of this offering, the board of directors will be
authorized, without further stockholder approval, to issue from time to time up
to an aggregate of shares of preferred stock in one or more series. The
board of directors may fix or alter the designations, preferences, rights and
any qualification, limitations or restrictions of the shares of any series,
including the dividend rights, dividend rates, conversion rights, voting
rights, redemption terms and prices, liquidation preferences and the numbers of
shares constituting any series. As of the closing of this offering, no shares
of preferred stock will be outstanding. Although the ability of the board of
directors to designate and issue preferred stock
76
<PAGE>
could provide flexibility in possible acquisitions or other corporate purposes,
issuance of preferred stock may have adverse effects on the holders of common
stock. The effects include:
. restrictions on dividends on the common stock if dividends on the
preferred stock have not been paid;
. dilution of voting power of the common stock to the extent the preferred
stock has voting rights; or
. deferral of participation in our assets upon liquidation until
satisfaction of any liquidation preference granted to holders of the
preferred stock.
In addition, issuance of preferred stock could make it more difficult for a
third party to acquire a majority of the outstanding voting stock and
accordingly may be used as an "anti-takeover" device. The board of directors,
however, currently does not contemplate the issuance of any preferred stock and
is not aware of any pending transactions that would be affected by such
issuance.
Warrants
As of the date of this prospectus, warrants were outstanding to purchase an
aggregate of 368,723 shares of our series A-2 preferred stock at an exercise
price of $3.833 per share. These warrants will expire on the earlier of June 1,
2005 or the closing of an underwritten public offering. Also as of the date of
this prospectus, warrants were outstanding to purchase an aggregate of 576,356
shares of our series B-1 preferred stock at an exercise price of $4.338 per
share. These warrants will expire on April 16, 2009. Generally, each warrant
contains provisions for the adjustment of the exercise price and the aggregate
number of shares issuable upon the exercise of the warrant under certain
circumstances, including stock dividends, stock splits, reorganizations,
reclassifications or consolidations. At the close of this offering, all
outstanding shares of our preferred stock will automatically convert to shares
of our common stock, and all warrants to purchase shares of our series B-1
preferred stock will automatically convert to warrants to purchase shares of
our common stock.
Limitation of Liability and Indemnification Matters
Our certificate of incorporation limits the liability of our directors to
us or our stockholders to the fullest extent permitted by Delaware law.
Specifically, the certificate of incorporation provides that our directors
shall not be personally liable to us or our stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (1) for any
breach of the director's duty of loyalty to us or our stockholders, (2) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (3) under a provision of Delaware law relating to
unlawful payment of dividends or unlawful stock purchase or redemption of stock
or (4) for any transaction from which the director derives an improper personal
benefit. 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 bylaws provide for the indemnification of directors and officers and
any person who is or was serving at our request as a director or officer to the
fullest extent authorized by, and subject to the conditions set forth in, the
Delaware General Corporation Law against all expenses, liabilities and losses.
The indemnification provided under the bylaws includes the right to be paid for
expenses incurred in connection with indemnifiable claims. In addition, we
maintain directors' and officers' liability insurance.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is .
77
<PAGE>
UNDERWRITING
Diveo and the underwriters named below have entered into an underwriting
agreement with respect to the shares being offered. Subject to certain
conditions, each underwriter has severally agreed to purchase the number of
shares indicated in the following table. Goldman, Sachs & Co. and Salomon Smith
Barney Inc. are the representatives of the underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co......................................
Salomon Smith Barney Inc.................................
--------
Total..................................................
========
</TABLE>
If the underwriters sell more shares than the total number set forth in the
table above, the underwriters have an option to buy up to an additional
shares from Diveo to cover such sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the underwriters
will severally purchase shares in approximately the same proportion as set
forth in the table above.
The following table shows the per share and total underwriting discounts to
be paid to the underwriters by Diveo. Such amounts are shown assuming both no
exercise and full exercise of the underwriters' option to purchase additional
shares.
<TABLE>
<CAPTION>
Paid by Diveo
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share....................................... $ $
Total........................................... $ $
</TABLE>
Shares sold by the underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price. Any
such securities dealer may resell any shares purchased from the underwriters to
certain other brokers or dealers at a discount of up to $ per share from the
initial public offering price. If all the shares are not sold at the initial
public offering price, the representatives may change the offering price and
the other selling terms.
Diveo and its directors, officers and holders of substantially all of its
common stock have agreed with the underwriters not to dispose of or hedge any
of their common stock or securities convertible into or exchangeable for shares
of common stock during the period from the date of this prospectus continuing
through the date 180 days after the date of this prospectus, except with the
prior written consent of Goldman, Sachs & Co. Please see "Shares Eligible for
Future Sale" for a discussion of transfer restrictions.
Prior to the offering, there has been no public market for the shares. The
initial public offering price has been negotiated among Diveo and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Diveo's historical performance, estimates of the business
potential and earnings prospects of Diveo, an assessment of Diveo's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
We have applied to have the common stock quoted on The Nasdaq National
Market under the symbol " ."
78
<PAGE>
In connection with the offering, the underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while the offering is in progress.
The underwriters also may impose a penalty bid. This occurs when a
particular underwriter repays to the other underwriters a portion of the
underwriting discount received by it because the representatives have
repurchased shares sold by or for the account of such underwriter in
stabilizing or short covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
underwriters at any time. These transactions may be effected on The Nasdaq
National Market, in the over-the-counter market or otherwise.
At the request of Diveo, the underwriters are reserving up to shares of
common stock for sale at the initial public offering price to certain of
Diveo's directors, employees and associates through a directed share program.
The number of shares of common stock available for sale to the general public
will be reduced to the extent these persons purchase these reserved shares. Any
reserved shares not so purchased will be offered to the general public on the
same basis as the other shares offered by this prospectus.
The underwriters may not confirm sales to any discretionary account without
the prior specific written approval of the customer.
Goldman, Sachs & Co. may use this prospectus in connection with offers and
sales related to market-making transactions in the shares of common stock.
Goldman, Sachs & Co. may act as principal or agent in such transactions,
including as agent for the counterparty when acting as principal or agent for
both counterparties, and may receive compensation in the form of discounts and
commissions, including from both counterparties when they act as agent for both
such parties. Such sales will be made at prevailing market prices at the time
of sale, at prices related to prevailing market prices or negotiated prices.
Diveo estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately $ .
The Underwriters have agreed to reimburse Diveo for certain expenses incurred
by Diveo in connection with the offering.
Diveo has agreed to indemnify the several underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
Pursuant to our shareholders agreement, an affiliate of Goldman, Sachs &
Co. has designated Robert Gheewalla and Muneer Satter as directors. Upon the
consummation of this offering, such affiliate shall no longer have a
contractual right to nominate any directors.
Because an affiliate of Goldman, Sachs & Co. beneficially owns more than
10% of Diveo's shares, the offering is being conducted in accordance with Rule
2720 of the National Association of Securities Dealers, Inc. That rule requires
that the initial public offering price be no higher than that recommended by a
"qualified independent underwriter," as defined by the NASD. Salomon Smith
Barney Inc. has served in that capacity and has performed due diligence
investigations and reviewed and participated in the preparation of the
registration statement of which this prospectus forms a part.
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<PAGE>
LEGAL MATTERS
The validity of the shares of common stock being offered hereby and other
legal matters will be passed upon for Diveo by Hogan & Hartson L.L.P.,
Washington, D.C. Legal matters in connection with the offering will be passed
upon for the underwriters by Shearman & Sterling, New York, New York.
EXPERTS
Our consolidated financial statements at December 31, 1999 and 1998 and for
each of the three years in the period ended December 31, 1999 appearing in this
prospectus have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere in this prospectus and are
included in reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
ENFORCEABILITY OF CIVIL LIABILITIES
Although we are a corporation organized under the laws of the State of
Delaware, our principal operations are in various Latin American countries.
Substantially all of our assets are located in Argentina, Brazil, Colombia,
Panama, Peru and Uruguay. As a result, investors in our common stock may not be
able to enforce against us in U.S. courts judgments predicated upon the civil
liability provisions of the federal securities laws of the United States. There
is doubt as to enforceability in original actions in courts of each of the
foregoing Latin American jurisdictions of liabilities predicated solely on U.S.
federal securities laws and as to the enforceability in the courts in each of
those Latin American jurisdictions of judgments of U.S. courts obtained in
actions predicated upon the civil liability provisions of U.S. federal
securities laws.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1. It
includes exhibits and schedules. This prospectus is a part of the registration
statement, but it does not contain all of the information that is in the
registration statement, which contains more information about Diveo and the
common stock. Statements contained in this prospectus concerning the provisions
of documents filed as exhibits to the registration statement are necessarily
summaries that disclose the material terms of such documents. Each of these
statements is qualified in its entirety by reference to the copy of the
applicable document filed with the SEC. You may read and copy all or any
portion of the registration statement at the SEC's public reference room at 450
Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of
these documents, upon payment of a duplicating fee, by writing to the SEC.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room's operations. The registration statement is also available to
you on the SEC's Internet site (http://www.sec.gov). We intend to furnish our
stockholders with annual reports containing financial statements audited by
independent public accountants and quarterly reports containing unaudited
financial statements for the first three quarters of each fiscal year.
We have not taken any action to permit a public offering of our shares of
common stock outside the United States or to permit the possession or
distribution of this prospectus outside the United States. Persons outside the
United States who come into possession of this prospectus must inform
themselves about and observe any restrictions relating to the offering of the
shares of common stock and the distribution of this prospectus outside the
United States.
Our logo and certain titles and logos of our services are our trademarks.
Each trademark, trade name or service mark of any other company appearing in
this prospectus belongs to its holder. The terms of our service marks or
trademarks are registered or otherwise protected under the laws of various
jurisdictions.
80
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Diveo Broadband Networks, Inc. (formerly Diginet Americas, Inc.)
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)................... F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Diveo Broadband Networks, Inc.
We have audited the accompanying consolidated balance sheets of Diveo
Broadband Networks, Inc. (formerly Diginet Americas, Inc.) and subsidiaries as
of December 31, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity (deficit), 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 Diveo
Broadband Networks, Inc. (formerly Diginet Americas, Inc.) and subsidiaries as
of December 31, 1999 and 1998, 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.
Ernst & Young LLP
McLean, VA
March 8, 2000, except for
Note 14, as to which the
date is April , 2000
- --------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon the completion
of the restatement of the capital accounts described in Note 14 to the
consolidated financial statements.
/s/ Ernst & Young LLP
McLean, Virginia
March 31, 2000
F-2
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1999
-------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 12,954 $ 17,537
Short-term investments................................. -- 64,751
Accounts receivable, net of allowance for doubtful
accounts of $0 and $23 at December 31, 1998 and 1999,
respectively.......................................... 23 262
Recoverable taxes...................................... 713 5,189
Prepaid expenses and other current assets.............. 263 559
-------- ---------
Total current assets................................. 13,953 88,298
Property and equipment, net.............................. 5,014 34,339
Spectrum and operating licenses, net..................... 4,708 10,950
Other.................................................... 505 4,146
-------- ---------
Total assets......................................... $ 24,180 $ 137,733
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities............... $ 2,812 $ 10,929
Accrued compensation................................... 334 2,613
Long-term debt--current portion........................ 452 1,277
-------- ---------
Total current liabilities............................ 3,598 14,819
Long-term debt, net of current portion................... 477 14,806
-------- ---------
Total liabilities........................................ 4,075 29,625
Stockholders' equity:
Class A convertible preferred stock, $0.0001 par value,
101,750,000 shares authorized, 8,077,782 shares issued
and outstanding at December 31, 1998 and 1999;
liquidation preference of $38,381,305 at December 31,
1999.................................................... 30,529 30,529
Class B convertible preferred stock, $0.0001 par value,
201,200,000 shares authorized, 26,546,899 shares issued
and outstanding at December 31, 1999; liquidation
preference of $123,865,616 at December 31, 1999......... -- 112,720
Common stock, $0.0001 par value, 400,000,000 shares
authorized, 1,945,090 and 2,147,726 shares issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ -- --
Non voting common stock, $0.0001 par value, 60,000,000
shares authorized, no shares issued and outstanding .... -- --
Additional paid-in capital............................... 78 299
Accumulated deficit...................................... (10,502) (35,440)
-------- ---------
Total stockholders' equity............................... 20,105 108,108
-------- ---------
Total liabilities and stockholders' equity............... $ 24,180 $ 137,733
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Revenues:
Digital Dedicated Access services......... $ -- $ 24 $ 927
Dedicated Internet services............... -- -- 216
--------- --------- ----------
Total revenues.......................... -- 24 1,143
Costs and expenses:
Technical and operating................... -- 692 3,276
Sales and marketing....................... -- 260 2,403
General and administrative................ 922 3,134 6,535
Salaries and benefits..................... 415 4,503 13,032
Depreciation and amortization............. 3 376 2,511
--------- --------- ----------
Total costs and expenses................ 1,340 8,965 27,757
--------- --------- ----------
Loss from operations........................ (1,340) (8,941) (26,614)
Other income (expense):
Interest income........................... 24 531 2,579
Interest expense.......................... (264) (391) (551)
Other, net................................ -- (30) (247)
--------- --------- ----------
Loss before provision for income taxes...... (1,580) (8,831) (24,833)
Provision for income taxes.................. -- -- (105)
--------- --------- ----------
Net loss.................................... $ (1,580) $ (8,831) $ (24,938)
========= ========= ==========
Basic and diluted net loss per share........ $ (0.85) $ (4.66) $ (12.23)
========= ========= ==========
Pro forma basic and diluted net loss per
share...................................... $ (0.94)
==========
Shares used in calculation of net loss per
share:
Basic and diluted......................... 1,867,296 1,894,598 2,039,097
========= ========= ==========
Pro forma basic and diluted............... 26,451,334
==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
Class A Class B Total
Preferred Stock Preferred Stock Common Stock Additional Stockholders'
----------------- ------------------- ---------------- Paid-In Accumulated Equity
Shares Amount Shares Amount Shares Amount Capital Deficit (Deficit)
--------- ------- ---------- -------- --------- ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996................... -- $ -- -- $ -- 1,857,142 $ -- $ 1 $ (91) $ (90)
Exercise of options..... -- -- -- -- 14,591 -- -- -- --
Net loss for 1997....... -- -- -- -- -- -- -- (1,580) (1,580)
--------- ------- ---------- -------- --------- ----- ---- -------- --------
Balance at December 31,
1997................... -- -- -- -- 1,871,733 -- 1 (1,671) (1,670)
Issuance of Class A
preferred stock, net of
offering costs of
$428,780............... 8,077,782 30,529 -- -- -- -- -- -- 30,529
Exercise of options..... -- -- -- -- 73,357 -- 5 -- 5
Options for services
rendered............... -- -- -- -- -- -- 72 -- 72
Net loss for 1998....... -- -- -- -- -- -- -- (8,831) (8,831)
--------- ------- ---------- -------- --------- ----- ---- -------- --------
Balance at December 31,
1998................... 8,077,782 30,529 -- -- 1,945,090 -- 78 (10,502) 20,105
Issuance of Class B
preferred stock, net of
offering costs of
$2,429,752............. -- -- 26,546,899 112,720 -- -- -- -- 112,720
Exercise of options..... -- -- -- -- 202,636 -- 174 -- 174
Options for services
rendered............... -- -- -- -- -- -- 47 -- 47
Net loss for 1999....... -- -- -- -- -- -- -- (24,938) (24,938)
--------- ------- ---------- -------- --------- ----- ---- -------- --------
Balance at December 31,
1999................... 8,077,782 $30,529 26,546,899 $112,720 2,147,726 $ -- $299 $(35,440) $108,108
========= ======= ========== ======== ========= ===== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------
1997 1998 1999
------- ------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss......................................... $(1,580) $(8,831) $ (24,938)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation of property and equipment......... -- 115 1,857
Amortization of spectrum and operating
licenses...................................... 3 261 654
Non-cash interest expense...................... -- -- 285
Non-cash stock-based compensation.............. -- 72 47
Write-off of capitalized spectrum and operating
licenses...................................... -- -- 105
Changes in operating assets and liabilities:
Accounts receivable.......................... -- (23) (239)
Recoverable taxes............................ (10) (703) (4,476)
Prepaid expenses and other current assets.... (36) (227) (296)
Other assets................................. (45) 17 (2,023)
Accounts payable and accrued liabilities..... 937 595 8,117
Accrued compensation......................... 159 175 2,279
------- ------- ---------
Net cash used in operating activities............ (572) (8,549) (18,628)
Cash flows from investing activities:
Capital expenditures........................... (114) (2,807) (28,682)
Purchase of short-term investments............. (1,481) -- (64,751)
Sale of short-term investments................. -- 1,481 --
Purchase of performance bonds.................. (448) -- (300)
Acquisition of spectrum and operating
licenses...................................... (1,790) (3,103) (7,001)
------- ------- ---------
Net cash used in investing activities............ (3,833) (4,429) (100,734)
Cash flows from financing activities:
Proceeds from issuance of common stock......... 1 5 174
Proceeds from issuance of Preferred Stock,
net........................................... -- 21,735 112,720
Proceeds from long-term debt................... -- -- 12,548
Repayments of long-term debt................... -- -- (1,497)
Proceeds from the issuance of convertible
debentures.................................... 3,250 5,500 --
Repayment of convertible debentures............ -- (500) --
Proceeds from notes payable to stockholders.... 1,408 -- --
Repayment of notes payable to stockholders..... -- (1,064) --
------- ------- ---------
Net cash provided by financing activities........ 4,659 25,676 123,945
Increase in cash and cash equivalents............ 254 12,698 4,583
Cash and cash equivalents at beginning of year... 2 256 12,954
------- ------- ---------
Cash and cash equivalents at end of year......... $ 256 $12,954 $ 17,537
======= ======= =========
Supplemental disclosure of cash flow information:
Interest paid.................................. $ 1 $ 136 $ 282
======= ======= =========
Income taxes paid.............................. $ -- $ -- $ --
======= ======= =========
Supplemental disclosure of non-cash investing and
financing activities:
Debt issued for the acquisition of equipment..... $ -- $ 2,207 $ 2,500
======= ======= =========
Conversion of debt to Preferred Stock............ $ -- $ 8,794 $ --
======= ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business
Diveo Broadband Networks, Inc. (the "Company"), formerly known as Diginet
Americas, Inc., was incorporated in October 1996 as a Delaware corporation. The
Company has incorporated in Delaware subsidiaries for the purpose of owning the
entities incorporated by the Company in each of the Company's operating
markets.
The Company seeks to become a leading facilities-based provider of
integrated Internet, data and voice services in high growth urban markets
throughout Latin America. Through the Company's local fixed wireless broadband
access networks, the Company currently provides large and medium-sized
corporations, telecommunications carriers, Internet service providers, content
and e-commerce providers and system integrators with high-speed data transport
and Internet access. The Company's communications services are subject to
varying degrees of governmental regulation in the operating markets. The
Company launched services in Buenos Aires, Argentina in March 1999 and in Sao
Paulo, Brazil in December 1999.
2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of Diveo
Broadband Networks, Inc. and its subsidiaries. All material intercompany
transactions and accounts have been eliminated in consolidation.
Development Stage Company
During 1999, the Company commenced commercial operations by launching its
services in Buenos Aires, Argentina and Sao Paulo, Brazil. Accordingly, as of
December 31, 1999, the Company is no longer considered to be in the development
stage as defined in Statement of Financial Accounting Standards No. 7,
"Accounting and Reporting by Development Stage Enterprises."
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the U.S.
Dollar. The monetary assets and liabilities of the Company's foreign
subsidiaries are re-measured into U.S. Dollars at the exchange rate in effect
at the balance sheet date. Non-monetary assets and liabilities are re-measured
at historical rates. Revenues, expenses, gains and losses are re-measured at
the average exchange rates for the period. Resulting re-measurement losses are
recognized in results of operations and amounted to $4,000, $6,000 and $179,000
for the years ended December 31, 1997, 1998 and 1999, respectively. Foreign
currency gains or losses resulting from transactions being denominated in
currency other than the local currency have not been significant to date.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make use of estimates and
assumptions that affect amounts in the financial statements and accompanying
notes. Actual results could differ from those estimates.
F-7
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Business and Concentrations of Credit Risk
The Company is developing communications systems in Latin America. Each of
the Company's subsidiaries has a unique and distinct market, operating
environment, and local economy. Achieving each operating plan is dependent on
successfully contending not only with normal risks associated with constructing
and operating communication networks, but also risks unique to operating in
foreign countries, such as regulatory compliance, contractual restrictions,
labor laws, expropriation, nationalization, political, economic or social
instability, and confiscatory taxation.
The Company places its cash and investments with financial institutions.
Essentially all of the Company's cash and short-term investments are with two
institutions at December 31, 1999. The Company's cash and short-term
investments are comprised mainly of high-credit quality corporate commercial
paper and money market funds. As a result, substantially all of the cash, cash
equivalents and short-term investments at December 31, 1999 are uninsured.
Management believes that the financial risks associated with such investments
are minimal. With respect to accounts receivable, the Company performs ongoing
credit evaluations of its customers, generally does not require collateral, and
maintains an allowance for doubtful accounts based on historical experience and
management's expectations. For the year ended December 31, 1999, one customer
in Buenos Aires, Argentina represented approximately 20% of the Company's
consolidated revenues.
Financial Instruments
The carrying value of the Company's financial instruments including cash
and cash equivalents, accounts receivable, accounts payable and accrued
liabilities and equipment financing debt approximates fair value.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of less than three months to be cash equivalents. Cash
equivalents consist of cash in banks, insured money market accounts, money
market mutual fund shares and qualifying corporate commercial paper.
Included in prepaid expenses and other current assets is approximately
$600,000 of restricted cash at December 31, 1999. The restricted cash
represents cash held in escrow in connection with the Company's acquisition of
spectrum and an operating license in Peru (see Note 4).
Short-Term Investments
Short-term investments consist of high-credit quality commercial debt and
shares of mutual funds that invest in short and medium term U.S. government
bonds and T-bills with maturities of less than one year. The short-term
investments are classified as available for sale and the carrying amount
approximates fair value.
Recoverable Taxes
Recoverable taxes relate to value-added taxes (VAT) incurred on the supply
of goods and services purchased by the Company and are eventually borne by the
final consumer. VAT payments made by the Company on the build-out of its
communications networks are recovered from customers as services are provided.
Since the Company believes that the value-added tax receivable is realizable,
the Company has not recorded a reserve against the asset.
F-8
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Property and Equipment
Property and equipment is stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
related assets beginning on the date those assets are put in service.
The Company constructs certain of its own network systems and related
facilities. Certain internal costs directly related to the construction of such
facilities, including a portion of the salaries, benefits and taxes of some
employees are capitalized. The Company also capitalizes interest expense, to
the extent incurred, as a component of the cost of the construction of its own
network systems and related facilities. During the year ended December 31,
1999, the Company capitalized interest expense of $185,000.
As of December 31, 1999, portions of the Company's telecommunications
service equipment was in use in a testing phase for several customers in
Colombia and certain markets in Brazil. Accordingly, such telecommunications
service equipment was not being depreciated during 1999.
Costs incurred during the application development stage for internal use
software, as well as costs incurred for website development, are capitalized as
incurred in accordance with Statement of Position No. 98-1, "Accounting for the
Cost of Computer Software Developed or Obtained for Internal Use." Such costs
amounted to approximately $0, $55,290, and $541,011 during the years ended
December 31, 1997, 1998 and 1999, respectively. The Company amortizes the
capitalized amounts over a three-year period.
Spectrum and Operating Licenses
Spectrum and operating licenses are amortized using the straight-line
method over the license grant period, usually 10 to 20 years, beginning the
date the license is granted to the Company. Acquired spectrum and operating
licenses are amortized using the straight-line method over the remaining
license grant period. The Company is currently amortizing its spectrum and
operating licenses for Argentina, Brazil, Colombia, Panama and Peru. The
Company is required to pay recurring fees to maintain its spectrum and
operating licenses. Such fees are expensed as incurred.
Other Assets
Included in other assets is approximately $2.5 million of debt issuance
costs that originated in connection with the Company's equipment financing
debt. The Company is amortizing the debt issuance costs to interest expense
over the five year term of the related equipment financing debt.
During 1999, the Company and certain of its subsidiaries entered into three
party arrangements with a financial institution whereby an aggregate of
approximately $4.1 million was borrowed by the subsidiaries and concurrently, a
like amount certificate of deposit was placed at the financial institution by
the Company. The arrangements establish a right of setoff and, accordingly, the
amounts have been netted for purposes of the consolidated financial statement
presentation.
Recoverability of Long-Lived Assets
The recoverability of licenses and property and equipment is dependent upon
the successful build-out of communication networks, especially fixed wireless
communication networks, in each of the respective markets in which the Company
plans to be operating or through the sale of such assets.
F-9
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, management periodically reviews, if an impairment indicator
exists, the carrying value and lives of spectrum licenses and property and
equipment it owns. If the expected future cash flows from the use of these
assets (undiscounted and without interest charges) are less than the carrying
value, the Company's policy is to record a write-down that is determined based
on the difference between the carrying value of the asset and its estimated
fair value. During 1999, the Company recorded an impairment charge related to
capitalized spectrum and operating license costs for Mexico. See Note 4.
Stock-Based Compensation
The Company accounts for its stock-based compensation in accordance with
APB No. 25, Accounting for Stock Issued to Employees ("APB 25") using the
intrinsic value method. Stock-based compensation related to options granted to
non-employees is accounted for using the fair value method in accordance with
Statement of Financial Accounting Standard No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"). The Company has made pro forma disclosures required
by FAS 123 for all options granted.
Revenue Recognition
Revenues from providing digital dedicated access and Internet access and
connectivity services are recognized as services are rendered based on
contractual access fees. The Company provides services to customers under
contracts that typically range from one to three years. The Company provides
services to end-user business customers and to other telecommunications service
providers, Internet service providers and systems integrators.
The Company recognizes non-refundable installation fees upon the customers'
acceptance of the completed installation.
Advertising Costs
The Company expenses advertising as incurred. Advertising expense was $0,
$231,000, and $1,326,000 for the years ended December 31, 1997, 1998, and 1999,
respectively.
Start-Up Costs
The Company has expensed all start-up costs as incurred since inception.
Income Taxes
The Company accounts for its income taxes using the liability method.
Comprehensive Loss
For the years ended December 31, 1997, 1998 and 1999, the Company's net
loss reflects comprehensive loss and accordingly, no additional disclosure is
presented.
F-10
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Net Loss Per Share and Pro Forma Net Loss Per Share
Basic net loss per share is based on the weighted average shares
outstanding during the period. Diluted net loss per share increases the shares
used in the basic net loss per share calculation by the dilutive effects of
options, warrants, and preferred stock. The Company's common stock equivalent
shares outstanding from stock options, warrants and preferred stock are
excluded from the diluted net loss per share computation as their effect is
antidilutive.
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
Class A Preferred Stock and Class B Preferred Stock into shares of the
Company's common stock as if such conversion occurred at the later of January
1, 1999 or the date of original issuance. The resulting pro forma adjustment
includes an increase in the weighted average shares used to compute basic and
diluted net loss per share of 24,412,237 shares for the year ended December 31,
1999.
3. Property and Equipment
The amounts included in property and equipment are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31, Estimated
--------------- Useful
1998 1999 Life
------ ------- ---------
<S> <C> <C> <C>
Communications networks in development............ $1,590 $ 4,862
Communication networks in service................. 2,082 23,272 7 years
Computer equipment................................ 788 3,725 3-5 years
Furniture and leasehold improvements.............. 564 4,186 5-7 years
Other............................................. 105 266 3-5 years
------ -------
5,129 36,311
Accumulated depreciation.......................... (115) (1,972)
------ -------
$5,014 $34,339
====== =======
</TABLE>
4. Spectrum and Operating Licenses
The Company capitalizes costs directly associated with the Company's
acquisitions of spectrum and operating licenses. Accumulated amortization
amounted to $263,190 and $912,805 at December 31, 1998 and 1999, respectively.
The Company has acquired all of the outstanding stock of two companies: (a)
Tellink, S.A. ("Tellink") located in Peru and (b) Eritown Corporation Argentina
S.A. ("Eritown") located in Argentina. The Company acquired Tellink on December
17, 1999 for $1.2 million, which consisted of $600,000 of cash and $600,000 of
cash held in escrow (restricted cash) to be released to the seller upon
expiration of the escrow period assuming no claims exist against the seller.
This escrow amount will be released in 2000. The Company acquired Eritown in
October 1999 for $2.0 million of cash. The assets of Tellink and Eritown
consisted entirely of the spectrum and operating licenses and therefore, the
Company has allocated the entire purchase price to the spectrum and operating
licenses acquired and is amortizing the licenses over the remaining grant
period (7-10 years), in accordance with the Company's policy.
F-11
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The Company capitalizes costs related to efforts to gain spectrum licenses
or operating licenses in existing and new markets. As of December 31, 1998 and
1999, the Company has capitalized approximately $331,000 and $353,000,
respectively, of costs related to markets in which the Company has not yet
obtained a spectrum or operating license. Management believes there is a high
likelihood of success for obtaining licenses in these markets.
Management periodically reviews the status of all spectrum and operating
license efforts in each target market and estimates the probability of success
of the process. If and when the success of a spectrum or operating license in
any market is deemed less than likely, costs capitalized related to that effort
are written-off to the statements of operations. In connection with this
policy, during the year ended December 31, 1999, the Company wrote off
approximately $105,000 of costs previously capitalized related to the Company's
spectrum and operating license efforts in Mexico.
5. Performance Bonds
During 1997, in connection with obtaining the Company's spectrum and
operating license in Colombia, the Company was required to obtain a performance
bond of $340,000 in favor of the Colombian telecommunications regulatory body.
During 1999, the Company was required to obtain a performance bond of $300,000
in favor of the Uruguayan telecommunications regulatory body related to a grant
of fixed wireless spectrum. The performance bonds are fully backed by U.S.
dollar denominated deposits held at various financial institutions. These
deposits are classified as other assets on the balance sheets. Release of the
performance bonds, and, therefore, release of the cash collateral, is dependent
on the Company's achievement of certain service offering, investment or network
build out requirements. As of December 31, 1999, the Colombian and Uruguayan
performance bonds were still outstanding.
F-12
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
6. Long-Term Debt
During 1998 and 1999, the Company entered into multi-year credit agreements
with three of its vendors whereby the vendors agreed to provide financing of up
to a certain amount to the Company for the sole purpose of acquiring the
vendors' and limited amounts of third party equipment and services. Equipment
financing debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------
1998 1999
----- --------
(in thousands)
<S> <C> <C>
Equipment financing with Ericsson Credit AB for a total
commitment of $300,000,000 consisting of (1) Tranche A
of $187,500,000, with aggregate outstanding principal
balance due in six installments, payable every six
months after August 27, 2001 and (2) Tranche B of
$112,500,000 with aggregate outstanding principal
balance due in seven installments, payable every six
months after the 18-month anniversary of Tranche B
effective date. Interest is charged at LIBOR plus
6.25% (12.71% at December 31, 1999 and changed to
LIBOR plus 5.75% effective January 2000) and is
payable every six months. The Company is required to
pay a one-time facility fee of $437,500 for Tranche A
and a facility fee of 1.10% of the Tranche B
commitment for Tranche B. The Company is also required
to pay a commitment fee equal to 1.10% of the unused
portion of Tranche A and Tranche B commitments. The
unused portion of Tranche A amounted to $173,495,485
at December 31, 1999.................................. $ -- $ 14,006
Equipment financing with Lucent Technologies, Inc. for
a total commitment of $100,000,000 consisting of (1)
Tranche A of $62,500,000 with aggregate outstanding
principal balance due in six installments, payable
every six months after November 22, 2001 and (2)
Tranche B of $37,500,000 with aggregate outstanding
principal balance due in seven installments, payable
every six months after the 18-month anniversary of the
Tranche B effective date. Interest is charged at LIBOR
plus 5.75% (12.21% at December 31, 1999) and is
payable every six months. The Company is required to
pay a one-time facility fee of $687,500 for Tranche A
and a facility fee of 1.10% of the Tranche B
commitment for Tranche B. The Company is also required
to pay a commitment fee equal to 1.10% of the unused
portion of Tranche A and Tranche B commitments. The
entire amount of Tranche A was unused at December 31,
1999.................................................. -- --
Equipment financing with Network Equipment Technologies
for a total commitment of $3,528,372, due in varying
and specified payments through March 31, 2001, with an
effective interest rate of 5.31%...................... 929 2,077
----- --------
929 16,083
Less current portion................................... (452) (1,277)
----- --------
$ 477 $ 14,806
===== ========
</TABLE>
F-13
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Principal maturities of long-term debt are scheduled to be repaid as
follows (in thousands):
<TABLE>
<S> <C>
2000................................ $ 1,277
2001................................ 802
2002................................ 4,668
2003................................ 4,668
2004................................ 4,668
--------
$ 16,083
========
</TABLE>
Provisions of the equipment financing agreements require the Company to
meet certain financial, operational and other covenants. As of December 31,
1999, the Company was in compliance with all financial covenants.
Under the terms of the equipment financing agreements, Ericcson Credit AB
and Lucent Technologies, Inc. have a secured interest in generally all assets
of the Company, including the equipment financed under the facilities, as well
as the common and preferred stock held by the Company of its U.S. and Latin
American subsidiaries.
The equipment financing agreements restrict, to a certain extent, the
Company's ability to engage in certain lines of business, incur additional
borrowings, pay dividends or acquire or merge with another entity.
7. Note Payable to Related Party
In June 1998, upon the closing of an equity investment by unrelated third
parties, the notes payable to a related party (also an investor), including
both the principal and accrued interest, were exchanged for cash and preferred
stock. The amount due on the first note, $1,137,401 consisting of $1,064,300 of
principal and $73,101 of accrued interest, was redeemed for cash. The total
amount due under the second note, $625,729, consisting of $544,254 of principal
and $81,475 of accrued interest, was redeemed in exchange for shares of the
Company's Class A Preferred Stock. The exchange was effected at the fair market
value of the Company's Class A Preferred Stock, as determined by the price paid
for the Class A Preferred Stock by new investors.
Interest expense related to these notes payable for the years ended
December 31, 1997, 1998, and 1999 was $85,700, $68,900 and $0, respectively.
8. Convertible Debentures and Warrants
During 1997 and 1998, the Company issued promissory notes ("the Notes")
with an aggregate principal of $3,250,000 and $5,500,000 in exchange for cash.
In connection with the Notes, the Company issued to the holders of the Notes
warrants to purchase 329,048 shares of the Company's Class A Preferred Stock
(Series A-2 Preferred Stock) at an exercise price of $3.8325. The warrants are
exercisable through June 2008.
F-14
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
In June 1998, as a result of the closing of a private placement of equity
securities, all amounts payable under the Notes, $8,750,000 in principal and
$483,389 in accrued interest, became due. The holders of the Notes exercised
their options under the terms of the Notes by exchanging the Notes and accrued
interest for cash and preferred stock. The Company made cash payments on the
Notes of $546,389, that consisted of $500,000 of principal and $46,389 of
accrued interest. The balance of the Notes, $8,687,000, consisting of
$8,250,000 of principal and $437,000 of accrued interest, was converted to
1,345,819 shares of Class A preferred stock pursuant to the conversion price
terms of the Notes. The conversion price of the Notes was based on the fair
market value of the Class A preferred stock, as determined by the cash price
paid by new investors.
Interest expense for the years ended December 31, 1997 and 1998 related to
the Notes was $195,000 and $288,389, respectively.
9. Stockholders' Equity (Deficit)
The Company's Certificate of Organization provides for the following
classes of capital stock: Class A Convertible Preferred Stock, Class B
Convertible Preferred Stock, Common Stock, and Non Voting Common Stock.
Class A Preferred Stock
In June 1998, the Company issued 8,077,782 shares of Class A Convertible
Preferred Stock ("Class A Preferred Stock") in an equity financing round that
yielded $30,957,795 less approximately $429,000 in equity issuance costs. This
equity financing round included the conversion of the principal and accrued
interest on substantially all of the Notes outstanding (see Note 8) and a
portion of the principal and interest owed to a related party (see Note 7) into
shares of the Company's Class A Preferred Stock. New funds available to the
Company from the equity financing, net of the principal and interest on the
conversion of debt and net of expenses related to the closing of the equity
financing, approximated $19,533,000. In connection with the Class A Preferred
Stock financing, the Company issued warrants to purchase 329,048 shares of
Class A Preferred Stock (Series A-2 Preferred Stock, terms discussed below) at
an exercise price of $3.8325 per share, exercisable over a ten-year term.
F-15
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Class A Preferred Stock is comprised of Series A-1 Voting Preferred Stock,
Series A-1 Non Voting Preferred Stock (collectively, "Series A-1 Preferred
Stock"), and Series A-2 Preferred Stock. The following table summarizes the
significant terms of the Company's series of Class A Preferred Stock:
<TABLE>
<CAPTION>
Shares
Shares Issued and Liquidation Dividend Conversion
Authorized Outstanding Preference Rights Ratio
---------- ----------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Series A-1 Voting....... 69,250,000 4,879,683 $3.832456677 per 15% per annum on 1.4668553 shares
share, plus $3.832456677 per of common
accrued share-- stock for each
dividends cumulative share of Series
A-1 Voting
Preferred Stock
Series A-1 Non Voting... 19,250,000 1,852,285 $3.832456677 per 15% per annum on 1.4668553 shares
share, plus $3.832456677 per of common
accrued share-- stock for each
dividends cumulative share of Series
A-1 Non Voting
Preferred Stock
Series A-2.............. 13,250,000 1,345,814 $3.832456677 per 15% per annum on 1.1205752 shares
share, plus $3.832456677 per of common
accrued share-- stock for each
dividends cumulative share of Series
A-2 Preferred
Stock
</TABLE>
The holders of Class A Preferred Stock are entitled to receive dividends,
compounded annually from the date of issuance, when declared by the Board of
Directors; however, the Board of Directors may elect to defer such payments
until such time as it determines dividends shall be paid. All accumulated and
unpaid dividends on Class A Preferred Stock will be canceled upon conversion of
the Class A Preferred Stock into common stock.
At any time, each holder of Class A Preferred Stock may convert shares of
Class A Preferred Stock into common stock based on the conversion ratio
disclosed in the above chart, subject to adjustment under certain
circumstances. Conversion is automatic in the event of a public offering of
common stock with aggregate net proceeds of at least $50 million and in which
the gross offering price meets certain specified criteria. At any time, the
holders of Series A-1 Non Voting Preferred Stock may convert all or a portion
of shares into shares of Series A-1 Voting Preferred Stock. The holders of
Series A-1 Voting Preferred Stock and Series A-2 Preferred Stock are entitled
to the number of votes per share equal to the number of shares of common stock
into which such shares of voting preferred stock are convertible in accordance
with the conversion rights described in the above chart. The preferred stock,
including accrued dividends, have preference over common stock in the event of
a liquidation of the Company. Liquidation is defined by the Stock Purchase
Agreement for Series A as the dissolution of the Company through bankruptcy or
other winding up or the sale of substantially all the shares or assets of the
Company. After payment of the liquidation preference, described in the above
chart, to the holders of preferred stock, the remaining assets of the Company
shall be distributed between holders of preferred stock and common stock.
Class B Preferred Stock
During 1999, the Company issued 26,546,899 shares of Class B Convertible
Preferred Stock ("Class B Preferred Stock") in an equity financing round that
yielded $115,150,000 less approximately
F-16
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
$2,429,752 in equity issuance expenses. In connection with the Class B
Preferred Stock financing, the Company issued warrants to purchase 576,355
shares of Class B Preferred Stock (Series B-1 Preferred Stock, terms discussed
below) at an exercise price of $4.3379 per share, exercisable over a ten year
term.
Class B Preferred Stock is comprised of Series B-1 Voting Preferred Stock,
Series B-1 Non Voting Preferred Stock (collectively, "Series B-1 Preferred
Stock"), and Series B-2 Preferred Stock. The following table summarizes the
significant terms of the Company's series of Class B Preferred Stock:
<TABLE>
<CAPTION>
Shares
Shares Issued and Liquidation Dividend Conversion
Authorized Outstanding Preference Rights Ratio
----------- ----------- -------------------- --------------- --------------------------
<S> <C> <C> <C> <C> <C>
Series B-1 Voting...... 110,000,000 15,341,601 $4.33760229 per 15% per annum 1 share of
share, plus on $4.33760229 common stock
accrued dividends per share-- for each share
cumulative of Series B-1
Voting
Preferred Stock
Series B-1 Non Voting.. 42,700,000 4,573,898 $4.33760229 per 15% per annum 1 share of common
share, plus on $4.33760229 stock for each
accrued dividends per share-- share of Series B-1
cumulative Non Voting Preferred
Stock
Series B-2............. 48,500,000 6,631,400 $4.33760229 per 15% per annum 1 share of common
share, plus accrued on $4.33760229 stock for each
dividends per share-- share of Series B-2
cumulative Preferred Stock
</TABLE>
The holders of Class B Preferred Stock are entitled to receive dividends,
compounded annually from the date of issuance, when declared by the Board of
Directors; however, the Board of Directors may elect to defer such payments
until such time as it determines dividends shall be paid. All accumulated and
unpaid dividends on Class B Preferred Stock will be canceled upon conversion of
the Class B Preferred Stock into common stock. At any time, each holder of
Class B Preferred Stock may convert shares of Class B Preferred Stock into
common stock based on the conversion ratio disclosed in the above chart,
subject to adjustment under certain circumstances. Conversion is automatic in
the event of a public offering of common stock with aggregate net proceeds of
at least $50 million and in which the gross offering price meets certain
specified criteria. At any time, the holders of Series B-1 Non Voting Preferred
Stock may convert all or a portion of shares into shares of Series B-1 Voting
Preferred Stock. The holders of Series B-1 Voting Preferred Stock and Series B-
2 Preferred Stock are entitled to the number of votes per share equal to the
number of shares of common stock into which such shares of voting preferred
stock are convertible in accordance with the conversion rights described in the
above chart. The preferred stock, including accrued dividends, have preference
over common stock in the event of a liquidation of the Company. Liquidation is
defined by the Stock Purchase Agreement for Series B as the dissolution of the
Company through bankruptcy or other winding up or the sale of substantially all
the shares or assets of the Company. After payment of the liquidation
preference, described in the above chart, to the holders of preferred stock,
the remaining assets of the Company shall be distributed between holders of
preferred stock and common stock.
10. Stock Options
The Company has two common stock incentive plans for consultants, members
of the Board of Directors and employees of the Company, the Diveo Broadband
Networks, Inc. 1996 Stock Option Plan
F-17
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(the "1996 Plan") and the Diveo Broadband Networks, Inc. 1999 Stock Option Plan
(the "1999 Plan") (together referred to as the "Plans"). Under the Plans,
options to purchase shares of the Company's common stock may be granted to key
employees, consultants and members of the Board of Directors, as authorized by
the Board of Directors. Awards consist of both non-qualified options and
options intended to qualify as "incentive" stock options under the Internal
Revenue Code. The exercise prices for options granted pursuant to the Plans are
to be set by the Plans' Administrator as directed by the Board of Directors.
The Plans' Administrator, as directed by the Board of Directors, also
establishes the vesting term of the stock options granted.
As of December 31, 1999, there were 2,318,062 and 915,918 share options
authorized for grant under the 1996 Plan and 1999 Plan, respectively.
Since inception (October 1, 1996) through June 30, 1999, the Company
maintained common stock incentive plans for consultants and employees of each
of the Company's subsidiaries (the "Subsidiary Plans"). Under the Subsidiary
Plans, options to purchase an aggregate of 687,357 shares of the subsidiaries'
common stock may be granted to key employees and consultants. As in the Plans,
awards in the Subsidiary Plans consist of both non-qualified options and
options intended to qualify as "incentive" stock options under the Internal
Revenue Code. The exercise prices for options granted pursuant to the
Subsidiary Plans are to be set by the Subsidiary Plan Administrator as directed
by the Board of Directors and may be less than the fair market value of the
common stock on the date of the grant. The Subsidiary Plan Administrator, as
directed by the Board of Directors, also establishes the vesting term of the
stock options granted.
The Subsidiary Plans provided for a "roll-up" provision whereby each
outstanding share of the subsidiaries' common stock (not held by the parent)
and all outstanding stock options to purchase the subsidiaries' common stock
will automatically be exchanged for common stock and stock options in the
Company, respectively, upon the occurrence of a qualifying public offering or
change in control of the Company. The exchange ratios are determined based on
the value of each subsidiary relative to the Company as a whole, as determined
by one of twelve U.S. based investment banks. During 1999, in connection with
the Company's Class B Preferred Stock equity financing, the roll-up provision
was triggered and accordingly, each outstanding share of the subsidiaries'
common stock (not held by the parent) was exchanged for common stock of the
Company. In addition, all outstanding stock options to purchase the
subsidiaries' common stock was exchanged for stock options in the 1999 Plan
based on the exchange ratios determined by the valuation that the Company
obtained. Upon the completion of the roll-up, there were no further grants
under the Subsidiary Plans.
The Company has recorded approximately $0, $72,000, and $47,000 in expense
during the years ended December 31, 1997, 1998 and 1999, respectively, for the
fair value of options issued to consultants or employees for past services
rendered to the Company.
F-18
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following table summarizes option activity for the Plans for the years
ended December 31, 1997, 1998 and 1999:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
Options outstanding as of December 31, 1996............ -- $ --
Granted during 1997.................................. 302,868 0.0700
Exercised during 1997................................ (14,592) 0.0035
Canceled during 1997................................. (8,316) 0.0070
--------- -------
Options outstanding as of December 31, 1997............ 279,960 0.0700
Granted during 1998.................................. 336,538 0.5096
Exercised during 1998................................ (73,382) 0.0693
Canceled during 1998................................. (50,000) 0.0700
--------- -------
Options outstanding as of December 31, 1998............ 493,116 0.3647
Granted during 1999.................................. 1,836,321 2.5921
Granted in exchange for options in Subsidiary Plans
during 1999......................................... 1,217,179 0.0392
Exercised during 1999................................ (714,381) 0.2471
Canceled during 1999................................. (31,691) 0.6818
--------- -------
Options outstanding as of December 31, 1999............ 2,800,544 $1.8641
========= =======
Options exercisable as of December 31, 1999............ 855,660 $0.2051
========= =======
</TABLE>
The following table summarizes options data for the Plans as of December
31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------ ---------------------
Weighted
Number as Weighted Average Weighted
of Average Remaining Number as of Average
Range of December Exercise Contractual December 31, Exercise
Exercise Prices 31, 1999 Price Life 1999 Price
--------------- --------- -------- ----------- ------------ --------
<S> <C> <C> <C> <C> <C>
Less than $1.75........ 1,793,589 $ 0.7336 8.75 855,545 $0.2044
$1.75-$7.00.......... 1,002,155 3.8115 9.68 115 4.4100
Over $7.00........... 4,800 17.5000 9.43 -- 0.0000
--------- -------- ---- ------- -------
Total.............. 2,800,544 $ 1.8641 9.08 855,660 $0.2051
========= ======== ==== ======= =======
</TABLE>
F-19
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The following table summarizes option activity for the Subsidiary Plans for
the years ended December 31, 1997, 1998 and 1999.
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Options Price
--------- --------
<S> <C> <C>
Options outstanding as of December 31, 1996............... 28,571 $0.0007
Granted during 1997..................................... 347,936 0.0007
Exercised during 1997................................... -- --
Canceled during 1997.................................... -- --
-------- -------
Options outstanding as of December 31, 1997............... 376,507 0.0007
Granted during 1998..................................... 168,143 0.0651
Exercised during 1998................................... -- --
Canceled during 1998.................................... -- --
-------- -------
Options outstanding as of December 31, 1998............... 544,650 0.0203
Granted during 1999..................................... 260,618 1.7871
Canceled and exchanged for options in Parent Plan
during 1999............................................ (521,745) 0.9100
Exercised during 1999................................... (280,952) 0.0077
Canceled during 1999.................................... (2,571) 0.7700
-------- -------
Options outstanding as of December 31, 1999............... -- --
======== =======
</TABLE>
The effect of applying FAS 123 on 1997, 1998 and 1999 pro forma net loss
and net loss per share is not necessarily representative of the effects on
reported net loss and net loss per share for future years due to, among other
things, (1) the vesting term of the stock options and (2) additional stock
options in future years. Had compensation cost been determined in accordance
with FAS 123, net loss and net loss per share would have been as follows (in
thousands):
<TABLE>
<CAPTION>
Years ended December 31,
--------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net loss..................................... $ 1,581 $ 8,802 $ 25,420
======= ======= ========
Net loss per share--basic and diluted........ $ (0.85) $ (4.65) $ (12.47)
======= ======= ========
</TABLE>
The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option-pricing fair value model with the following
weighted-average assumptions used for all grants: dividend yield of 0% for
1997, 1998, and 1999, risk-free interest rate of 6.6%, 5.0%, and 5.5% for 1997,
1998, and 1999, respectively, volatility of 70% for all periods and expected
life between 2 and 6 years.
The weighted average fair values of options granted during 1997 were $.07
per share--the Plans, and $.07 per share--Subsidiary Plans. The weighted
average fair values of options granted during 1998 were $0.14 per share--the
Plans, and $.07 per share--Subsidiary Plans. The weighted average fair value of
options (including options granted under the Subsidiary Plans exchanged into
options under the Plans) granted during 1999 was $1.74 per share.
F-20
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
11. Income Taxes
Under FAS 109, deferred income taxes are recognized for temporary
differences between financial statement and income tax bases of assets and
liabilities, loss carryforwards and tax credit carryforwards for which income
tax benefits are expected to be realized in future years. A valuation allowance
is established to reduce deferred tax assets if it is more likely than not that
all or some portion of such deferred tax assets will not be realized. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
The tax effect of temporary differences as of December 31, 1998 and 1999 is
as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
------ -------
<S> <C> <C>
Deferred tax assets:
Net loss carryforwards................................. $3,255 $ 9,904
Depreciation and amortization.......................... 544 2,337
Other.................................................. 483 465
------ -------
4,282 12,706
Deferred tax liabilities:
Depreciation and amortization.......................... 81 297
Valuation allowance.................................... (4,201) (12,409)
------ -------
Net deferred tax assets................................ $ -- $ --
====== =======
</TABLE>
The components of loss from continuing operations before income taxes are
as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Domestic (U.S.)............................. $ (1,483) $ (5,438) $ (8,723)
Foreign..................................... (97) (3,393) (16,110)
-------- -------- --------
$ (1,580) $ (8,831) $(24,833)
======== ======== ========
</TABLE>
Management has established a valuation allowance for the portion of
deferred tax assets for which realization is uncertain. The net changes in
valuation allowance during the years ended December 31, 1997, 1998 and 1999
were increases of approximately $631,000, $3,533,000, and $8,208,000
respectively.
The Company recognized an income tax provision of $105,000 for the year
ended December 31, 1999. This provision was entirely attributable to the
Company's foreign operations.
As of December 31, 1999, the Company has cumulative U.S. federal and
foreign net operating losses of approximately $15,493,000 and $11,796,000,
respectively, that can be used to offset future income subject to federal and
foreign income taxes. The U.S. federal tax loss carryforwards expire in the
years 2011 through 2019. The foreign tax loss carryforwards associated with the
Company's Argentine operations ($9,537,000) expire in the years 2003 through
2006. The foreign tax loss carryforwards associated with the Company's
Brazilian operations ($2,259,000) have no expiration, but are subject to
certain limitations.
F-21
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Section 382 of the Internal Revenue Code imposes substantial restrictions
on the utilization of net operating losses and tax credits in the event of an
"ownership change" as defined. As of December 31, 1999 approximately
$11,650,000 of the U.S. federal net operating loss is subject to limitation as
a result of these restrictions.
12. Commitments and Contingencies
Operating Leases
The Company's offices, except for those leased in Brazil, are leased under
non-cancelable operating leases expiring through 2003. The office lease in
Brazil has a base term of three months, which is renewable at the Company's
option. The Company also leases sites to place its equipment on various
rooftops under substantially the same terms as its office leases. The Company's
operating leases provide for various renewal terms.
The following are the future minimum lease payments on non-cancelable
operating leases for each of the five years ended December 31 (in thousands):
<TABLE>
<S> <C>
2000................................ $ 2,611
2001................................ 2,573
2002................................ 2,473
2003................................ 2,091
2004................................ 908
--------
$ 10,656
========
</TABLE>
Rent expense for the years ended December 31, 1997, 1998, and 1999 was
$39,812, $330,279, and $1,601,238, respectively.
Purchase Commitments
As of December 31, 1999, the Company had committed to purchase
communications equipment from a vendor by issuing a non-cancelable purchase
order to purchase approximately $12,500,423 of communications equipment and
services. Under the financing agreement with Lucent Technologies, Inc., the
Company is required to purchase $25 million of products and services over the
initial five-year term of the agreement.
Litigation
The Company is currently a party to litigation involving the exchange of
shares of its subsidiary, Diginet Colombia, for shares of common stock of the
Company effected in connection with the roll-up of the Company's stock option
plans (see Note 10). The litigation, which was filed on December 23, 1999, is
pending in the United States District Court for the District of Columbia.
Communications Resources, Inc. and Datacom Investments Limited, former minority
stockholders of Diginet Colombia, allege fraudulent inducement in connection
with their purchase of shares of Diginet Colombia and that the valuation
underlying the share exchange was improperly conducted. The former minority
stockholders have asserted a loss to them of over $10 million and claims of
breach of contract, fraud and breach of fiduciary duty. As relief, the
stockholders seek recission of the share exchange, the performance of another
valuation of Diginet Colombia and monetary damages. The Company is contesting
the stockholders' claims and believe that the claims are without merit. It is
management's position, based on a review by outside counsel, that it is not
possible to estimate the amount of loss, if any, that might result from this
action. Accordingly, no provision for this matter has been made in the
Company's consolidated financial statements.
F-22
<PAGE>
DIVEO BROADBAND NETWORKS, INC.
(FORMERLY DIGINET AMERICAS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
13. Segment Reporting
The Company has adopted Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 changes the way public companies report segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company
operates in one business segment that provides integrated Internet, data and
voice services in metropolitan markets throughout Latin America. Worldwide
operations are summarized by geographic region in the following table:
<TABLE>
<CAPTION>
1997 1998 1999
--------------- ----------------- -----------------
Assets Revenues Assets Revenues Assets Revenues
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Brazil................... $ 161 $-- $ 2,068 $ -- $ 20,238 $ 59
Argentina................ 1,575 -- 6,774 24 24,455 1,050
Colombia................. 169 -- 2,206 -- 5,699 34
North America............ 2,253 -- 12,798 -- 84,309 --
Other.................... 128 -- 334 -- 3,032 --
------ ---- -------- ----- -------- -------
$4,286 $-- $ 24,180 $ 24 $137,733 $ 1,143
====== ==== ======== ===== ======== =======
</TABLE>
14. Subsequent Events
Between January and March 2000, the Company granted options to purchase
1,671,440 shares of common stock at exercise prices ranging between $4.34 and
$10.15 per share. In March 2000, the Company will record a deferred stock
compensation charge of $7,761,324 for the difference between the estimated fair
market value of the Company's common stock and the exercise price of the
options on the grant date. Such amount will be amortized over the vesting term
of the options.
On February 25, 2000, the Company entered into an agreement to acquire an
Internet service provider located in Argentina for approximately $8 million.
The Company expects the transaction to close in April 2000.
On March 31, 2000, the Company entered into an agreement to acquire a
company which holds spectrum concessions in Peru and Colombia for approximately
$8.25 million. The Company expects the transaction close in April 2000.
On March 22, 2000, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell shares its common stock in an initial
public offering ("IPO").
On March 23, 2000, the Company entered into an agreement to acquire certain
assets consisting of ongoing contracts to provide primarily broadband access
services in Buenos Aires to large and medium-sized businesses for a purchase
price of up to approximately $3 million in cash. We expect that this
transaction will close in May 2000.
On March 29, 2000, the Company issued 10,023,665 shares of Class C
Convertible Preferred Stock in an equity financing round that yielded
$127,000,000 less approximately $1,300,000 in equity issuance costs.
On March 22, 2000, the Company's Board of Directors approved a 7 to 1
reverse stock split of the Company's preferred stock and common stock. The
reverse stock split will be effective on April , 2000. All references in the
accompanying consolidated financial statements to the number of shares of
preferred stock and common stock have been restated to reflect the split.
F-23
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any
information or to represent anything not contained in this prospectus. You
must not rely on any unauthorized information or representations. This
prospectus is an offer to sell only the shares offered hereby, but only under
circumstances and in jurisdictions where it is lawful to do so. The
information contained in this prospectus is current only as of its date.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 20
Market Data and Forecast................................................. 20
Use of Proceeds.......................................................... 21
Dilution................................................................. 22
Dividend Policy.......................................................... 23
Capitalization........................................................... 24
Selected Consolidated Financial and Other Data........................... 25
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 36
Description of Our Financing Arrangements................................ 60
Management............................................................... 62
Related Party Transactions............................................... 70
Principal Stockholders................................................... 71
Shares Eligible for Future Sale.......................................... 74
Description of Capital Stock............................................. 76
Underwriting............................................................. 78
Legal Matters............................................................ 80
Experts.................................................................. 80
Additional Information................................................... 80
Index to Consolidated Financial
Statements............................................................... F-1
</TABLE>
---------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Diveo Broadband
Networks, Inc.
Common Stock
[Diveo Logo]
Goldman, Sachs & Co.
Salomon Smith Barney
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses (other than underwriting
compensation) expected to be incurred by us in connection with this offering.
All of these amounts (other than the SEC Registration Fee and NASD filing fee)
are estimated.
<TABLE>
<S> <C>
SEC Registration fee............................................. $39,600
NASD filing fee.................................................. 30,500
Nasdaq National Market listing fee............................... *
Legal services................................................... *
Printing and engraving........................................... *
Accounting fees.................................................. *
Blue Sky fees and expenses....................................... *
Transfer agent and registrar fees................................ *
Miscellaneous expenses...........................................
-------
Total.......................................................... $ *
=======
</TABLE>
--------
* To be provided supplementally.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Third Restated and Amended Certificate of Incorporation and the Bylaws
of the Registrant provide for the indemnification of the Registrant's directors
and officers to the fullest extent authorized by, and subject to the conditions
set forth in the General Corporation Law of the State of Delaware (the "DGCL"),
except that the Registrant will indemnify a director or officer in connection
with a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Registrant's Board of
Directors. The indemnification provided under the Restated Certificate of
Incorporation and Bylaws includes the right to be paid by the Registrant the
expenses (including attorneys' fees) in defending of any proceeding for which
indemnification may be had in advance of its final disposition, provided that
the payment of such expenses (including attorneys' fees) incurred by a director
or officer in advance of the final disposition of a proceeding may be made only
upon delivery to the Registrant of an undertaking by or on behalf of such
director or officer to repay all amounts so paid in advance if it is ultimately
determined that such director or officer is not entitled to be indemnified.
Pursuant to the Bylaws, if a claim for indemnification is not paid by the
Registrant within 60 days after a written claim has been received by the
Registrant, the claimant may at any time thereafter bring an action against the
Registrant to recover the unpaid amount of the claim, and, if successful in
whole or in part, the claimant will be entitled to be paid also the expense of
prosecuting such action.
As permitted by the DGCL, the Registrant's Restated Certificate of
Incorporation provides that directors of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the DGCL, relating to
unlawful payment of dividends or unlawful stock purchase or redemption or (iv)
for any transaction from which the director derived an improper personal
benefit. As a result of this provision, the Registrant and its stockholders may
be unable to obtain monetary damages from a director for breach of his or her
duty of care.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The information presented below does not reflect the conversion of the
Registrant's convertible preferred stock into common stock upon the closing of
this offering but does give effect to the proposed 7 to 1 reverse stock split
expected to occur prior to the closing of this offering:
(a)From October 1996 through March 1998, the Registrant raised $8.8
million through the issuances of convertible debt. These securities, which were
sold to accredited investors were issued without registration under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon an
exemption from registration under Section 4(2) and/or Regulation D thereunder.
(b)In June 1998, the Registrant sold 8,077,782 shares of Class A
convertible preferred stock to accredited investors for an aggregate
consideration of $30,957,795. In connection with this financing, the Registrant
issued warrants to purchase 329,048 shares of Class A preferred stock at an
exercise price of $3.83 per share, exercisable over a ten-year term. These
securities were issued without registration under the Securities Act in
reliance upon an exemption from registration under Section 4(2) and/or
Regulation D thereunder.
(c)From April to August 1999, the Registrant sold 26,546,899 shares of
Class B convertible preferred stock for an aggregate consideration of
$115,150,000. The Registrant issued 576,355 warrants to purchase Class B shares
at an exercise price of $4.34 per share, exercisable over a ten year term.
These securities, which were sold to accredited investors were issued without
registration under the Securities Act in reliance on an exemption from
registration under Section 4(2) and/or Regulation D thereunder.
(d)In March 2000, the Registrant sold 10,023,655 shares of Class C
convertible preferred stock for aggregate consideration of $127,000,000. These
securities, which were sold to accredited investors were issued without
registration under the Securities Act in reliance on an exemption from
registration under Section 4(2) and/or Regulation D thereunder.
(e)Between inception and December 1999, the Registrant granted options
to purchase a total of 3,252,424 shares of common stock under its 1996 and 1999
Stock Option Plans to certain of its employees and directors and to certain of
the employees and directors of its subsidiaries. During that period,
23 optionees exercised options to purchase 1,083,307 shares of common stock.
These securities were issued without registration under the Securities Act in
reliance on an exemption from registration under Rule 701.
None of the foregoing transactions were effected with an underwriter.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement among the Registrant, Goldman, Sachs &
Co. and Salomon Smith Barney Inc. and the other underwriters named
therein
3.1* Amended and Restated Certificate of Incorporation of the Registrant
3.2* Amended and Restated Bylaws of the Registrant
4.1* Form of Common Stock Certificate of the Registrant
5.1* Opinion of Hogan & Hartson L.L.P. as to the legality of the securities
being registered (including consent)
10.1 Credit Agreement by and between Diveo, Inc. and Lucent Technologies
Inc dated as of November 22, 1999, as amended on March 24, 2000
10.2 Amended and Restated Credit Agreement by and between Diveo, Inc. and
Ericsson Credit AB dated as of November 24, 1999, as amended on March
24, 2000
10.3 Master Supply Agreement by and between Diveo, Inc. and Lucent
Technologies World Services, Inc. dated as of November 22, 1999
10.4* Relationship Agreement by and between Diveo, Inc. and Ericsson Telecom
AB, as amended as of November 19, 1999
10.5 Share Purchase Agreement among the Registrant, INEA Internet, S.A. and
its stockholders dated as of February 25, 2000
10.6 Second Amended and Restated Registration Rights Agreement dated as of
March 29, 2000, by and among the Registrant and the stockholders named
therein
10.7* Diveo Broadband Networks, Inc. 1996 Stock Option Plan
10.8* Diveo Broadband Networks, Inc. 1999 Stock Option Plan
10.9 Employment Agreement by and between the Registrant and David R.
Schmieg dated as of April 16, 1999
10.10 Employment Agreement by and between the Registrant and Leon Garza
dated as of March 20, 2000
10.11 Employment Agreement by and between the Registrant and Laurence A.
Hinz dated as of March 31, 2000
10.12 Employment Agreement by and between the Registrant and David H.
Rutchik dated as of July 5, 1999
10.13 Employment Agreement by and between the Registrant and John B.
Holmblad dated as of October 5, 1997
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hogan & Hartson L.L.P. (contained in its opinion to be
filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (included on the signature page hereto)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
ITEM 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 may be required by the
underwriter 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 described under Item 14 of
II-3
<PAGE>
this Registration Statement, 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 from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the 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; and
(2) For the purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Washington, District of
Columbia, on March 31, 2000.
DIVEO BROADBAND NETWORKS, INC.
/s/ David R. Schmieg
By: _________________________________
David R. Schmieg
Chairman and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints David R. Schmieg and Laurence A. Hinz, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, from such person and in each person's name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this registration statement or any
Registration Statement relating to this Registration Statement under Rule 462
and to file the same, with all exhibits thereto and all documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<C> <S> <C>
/s/ David R. Schmieg Chairman and Chief Executive March 31, 2000
_________________________________ Officer
David R. Schmieg (principal executive officer)
/s/ Laurence A. Hinz Executive Vice President and March 31, 2000
_________________________________ Chief Financial Officer
Laurence A. Hinz (principal financial officer)
/s/ Joseph C. Esparraguera Corporate Controller March 31, 2000
_________________________________ (principal accounting
Joseph C. Esparraguera officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Robert F. Benbow Director March 31, 2000
_________________________________
Robert F. Benbow
/s/ Robert Gheewalla Director March 31, 2000
_________________________________
Robert Gheewalla
Director
_________________________________
Robert J. Goad
/s/ Paolo Guidi Director March 31, 2000
_________________________________
Paolo Guidi
Director
_________________________________
Muneer A. Satter
Director
_________________________________
Richard P. Schifter
/s/ David L. Solomon Director March 31, 2000
_________________________________
David L. Solomon
/s/ Kevin Somerville Director March 31, 2000
_________________________________
Kevin Somerville
Director
_________________________________
</TABLE> Blair Whitaker
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description No.
------- ----------- ----
<C> <S> <C>
1.1* Form of Underwriting Agreement among the Registrant, Goldman,
Sachs & Co. and Salomon Smith Barney Inc. and the other
underwriters named therein
3.1* Amended and Restated Certificate of Incorporation of the
Registrant
3.2* Amended and Restated Bylaws of the Registrant
4.1* Form of Common Stock Certificate of the Registrant
5.1* Opinion of Hogan & Hartson L.L.P. as to the legality of the
securities being registered (including consent)
10.1 Credit Agreement by and between Diveo, Inc. and Lucent
Technologies Inc dated as of November 22, 1999, as amended on
March 24, 2000
10.2 Amended and Restated Credit Agreement by and between Diveo,
Inc. and Ericsson Credit AB, dated as of November 24, 1999, as
amended on March 24, 2000
10.3 Master Supply Agreement by and between Diveo, Inc. and Lucent
Technologies World Services, Inc. dated as of November 22, 1999
10.4* Relationship Agreement by and between Diveo, Inc. and Ericsson
Telecom AB, as amended as of November 19, 1999
10.5 Share Purchase Agreement among the Registrant, INEA Internet,
S.A. and its stockholders dated as of February 25, 2000
10.6 Second Amended and Restated Registration Rights Agreement dated
as of March 29, 2000, by and among the Registrant and the
stockholders named therein
10.7* Diveo Broadband Networks, Inc. 1996 Stock Option Plan
10.8* Diveo Broadband Networks, Inc. 1999 Stock Option Plan
10.9 Employment Agreement by and between the Registrant and David R.
Schmieg dated as of April 16, 1999
10.10 Employment Agreement by and between the Registrant and Leon
Garza dated as of March 20, 2000
10.11 Employment Agreement by and between the Registrant and Laurence
A. Hinz dated as of March 31, 2000
10.12 Employment Agreement by and between the Registrant and David H.
Rutchik dated as of July 5, 1999
10.13 Employment Agreement by and between the Registrant and John B.
Holmblad dated as of October 5, 1997
21.1 Subsidiaries of the Registrant
23.1 Consent of Ernst & Young LLP
23.2 Consent of Hogan & Hartson L.L.P. (contained in its opinion to
be filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (included on the signature page hereto)
27.1 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
II-7
<PAGE>
Exhibit 10.1
EXECUTION COPY
U.S. $100,000,000
CREDIT AGREEMENT
dated as of November 22, 1999
among
DIVEO, INC.,
as Borrower,
the LENDERS party hereto,
and
LUCENT TECHNOLOGIES INC.,
as Administrative Agent
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1
SECTION 1.01. Certain Defined Terms 1
SECTION 1.02. Computation of Time Periods 26
SECTION 1.03. Accounting Terms 26
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES 27
SECTION 2.01. The Advances 27
SECTION 2.02. Making the Advances 27
SECTION 2.03. Fees 30
SECTION 2.04. Termination or Reduction of the Commitments 31
SECTION 2.05. Repayment of Advances 31
SECTION 2.06. Interest 32
SECTION 2.07. Interest Rate Determination 32
SECTION 2.08. Prepayments 32
SECTION 2.09. Increased Costs, Etc. 35
SECTION 2.10. Payments and Computations 38
SECTION 2.11. Taxes 39
SECTION 2.12. Sharing of Payments, Etc. 41
SECTION 2.13. Use of Proceeds 42
SECTION 2.14. First Eurodollar Method and Second Eurodollar Method 42
SECTION 2.15. Redistribution of Payments 43
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING 43
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01 43
SECTION 3.02. Conditions Precedent to Each Borrowing 48
ARTICLE IV REPRESENTATIONS AND WARRANTIES 49
SECTION 4.01. Representations and Warranties of the Borrower 49
ARTICLE V COVENANTS OF THE BORROWER 57
SECTION 5.01. Affirmative Covenants 58
SECTION 5.02. Negative Covenants 62
SECTION 5.03. Reporting Requirements 72
SECTION 5.04. Operational and Financial Covenants 77
ARTICLE VI EVENTS OF DEFAULT 81
SECTION 6.01. Events of Default 81
ARTICLE VII THE ADMINISTRATIVE AGENT 86
SECTION 7.01. Authorization and Action 86
SECTION 7.02. Agent's Reliance, Etc. 86
SECTION 7.03. Agent and Affiliates 87
SECTION 7.04. Lender Credit Decision 87
SECTION 7.05. Indemnification 87
SECTION 7.06. Successor Agent 88
ARTICLE VIII MISCELLANEOUS 88
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 8.01. Amendments, Etc. 88
SECTION 8.02. Notices, Etc. 90
SECTION 8.03. No Waiver; Remedies 90
SECTION 8.04. Costs and Expenses; Indemnification 90
SECTION 8.05. Right of Set-off 92
SECTION 8.06. Binding Effect 92
SECTION 8.07. Assignments and Participations 93
SECTION 8.08. Confidentiality 95
SECTION 8.09. Governing Law 96
SECTION 8.10. Execution in Counterparts 96
SECTION 8.11. Jurisdiction, Judgment Currency, Etc. 96
SECTION 8.12. Waiver of Jury Trial 97
SECTION 8.13. Intercreditor Arrangements 97
SECTION 8.14. Intercreditor Agreement; Amendments to Ericsson Credit Agreement. 97
</TABLE>
<PAGE>
iii
<TABLE>
<CAPTION>
Page
<S> <C>
Schedules
Schedule 3.01(a)(i) Disclosed Litigation
Schedule 4.01(b) Subsidiaries
Schedule 4.01(f) Authorizations, Approvals, Notices and Filings
Schedule 4.01(o) Liens
Schedule 4.01(t) Leases of Real Property
Schedule 4.01(v) Existing Debt
Schedule 4.01(w) Investments
Schedule 4.01(x) Material Contracts
Schedule 4.01(y) Licenses
Schedule 4.01(z) Insurance Policies
Schedule 4.01(dd) Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(ii) Material Licenses
Schedule 5.02(u) Stock Purchase Agreements
Exhibits
Exhibit A Form of Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Assignment and Acceptance
Exhibit D-1 Form of Operating Subsidiary Guaranty
Exhibit D-2 Form of Intermediate Holding Company Subsidiary Guaranty
Exhibit E Terms of Intercompany Mirror Subordinated Debt
Exhibit F Form of Intercompany Mirror Subordinated Debt Subordination Agreement
Exhibit G Form of Subordination Agreement
Exhibit H Form of Blocked Account Letter Agreement
</TABLE>
<PAGE>
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of November 22, 1999 among DIVEO, INC., a
Delaware corporation (the "Borrower"), the Initial Lender, the Lenders (as
hereinafter defined) party hereto and LUCENT TECHNOLOGIES INC., as
administrative agent (the "Administrative Agent") for the Lenders (as
hereinafter defined).
RECITALS
The Borrower has been formed in order to plan, construct, operate and
maintain digital wireless local loop voice and data networks (each, a "Network")
in Mexico, Central America and South America (the "Territory") (the planning,
construction, operation and maintenance of the Networks being the "Project").
The Borrower has entered into the Lucent Supply Agreement dated as of
November 22, 1999 with Lucent Technologies Inc. (together with any of its
Subsidiaries providing services pursuant to the Lucent Supply Agreement,
"Vendor") (the "Supply Agreement") pursuant to which Subsidiaries of the
Borrower will purchase from the Vendor or Subsidiaries of the Vendor, and the
Vendor or Subsidiaries of Vendor will sell to Subsidiaries of the Borrower,
certain telecommunications equipment, software, engineering and other services
in connection with the Project.
Pursuant to this Agreement, the Borrower has requested that Lucent
Technologies Inc., as initial lender hereunder (the "Initial Lender"), extend
credit to it from time to time in order to finance certain costs of the Project,
including, among other things, purchases under the Supply Agreement. The Initial
Lender has agreed to extend credit to the Borrower from time to time under the
terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
<PAGE>
"Administrative Agent" has the meaning specified in the preamble to
this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at The Chase
Manhattan Bank, New York, New York, ABA no. 021000021, account no.
9101449099, phone no. (212) 552-2222 (or such other account in New York,
New York as the Administrative Agent shall from time to time specify by
notice).
"Advance" means a Tranche A Advance or a Tranche B Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Agent" means the Administrative Agent or the Collateral Agent.
"Agreement Currency" has the meaning set forth in Section 8.11(c)(ii).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C.
"Back-to-Back Loans" means, with respect to any Advance, any of the
following:
(a) any loan made by the Borrower to an Intermediate Holding
Company Subsidiary other than Comutacao Digital Ltda.;
(b) any loan made by the Borrower to a financial institution;
(c) any Investment made by the Borrower in a financial
institution;
provided that, in the case of (a), (b) or (c), such loan or
Investment:
(i) was made from the proceeds of such Advance on
substantially the economic terms of such Advance,
(ii) shall have been pledged by the Borrower to the
Collateral Agent, and
<PAGE>
3
(iii) the proceeds of which shall have been used by the
recipient thereof to make a loan described in subsection (d)
below; or
(d) a loan made by the recipient of a Back-to-Back Loan described
in subsection (a), (b) or (c) above with the proceeds of such
Back-to-Back Loan or by the Borrower from the proceeds of Advances, in
either case to an Operating Subsidiary:
(i) on substantially the economic terms of such related
Back-to-Back Loan or Advance, as applicable,
(ii) that shall have been pledged by the lender (if the
Borrower or an Intermediate Holding Company Subsidiary) to the
Collateral Agent, and
(iii) the proceeds of which shall have been used by such an
Operating Subsidiary for purposes specified in Section 2.13(a).
"Base Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the
higher of:
(a) the average of the rates of interest announced publicly by
the Reference Banks in New York, New York, from time to time, as such
banks' base rates, and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
"Blocked Account" means an account of an Operating Subsidiary that is
established for the purpose of transmitting proceeds of Advances that are
to be applied to pay invoices under the Supply Agreement and is subject to
a Blocked Account Letter Agreement or a written agreement with the
financial institution with whom such proceeds are deposited acknowledging
substantially similar limitations on the uses of such proceeds.
"Blocked Account Letter Agreement" means an account agreement
substantially in the form of Exhibit H attached hereto.
"Borrower" has the meaning specified in the preamble to this
Agreement.
"Borrower Security Agreement" means, collectively, any security
agreements of the Borrower in favor of the Collateral Agent and the Lenders
entered into pursuant to Section 3.01(i)(viii), as amended, modified or
supplemented from time to time.
<PAGE>
4
"Borrowing" means a borrowing consisting of Advances of the same
tranche made on the same day by the Lenders.
"Business Day" means a day of the year on which banks are not required
or authorized by law to close, with respect to any date of Borrowing, in
New York City, U.S.A., and otherwise in New York City, U.S.A.; Sao Paulo,
Brazil; Buenos Aires, Argentina; Santa Fe de Bogota, Colombia; Panama City,
Panama; and Lima, Peru and days on which dealings are carried on in the
London interbank market.
"Capital Assets" means, with respect to any Person and at any date,
all equipment, fixed assets and real property or improvements of such
Person, or replacements or substitutions therefor or additions thereto,
that have been or should be, in accordance with GAAP for such Person,
reflected as additions to property, plant or equipment on the balance sheet
of such Person at such date or that have a useful life of more than one
year.
"Capital Expenditures" means, for any period, all expenditures that
have been or should be, in accordance with GAAP, reflected as capital
expenditures to such period, less any indefeasible rights of use of fiber
subject to Capitalized Leases.
"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Cash Equivalents" means:
(a) as to the Borrower, any Intermediate Holding Company
Subsidiary of the Borrower and any Operating Subsidiary of the
Borrower subject to the jurisdiction of the United States or any state
or district thereof, any of the following, to the extent owned by the
Borrower or such Intermediate Holding Company Subsidiary free and
clear of all Liens:
(i) readily marketable direct obligations of the Government
of the United States or any agency or instrumentality thereof or
obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States having a maturity
of not greater than 720 days from the date of acquisition
thereof;
(ii) insured certificates of deposit of or time deposits
with any commercial bank having a maturity of not greater than
720 days from the date of acquisition thereof that:
<PAGE>
5
(A) is a Lender or a member of the Federal Reserve
System,
(B) issues (or the parent of which issues) commercial
paper rated as described in clause (iii),
(C) is organized under the laws of the United States or
any State thereof, and
(D) has combined capital and surplus of at least
$500,000,000;
(iii) commercial paper in any amount at any time having a
maturity of not greater than 720 days from the date of
acquisition thereof, issued by any corporation organized under
the laws of any State of the United States and rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "A-1" (or the then equivalent grade) by Standard
& Poor's Corporation; or
(iv) mutual funds issued by an entity organized in the
United States whose investments are comprised of items described
in clauses (i) to (iii) above and having a cash to assets ratio
of 10% or more; and
(b) as to any Operating Subsidiary subject to the jurisdiction of
a government other than that of the United States of any state or
district thereof, any of the following, to the extent owned by the
relevant Subsidiary free and clear of all Liens and having a maturity
of not greater than 360 days from the date of acquisition thereof:
(i) certificates of deposit or any other fixed-rate
instrument issued by (A) major banks organized under the laws of
such jurisdiction or (B) branches of international banks located
in such jurisdiction, in each case having at the date of any
investment combined capital and surplus and retained earnings of
not less than U.S.$500,000,000 ("Permitted Banks");
(ii) money-market funds managed by a Permitted Bank;
(iii) foreign-currency-indexed financial instruments, such
as Government bonds, issued by such jurisdiction, certificates of
deposit or any other fixed-rate instrument issued by an
investment fund, managed by a Permitted Bank; or
<PAGE>
6
(iv) direct obligations of such jurisdiction, the central
bank of the country of such jurisdiction or any agency or
instrumentality the obligations of which have the full faith and
credit of the government of such jurisdiction.
"Change of Control" means the occurrence of any of the following:
(a) any Competitor shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934), directly or
indirectly, of Voting Stock of the Parent (or other securities
convertible into such Voting Stock) representing 5% or more of the
combined voting power of all Voting Stock of the Parent;
(b) during any period of up to 24 consecutive months, commencing
on or after June 25, 1999, designees who at the beginning of such
24-month period were directors of the Borrower shall cease for any
reason to constitute a majority of the board of directors of the
Borrower;
(c) any Competitor or two or more Competitors acting in concert
shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in
its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of
the Parent or control over Voting Stock of the Parent (or other
securities convertible into such Voting Stock) representing 5% or more
of the combined voting power of all Voting Stock of the Parent;
(d) the Parent shall cease to own 100% of the Equity Interests in
the Borrower; or
(e) any Person or two or more Persons acting in concert shall
have acquired, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or their acquisition of,
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act
of 1934), directly or indirectly, of Voting Stock of the Parent (or
other securities convertible into such Voting Stock) representing 50%
or more of the combined voting power of all Voting Stock of the
Parent.
"Collateral" means all "Collateral" referred to in the Security
Agreements and all other property that is subject to any Lien in favor of
the Collateral Agent or the Lenders.
<PAGE>
7
"Collateral Agent" means Citibank, N.A. and its successors as
collateral agent under the Intercreditor Agreement.
"Collateral Agent Letter" means the letter agreement between the
Collateral Agent and the Borrower referred to in Section 3.01(f).
"Commitment" means a Tranche A Commitment or a Tranche B Commitment.
"Competitor" means any Person that (a) has total annual revenues in
excess of $1,000,000,000 and derives 10% or more of its gross revenues or
profits or (b) has a division or Subsidiary has total annual revenues in
excess of $100,000,000 and derives 10% or more of its gross revenues or
profits, from the manufacture of telecommunications or data communications
equipment or from another activity from which the Vendor or an Affiliate of
the Vendor derives more than 10% of its gross revenues or profits, or an
Affiliate of any such Person.
"Compliance Certificate" has the meaning specified in Section 5.03(b).
"Confidential Information" means information that the Borrower
furnishes to the Administrative Agent or any Lender in a writing designated
as confidential, but does not include any such information that is or
becomes generally available to the public other than as a result of a
violation of Section 8.08 or that is or becomes available to the
Administrative Agent or such Lender from a source other than the Borrower.
"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.
"Contributed Capital" means at any date, the aggregate amount of cash
equity capital contributed to the Borrower by its shareholders prior to
such date less any reductions in equity capital resulting from
distributions made by the Borrower in excess of the Borrower's retained
earnings.
"Core Territories" means Argentina, Brazil, Colombia, Panama and Peru.
"Current Assets" of any Person at any date means (a) all assets of
such Person that would, in accordance with GAAP, at such date, be
classified as current assets of a company conducting a business the same as
or similar to that of such Person, after deducting adequate reserves in
each case in which a reserve is proper in accordance with GAAP and (b)
value added tax credits accrued within one year prior to such date.
"Current Liabilities" of any Person means at any date:
(a) all Debt of such Person that by its terms is payable on
demand or matures within one year after such date (excluding any Debt
renewable or
<PAGE>
8
extendable, at the option of such Person, to a date more than one year
from such date or arising under a revolving credit or similar
agreement that obligates the lender or lenders to extend credit during
a period of more than one year from such date), and
(b) all other liabilities of such Person that in accordance with
GAAP would be classified as current liabilities of such Person.
"Customer Premise Equipment" means any equipment that is (a) owned by
an Operating Subsidiary, (b) located at the office or other premises owned
by a customer or leased by a customer from a third party independent from
the Borrower and its Affiliates, (c) sold, leased or transferred by such
Operating Subsidiary to such customer, or to a third party lessor
(independent from the Borrower and its Affiliates) of such equipment to
such customer, in each case on which customer's premises such equipment is
located and (d) of any of the following types: routers, firewalls,
integrated access devices, radio systems, tdm multiplexors, atm
multiplexors, PBX, server computers, LAN hubs, DSL multiplexors or protocol
converters.
"Debt" of any Person means, without duplication:
(a) all indebtedness of such Person for borrowed money,
(b) all Obligations of such Person for the deferred purchase
price of property or services (other than trade payables not overdue
by more than 60 days incurred in the ordinary course of such Person's
business),
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments,
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property),
(e) all Obligations of such Person as lessee under Capitalized
Leases,
(f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities,
(g) all Obligations of such Person in respect of Hedge
Agreements,
<PAGE>
9
(h) all Debt of others referred to in clauses (a) through (g)
above or clause (i) below guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly
by such Person through an agreement (A) to pay or purchase such Debt
or to advance or supply funds for the payment or purchase of such
Debt, (B) to purchase, sell or lease (as lessee or lessor) property,
or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of
such Debt against loss or (C) the primary purpose of which is to
assure a creditor of such Person against loss, and
(i) all Debt referred to in clauses (a) through (g) above secured
by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property
(including without limitation accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section 3.01(a).
"EBITDA" means for any period:
(a) Net Income for such period (excluding, to the extent
otherwise included in Net Income, Consolidated interest income), plus
(b) the following, in each case without duplication and to the
extent deducted from Revenue in accordance with GAAP in determining
Net Income for such period:
(i) consolidated interest expense of the Borrower and its
Subsidiaries for such period,
(ii) taxes based upon Net Income,
(iii) depreciation and amortization, and
(iv) other non-cash charges.
"Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender;
(c) a commercial bank organized under the laws of the United States, or any
State thereof, and having total assets in excess of $1,000,000,000; (d) a
savings and loan association or savings bank organized under the laws of
the United States, or any State thereof, and
<PAGE>
10
having total assets in excess of $1,000,000,000; (e) a commercial bank
organized under the laws of any other country that is a member of the OECD
or has concluded special lending arrangements with the International
Monetary Fund associated with its General Arrangements to Borrow, or a
political subdivision of any such country, and having total assets in
excess of $1,000,000,000, so long as such bank is acting through a branch
or agency located in the United States; (f) the central bank of any country
that is a member of the OECD; and (g) a finance company, insurance company
or other financial institution, or fund (whether a corporation,
partnership, trust or other entity) that is engaged in making, purchasing
or otherwise investing in commercial loans in the ordinary course of its
business and having total assets (in the case of a fund, together with any
other funds managed by the same fund manager) in excess of $1,000,000,000;
provided that no Loan Party or Affiliate of a Loan Party shall qualify as
an Eligible Assignee under this definition.
"Environmental Action" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental
Permit or Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment, including without limitation
(a) by any governmental or regulatory authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial or agency interpretation, policy or guidance relating to pollution
or protection of the environment, health, safety or natural resources,
including without limitation those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law.
"Equity Interests" means, with respect to any Person, shares of
capital stock or contribution of (or other ownership or profit interests
in) such Person, warrants, options or other rights for the purchase or
other acquisition from such Person of shares of capital stock of (or other
ownership or profit interests in) such Person, securities convertible into
or exchangeable for shares of capital stock of (or other ownership or
profit interests in) such Person or warrants, rights or options for the
purchase or other acquisition from such Person of such shares (or such
other interests), and other ownership or profit interests in such Person
(including, without limitation, partnership, member or trust interests
therein),
<PAGE>
11
whether voting or nonvoting, and whether or not such shares, warrants,
options, rights or other interests are authorized or otherwise existing on
any date of determination.
"Ericsson Credit Agreement" means the Amended and Restated Credit
Agreement dated as of the date hereof among the Borrower, the Lenders party
thereto and Ericsson Credit AB as Administrative Agent.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of any Loan Party, or under
common control with any Loan Party, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC or (ii) the requirements of Section 4043(b) of ERISA
apply with respect to a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9),
(10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected
to occur with respect to such Plan within the following 30 days; (b) the
application for a minimum funding waiver with respect to a Plan; (c) the
provision by the administrator of any Plan of a notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in Section 4041(e)
of ERISA); (d) the cessation of operations at a facility of any Loan Party
or any ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; (e) the withdrawal by any Loan Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to any Plan; (g) the adoption of an amendment to a Plan requiring
the provision of security to such Plan pursuant to Section 307 of ERISA; or
(h) the institution by the PBGC of proceedings to terminate a Plan pursuant
to Section 4042 of ERISA, or the occurrence of any event or condition
described in Section 4042 of ERISA that constitutes grounds for the
termination of, or the appointment of a trustee to administer, such Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
<PAGE>
12
"Eurodollar Rate" means, for any Interest Period for each Advance
comprising part of the same Borrowing, an interest rate per annum equal to
the rate per annum obtained by dividing
(a) LIBOR for such Interest Period by
(b) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Interest Period.
The Eurodollar Rate for any Interest Period for each Advance comprising
part of the same Borrowing shall be determined by the Administrative Agent,
subject, however, to the provisions of Section 2.07.
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
Advances comprising part of the same Borrowing means the reserve percentage
applicable two Business Days before the first day of such Interest Period
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation any emergency,
supplemental or other marginal reserve requirement) for a member bank of
the Federal Reserve System in New York City with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Cash Flow" means for any period the positive amount, if any,
of:
(a) EBITDA for such period, minus
(b) the sum of the following, to the extent paid in cash by the
Borrower and its Subsidiaries during such period:
(i) scheduled debt service,
(ii) taxes,
(iii) permitted Capital Expenditures (except for any capital
expenditures that have been financed with Debt incurred during
such period),
(iv) payments for spectrum rights other than payments in
advance of the date due, and
<PAGE>
13
(v) extraordinary cash charges,
(c) plus any decrease or minus any increase, as the case may be,
in Working Capital Investments between the first and last day of such
period.
"Existing Debt" means Debt of the Borrower and its Subsidiaries
outstanding as of June 25, 1999.
"Extraordinary Receipt" means any cash received by or paid to or for
the account of any Person not in the ordinary course of business,
including, without limitation, tax refunds, pension plan reversions,
proceeds of insurance (other than proceeds of business interruption
insurance to the extent such proceeds constitute compensation for lost
earnings), condemnation awards (and payments in lieu thereof) and indemnity
payments.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum 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 that is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal-funds brokers of recognized
standing selected by it.
"Federal Reserve System" means the system established by the Federal
Reserve Act of 1913 to regulate the U.S. monetary and banking system.
"First Eurodollar Method" means the terms and provisions of this
Agreement applicable to Advances when the First Eurodollar Method is to be
applied pursuant to Section 2.14.
"GAAP" has the meaning specified in Section 1.03.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Gross PP&E" means at any date, Consolidated gross plant, property and
equipment of the Borrower and its Subsidiaries less any indefeasible rights
of use of fiber subject to Capitalized Leases, in each case as of such date
and as determined in accordance with GAAP.
<PAGE>
14
"Guarantor" means any Subsidiary of the Borrower that executes a
Guaranty.
"Guaranty" means a guaranty issued in favor of the Administrative
Agent and the Lenders (i) in the case of any Operating Subsidiary, in
substantially in the form of Exhibit D-1 or (ii) in the case of any
Intermediate Holding Company, in substantially the form of Exhibit D-2.
"Hazardous Materials" means:
(a) petroleum and petroleum products, byproducts or breakdown
products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas, and
(b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements,
currency future or option contracts and other similar agreements.
"Indemnified Costs" has the meaning specified in Section 7.05.
"Initial Lender" has the meaning specified in the preamble to this
Agreement.
"Insignificant Subsidiary" means any Subsidiary of the Borrower having
assets with a value not exceeding $500,000 or in which no more than
$500,000 has been invested.
"Intercompany Mirror Subordinated Debt" means unsecured Debt owing by
the Borrower to the Parent that:
(a) is loaned to the Borrower by the Parent and designated by the
Borrower as representing proceeds from the incurrence of Debt (the
"Parent Mirror Debt") issued by the Parent;
(b) has an interest rate not exceeding the lesser of (i) the
interest rate applicable to the related Parent Mirror Debt and (ii) a
rate of 20% per annum;
(c) does not provide for any payment of principal prior to the
final scheduled maturity date for the last repayment of Advances of
either Tranche; and
<PAGE>
15
(d) has defaults, covenants and other provisions that comply with
Exhibit E and subordination terms substantially in the form of Exhibit
F.
"Intercreditor Agreement" means the amended and restated Intercreditor
Agreement entered into pursuant to Section 3.01(e) among the Collateral
Agent, the Administrative Agent, the Initial Lender, Ericsson Credit AB as
administrative agent and as initial lender pursuant to the Ericsson Credit
Agreement and the other administrative agents and lenders from time to time
party thereto, as amended, amended and restated, supplemented or otherwise
modified from time to time.
"Interest Period" means:
(a) when the First Eurodollar Method is applicable, for each
Advance comprising part of the same Borrowing, the period commencing
on the date of the initial Advance and ending six months thereafter
and, thereafter, each subsequent six-month period commencing on the
last day of the immediately preceding Interest Period and ending on
the last day of such period; and
(b) when the Second Eurodollar Method is applicable, for each
Advance comprising part of the same Borrowing, the period commencing
on the date of such Advance and ending six months thereafter and,
thereafter, each subsequent six-month period commencing on the last
day of the immediately preceding Interest Period and ending on the
last day of such period;
provided, in each case, that:
(a) in the event the last day of the Interest Period immediately
preceding the Tranche A Termination Date would occur on a day other
than the Tranche A Termination Date, the last day of such Interest
Period shall be shortened to occur on the Tranche A Termination Date;
(b) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next-succeeding
Business Day; provided that, if such extension would cause the last
day of such Interest Period to occur in the next-following calendar
month, the last day of such Interest Period shall occur on the
next-preceding Business Day; and
(c) whenever the last day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the sixth calendar month thereafter, such
Interest Period shall end on the last Business Day of such sixth
calendar month.
<PAGE>
16
"Intermediate Holding Company Security Agreement" means a security
agreement of an Intermediate Holding Company Subsidiary in favor of the
Collateral Agent and the Lenders entered into pursuant to Section
5.01(k)(ii), as amended, modified or supplemented from time to time.
"Intermediate Holding Company Subsidiary" means any Subsidiary of the
Borrower that:
(a) has no assets other than (i) capital stock of an Operating
Subsidiary or Intermediate Holding Company Subsidiary, and (ii)
Investments permitted under Section 5.02(k)(iii)(B) and (iii)
intercompany loans made to such Subsidiaries that are permitted under
Section 5.02(k)(vii);
(b) has no Debt or other liabilities other than intercompany
loans permitted under Section 5.02(a)(v); and
(c) is primarily engaged in the business of holding the capital
stock of or Investments in an Operating Subsidiary or Intermediate
Holding Company Subsidiary.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Investment" in any Person means any loan or advance to such Person,
any purchase or other acquisition of any capital stock, warrants, rights,
options, obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such Person,
including without limitation any arrangement pursuant to which the investor
incurs Debt of the types referred to in clauses (a) and (i) of the
definition of "Debt" in respect of such Person.
"Judgment Currency" has the meaning set forth in Section 8.11(c)(ii).
"Lender Party" means any Lender or the Administrative Agent.
"Lenders" means the Initial Lender and each Person that shall become a
Lender hereunder pursuant to Section 8.07.
"Lenders' Pro Rata Portion" means, at any time and with respect to any
amount, the Lenders' pro rata portion of such amount, calculated in
proportion with the outstanding principal amounts owing at such time by the
Borrower under the Permitted Loan Agreements (as defined in the
Intercreditor Agreement).
<PAGE>
17
"Lending Office" means, with respect to any Lender, the office of such
Lender specified as its "Lending Office" opposite its name on the signature
page hereto or in the Assignment and Acceptance pursuant to which it became
a Lender, or such other office of such Lender as such Lender may from time
to time specify to the Borrower and the Administrative Agent.
"LIBOR" means, with respect to any Interest Period, an interest rate
per annum equal to the rate per annum obtained by the arithmetic mean
(rounded upwards to the nearest 1/16th of 1%) of the offered rates for
deposits in United States Dollars in approximately the same amount as such
Advance and having a tenor equal to the duration of such Interest Period,
commencing on the first day of such Interest Period, as such rates appear
on the "Reuters Screen LIBO Page" at approximately 11:00 A.M. (London time)
on the second Business Day preceding the first day of such Interest Period,
if at least two such offered rates appear on the Reuters Screen LIBO Page.
If fewer than two offered rates appear on the Reuters Screen LIBO Page on
such interest determination date, the Administrative Agent will request the
principal London offices of each of the Reference Banks to provide the
Administrative Agent with its offered quotations for deposits in United
States Dollars in approximately the same amount as such Advance and having
a tenor equal to the duration of such Interest Period, commencing on the
first day of such Interest Period, to prime banks in the London interbank
market at approximately 11:00 A.M. (London time) on such interest
determination date. If at least two such quotations are provided, LIBOR
shall be the arithmetic mean (rounded upwards to the nearest 1/16th of 1%)
of such quotations. If one such quotation is provided, LIBOR shall be the
rate mentioned in such quotation. If no such quotations are provided, LIBOR
shall be indeterminable.
"Licenses" means, at any time, any license or spectrum right listed at
such time on Schedule 4.01(y) hereof, as amended pursuant to Section
5.03(u), and all other licenses and spectrum rights (other than licenses
relating to general business activities and the ownership and use of
property applicable to persons generally and not specifically required to
engage in business of the type proposed to be conducted by the Borrower and
its Subsidiaries) held by the Borrower and its Subsidiaries providing for
the right to operate the Networks in the Territory.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including without limitation the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
<PAGE>
18
"Loan Documents" means this Agreement, the Notes issued hereunder, the
Security Agreements, the Intercreditor Agreement, any Guaranty, the
Collateral Agent Letter and the Blocked Account Letter Agreements.
"Loan Parties" means the Borrower and any Guarantor.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), operations, or performance of
the Borrower and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower and its
Subsidiaries taken as a whole,
(b) the ability of the Borrower to perform its payment
Obligations under the Loan Documents, or
(c) the validity or enforceability of any Lien in favor of the
Agents or the Lenders or the validity or enforceability of any Loan
Document.
"Material Assets" means, with respect to any Person, an asset or
assets having either individually or in the aggregate a fair market value
of $2,000,000 or more.
"Material Contract" means, with respect to the Borrower and each of
its Subsidiaries, each contract to which the Borrower or such Subsidiary,
as the case may be, is a party involving aggregate consideration payable to
or by the Borrower or such Subsidiary, as the case may be, of $5,000,000 or
more in any calendar year.
"Material License" means, at any time, any License listed at such on
Schedule 4.01(ii) hereof, as amended pursuant to Section 5.03(u), and all
other Licenses held by the Borrower and its Subsidiaries with respect to
the ownership and operation of digital wireless local loop data networks
constituting a portion of a Network in each of the Core Territories as well
as any other part of the Territory that are necessary for the Borrower to
fulfill the financial and operational projections set forth in the
Borrower's business plan dated October 29, 1999, including all Licenses
with respect to rights to use spectrum in the 15 GHz, 18 GHz, 23 GHz and 38
GHz bands.
"Moody's" means Moody's Investors Service, Inc.
<PAGE>
19
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
Loan Party or any ERISA Affiliate and at least one Person other than the
Loan Parties and the ERISA Affiliates or (b) was so maintained and in
respect of which any Loan Party or any ERISA Affiliate could have liability
under Section 4064 or 4069 of ERISA in the event such plan has been or were
to be terminated.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or issuance of any Debt or
capital stock or other ownership or profit interest, any securities
convertible into or exchangeable for capital stock or other ownership or
profit interest or any warrants, rights, options or other securities to
acquire capital stock or other ownership or profit interest by any Person,
or any Extraordinary Receipt received by or paid to or for the account of
any Person, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection with
such transaction after deducting therefrom only (without duplication):
(a) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finder's fees and other similar fees
and commissions and
(b) the amount of taxes payable in connection with or as a result
of such transaction,
in each case to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate of such Person or any Loan Party or any
Affiliate of any Loan Party and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Income" means for any period the Consolidated net income or net
loss, as the case may be, of Borrower and its Subsidiaries, excluding
extraordinary gains and losses, in each case for such period and as
determined in accordance with GAAP.
"Network" has the meaning specified in the recitals to this Agreement.
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20
"Note" means a promissory note of the Borrower payable to the order of
any Lender, in substantially the form of Exhibit A, evidencing the
aggregate Debt of the Borrower to such Lender resulting from the Advances
made by such Lender.
"Notice of Borrowing" has the meaning specified in Section 2.02.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01(g). Without limiting the generality
of the foregoing, the Obligations of the Loan Parties under the Loan
Documents include (a) the obligation to pay principal, interest, charges,
expenses, fees, attorneys' fees and disbursements, indemnities and other
amounts payable by any Loan Party under any Loan Document and (b) the
obligation of any Loan Party to reimburse any amount in respect of any of
the foregoing that any Lender Party, in its sole discretion, may elect to
pay or advance on behalf of such Loan Party.
"Operating Subsidiary" means any Subsidiary of the Borrower engaged in
the business of operating one or more Networks.
"Operating Subsidiary Security Agreement" means a security agreement
of an Operating Subsidiary in favor of the Collateral Agent and the Lenders
entered into pursuant to Section 5.01(k)(ii), as amended, modified or
supplemented from time to time.
"Other Secured Creditors" means Secured Creditors other than the
Lenders.
"Parent" means Diginet Americas, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced:
(a) Liens for taxes, assessments and governmental charges or
levies to the extent not required to be paid under Section 5.01(b)
hereof;
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's Liens and other similar Liens
arising in the ordinary
<PAGE>
21
course of business securing obligations that are not overdue for a
period of more than 30 days;
(c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
statutory obligations; and
(d) easements, rights of way and other encumbrances on title to
real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such
property for its present purposes.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Project" has the meaning specified in the recitals of this Agreement.
"Reference Banks" means Citibank plc, Barclays Bank and The Chase
Manhattan Bank.
"Register" has the meaning specified in Section 8.07(c).
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Regulatory Permits" means all permits needed to construct, install,
commission, service, maintain and operate the Networks in each Core
Territory.
"Required Lenders" means at any time Lenders holding at least a
majority in interest of the sum of the then-outstanding aggregate unpaid
principal amount of the Advances owing to Lenders and then-outstanding
undrawn Commitments (including any Commitments not then available to be
drawn).
"Restricted Payment" means any distribution of the Borrower or any of
its Subsidiaries (in cash, property or obligations) on, or other payments
on account of, or the setting apart of money for a sinking or other
analogous fund for, or the purchase, redemption, retirement, prepayment or
other acquisition of
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22
(a) any portion of any membership or other equity interest in the
Borrower or of any warrants, options or other rights to acquire any
such membership or equity interest (or to make any payments to any
Person where the amount thereof is calculated with reference to fair
market or equity value of the Borrower or any of its Subsidiaries), or
(b) any Intercompany Mirror Subordinated Debt or Subordinated
Debt.
"Revenue" means, for any period, Consolidated revenue of the Borrower
and its Subsidiaries for such period as determined in accordance with GAAP.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
"Second Eurodollar Method" means the terms and provisions of this
Agreement applicable to Advances when the Second Eurodollar Method is to be
applied pursuant to Section 2.14.
"Secured Creditors" means creditors of the Borrower or its
Subsidiaries holding Debt of the Borrower secured by Shared Liens.
"Security Agreement" means the Borrower Security Agreement, any
Intermediate Holding Company Security Agreement, any Operating Subsidiary
Security Agreement or other security agreement entered into pursuant to
this Agreement in favor of the Collateral Agent and the Lenders, as
amended, amended and restated, modified or supplemented from time to time,
and any other agreement that creates or purports to create a Lien in favor
of the Collateral Agent for the benefit of the Lenders or in favor of the
Lenders.
"Securities Act" has the meaning set forth in Section 2.08(b)(iv).
"Shared Liens" means Liens securing Debt permitted pursuant to Section
5.02(a)(vii) and (viii).
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
Loan Party or any ERISA Affiliate and no Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which
any Loan Party or any ERISA Affiliate could have liability under Section
4069 of ERISA in the event such plan has been or were to be terminated.
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23
"Solvent" means, 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 without limitation
contingent liabilities, of such Person,
(b) 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
(c) such Person is not engaged in business or a transaction, and
is not about to engage in business or a transaction, for which such
Person's property would constitute an unreasonably small capital.
"Subordinated Debt" means any Debt of the Borrower owed to the Parent
that is subordinated to the Advances pursuant to a Subordination Agreement.
"Subordination Agreement" means a subordination agreement
substantially in the form of Exhibit G.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of:
(a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency),
(b) the interest in the capital or profits of such limited
liability company, partnership or joint venture, or
(c) the beneficial interest in such trust or estate,
is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more
of such Person's other Subsidiaries.
"Supermajority Lenders" means at any time Lenders owed at least a
66 2/3% in interest of the sum of the then-outstanding aggregate unpaid
principal amount of the
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24
Advances owing to Lenders and then-outstanding undrawn Commitments
(including any Commitments not then available to be drawn).
"Supply Agreement" has the meaning specified in the recitals to this
Agreement.
"Territory" has the meaning specified in the recitals to this
Agreement.
"Total Cash Debt Service" means for any period scheduled total cash
payments by the Borrower and its Subsidiaries during such period in respect
of interest (plus any indemnities payable in respect of withholding taxes
or stamp duties in respect of such interest payments) and principal in
respect of Debt of the Borrower and its Subsidiaries.
"Total Debt" means, at any date, the aggregate principal amount of
Debt of the Borrower and its Subsidiaries then outstanding.
"Tranche A Advance" has the meaning specified in Section 2.01(a).
"Tranche A Commitment" means, with respect to any Lender at any time,
the amount set forth opposite such Lender's name on the signature pages
hereof or, if such Lender has entered into one or more Assignment and
Acceptances, set forth in the Register maintained by the Administrative
Agent pursuant to Section 8.07(c) as such Lender's "Tranche A Commitment",
as such amount may be reduced from time to time pursuant to Section 2.04.
"Tranche A Effective Date" has the meaning specified in Section
3.01(a).
"Tranche A Facility Fee" has the meaning specified in Section 2.03(c).
"Tranche A Termination Date" means the earlier of the second
anniversary of the Tranche A Effective Date and the date of termination in
whole of the Tranche A Commitments pursuant to Section 2.04 or 6.01.
"Tranche B Advance" has the meaning specified in Section 2.01(b).
"Tranche B Commitment" means, with respect to any Lender at any time:
(a) the amount set forth opposite such Lender's name on the
signature page hereof or, if such Lender has entered into one or more
Assignment and Acceptances, set forth in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c) as such Lender's
"Tranche B Commitment" plus
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25
(b) the undrawn amount of such Lender's Tranche A Commitment on
the Tranche A Termination Date,
as such amount may be reduced from time to time pursuant to
Section 2.04.
"Tranche B Effective Date" means, with respect to the Tranche B
Commitments of the Lenders, the earlier of (a) the second anniversary of
the Tranche A Effective Date and (b) the first date, after all Tranche A
Commitments shall have been drawn, on which the Borrower shall have
complied with the covenants set forth in Section 5.04 applicable on such
second anniversary of the Tranche A Effective Date.
"Tranche B Facility Fee" has the meaning specified in Section 2.03(d).
"Tranche B Termination Date" means the earliest of (i) the eighteen
month anniversary of the Tranche B Effective Date, (ii) the forty-two month
anniversary of the Tranche A Effective Date and (iii) the date of
termination in whole of the Tranche B Commitments pursuant to Section 2.04
or 6.01.
"Tributary" has the meaning set forth in Section 5.02(v).
"Vendor" has the meaning specified in the recitals to this Agreement.
"Voice Grade Equivalents" means, at any time, the sum of kilobits per
second in service for each customer at such time, divided by 64 kilobits
per second.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening of
such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
ERISA, that is maintained for employees of any Loan Party or in respect of
which any Loan Party could have liability.
"Wholly Owned Subsidiary" of any Person means any corporation,
partnership, joint venture, limited liability company, trust or estate of
which (or in which) 100% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of Directors
of such corporation (irrespective of whether at the time capital stock of
any other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the
capital or profits of such partnership, joint venture or limited liability
company or (c) the beneficial interest in
<PAGE>
26
such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries;
provided that, if applicable law prohibits the exercise of such percentage
of direct or indirect ownership or control, the ownership or control held
by such Person and one or more of its other Subsidiaries shall be the
maximum percentage permitted under such applicable law.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
"Working Capital Investments" means, as at any date, the difference
(positive or negative) between the amount of current assets (excluding cash
and Cash Equivalents) of the Borrower as of such date minus the amount of
current liabilities (excluding current liabilities in respect of Debt) of
the Borrower as of such date, in each case determined on a consolidated
basis in accordance with GAAP.
SECTION 1.02. 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".
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with United States generally
accepted accounting principles consistent with those consistently applied in the
preparation of the financial statements ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Tranche A Advances. Each Lender having
a Tranche A Commitment severally agrees, on the terms and conditions hereinafter
set forth, to make Advances (each, a "Tranche A Advance") to the Borrower from
time to time on any Business Day during the period from the Tranche A Effective
Date until the Tranche A Termination Date in an aggregate amount not to exceed
at any time outstanding such Lender's Tranche A Commitment. Each Borrowing
consisting of Tranche A Advances shall be in an amount not exceeding (i) amounts
owing under invoices issued or accepted by the Vendor pursuant to the Supply
Agreement during the calendar month immediately preceding the date of the
proposed Borrowing and that were not paid with the proceeds of any prior
Borrowing and (ii) interest owing on Borrowings to be paid with the proceeds
thereof. Each such Borrowing shall consist of Advances made on the same day by
the Lenders ratably according to their respective Tranche A Commitments. Amounts
borrowed hereunder and repaid or prepaid may not be reborrowed.
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27
(b) The Tranche B Advances. Each Lender having a Tranche B Commitment
severally agrees, on the terms and conditions hereinafter set forth, to make
Advances (each, a "Tranche B Advance") to the Borrower from time to time on any
Business Day during the period from the Tranche B Effective Date until the
Tranche B Termination Date in an aggregate amount not to exceed at any time
outstanding such Lender's Tranche B Commitment. Each Borrowing consisting of
Tranche B Advances shall be in an amount not exceeding (i) amounts owing under
invoices issued or accepted by the Vendor pursuant to the Supply Agreement
during the calendar month immediately preceding the date of the proposed
Borrowing and that were not paid with the proceeds of any prior Borrowing and
(ii) interest owing on Borrowings to be paid with the proceeds thereof. Each
such Borrowing shall consist of Advances made on the same day by the Lenders
ratably according to their respective Tranche B Commitments. Amounts borrowed
hereunder and repaid or prepaid may not be reborrowed.
SECTION 2.02. Making the Advances. (a) Each Borrowing shall be made on
notice, given not later than 11:00 A.M. (New York City time) on the third
Business Day prior to the date of the proposed Borrowing by the Borrower to the
Administrative Agent; provided that, except with respect to Borrowings the
proceeds of which shall be used to pay interest owing on Borrowings as permitted
hereunder:
(i) the Borrower may not give more than one such notice in any
calendar month; and
(ii) for any Borrowing proposed to be made after December 31, 1999,
the date of each Borrowing shall be the twentieth day of each calendar
month; provided that if such date is not a Business Day, the date of
Borrowing shall be the next Business Day.
The Administrative Agent shall give to each Lender prompt notice thereof by
telecopier or telex. Each such notice of a Borrowing (a "Notice of Borrowing")
shall be in writing, in substantially the form of Exhibit B, specifying therein:
(A) the requested date of such Borrowing,
(B) the requested aggregate amount of such Borrowing,
(C) the Vendor's invoices to be paid with the proceeds of such
Borrowing, the respective amounts of such invoices to be paid and the
aggregate amount of such invoices to be paid, and
(D) any payments of interest owing on Borrowings to be paid with the
proceeds of such Borrowing as permitted hereunder.
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28
Each Lender having an applicable Commitment to fund an Advance shall, before
11:00 A.M. (New York City time) on the date of such Borrowing, make available
for the account of its Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's ratable portion
of such Borrowing; provided that if a Commitment is assigned by the Initial
Lender after receipt of a Notice of Borrowing but prior to the Borrowing related
thereto (any such assigned Commitment, a "Fronting Commitment"), and the
Assignment and Acceptance relating thereto specifies such assigned Commitment is
a Fronting Commitment, the Initial Lender's ratable portion of such Borrowing
shall equal (w) the amount the Initial Lender would have funded in respect of
such Borrowing calculated without giving effect to such assignment minus (x) the
amount of such Fronting Commitment, and the assignee's ratable portion of such
Borrowing shall equal (y) the amount such assignee would have funded in respect
of such Borrowing calculated without giving effect to any assignment under which
such assignee was assigned a Fronting Commitment plus (z) the amount of such
Fronting Commitment. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower. The
Borrower irrevocably directs the Administrative Agent to make available to the
Borrower the portion of any Borrowing to be used to pay amounts owing to the
Vendor, as specified in the related Notice of Borrowing to such account as
notified to the Administrative Agent in the related Notice of Borrowing and to
pay the portion to of any Borrowing to be used to pay interest owing to the
Lenders to the extent permitted hereunder, as specified in the related Notice of
Borrowing, to the Lenders entitled thereto; provided that, if such account is
not with the Administrative Agent such Borrowing shall be deemed to have been
made when the Administrative Agent shall have initiated the transfer of funds
comprising such Borrowing to such account.
(b) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. 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 or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including (without limitation)
any loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such Lender to fund the Advance to be
made by such Lender as part of such Borrowing when such Advance, as a result of
such failure, is not made on such date. The loss to any Lender attributable to
any such failure shall be deemed to be an amount determined by such Lender to be
equal to the excess, if any, of (i) the amount of interest that such Lender
would pay for a deposit equal to the principal amount of the applicable
Eurodollar Rate Advance not borrowed for the duration of the Interest Period
that would have resulted from such borrowing if the interest rate payable on
such deposit were equal to the Eurodollar Rate for such Interest period, over
(ii) the amount of interest that such Lender would earn on such principal amount
for such period if such Lender were to invest such principal amount for such
period at the interest rate that would be bid by such Lender (or an Affiliate of
such Lender) for dollar deposits from other banks in the eurodollar market at
the commencement
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29
of such period. A certificate as to the amount of such loss, cost or expense,
submitted to the Borrower by such Lender, shall be conclusive and binding for
all purposes, absent manifest error.
(c) Unless the Administrative Agent shall have received notice from a
Lender that has an applicable Commitment prior to the date of any Borrowing that
such Lender will not make available to the Administrative Agent such Lender's
ratable portion of such Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the date
of such Borrowing in accordance with subsection (a) of this Section 2.02 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Advances comprising such Borrowing and (ii) in the case of such Lender,
the Federal Funds Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Lender's
Advance as part of such Borrowing for purposes of this Agreement.
(d) The failure of any Lender obligated to make an Advance to make such
Advance to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Advance on the date of
such Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make any Advance to be made by such other Lender on the date of any
Borrowing.
SECTION 2.03. Fees. (a) Tranche A Commitment Fee. The Borrower shall pay to
the Administrative Agent for the account of each Lender having a Tranche A
Commitment a commitment fee on the average daily unused portion of each Lender's
Tranche A Commitment from the Tranche A Effective Date in the case of the
Initial Lender and from the effective date specified in the Assignment and
Acceptance pursuant to which it became a Lender in the case of each other such
Lender, until the Tranche A Termination Date at the rate of 1.10 % per annum,
payable in cash on the last day of each Interest Period or, in the event no
Advance is then outstanding, in arrears semi-annually on the last Business Day
of each of June and December, commencing on December 31, 1999, and on the
Tranche A Termination Date.
(b) Tranche B Commitment Fee. The Borrower shall pay to the Administrative
Agent for the account of each Lender having a Tranche B Commitment a commitment
fee on the average daily unused portion of such Lender's Tranche B Commitment,
from the Tranche B Effective Date, in the case of each Person that is such a
Lender on such date, and from the effective date specified in the Assignment and
Acceptance pursuant to which it became a Lender in the case of each other such
Lender, until the Tranche B Termination Date at
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30
the rate of 1.10% per annum, payable in cash on the last day of each Interest
Period or, in the event no Advance is then outstanding, in arrears semi-annually
on the last Business Day of each of June and December, commencing on June 30,
2001, and on the Tranche B Termination Date.
(c) Tranche A Facility Fee. The Borrower shall pay to the Administrative
Agent for distribution to the Initial Lender, in cash, on the Tranche A
Effective Date, a one-time facility fee (the "Tranche A Facility Fee") of 1.10%
of the Initial Lender's Tranche A Commitment.
(d) Tranche B Facility Fee. The Borrower shall pay to the Administrative
Agent for distribution to each Lender that has a Tranche B Commitment, in cash,
on the Tranche B Effective Date, a one-time facility fee (the "Tranche B
Facility Fee") of 1.10% of such Tranche B Lender's Tranche B Commitment, other
than any portion thereof reflecting the transfer of any undrawn portion of such
Lender's Tranche A Commitment on the Tranche A Termination Date.
(e) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account the fee separately agreed with the
Administrative Agent.
SECTION 2.04. Termination or Reduction of the Commitments. (a) The Borrower
shall have the right, upon at least 10 Business Days' notice to the
Administrative Agent, to terminate in whole or reduce ratably in part the unused
portions of the respective Commitments of the Lenders; provided that each
partial reduction shall be in the aggregate amount of $3,000,000 or an integral
multiple of $1,000,000 in excess thereof.
(b) On any date on which a mandatory prepayment of Advances would be
required to be prepaid pursuant to Section 2.08(b), the Commitments shall be
automatically reduced by an amount equal to the excess, if any, of the aggregate
principal amount of the Advances that would be required to be prepaid on such
date if the Commitments were fully drawn (whether or not in fact available for
draw on such date) over the aggregate principal unpaid amount of the Advances
then outstanding.
SECTION 2.05. Repayment of Advances. (a) Repayment of Tranche A Advances.
The Borrower shall repay to the Administrative Agent for the ratable account of
the Lenders that have made Tranche A Advances the aggregate outstanding
principal amount of the Tranche A Advances in six installments payable on the
last day of every sixth calendar month after the second anniversary of the
Tranche A Effective Date each in an amount equal to the product obtained by
multiplying (i) the unpaid principal amount of such Tranche A Advances
outstanding on the Tranche A Termination Date by (ii) 16-2/3%; provided that the
last such installment shall be in an amount necessary to repay in full the
aggregate then-unpaid principal amount of the Tranche A Advances. Each repayment
shall be applied to the unpaid principal amount of Tranche A Advances ratably
across all Borrowings. At the time of such repayment,
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31
the Borrower also will pay accrued and unpaid interest owing on the principal
amount of the Tranche A Advances then being repaid.
(b) Repayment of Tranche B Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders that have made
Tranche B Advances the aggregate outstanding principal amount of the Tranche B
Advances in seven installments payable on the last day of every sixth calendar
month after the eighteen month anniversary of the Tranche B Effective Date each
in an amount equal to the product obtained by multiplying (a) the unpaid
principal amount of such Tranche B Advances outstanding on the Tranche B
Termination Date by (b) 14.29%; provided that the last such installment shall be
in an amount necessary to repay in full the unpaid principal amount of the
Tranche B Advances. Each repayment shall be applied to the unpaid principal
amount of Tranche B Advances ratably across all Borrowings. At the time of such
repayment, the Borrower also will pay accrued and unpaid interest owing on the
principal amount of the Tranche B Advances then being repaid.
SECTION 2.06. Interest. (a) Scheduled Interest. Except as otherwise
provided in Section 2.09, the Borrower shall pay interest on the unpaid
principal amount of each Advance owing to each Lender from the date of such
Advance until such principal amount shall be paid in full, at a rate per annum
equal at all times during each Interest Period for such Advance to the sum of
(x) the Eurodollar Rate for such Interest Period for such Advance plus (y)
5.75%, payable in arrears on the last day of such Interest Period and on the
date such Advance shall be paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an
Event of Default under Section 6.01(a), the Borrower shall pay interest on (i)
the unpaid principal amount of each Advance owing to each Lender, payable in
arrears on the dates referred to in clause (a) above or Section 2.09(c) or (d)
and on demand, at a rate per annum equal at all times to 2% per annum above the
rate per annum required to be paid on such Advance pursuant to clause (a) above
or Section 2.09(c) or (d) and (ii) to the fullest extent permitted by law, the
amount of any interest, fee or other amount payable hereunder that is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on Advances pursuant to clause (a) above.
SECTION 2.07. Interest Rate Determination. The Administrative Agent shall
give prompt notice to the Borrower and the Lenders of the applicable interest
rate determined by the Administrative Agent for purposes of Section 2.06(a) or
Section 2.09(c) or (d) prior to the commencement of each Interest Period;
provided that any failure by the Administrative Agent to give such notice shall
not affect such applicable interest rate or the Borrower's obligations
hereunder, or give rise to any liability on behalf of the Administrative Agent.
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32
SECTION 2.08. Prepayments. (a) Optional Prepayments. The Borrower may, upon
at least 10 Business Days' notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amount of
the Advances; provided that (i) each partial prepayment shall be in an aggregate
principal amount of $3,000,000 or an integral multiple of $1,000,000 in excess
thereof and (ii) the Borrower shall be obligated to reimburse the Lenders in
respect thereof pursuant to Section 8.04(c).
(b) Mandatory Prepayments. (i) Sales of Assets. The Borrower shall, on each
date on which the Borrower or any Subsidiary thereof receives any Net Cash
Proceeds from the sale, lease, transfer or other disposition (other than
commercial sales in the ordinary course of business), of any Material Assets of
the Borrower or any Subsidiary thereof, prepay an aggregate principal amount of
the Advances equal to the Lenders' Pro Rata Portion of such Net Cash Proceeds
(or, if less, the aggregate principal amount of all Advances); provided that the
Borrower shall not be required to make any prepayment pursuant to this
subsection from any such Net Cash Proceeds it intends to apply to the purchase
of any Capital Assets so long as:
(A) the Borrower shall have notified the Administrative Agent of such
intent by the date on which such prepayment otherwise would be required;
(B) the Borrower shall have purchased such Capital Assets within 180
days after the date the Borrower or a Subsidiary thereof received such Net
Cash Proceeds; and
(C) the Borrower shall have provided the Administrative Agent with
evidence satisfactory to the Administrative Agent that such Capital Assets
were purchased within such 180-day period.
If the Borrower shall not have made a prepayment pursuant to this subsection
because of the proviso hereto and shall not have fulfilled the conditions set
forth in such proviso within the period specified therein, it shall make the
prepayment required by this subsection at the end of such period and the proviso
hereto shall no longer be applicable to such prepayment.
(ii) Insurance Recoveries. The Borrower shall, on each date on which it or
any Subsidiary thereof receives any Net Cash Proceeds from any property and
casualty insurance recovery, prepay an aggregate principal amount of the
Advances equal to the Lenders' Pro Rata Portion of such Net Cash Proceeds (or,
if less, the aggregate principal amount of all Advances); provided that the
Borrower shall not be required to make any prepayment pursuant to this
subsection from any such Net Cash Proceeds it intends to apply to the repair or
replacement of the damaged property so long as:
(A) the Borrower shall have notified the Administrative Agent of such
intent by the date on which such prepayment otherwise would be required;
<PAGE>
33
(B) such Net Cash Proceeds shall have been so applied within 60 days
after the date the Borrower or a Subsidiary thereof received such Net Cash
Proceeds; and
(C) the Borrower or any Subsidiary thereof shall have provided the
Administrative Agent with evidence satisfactory to the Administrative Agent
that such Net Cash Proceeds were so applied within such 60-day period.
If the Borrower shall not have made a prepayment pursuant to this subsection
because of the proviso hereto and shall not have fulfilled the conditions set
forth in such proviso within the period specified therein, it shall make the
prepayment required by this subsection at the end of such period and the proviso
hereto shall no longer be applicable to such prepayment.
(iii) Condemnation Recoveries. The Borrower shall, on each date on which it
or any Subsidiary thereof receives any Net Cash Proceeds from any condemnation
proceeds or similar awards received by the Borrower or any Subsidiary thereof in
connection with any governmental taking of assets of the Borrower or any
Subsidiary thereof, prepay an aggregate principal amount of the Advances equal
to the Lenders' Pro Rata Portion of such Net Cash Proceeds (or, if less, the
aggregate principal amount of all Advances); provided that the Borrower shall
not be required to make any prepayment pursuant to this subsection from any such
Net Cash Proceeds it intends to apply to the replacement of the condemned or
taken property so long as:
(A) the Borrower shall have notified the Administrative Agent of such
intent by the date on which such prepayment otherwise would be required;
(B) such Net Cash Proceeds shall have been so applied within 60 days
after the date the Borrower or a Subsidiary thereof received such Net Cash
Proceeds; and
(C) the Borrower or any Subsidiary thereof shall have provided the
Administrative Agent with evidence satisfactory to the Administrative Agent
that such Net Cash Proceeds were so applied within such 60-day period.
If the Borrower shall not have made a prepayment pursuant to this subsection
because of the proviso hereto and shall not have fulfilled the conditions set
forth in such proviso within the period specified therein, it shall make the
prepayment required by this subsection at the end of such period and the proviso
hereto shall no longer be applicable to such prepayment.
(iv) Offering of Debt Securities. The Borrower shall, on each date on which
it or any Subsidiary receives any Net Cash Proceeds from the issuance of any
securities evidencing Debt of the Borrower or a Subsidiary thereof issued (A) to
qualified institutional buyers pursuant to Regulation S under the United States
Securities Act of 1933 (as amended from time to time,
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34
the "Securities Act"), (B) under Section 4(2) of the Securities Act or (C) in
accordance with the registration and delivery requirements of Section 5 of the
Securities Act, prepay an aggregate principal amount of the Advances comprising
part of the same Borrowings equal to 50% of the Lenders' Pro Rata Portion of
such Net Cash Proceeds (or, if less, the aggregate principal amount of all
Advances).
(v) Excess Cash Flow. The Borrower shall, within five Business Days of each
date upon which the Borrower is required to furnish to the Lenders its annual
financial statements pursuant to Section 5.03(d), deposit into an escrow account
(the terms of which shall be reasonably satisfactory to the Administrative
Agent) an amount equal to 50% of the Borrower's Excess Cash Flow for the
Borrower's fiscal year reflected in such report (for such fiscal year, the
"Excess Cash Flow Amount"). Upon the last day of the Interest Period during
which such deposit was made, the Borrower shall prepay an aggregate principal
amount of the Advances equal to the Lenders' Pro Rata Portion of such Excess
Cash Flow Amount (or, if the outstanding principal amount of the Advances is
less than the Lenders' Pro Rata Portion of such Excess Cash Flow Amount on such
day, the aggregate principal amount of all Advances). Any amounts remaining in
such escrow amount after such prepayment shall be released to the Borrower
immediately following such prepayment.
(vi) Notice. The Borrower shall give the Administrative Agent at least five
Business Days' prior written notice of (A) each prepayment required by this
Section 2.08(b) and (B) the application of any Net Cash Proceeds pursuant to any
notice delivered in accordance with Section 2.08(b)(ii) or (iii). Such Notice
shall state the aggregate amount of such prepayment or application, as the case
may be, and the date upon which such prepayment or application shall or has been
made.
(c) Mechanics of Prepayments. All prepayments under this Section 2.08 shall
be made together with accrued interest to the date of such prepayment on the
principal amount prepaid and together with any amounts owing to the Lenders
pursuant to Section 8.04(c) in respect of such prepayment. Any prepayment of
Advances pursuant to this Section 2.08 shall be applied to the installments
thereof in inverse order of maturity, ratably across all Advances being so
prepaid. All prepayments under this Section 2.08 shall be made ratably with
prepayments to lenders under the other Permitted Loan Agreements (as defined in
the Intercreditor Agreement), in proportion with the outstanding principal
amounts owing by the Borrower under the Permitted Loan Agreements .
SECTION 2.09. Increased Costs, Etc. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation 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), there shall be
any increase in the cost to any Lender of agreeing to make or of making, funding
or maintaining Advances
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35
(excluding for purposes of this Section 2.09 any such increased costs resulting
from (A) Taxes or Other Taxes (as to which Section 2.11 shall govern) or (B)
changes in the basis of taxation of overall net income or overall gross income
by the jurisdiction or state under the laws of which such Lender is organized or
has its Lending Office or any political subdivision thereof), then the Borrower
shall from time to time, upon demand by such Lender (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; provided that a Lender claiming additional amounts under this
Section 2.09(a) agrees to use reasonable efforts (consistent with its internal
policy and legal and regulatory restrictions) to designate a different Lending
Office if the making of such a designation would avoid the need for, or reduce
the amount of, such increased cost that may thereafter accrue and would not, in
the reasonable judgment of such Lender be otherwise disadvantageous to such
Lender. If any Lender becomes entitled to claim any additional amounts pursuant
to this Section 2.09(a), it will promptly notify the Borrower (with a copy of
such notice to the Administrative Agent) of the event by reason of which it has
become so entitled and provide a detailed calculation of the amount to be paid;
provided that no Lender shall be required to disclose in connection with such
calculation any information that it deems to be proprietary or confidential,
including, without limitation, any allocation of internal costs. A certificate
as to the amount of such increased cost, submitted to the Borrower by such
Lender, shall be conclusive and binding for all purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend hereunder then,
upon demand by such Lender (with a copy of such demand to the Administrative
Agent), the Borrower shall pay to the Administrative Agent for the account of
such Lender, from time to time as specified by such Lender, additional amounts
sufficient to compensate such Lender in the light of such circumstances, to the
extent that such Lender reasonably determines such increase in capital to be
allocable to the existence of such Lender's commitment to lend hereunder;
provided that, before making any such demand, such Lender will use reasonable
efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Lending Office if the making of such a
designation would allow such Lender or its Lending Office to continue to perform
its obligations to make Advances or to continue to fund or maintain Advances and
would not, in the judgment of such Lender, be otherwise disadvantageous to such
Lender. If any Lender becomes entitled to claim any additional amounts pursuant
to this Section 2.09(b), it will promptly notify the Borrower (with a copy of
such notice to the Administrative Agent) of the event by reason of which it has
become so entitled and provide a detailed calculation of the amount to be paid;
provided that no Lender shall be required to disclose in connection with such
calculation any information that it deems to be proprietary or confidential,
including, without limitation, any allocation of internal costs. A
<PAGE>
36
certificate as to such amounts submitted to the Borrower by such Lender shall be
conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Advances, a majority in interest of the Lenders
participating in such Advances notify the Administrative Agent that the
Eurodollar Rate for any Interest Period for such Advances will not adequately
reflect the cost to such Lenders of making, funding or maintaining their
Advances for such Interest Period, the Administrative Agent shall forthwith so
notify the Borrower, whereupon (i) each such Advance will automatically, on the
last day of the then existing Interest Period therefor, cease to bear interest
pursuant to Section 2.06(a) and from such date bear interest at a rate per annum
equal at all times to the sum of (A) the Base Rate in effect from time to time
plus (B) 6.25%, payable in arrears semi-annually on the last day of December and
June until the Administrative Agent shall notify the Borrower that such Lenders
have determined that the circumstances causing such suspension no longer exist
and (ii) the Borrower shall pay interest on the unpaid principal amount of each
Advance made after the giving of such notice by the Required Lenders from the
date of such Advance until the earlier of (A) the payment in full of such
Advance and (B) the date upon which the Administrative Agent has notified the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist, at a rate per annum equal to the actual cost
incurred by the Lenders in making such Advance plus 6.25%, payable in arrears
semi-annually on the last day of December and June. A certificate as to the rate
referred to in clause (ii) above submitted to the Borrower by such Lenders shall
be conclusive and binding for all purposes, absent manifest error.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Lending Office
to perform its obligations hereunder to make Advances or to continue to fund or
maintain Advances hereunder, then, on notice thereof and demand therefor by the
Required Lenders to the Borrower through the Administrative Agent, (i) each
Advance will automatically, on such demand, cease to bear interest pursuant to
Section 2.06(a) and from such demand bear interest at a rate per annum equal at
all times to the sum of (A) the Base Rate in effect from time to time plus (B)
6.25%, payable in arrears semi-annually on the last day of each December and
June until the Administrative Agent shall notify the Borrower that such Lender
has determined that the circumstances causing such suspension no longer exist,
and (ii) the Borrower shall pay interest on the unpaid principal amount of each
Advance made after the giving of such notice by the Required Lenders from the
date of such Advance until the earlier of (A) the payment in full of such
Advance and (B) the date upon which the Administrative Agent has notified the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist, at a rate per annum equal to the actual cost
incurred by the Lenders in making such Advance plus 6.25%, payable in arrears
semi-annually on the last day of December and June; provided that, before making
any such demand, such Lender will use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Lending Office if the making of such a designation would allow such Lender or
its Lending
<PAGE>
37
Office to continue to perform its obligations to make Advances or to continue to
fund or maintain Advances and would not, in the judgment of such Lender, be
otherwise disadvantageous to such Lender. A certificate as to the rate referred
to in clause (ii) above submitted to the Borrower by such Lenders shall be
conclusive and binding for all purposes, absent manifest error.
SECTION 2.10. Payments and Computations. (a) The Borrower shall make each
payment hereunder and under the Notes issued hereunder not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Administrative
Agent at the Administrative Agent's Account in same-day funds. The
Administrative Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest or fees ratably (other than
amounts payable pursuant to Section 2.09, 2.11 or 8.04(c)) to the Lenders
entitled thereto for the account of their respective Lending Offices, and like
funds relating to the payment of any other amount payable to any Lender to such
Lender for the account of its Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 8.07(d), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes issued hereunder in respect of the
interest assigned thereby to the Lender assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves
and the Borrower shall have no further obligation to such assignee with respect
to such adjustments.
(b) Promptly on request by any Lender, the Borrower will deliver to such
Lender a Note payable to the order of such Lender.
(c) All computations of interest based on the Base Rate shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the case
may be, and all computations of other interest and of fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Administrative Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes issued hereunder
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or commitment
fee, as the case may be; provided that, if such extension would cause payment of
interest on or principal of Advances to be made in the next following calendar
month, such payment shall be made on the next-preceding Business Day.
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38
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent the Borrower
shall not have so made such payment in full to the Administrative Agent, each
Lender shall repay to the Administrative Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to the Administrative Agent, at the Federal Funds Rate.
(f) The obligation of the Borrower to make any payment under this Agreement
or any other Loan Document, including without limitation payments of principal,
interest, fees, costs and expenses due in accordance with the terms of the Loan
Documents, shall be unconditional and absolute, irrespective among other things
of the following:
(i) any set-off, counterclaim, recoupment, deduction, abatement,
suspension, diminution, reduction, defense or other right that the Borrower
may have against the Vendor at any time for any reason whatsoever arising
under or pursuant to the Supply Agreement or otherwise relating to the
purchase of goods, equipment, other property or services from or by the
Vendor;
(ii) any defect in the condition, design, operation or fitness for use
of, or any damage to or loss or destruction of, any equipment or material
provided by the Vendor;
(iii) any actual or alleged default by the Vendor or any other Person
under the Supply Agreement; or
(iv) any other fact or circumstance relating to the Supply Agreement.
SECTION 2.11. Taxes. (a) Any and all payments by the Borrower hereunder or
under the Notes issued hereunder shall be made, in accordance with Section 2.10,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Administrative
Agent, taxes that are imposed on its overall net income by the United States and
taxes that are imposed on its overall net income (and franchise taxes imposed in
lieu thereof) by the state or foreign jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes that are
imposed on its overall net income (and franchise taxes imposed in lieu thereof)
by the state or foreign jurisdiction of such Lender's Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions,
<PAGE>
39
charges, withholdings and liabilities in respect of payments hereunder or under
the Notes being hereinafter referred to as "Taxes"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under any Note to any Lender or the Administrative Agent, (i) the
sum payable shall be increased as may be necessary so that after making all
required deductions (including deductions applicable to additional sums payable
under this Section 2.11) such Lender or the Administrative Agent (as the case
may be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower shall make such deductions and (iii) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement, the Notes or the other Loan Documents (hereinafter referred to
as "Other Taxes").
(c) The Borrower shall indemnify each Lender and the Administrative Agent
for and hold it harmless against the full amount of Taxes or Other Taxes
(including without limitation taxes of any kind imposed by any jurisdiction on
amounts payable under this Section 2.11) imposed on or paid by such Lender or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be made within 30 days from the date such Lender or
the Administrative Agent (as the case may be) makes written demand therefor.
(d) Within 60 days after the date of any payment of Taxes, the Borrower
shall furnish to the Administrative Agent, at its address referred to in Section
8.02, the original or a certified copy of a receipt evidencing such payment. In
the case of any payment hereunder or under the Notes by or on behalf of the
Borrower through an account or branch outside the United States or by or on
behalf of the Borrower by a payor that is not a United States person, if the
Borrower determines that no Taxes are payable in respect thereof, the Borrower
shall furnish, or shall cause such payor to furnish, to the Administrative
Agent, at such address, an opinion of counsel acceptable to the Administrative
Agent stating that such payment is exempt from Taxes. For purposes of this
subsection (d) and subsection (e), the terms "United States" and "United States
person" shall have the meanings specified in Section 7701 of the Internal
Revenue Code or (in the case of a Lender that has certified in writing to the
Administrative Agent that it is not a "bank" as defined in Section 881(c)(3)(A)
of the Internal Revenue Code) form W-8 (and, if such Lender delivers a form W-8,
a certificate representing that such Lender is not a "bank" for purposes of
Section 881(c) of the Internal Revenue Code, is not a 10-percent shareholder
(within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the
Borrower and is not a controlled foreign corporation related to the Borrower
(within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as
appropriate, or any successor or other form prescribed by the Internal Revenue
Service, certifying that such Lender is exempt from or entitled to a reduced
rate
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40
of United States withholding tax on payments pursuant to this Agreement or the
Notes or, in the case of a Lender providing a form W-8, certifying that such
Lender is a foreign corporation, partnership, estate or trust. If the forms
provided by a Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from Taxes
unless and until such Lender provides the appropriate form certifying that a
lesser rate applies, whereupon withholding tax at such lesser rate only shall be
considered excluded from Taxes for periods governed by such form; provided that,
if at the date of the Assignment and Acceptance pursuant to which a Lender
becomes a party to this Agreement, the Lender assignor was entitled to payments
under subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender assignee on such date. If any form or
document referred to in this subsection (d) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001,
4224 or W-8 (or the related certificate described above), that the Lender
reasonably considers to be confidential, the Lender shall give notice thereof to
the Borrower and shall not be obligated to include in such form or document such
confidential information.
(e) For any period with respect to which a Lender has failed to provide the
Borrower with the appropriate form described in Section 2.11(d) (other than if
such failure is due to a change in law occurring subsequent to the date on which
a form originally was required to be provided, or if such form otherwise is not
required under subsection (d) above), such Lender shall not be entitled to
indemnification under Section 2.11(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided that should a Lender
become subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as the Lender shall reasonably
request to assist the Lender to recover such Taxes.
SECTION 2.12. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances owing to it (other than
pursuant to Section 2.09, 2.11 or 8.04(c)) in excess of its ratable share of
payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Advances owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (a) the amount of such Lender's required repayment to (b) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any
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41
Lender so purchasing a participation from another Lender pursuant to this
Section 2.12 may, to the fullest extent permitted by law, exercise all its
rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation. With respect to any reduction or
termination of Commitments pursuant to Section 2.04, the reduction or
termination of the Commitments shall be made ratably among the Commitments of
all Lenders outstanding at the time of such reduction or termination. With
respect to any repayment or prepayment made by the Borrower hereunder other than
scheduled amortization pursuant to Section 2.05, such repayment or prepayment
shall be distributed ratably among all Lenders in proportion with the principal
amount of the Advances held by each such Lender outstanding at the time of such
repayment or prepayment. With respect to any repayment of scheduled amortization
made by the Borrower hereunder pursuant to Section 2.05, such repayments shall
be distributed ratably among all Lenders of the relevant tranche in proportion
with the principal amount of the Advances of such tranche held by each such
Lender of outstanding at the time of such repayment or prepayment.
SECTION 2.13. Use of Proceeds. The proceeds of the Advances shall be
available to the Borrower and its Subsidiaries, directly or indirectly, solely
(a) to make Back-to-Back Loans that shall be used by Operating Subsidiaries to
purchase telecommunications equipment, software, engineering and other services
pursuant to or in accordance with the Supply Agreement and subject to the
limitations set forth therein for the purpose of planning, constructing,
operating and maintaining Networks in the Core Territories, (b) to pay interest
payable to the Lenders on each interest payment date occurring on or prior to
the first anniversary of the Tranche A Effective Date and (c) to pay fees
payable pursuant to Section 2.03 and expenses payable pursuant to Section
8.04(a)(i)(A) and (B), in each case with respect to the Lenders. The proceeds of
all Advances to be used as described in clause (a) of the preceding sentence
shall be paid directly to the financial institution providing Back-to-Back Loans
and the proceeds of such Back-to-Back Loans made to Operating Subsidiaries in
Argentina, Brazil and Peru shall at all times be held in Blocked Accounts until
disbursed to pay invoices under the Supply Agreement.
SECTION 2.14. First Eurodollar Method and Second Eurodollar Method. The
First Eurodollar Method shall be applicable at all times until such time as the
Second Eurodollar Method becomes applicable. If there is a Lender in addition to
or other than the Initial Lender (other than an Affiliate of the Initial Lender)
and the Administrative Agent at the direction of any Lender shall have notified
the Borrower that the Second Eurodollar Method shall be applicable, the Second
Eurodollar Method shall become applicable immediately as of the date of such
notice for all new Advances made as of and following the date of such notice.
After becoming applicable, the Second Eurodollar Method shall remain applicable
at all times thereafter.
SECTION 2.15. Redistribution of Payments. In the event that a repayment
under Section 2.05 or a prepayment under Section 2.08 is required to be
redistributed by the Lenders to the lenders (the "Other Lenders") under another
Permitted Loan Agreement (as defined in the
<PAGE>
42
Intercreditor Agreement) pursuant to Section 4.2 or 4.3 of the Intercreditor
Agreement, (i) the Borrower authorizes the Lenders to act as its agent in
connection with such redistribution and make such redistribution to the Other
Lenders on its behalf and acknowledges that any amount so redistributed shall be
deemed not to have been paid by the Borrower to the Lenders in their capacity as
Lenders hereunder and (ii) the Lenders agree to act as agent for the Borrower in
connection with such redistribution and agree to make such redistribution to the
Other Lenders on its behalf. In the event that a repayment or prepayment made by
the Borrower pursuant to another Permitted Loan Agreement to the Other Lenders
party thereto is required to be redistributed by such Other Lenders pursuant to
Section 4.2 or 4.3 of the Intercreditor Agreement, the Lenders acknowledge that
any amount so redistributed (I) shall have been paid by the Other Lenders acting
as agent for the Borrower in connection with such redistribution, (II) shall be
deemed to have been paid by the Borrower to the Lenders in respect of the
Advances pursuant to Section 2.05 or 2.08, as the case may be, and (III) shall
be allocated among the Lenders in accordance with Section 2.12.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01(a).
Section 2.01(a) of this Agreement shall become effective on and as of the first
date (the "Tranche A Effective Date") on which the following conditions
precedent have been satisfied:
(a) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of their Subsidiaries pending
or, to the best of the Borrower's knowledge, threatened before any court,
governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect other than the matters described on Schedule
3.01(a)(i) hereto (the "Disclosed Litigation") or (ii) purports to
adversely affect the legality, validity or enforceability of any material
provision of this Agreement, any Note or any other Loan Document or the
consummation of any of the transactions contemplated hereby.
(b) All material governmental and third party consents and approvals
necessary in connection with the transactions contemplated hereby which are
required to be obtained by the Borrower in connection with its activities
being conducted on such date and all Regulatory Permits shall have been
obtained and shall remain in effect; all applicable waiting periods shall
have expired without any action being taken by any competent authority.
(c) The Borrower shall have a minimum amount of $145,000,000 in fully
paid-up equity capital, which shall include expenditures of the Parent
prior to the date
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43
hereof in connection with the development of the business of the Borrower
and its Subsidiaries.
(d) The Supply Agreement shall have been duly executed and delivered
and be in full force and effect and there shall be no material default
thereunder, and the Administrative Agent shall have received a certified
copy thereof.
(e) The Intercreditor Agreement shall have been duly executed and
delivered and be in full force and effect and there shall be no material
default thereunder, and the Administrative Agent shall have received a
certified copy thereof.
(f) The Collateral Agent Letter shall have been duly executed and
delivered and be in full force and effect, and the Administrative Agent
shall have received a certified copy thereof.
(g) All stock and capital contributions of the Borrower's Subsidiaries
shall be owned by the Borrower or one or more of the Borrower's
Subsidiaries, in each case free and clear of any Liens (except for the
Liens created pursuant to the Security Agreements), except as set forth in
Section 4.01(b).
(h) The Collateral Agent and/or the Lenders shall have a valid and
perfected first-priority Lien and security interest in the capital stock
and capital contributions of all the Operating Subsidiaries and, to the
extent permitted by applicable law and subject to Permitted Liens, in the
Collateral referred to in the Security Agreements, all searches necessary
or desirable in connection with such Liens and security interests having
been duly made.
(i) The Administrative Agent shall have received on or before the
Tranche A Effective Date the following, each dated such day, in form and
substance satisfactory to the Administrative Agent and (except for the
Notes) in sufficient copies for each Lender:
(i) Notes payable to the order of the Initial Lender.
(ii) A business plan, in form and substance satisfactory to the
Lenders.
(iii) A copy of the annual audit report for the Borrower for the
most recent fiscal year of the Borrower and its Subsidiaries,
containing Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such fiscal year and
Consolidated and consolidating statements of income and cash flows of
the Borrower and its Subsidiaries for such fiscal year.
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44
(iv) Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of each fiscal quarter
since the most recent fiscal year of the Borrower and Consolidated and
consolidating statements of income and cash flows of the Borrower and
its Subsidiaries for the period commencing at the end of the most
recent fiscal year of the Borrower and ending with the end of its most
recent fiscal quarter.
(v) Evidence that the Borrower and its Subsidiaries have obtained
Licenses sufficient to permit the operation of the Networks up until
the seventh anniversary of the date hereof, in form and substance
satisfactory to the Lenders.
(vi) Certificates of the Borrower and each of its Subsidiaries
executing a Guaranty or Security Agreement on or prior to the Tranche
A Effective Date, in each case attaching the charter of such Person
and each amendment thereto on file in such office and certifying that
(A) such charter is a true and complete copy thereof, (B) such
amendments are the only amendments to such charter, (C) such Person
has paid all franchise taxes to the date of such certificate and (D)
such Person is duly organized and, if applicable, in good standing
under the laws of its jurisdiction of incorporation.
(vii) Certificates of each of the Borrower and its Subsidiaries
executing a Guaranty or Security Agreement on or prior to the Tranche
A Effective Date, signed on behalf of each such Person by the
President, a Vice President, the Secretary or any Assistant Secretary
of each such Person (the statements made in such certificate shall be
true and correct on and as of the Tranche A Effective Date),
certifying as to:
(A) the absence of any amendments to the charter of each
such Person since the date of the certificate referred to in
3.01(i)(vi);
(B) a true and correct copy of the by-laws of such Person as
in effect on the Tranche A Effective Date;
(C) the due incorporation and good standing of such Person
as a corporation or a limited liability company, as the case may
be, under the laws of the jurisdiction of its organization and
the absence of any proceeding for the dissolution or liquidation
of such Person;
(D) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors or the general
assembly of partners, as the case may be, of such Person
authorizing the execution,
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45
delivery and performance of each Loan Document to which such
Person is a party;
(E) in the case of each such Person, that such resolutions
have not been revoked, annulled or modified in any manner and are
in full force and effect; and
(F) in the case of each such Person, the incumbency and
specimen signature of each officer of such Person executing each
of the Loan Documents to which such Person is a party, on behalf
of such Person, and a certification of another officer of each
such Person as to the signature of the officers signing
certificates referred to in this subclause (vii).
(viii) Security Agreements, in form and substance reasonably
satisfactory to the Administrative Agent, duly executed by the
Borrower, each Intermediate Holding Company Subsidiary and each
Operating Subsidiary party thereto, together with:
(A) certificates representing any Pledged Shares referred to
therein;
(B) executed copies of any proper financing statements and
other filings and registrations filed in order to perfect and
protect the Liens created by the Security Agreements, covering
the Collateral described therein, and any acknowledgments which
may be customarily delivered by the appropriate authorities of
the jurisdictions in which such Liens have been perfected and
protected, in each case in form and substance satisfactory to the
Lenders;
(C) copies of any Assigned Agreements referred to in the
Security Agreements; and
(D) evidence that all other action necessary as of such date
in order to perfect and protect the Liens created by the Security
Agreements has been taken.
(ix) Guaranties duly executed by each Operating Subsidiary and
Intermediate Holding Company Subsidiary.
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46
(x) A favorable opinion of Stroeter & Ohno Advogados Associados,
Brazilian counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xi) A favorable opinion of Cibils, Blaquier & Boneo Villagas,
Argentine counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xii) A favorable opinion of Posse Herrera & Ruiz, Colombian
counsel for the Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent.
(xiii) A favorable opinion of Arias, Fabrega & Fabrega,
Panamanian counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xiv) A favorable opinion of Miranda & Amado, Peruvian counsel
for the Loan Parties, in form and substance reasonably satisfactory to
the Administrative Agent
(xv) A favorable opinion of Milbank, Tweed, Hadley & McCloy, New
York counsel for the Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent.
(xvi) A favorable opinion of Pinheiro Guimaraes - Advogados,
Brazilian counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xvii) A favorable opinion of Marval, O'Farrell & Mairal,
Argentine counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xviii) A favorable opinion of Arenas, Lopez, Montealgre y
Plazas, Colombian counsel for the Secured Creditors, in form and
substance reasonably satisfactory to the Administrative Agent.
(xix) A favorable opinion of Aleman, Cordero, Galindo & Lee,
Panamanian counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
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47
(xx) A favorable opinion of Estudio Luis Echecopar Garcia,
Peruvian counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xxi) A favorable opinion of Wilson, Sonsini, Goodrich and
Rosati, U.S. counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xxii) Copies of process-agent letters for each of the Loan
Parties organized in a jurisdiction outside the United States.
(j) The Borrower shall have paid all accrued fees and expenses of the
Agents and the Lenders (including the accrued fees and expenses of counsel
and local counsel to the Agents and the Lenders).
(k) The Ericsson Credit Agreement shall have become effective on
substantially the same terms and conditions as those contained in this
Agreement.
SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of
each Lender having a Commitment to make an Advance on the occasion of each
Borrowing shall be subject to the conditions precedent that on the date of such
Borrowing the following statements shall be true (and each of the giving of the
applicable Notice of Borrowing and the acceptance by the Borrower of the
proceeds of such Borrowing shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing such statements are true):
(a) the representations and warranties contained in Section 4.01 shall
be correct in all material respects on and as of the date of such Borrowing
(or, to the extent stated to relate to an earlier date, as of such earlier
date), before and after giving effect to such Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date,
(b) no addition or amendment to the authorizations, approvals or other
actions by, and notices or filings with, any governmental authority or
third party set forth on the Schedule 4.01(f) delivered on the Tranche A
Effective Date shall materially adversely affect (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes or any other Loan Document to which it is or is to be
a party or for the consummation of the transactions contemplated hereby and
thereby, (ii) the grant of the Liens granted by any Loan Party pursuant to
this Agreement, the Security Agreements and the Notes (including to the
extent permitted by applicable law and subject to Permitted Liens and
Shared Liens the first-priority nature thereof) other than Permitted Liens
and Shared Liens and (iii) the exercise by the Administrative Agent, the
Collateral Agent or any Lender of its rights under this Agreement, the
Notes or any other
<PAGE>
48
Loan Document or of the remedies in respect of the Collateral granted
pursuant to the Security Agreements, in each case as reasonably determined
by the Lenders,
(c) no event shall have occurred and be continuing, or would result
from such Borrowing or from the application of the proceeds therefrom, that
constitutes a Default, and
(d) at any time that the Initial Lender shall have any Commitment
hereunder, the Supply Agreement has not been terminated by Vendor for cause
in accordance with Section 14.2 of the Supply Agreement or by Borrower
without cause, in each case in accordance with the terms thereof,
provided that the provisions of clauses (a), (b) and (c) of this Section 3.02
shall not be applicable with respect to any Borrowing to the extent the proceeds
thereof will be used to pay interest in accordance with Section 2.13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower. The Borrower
represents and warrants as follows as of the Tranche A Effective Date, and
represents and warrants as follows on the date of each Borrowing hereunder:
(a) The Borrower (i) has been duly formed and is validly existing and
in good standing as a corporation under the laws of Delaware with full
corporate power and authority (including without limitation all material
governmental licenses, permits and other approvals) necessary to conduct
its business as described herein, (ii) is duly qualified and is authorized
to do business and is in good standing in each other jurisdiction in which
the conduct of its business requires it to be so qualified or authorized
and (iii) has all requisite corporate power and authority to own its
properties and to carry on its business as now conducted and as proposed to
be conducted.
(b) Set forth on Schedule 4.01(b) hereto as amended from time to time
pursuant to Section 5.03(u) is a complete and accurate list of all
Operating Subsidiaries, Intermediate Holding Company Subsidiaries and
Insignificant Subsidiaries showing (as to each such Subsidiary) whether it
is an Operating Subsidiary, an Intermediate Holding Company Subsidiary or
an Insignificant Subsidiary, the jurisdiction of its incorporation, the
number of shares of each class of capital stock or participations
authorized, and the number outstanding, and the percentage of the
outstanding shares or participations of each such class owned (directly or
indirectly) by the Borrower and the number of shares
<PAGE>
49
or participations covered by all outstanding options, warrants, rights of
conversion or purchase and similar rights. All of the outstanding capital
stock or participations of all of the Subsidiaries set forth on Schedule
4.01(b) hereto, as amended from time to time pursuant to Section 5.03(u),
has been fully issued, is fully paid and non-assessable and is owned by the
Borrower or one or more of its Subsidiaries, except as set forth on
Schedule 4.01(b) hereto, free and clear of all Liens, except those created
by the Security Agreements. Each Subsidiary set forth on Schedule 4.01(b)
hereto, as amended from time to time pursuant to Section 5.03(u), (i) is a
corporation or a limited liability company duly organized, validly existing
and, if applicable, in good standing under the laws of the jurisdiction of
its incorporation, (ii) is duly qualified and, if applicable, in good
standing as a foreign corporation in each other jurisdiction in which the
conduct of its business requires it to so qualify and (iii) has all
requisite corporate power and authority to own or lease and operate its
properties and to carry on its business as now conducted and as proposed to
be conducted. Other than as set forth in Schedule 4.01(b) hereto, no Person
other than the Borrower has any rights to acquire any capital stock or
participations of any Operating Company Subsidiary or Intermediate Holding
Company Subsidiary of the Borrower during the period when any Advances
shall be outstanding.
(c) Each Loan Party has full corporate power and authority to enter
into, deliver and perform its obligations under this Agreement, the Notes
and each other Loan Document to which it is or is to be a party and to
consummate the transactions contemplated hereby and thereby, and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of this Agreement, the Notes and each other Loan
Document.
(d) The execution, delivery and performance by each Loan Party of this
Agreement, the Notes and each other Loan Document to which it is or is to
be a party and the consummation of the transactions contemplated hereby and
thereby are within its corporate powers and shall not and will not (i)
contravene (A) its organizational documents or (B) any law, rule,
regulation or order or any contractual restriction binding on or affecting
it or (ii) conflict with or result in a breach of, constitute a default
under or result in the creation or imposition of any Lien (except for the
Liens created pursuant to the Loan Documents) upon any of its property or
assets or under any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument to which it is a party or by which it is
bound or to which the property or assets of it is subject, except where
such contravention, conflict, breach, default or failure to comply would
not have a Material Adverse Effect.
(e) No Loan Party is in violation of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach of
any contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which is reasonably likely to
have a Material Adverse Effect.
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50
(f) Except as otherwise described on Schedule 4.01 (f) as amended from
time to time pursuant to Section 5.03 (u) no authorization or approval or
other action by, and no notice to or filing with, any governmental
authority or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes or any other Loan Document to which it is or is to be
a party or for the consummation of the transactions contemplated hereby and
thereby, (ii) the grant of the Liens granted by any Loan Party pursuant to
this Agreement, the Security Agreements, the Blocked Account Letter
Agreements and the Notes (including to the extent permitted by applicable
law and subject to Permitted Liens and Shared Liens the first-priority
nature thereof) other than Permitted Liens and Shared Liens and (iii) the
exercise by the Administrative Agent, the Collateral Agent or any Lender of
its rights under this Agreement, the Notes or any other Loan Document or of
the remedies in respect of the collateral granted pursuant to the Security
Agreements.
(g) This Agreement, the Notes and each other Loan Document to which it
is a party have been duly executed and delivered by the Borrower and, when
executed and delivered hereunder, will constitute legal, valid and binding
obligations of the Borrower and each of its Subsidiaries that is a party
thereto, enforceable against the Borrower and such Subsidiaries in
accordance with their respective terms except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, liquidation, fraudulent
conveyance, reorganization, concordato, moratorium or similar laws now or
hereafter in effect affecting the enforcement of creditors' rights
generally and (ii) general principles of equity (regardless of whether such
enforceability is considered in a proceeding at law or in equity).
(h) The balance sheet of the Borrower as at September 30, 1999 and the
related statement of income and cash flows of the Borrower for the three
month period then ended, copies of which have been furnished to each
Lender, fairly present in all material respects (subject to year-end audit
adjustments) the financial condition of the Borrower as at such date and
the results of operations of the Borrower for the period ended on such
date, all in accordance with generally accepted accounting principles
applied on a consistent basis. The Consolidated forecasted balance sheets,
income statements and cash flow statements of the Borrower and its
Subsidiaries delivered to the Lenders in connection with the Project were
prepared in good faith on the basis of the assumptions stated therein,
which assumptions the Borrower believes were fair in the light of
conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, the Borrower's best estimate of its
future financial performance, it being understood that nothing set forth in
such Consolidated forecasted balance sheets, income statements and cash
flow statements shall be construed as a representation, warranty, covenant,
undertaking, guaranty or assurance by the Borrower or any of its
Subsidiaries as to the future financial or business performance of the
Borrower and its
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51
Subsidiaries and that the forward-looking statements contained in such
Consolidated forecasted balance sheets, income statements and cash flow
statements involve known and unknown risks, contingencies, uncertainties
and other factors that may cause the actual results, events or developments
pertaining to the Borrower and its Subsidiaries to be materially and
adversely different from any future results, events or developments
contemplated, expressed or implied by such Consolidated forecasted balance
sheets, income statements and cash flow statements. Since September 30,
1999, there has been no Material Adverse Change.
(i) No information, exhibit or report furnished in writing by (or on
behalf of) the Borrower to the Administrative Agent, the Collateral Agent
or any Lender in connection with the negotiation of the Loan Documents or
pursuant to the terms of the Loan Documents contained at the time when
furnished any untrue statement of material fact or omitted to state a
material fact necessary to make the statements made therein (taken as a
whole) not misleading.
(j) Except as otherwise described on Schedule 3.01(a)(i), there is no
pending or, to the best of the Borrower's knowledge, threatened action,
suit, investigation, litigation or proceeding, including without limitation
any Environmental Action, affecting the Borrower or any of its Subsidiaries
before any court, governmental agency or arbitrator that (i) could be
reasonably likely to have a Material Adverse Effect or (ii) purports to
affect the legality, validity or enforceability of any Loan Document or the
consummation of the transactions contemplated hereby or thereby, and there
has been no material adverse change in the status, or financial effect on
the Borrower or any of its Subsidiaries, of the Disclosed Litigation from
that described on Schedule 3.01(a)(i) hereto.
(k) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying Margin Stock, and no proceeds of
any Advance will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin
Stock.
(l) The operations and properties of the Borrower and Subsidiaries
comply in all material respects with all applicable Environmental Laws and
Environmental Permits, except where the failure to be in such compliance
could not reasonably be expected to have a Material Adverse Effect.
(m) The Borrower and each of its Subsidiaries has filed, has caused to
be filed or has been included in all tax returns (national, departmental,
local, municipal and foreign) required to be filed and has paid or caused
to be paid all taxes, assessments, fees and other charges shown thereon to
be due, together with applicable interest and penalties, other than the
payment of any taxes, assessment, fees or other charges (i) the
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52
nonpayment of which would not have a Material Adverse Effect or (ii) that
are being contested in good faith and by proper proceedings and for which
appropriate reserves are being maintained.
(n) The obligations of the Borrower and each of its Subsidiaries under
this Agreement, the Notes and each other Loan Document to which it is or is
to be a party constitute direct, unconditional and unsubordinated
obligations of the Borrower.
(o) Set forth on Schedule 4.01(o) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all of the
Liens created by, or otherwise existing on property of the Borrower and
each of its Subsidiaries in favor of any other Person showing the parties
listed as the secured parties thereunder, subject matter and term thereof,
except for Liens created pursuant to the Loan Documents.
(p) The Borrower and its Subsidiaries have valid and uncontested legal
title to and are the beneficial owners of the Collateral and all of their
respective other material properties and assets, free and clear of all
Liens other than Permitted Liens and the Liens created pursuant to the Loan
Documents.
(q) The Borrower and each of its Subsidiaries is in compliance in all
material respects with all applicable laws, ordinances, rules, regulations,
and requirements of all governmental authorities (including without
limitation certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its respective properties or
to the conduct of its respective business, Environmental Laws and laws with
respect to social security and pension fund obligations), except in each
case to the extent where such failure to comply would not have a Material
Adverse Effect.
(r) Neither the Borrower nor any of its Subsidiaries is an "investment
company", or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended. Neither the making of any
advance under this Agreement nor the application of the proceeds or
repayment thereof by the Borrower, nor the consummation of the other
transactions contemplated hereby, shall violate any provision of such Act
or any rule, regulation or order thereunder.
(s) The Borrower is, individually and together with its Subsidiaries,
Solvent.
(t) Set forth on Schedule 4.01(t) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all leases
of real property (other than leases of cell sites) under which the Borrower
or any of its Subsidiaries is the lessee, showing the street address,
county or other relevant jurisdiction, state, lessor, lessee, expiration
date and annual rental cost thereof.
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53
(u) Neither the Borrower nor any of its Subsidiaries has any patents,
trademarks, trade names, service marks or copyrights that are material to
the conduct of its business.
(v) Set forth on Schedule 4.01(v) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of (i) all
Existing Debt in excess of $250,000 showing the principal amount
outstanding thereunder and (ii) the total aggregate amount of all Existing
Debt equal to or less than $100,000.
(w) Set forth on Schedule 4.01(w) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
Investments in excess of $100,000 held by the Borrower or any of its
Subsidiaries, showing the amount, obligor or issuer and maturity, if any,
thereof.
(x) Set forth on Schedule 4.01(x) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
Material Contracts of the Borrower and its Subsidiaries, showing the
parties thereto. Each such Material Contract has been duly authorized,
executed and delivered by the Borrower or its Subsidiary, as the case may
be, is in full force and effect and is binding upon and enforceable against
the Borrower or its Subsidiary, as the case may be, in accordance with its
terms except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, liquidation, fraudulent conveyance, reorganization,
concordato, moratorium or similar laws now or hereafter in effect affecting
the enforcement of creditors' rights generally, and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity), and there exists no default under any
Material Contract by the Borrower or its Subsidiaries, as the case may be,
which default could reasonably be expected to have a Material Adverse
Effect.
(y) Set forth on Schedule 4.01(y) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
licenses and spectrum rights (other than licenses relating to general
business activities and the ownership and use of property applicable to
persons generally and not specifically required to engage in business of
the type proposed to be conducted by the Borrower and its Subsidiaries)
providing for the right to operate the Networks in the Territory.
(z) Set forth on Schedule 4.01(z) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
insurance policies naming the Lenders and the other Secured Creditors as
loss payees thereunder. The amounts of such insurance and the risks covered
thereby are the same as those provided for in the insurance policies
usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
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54
Subsidiary operates and such insurance is sufficient to cover the risks
associated with the conduct of the Borrower's or such Subsidiary's business
and the Project.
(aa) The activities of the Borrower's Subsidiaries contemplated by the
Project and this Agreement are commercial in nature rather than
governmental or public. The Borrower's Subsidiaries are not entitled to any
right of immunity on the grounds of sovereignty with respect to such
activities in any legal action or proceeding to enforce, or collect upon,
or otherwise arising out of or relating to this Agreement, any of the other
Loan Documents or Material Contracts.
(bb) As of the date hereof, there is no tax, levy, impost, deduction,
charge or withholding imposed, levied or made by or in any Core Territory
or New York or any political subdivision or taxing authority thereof or
therein (i) on or by virtue of the execution, delivery, performance,
enforcement or admissibility into evidence of this Agreement or any of the
other Loan Documents or (ii) on any payment to be made by the Borrower's
Subsidiaries pursuant to this Agreement or any of the other Loan Documents,
except that (A) all payments made under a Guaranty granted by the Operating
Subsidiary that is a resident of Brazil will be subject to withholding
income tax at the rate of 15% (or 25% in case of payments made to a Person
that is a resident of a country that does not tax income or taxes it at a
maximum rate of 20%) or such lower rate as provided in an applicable tax
treaty between Brazil and another country, and pursuant to Brazilian tax
laws, a Brazilian Loan Party may pay such additional amounts as will result
in receipt by the applicable payee of such amounts as would have been
received by them had no such withholding been required; (B) (i) any
interest payments made by an Argentine Loan Party may be subject to
Argentine withholding tax at the current rate of 35%; (ii) a court tax of
up to 3% of the amount in controversy imposed with respect to the
institution of any judicial proceeding to enforce any claim in the City of
Buenos Aires or in any other jurisdiction in Argentina; and (iii) each
Chattel Mortgage registered pursuant to the Master Chattel Mortgage
Agreement will be subject to registration fee of 0.2% of the amount secured
by such Chattel Mortgage (in the case of the Province of Buenos Aires), and
to a stamp tax at a rate of 1.0% (subject to the provisions of the Fiscal
Code of the Province of Buenos Aires) on the amount secured (in the case of
the Province of Buenos Aires); (C) in the case of Colombia, the value of
the foreclosure in any auction in Colombia is subject to a 3% tax and the
payments made by the Colombian Operating Subsidiary to any Colombian
trustee appointed under the Loan Documents may be subject to a tax; (D) in
the case of Panama, (i) interest and other financial commissions and
charges payable under the Credit Agreement allocated to the value of the
credits assigned for the Panama operation would be subject to withholding
tax at a 6% rate provided such payments were made from Panama and (ii)
documentary taxes of US$1.00 per US$1000.00 of face value would be payable
on the Credit Agreement and the Security Agreements at the time of
enforcement in a Panama court should this take place; and (E) in the case
of Peru, payments of interest, fees, commissions and other expenses
<PAGE>
55
made by the Borrower under any Loan Document to Persons (excluding
individuals) domiciled outside of Peru are subject to (1) Peruvian income
withholding tax, at the current rate of 1%, so long as (x) the interest
rate borne by the loans under the Loan Documents does not exceed LIBOR plus
7% or the Prime Rate plus 6%, (y) there is no economic link between the
Borrower and the Lenders to whom such interest is paid and (z) the
proceeds, if in cash, of the loans under the Loan Documents are received in
Peru by the Borrower and (2) Peruvian value added tax (VAT) at a rate of
18%, solely to the extent such amounts are paid to non-banking,
non-financial or non-credit institutions. With respect to Peru, (I) any
portion of the interest rates applying to the loans under the Loan
Documents that exceeds the rates specified in clause (ii)(E)(1)(x) above
will be subject to taxation at a 30% income tax withholding rate; (II) if
the conditions specified in clause (ii)(E)(1)(y) or (z) are not satisfied,
interest on the relevant loans under the Loan Documents will be subject to
taxation at a 30% income tax withholding rate (for this purpose, all
expenses and commissions, premiums and any other sum payable in addition to
interest agreed upon that are paid to a foreign beneficiary will also be
considered as interest).
(cc) (intentionally omitted)
(dd) Set forth on Schedule 4.01(dd) hereto, as amended from time to
time pursuant to Section 5.03(u), is a complete and accurate list of all
Plans, Multiemployer Plans and Welfare Plans.
(ee) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan that, when taken together with all other ERISA
Events that are reasonably expected to occur with respect to any Plan,
could reasonably be expected to have a Material Adverse Effect.
(ff) Schedule B (Actuarial Information) to the most recent annual
report (Form 5500 Series) for each Plan, copies of which have been filed
with the Internal Revenue Service and furnished to the Lender Parties, is
complete and accurate and fairly presents the funding status of such Plan,
and since the date of such Schedule B there has been no material adverse
change in such funding status.
(gg) Neither any Loan Party nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability exceeding U.S.$50,000
to any Multiemployer Plan.
(hh) Neither any Loan Party nor any ERISA Affiliate has been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no such Multiemployer
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56
Plan is reasonably expected to be in reorganization or to be terminated,
within the meaning of Title IV of ERISA.
(ii) Set forth on Schedule 4.01(ii) hereto, as amended from time to
time pursuant to Section 5.03(u), is a complete and accurate list of all
Licenses with respect to the ownership and operation of digital wireless
local loop data networks constituting a portion of a Network in each of the
Core Territories as well as any other part of the Territory that are
necessary for the Borrower to fulfill the financial and operational
projections set forth in the Borrower's business plan dated October 29,
1999, including all Licenses with respect to rights to use spectrum in the
15 GHz, 18 GHz, 23 GHz and 38 GHz bands.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower shall:
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, compliance with Environmental Laws, except when contested in
good faith by appropriate proceedings and for which an adequate reserve has
been established or where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided that neither the Borrower
nor any of its Subsidiaries shall be required to pay or discharge any such
tax, assessment, charge, levy or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors, or where
non-payment could reasonably be expected to have a Material Adverse Effect.
(c) Compliance with Environmental Laws. Comply, and cause each of its
Subsidiaries and all lessees and other Persons occupying its properties to
comply, in all material respects, with all Environmental Laws and
Environmental Permits applicable to its operations and properties except
where noncompliance could not reasonably be expected to have a Material
Adverse Effect; obtain and renew, and cause each of its
<PAGE>
57
Subsidiaries to obtain and renew, all Environmental Permits necessary for
its operations and properties except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
(d) Maintenance of Insurance. Cause each Operating Subsidiary to
maintain property and third-party liability insurance providing for the
designation of the Collateral Agent as loss payee thereunder with reputable
and internationally recognized insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general
areas in which such Operating Subsidiary operates, subject to the
availability of such insurance on reasonable terms in the commercial
insurance market.
(e) Preservation of Existence, Etc. Preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its corporate existence
and its rights (contractual and statutory) with respect to the Networks;
provided that the Borrower and its Subsidiaries may consummate any merger
or consolidation permitted under Section 5.02 (c); and provided further
that neither the Borrower nor any of its Subsidiaries shall be required to
preserve any right or franchise if the Board of Directors or the General
Assembly of Partners, as the case may be, of the Borrower or such
Subsidiary shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Borrower or such
Subsidiary, as the case may be, and that the loss thereof could not
reasonably be expected to have a Material Adverse Effect.
(f) Visitation Rights. At any reasonable time and from time to time
upon reasonable advance notice, permit the Administrative Agent, the
Collateral Agent or any of the Lenders or any agents or representatives
thereof, to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any of
its Subsidiaries, and to discuss the affairs, finances and accounts of the
Borrower and any of its Subsidiaries with any of their officers or
directors and with their independent certified public accountants (at which
discussions representatives of the Borrower may be present if Borrower so
desires).
(g) Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Borrower and each such Subsidiary in accordance with GAAP, in each case
to the extent necessary to enable the Borrower to comply with the periodic
reporting requirements of this Agreement.
(h) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear and obsolescence excepted, and
not commit or suffer any waste with respect to any of its
<PAGE>
58
respective properties except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect.
(i) Compliance with Terms of Leaseholds. (i) Make all payments and
otherwise perform all obligations in respect of all leases of real property
to which it is a party, keep such leases in full force and effect and use
commercially reasonable efforts to not allow such leases to lapse or to be
terminated or any rights to renew such leases to be forfeited or canceled,
notify the Administrative Agent and the Collateral Agent of any default by
any party with respect to such leases and cooperate with the Administrative
Agent and the Collateral Agent in all respects to cure any such default,
and cause each of its Subsidiaries to do so except where the failure to do
so could not, individually or cumulatively, reasonably be expected to have
a Material Adverse Effect and (ii) request, and cause each Operating
Subsidiary to request, that any landlord, mortgagee or easement grantor of
such Operating Subsidiary give the Collateral Agent and the Administrative
Agent, on a best-efforts basis, notice of any default on the part of the
applicable Operating Subsidiary under any agreement with such Operating
Subsidiary and allow the Collateral Agent and its agents to inspect and
remove Collateral after the occurrence and during the continuance of an
Event of Default.
(j) Performance of Material Contracts. Except where the failure to do
so could not reasonably be expected to have a Material Adverse Effect,
perform and observe in all material respects all the terms and provisions
of each Material Contract to be performed or observed by it, maintain each
such Material Contract in full force and effect and enforce each such
Material Contract in accordance with its terms. For the purposes of this
Agreement, a voluntary termination or suspension of a Material Contract by
the Borrower in accordance with the terms and conditions thereof shall be
deemed to not have a Material Adverse Effect.
(k) New Operating Subsidiaries and Intermediate Holding Company
Subsidiaries. Upon the creation of any Operating Subsidiary or Intermediate
Holding Company Subsidiary not in existence on the date hereof or upon an
Insignificant Subsidiary's becoming an Operating Subsidiary or an
Intermediate Holding Company Subsidiary, the Borrower will at its expense:
(i) cause such Subsidiary to duly execute and deliver to the
Administrative Agent and the Collateral Agent a Guaranty substantially
in the form of Exhibit D-2 (for Intermediate Holding Company
Subsidiaries) or D-1 (for Operating Subsidiaries);
(ii) cause such Subsidiary to duly execute and deliver to the
Administrative Agent and the Collateral Agent an Operating Subsidiary
Security Agreement or Intermediate Holding Company Security Agreement,
as applicable
<PAGE>
59
(with such changes thereto as the Administrative Agent may reasonably
request) and such other mortgages, pledges, assignments and other
security agreements, in form and substance reasonably satisfactory to
the Agents, securing payment of all of the obligations of such
Subsidiary under the Guaranty and the obligations of the Loan Parties
under this Agreement and constituting Liens on all Collateral
described therein; and pledge, or cause to be pledged, to the
Collateral Agent on behalf of the Secured Parties, all authorized,
issued and outstanding capital stock or capital contributions of such
Subsidiary; and execute and/or deliver to the Administration Agent
each other document or instrument required to be delivered in
connection with the execution and delivery of such Operating Security
Agreement or Intermediate Holding Company Security Agreement;
(iii) deliver to the Administrative Agent a signed copy of
favorable opinions, addressed to the Agents and the Lenders, of
counsel for the Borrower reasonably acceptable to the Administrative
Agent as to such matters relating to such Operating Subsidiary as
either Agent may reasonably request;
(iv) deliver to the Administrative Agent a copy of a
process-agent letter for such Subsidiary if it is organized in a
jurisdiction outside the United States; and
(v) at any time and from time to time, promptly execute and
deliver any and all further instruments and documents and take all
such other action as either Agent may deem desirable in obtaining the
full benefits of or in preserving the Liens of each Security Agreement
delivered pursuant to this Section 5.01(k) and mortgages and other
agreements and instruments entered into by such Operating Subsidiary.
(l) Obtain and Maintain Licenses and Permits. Obtain, maintain and
comply and cause each of its Subsidiaries to obtain, maintain and comply
with all licenses, permits, approvals or consents and the Licenses and the
Regulatory Permits required to conduct the Borrower's and its Subsidiaries
business in the Territory and make all payments when due of all amounts
owing in respect of the Licenses and any spectrum clearances except (with
respect to Licenses other than Material Licenses) where the failure to do
so could not reasonably be expected to have a Material Adverse Effect.
(m) Maintain Governmental Approvals. Obtain and maintain, and cause
each of its Subsidiaries to obtain and maintain, in full force and effect
all governmental approvals that may be required for the validity or
enforceability of this Agreement, the Notes, each other Loan Document, and
any other agreement entered into in connection with the transactions
contemplated hereby and thereby.
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60
(n) No Transfer of Licenses. Maintain or cause its Subsidiaries to
maintain the Licenses and refrain from transferring any such Licenses to a
third party without prior written approval of the Lenders, except (with
respect to Licenses other than Material Licenses) where the failure to do
so could not reasonably be expected to have a material adverse effect on
the ability of the Borrower to perform its payment obligations under the
Loan Documents.
(o) Syndication Matters. At the Borrower's expense, (i) promptly and
in any event within 30 days after being requested to do so by the Initial
Lender, prepare an information memorandum reasonably satisfactory to the
Initial Lender in form and scope customary for information memoranda
prepared for loan syndications of similar borrowers, thereafter upon
reasonable notice from the Initial Lender provide reasonable updates of the
information contained in such information memorandum and at the time of
delivery of such update cause such information memorandum not to contain
any untrue statement of material fact or omit to state a material fact
necessary to make the statements made therein not misleading during such
period, (ii) make senior managers of the Borrower and its Subsidiaries
reasonably available at meetings with prospective lenders in connection
with the syndication of this Agreement, (iii) do such other acts and things
as the Lender may reasonably request that are customary in connection with
the syndication of credit agreements in order successfully to syndicate
this Agreement and (iv) at the Lenders' expense, cooperate, and cause the
Borrower to cooperate, with the Lenders in obtaining political risk
insurance.
(p) Consularization, Etc. At the Borrower's expense, take such actions
with respect to any Loan Document as may by necessary or appropriate or
reasonably requested by any Agent or Lender in any jurisdiction where any
Loan Party is located in order to ensure the validity or enforceability of
the Loan Documents against the Loan Parties in such jurisdictions,
including without limitation the consularization of the Loan Documents
where the laws of the relevant Core Territory may so require.
(q) Additional Collateral. To the extent the cost of creating,
perfecting and maintaining a Lien on any such Collateral does not,
individually or in the aggregate, exceed the value of any recovery proceeds
reasonably expected to be obtained by the Collateral Agent in connection
with the enforcement of such Lien against such Collateral, within 30 days
after delivering the report required pursuant to Section 5.03(t) with
respect to additional Collateral, cause such relevant Operating Subsidiary,
at its expense, to assign and pledge to the Collateral Agent for the
benefit of the Secured Creditors the property described in such report,
except such property encumbered by Liens permitted pursuant to Section
5.02(b)(vi), pursuant to Security Agreements and other instruments
satisfactory in form and substance to the Collateral Agent; and will cause
such Operating Subsidiary to make such registrations and filings, and do
such other or further acts and things as may be necessary to perfect the
Lien of the Collateral Agent in respect of such
<PAGE>
61
property. The Borrower or such Subsidiary, as the case may be, shall not be
required to assign or pledge any such property if such assignment or pledge
is not permitted under any applicable laws.
SECTION 5.02. Negative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:
(a) Indebtedness. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Debt, other than:
(i) Debt owing hereunder and Existing Debt,
(ii) Debt created under Hedge Agreements entered into by the
Borrower,
(iii) Debt of any Person that becomes a Subsidiary of the
Borrower after the date hereof in accordance with the terms of Section
5.02(k)(i) which Debt is existing at the time such Person becomes a
Subsidiary of the Borrower (other than Debt incurred solely in
contemplation of such Person becoming a Subsidiary of the Borrower),
(iv) Subordinated Debt,
(v) Debt of the Borrower to any of its Subsidiaries, or of a
Subsidiary to the Borrower or to a Subsidiary of the Borrower;
provided that such Debt shall have been pledged to the Collateral
Agent,
(vi) Debt incurred in connection with the entering into by the
Borrower or a Subsidiary thereof of Capitalized Leases in aggregate
principal amount (including any such Debt incurred to refinance such
Debt, as permitted by clause (xii) below) at any one time outstanding
not exceeding (A) $50,000,000, with respect to any indefeasible rights
of use of fiber and (B) $10,000,000, with respect to Capitalized
Leases other than indefeasible rights of use of fiber,
(vii) Secured Debt for the purpose of financing working-capital
requirements of the Borrower and its Subsidiaries in an aggregate
principal amount (including any such Debt incurred to refinance such
Debt, as permitted by clause (xii) below) at any time outstanding not
exceeding 10% of Contributed Capital at such time; provided that upon
the incurrence of such Debt the creditors thereof shall become parties
to the Intercreditor Agreement,
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62
(viii) Secured Debt (including Debt under the Ericsson Credit
Agreement) incurred for the purchase price of property or services to
be used for the conduct of the Borrower's or any of its Subsidiary's
business; provided that, immediately upon incurrence of such Debt, the
Borrower shall be in compliance with the terms of Sections 5.04(d),
(e), (f) and (g) and provided further that upon the incurrence of
Secured Debt pursuant to this clause, the creditors thereof shall
become parties to the Intercreditor Agreement,
(ix) Intercompany Mirror Subordinated Debt,
(x) Debt incurred to finance the purchase price of equipment or
other property ancillary to the Borrower's business and secured by
Liens permitted under Section 5.02(b)(vi), in an aggregate principal
amount (including any such Debt incurred to refinance such Debt, as
permitted by clause (xii) below) at any time outstanding not exceeding
1% of Contributed Capital at such time,
(xi) Debt in the form of Back-to-Back Loans, and
(xii) Debt incurred in connection with the refinancing of any
Debt which may be incurred under clauses (i) through (xi) above;
provided that (A) such Debt does not exceed the amount of Debt being
refinanced, (B) in the case of the refinancing of any Subordinated
Debt, any such Debt shall also be subordinated on substantially the
same terms and (C) in the case of Intercompany Mirror Subordinated
Debt, such Debt still qualifies as Intercompany Mirror Subordinated
Debt;
provided that at the time of incurrence of any of the Debt referred to in
clauses (i) to (ix) above, and immediately after giving effect thereto, no
event has occurred and is continuing that constitutes a Default.
(b) Liens, Etc. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties, whether now owned or
hereafter acquired, or assign, or permit any of its Subsidiaries to assign,
any right to receive income, other than
(i) Liens created under the Loan Documents,
(ii) Permitted Liens,
(iii) Shared Liens,
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63
(iv) Liens existing on the date hereof and described on Schedule
4.01(o) hereto,
(v) Liens arising in connection with Capitalized Leases permitted
under Section 5.02(a)(vi); provided that no such Lien shall extend to
or cover any Collateral or assets other than the assets subject to
such Capitalized Leases,
(vi) purchase money Liens to secure Debt incurred in accordance
with Section 5.02(a)(x); provided that no such Lien shall extend to or
cover any property other than the property being acquired, and no
extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended, renewed
or replaced,
(vii) Liens arising in connection with the lease or transfer of
Customer Premise Equipment permitted under Section 5.02(j)(vi),
(viii) Liens on Blocked Accounts created under the Blocked
Account Letter Agreements (as each term is defined both herein and in
the Ericsson Credit Agreement), and
(ix) the replacement, extension or renewal of any Lien permitted
by clauses (iii) through (viii) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
(c) Mergers, Etc. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so,
except that (i) any Subsidiary of the Borrower may merge into or
consolidate with any other Subsidiary of the Borrower so long as the Person
formed by such merger or consolidation is a Subsidiary of the Borrower,
(ii) any of the Borrower's Subsidiaries may merge into the Borrower so long
as the Borrower is the surviving corporation and (iii) the Borrower or any
of its Subsidiaries may merge with any other Person so long as, in the case
of any such merger to which the Borrower is a party, the Borrower is the
surviving corporation and, in the case of any such merger to which a
Subsidiary of the Borrower is a party, such Subsidiary is the surviving
corporation; provided that in each case, immediately after giving effect
thereto, no event shall occur and be continuing that constitutes a Default.
(d) Changes in Fiscal Year. Make or permit any change in its fiscal
year or permit any of its Subsidiaries to make or permit any change in its
fiscal year.
(e) Transactions with Affiliates. Either (i) enter into or permit any
Subsidiary to enter into any agreement or arrangement with any Affiliate of
the Borrower if such
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64
agreement or arrangement contains pricing and terms that provide to such
Affiliate fees, profits, premiums or terms materially in excess of or
materially more favorable than the fees, profits, premiums or terms that
the Borrower or a Subsidiary thereof could reasonably be expected to pay or
provide to a third party in connection with a similar transaction, other
than agreements providing for management fees payable by an Operating
Subsidiary to the Borrower or (ii) without limiting the foregoing, enter
into or permit any Subsidiary to enter into any tax-sharing agreement or
arrangement with the Parent or any other Person pursuant to which the
Borrower and its Subsidiaries will make any payments or agree to make any
payments in lieu of income taxes unless the cumulative sum of such payments
does not exceed to any material extent the cumulative sum of income taxes
that the Borrower and its Subsidiaries would have paid if the Borrower and
its Subsidiaries had always filed income tax returns on a consolidated
basis as a separate affiliated group (as such term is defined in section
1504(a) of the Internal Revenue Code of 1986) of corporations consisting of
only the Borrower and its Subsidiaries.
(f) Other Business. Engage or permit any Subsidiary to engage,
directly or indirectly, in any business other than the offering of data,
voice or video services, whether as a competitive access provider, a
competitive local exchange carrier or an Internet access provider other
than in the Territory.
(g) Modification of Organizational Documents. Modify or permit any
Subsidiary to modify its organizational documents in a manner that affects
materially and adversely the fulfillment of its or such Subsidiary's
obligations under any Loan Document to which it or such Subsidiary is a
party or changes in any material respect the nature of its or such
Subsidiary's business, its accounting policies or reporting practices.
(h) Amendment; Etc. of Material Contracts. Cancel or terminate any
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any
consent, waiver or approval thereunder, waive any default under or any
breach of any Material Contract or agree in any manner to any other
amendment, modification or change of any term or condition of any Material
Contract if any of such actions could reasonably be expected to result in a
Material Adverse Effect or take any other action in connection with any
Material Contract that would impair the value of the interest or rights of
the Borrower thereunder or that would impair the interest or rights of the
Administrative Agent or any Lender thereunder, or permit any of its
Subsidiaries to do any of the foregoing if any of such actions could
reasonably be expected to result in a Material Adverse Effect.
(i) Negative Pledge. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets except (i) in favor of
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65
the Secured Creditors or (ii) in connection with (A) any Capitalized Lease
permitted by Section 5.02(a)(vi) solely to the extent that such Capitalized
Lease prohibits a Lien on the property subject thereto or (B) any Debt
outstanding on the date any Subsidiary of the Borrower becomes such a
Subsidiary (so long as such agreement was not entered into solely in
contemplation of such Subsidiary becoming a Subsidiary of the Borrower).
(j) Sales of Assets. Sell, lease, transfer, liquidate, wind up or
otherwise dispose of, or permit any of its Subsidiaries to sell, lease,
transfer, liquidate, wind up or otherwise dispose of, any Collateral or any
substantial part of its assets other than Collateral, including without
limitation substantially all assets constituting the business of a
division, branch or other unit operation, or grant any option or other
right to purchase, lease or otherwise acquire any Collateral other than
inventory to be sold in the ordinary course of its business, except:
(i) sales and disposal of inventory in the ordinary course of
business,
(ii) in a transaction authorized by subsection (c) of this
Section 5.02,
(iii) sales of Material Assets for cash and for fair value in an
aggregate amount not to exceed $10,000,000 in any fiscal year, the Net
Cash Proceeds of which are applied in accordance with Section 2.08(b),
(iv) the limited recourse sale of accounts receivable in
connection with the securitization thereof, which sale is non-recourse
to the extent customary in securitizations, the Net Cash Proceeds of
which are applied in accordance with Section 2.08(b),
(v) sales and disposal of obsolete equipment in the ordinary
course of business,
(vi) sales, leases and transfers of Customer Premise Equipment in
the ordinary course of business, and
(vii) sales of other assets for cash and for fair value in an
aggregate amount not to exceed $2,500,000 in any fiscal year.
(k) Investments in Other Persons. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments by the Borrower and its Subsidiaries in their
Insignificant Subsidiaries, Operating Subsidiaries and Intermediate
Holding Company Subsidiaries outstanding on the date hereof and
additional investments
<PAGE>
66
in Insignificant Subsidiaries, Operating Subsidiaries and Intermediate
Holding Company Subsidiaries engaged in businesses permitted under
Section 5.02(f) in the Core Territories; provided that:
(A) the Borrower shall have complied with the provisions set
forth in Section 5.01(k),
(B) each Operating Subsidiary shall be a Wholly Owned
Subsidiary of the Borrower or an Intermediate Holding Company
Subsidiary,
(C) in the case of any such Subsidiary created after the
date hereof, such Subsidiary shall be a Wholly Owned Subsidiary,
(D) in the case of any Intermediate Holding Company
Subsidiary in existence on the date hereof, the Borrower shall
directly hold 100% of each class and series of Equity Interests
of such Subsidiary;
(ii) loans and advances to employees in the ordinary course of
the business of the Borrower and its Subsidiaries as presently
conducted in an aggregate principal amount not to exceed $250,000, at
any time outstanding;
(iii) Investments by
(A) the Operating Subsidiaries in Cash Equivalents in an
aggregate amount not to exceed $20,000,000 at any one time
outstanding, and
(B) any Intermediate Holding Company Subsidiary in Cash
Equivalents in an aggregate amount not to exceed $5,000,000 at
any one time outstanding; provided that no Intermediate Holding
Company Subsidiary shall maintain any such Investment for more
than five Business Days;
(iv) Investments existing on the date hereof and described on
Schedule 4.01(w) hereto;
(v) Investments by the Borrower in Hedge Agreements permitted
under Section 5.02(a)(ii); provided that the transactions contemplated
by such agreements do not violate the provisions of Section 5.02(t);
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67
(vi) Investments consisting of intercompany Debt permitted under
Section 5.02(a)(v);
(vii) Investments by the Borrower or an Intermediate Holding
Company Subsidiary in Back-to-Back Loans; and
(viii) Investments by the Borrower and its Subsidiaries in the
capital stock of:
(A) Subsidiaries engaged in businesses permitted under
Section 5.02(f) in any country other than any Core Territory in
an aggregate amount invested not to exceed $25,000,000 at any
time outstanding and as to which the Borrower shall have complied
with its obligations under Section 5.01(k), and
(B) Companies engaged in businesses permitted under Section
5.02(f) (I) in any Core Territory, in an aggregate not to exceed
$35,000,000 in any calendar year or (II) in the Territory other
than in any Core Territory in an aggregate not to exceed
$15,000,000 amount at any time outstanding; provided that in each
case any capital stock so acquired shall have been pledged to the
Collateral Agent for the benefit of the Lenders within 30 days
after such acquisition pursuant to security agreements and other
instruments reasonably satisfactory in form and substance to the
Required Lenders and the Person making such Investments shall
have taken such other action with respect to such collateral
security as would be required under Section 5.01(k) with respect
to collateral security if such Person were a newly created
Subsidiary of the Borrower.
(l) Restricted Payments. Declare or pay or make any Restricted Payment
or permit any of its Subsidiaries to make any Restricted Payment, except
that the Borrower may
(i) make scheduled payments of interest in respect of
Intercompany Mirror Subordinated Debt at any time after December 31,
2001, so long as no Default has occurred and is continuing at the time
of or after giving effect to any such payment; and
(ii) make a cash distribution to the Parent in respect of tax
obligations of the Parent due in respect of (I) the existence of the
Parent or (II) the activities of the Borrower or any of its
Subsidiaries, but in either case only to the extent that
<PAGE>
68
such distribution would be permitted under tax-sharing agreements or
arrangements permitted under Section 5.02(e).
(m) Prepayments of Debt. Prepay:
(i) any Subordinated Debt and Intercompany Mirror Subordinated
Debt, or
(ii) any other Debt, other than Debt permitted under Section
5.02(a)(vi), (x) or (xi), unless the Borrowings and such other Debt
shall be ratably prepaid in accordance with the respective then
outstanding aggregate principal amounts thereof.
(n) Liquidation, Etc. of Business. Wind up, dissolve or liquidate the
Borrower or any of its Subsidiaries except as permitted under Section
5.01(e), or abandon its conduct of its business in the Territory.
(o) Gross PP&E. Make or permit its Subsidiaries to make any Capital
Expenditures that would cause the Gross PP&E of the Borrower and its
Subsidiaries in any period set forth below to exceed the amount set forth
below for such period.
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 52,000,000
12/31/00 $156,500,000
12/31/01 $253,000,000
12/31/02 $377,500,000
12/31/03 $450,500,000
12/31/04 $523,500,000
12/31/05 $616,300,000
12/31/06 $720,300,000
</TABLE>
<PAGE>
69
(p) Lease Obligations. Create, incur, assume or suffer to exist, or
permit any of its Subsidiaries to create, incur, assume or suffer to exist:
(i) any obligations as lessee for the rental or hire of real or
personal property of any kind under leases or agreements to lease
having a term of one year or more from the date of execution thereof
(other than Capitalized Leases) that would cause the direct and
contingent liabilities of it and its Subsidiaries, on a Consolidated
basis, in respect of all such obligations in any period set forth
below to exceed the amount set forth below for such period;
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 7,500,000
12/31/00 $12,500,000
12/31/01 $17,500,000
12/31/02 $22,500,000
12/31/03 $27,500,000
12/31/04 $47,500,000
12/31/05 $57,500,000
12/31/06 $72,500,000
</TABLE>
or
(ii) any obligations under Capitalized Leases that would cause
the direct and contingent liabilities of it and its Subsidiaries, on a
Consolidated basis, in respect of all such obligations to exceed at
any time (A) $50,000,000, with respect to indefeasible rights of use
of fiber and (B) $10,000,000, with respect to Capitalized Leases other
than indefeasible rights of use of fiber.
(q) Restrictions on Activities. Conduct any significant business other
than holding Equity Interests of Intermediate Holding Company Subsidiaries
and incurring liabilities and holding Investments permitted under this
Agreement or permit any of its Intermediate Holding Company Subsidiaries
to:
(i) hold any assets that would cause them to fail to qualify as
Intermediate Holding Company Subsidiaries,
(ii) incur debt or other liabilities other than intercompany
loans under Section 5.02(a)(v), and
<PAGE>
70
(iii) conduct any significant business other than holding the
capital stock or contributions of, providing managerial oversight for
and supporting and consolidating the corporate functions of, an
Operating Subsidiary or Intermediate Holding Company Subsidiary.
(r) Payment Restrictions Affecting Subsidiaries. Directly or
indirectly, enter into or suffer to exist, or permit any of its
Subsidiaries to enter into or suffer to exist, any agreement or arrangement
limiting the ability of any of its Subsidiaries to declare or pay dividends
or other distributions in respect of its Equity Interests or repay or
prepay any Debt owed to, make loans or advances to, or otherwise transfer
assets to or invest in, the Borrower or any Subsidiary of the Borrower
(whether through a covenant restricting dividends, loans, asset transfers
or investments, a financial covenant or otherwise), except the Loan
Documents.
(s) Partnerships, Etc. Become a general partner in any general or
limited partnership or joint venture, or permit any of its Subsidiaries to
do so.
(t) Speculative Transactions. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options or
futures contracts or any similar speculative transactions.
(u) Issuance of Capital Stock or Contributions by Subsidiaries. Permit
any of its Subsidiaries to issue any capital stock or contributions to any
Person other than to the Borrower or a Wholly Owned Subsidiary of such
Subsidiary, except pursuant to any agreement in effect and listed in the
form of Schedule 5.02(u).
(v) Speculative Build-Outs. Install or permit any of its Subsidiaries
to install a portion of any Network intended to provide direct service to
end-user customers (a "Tributary") in any building unless there is at least
one bona fide significant customer using such Tributary in such building,
except that for every 100 buildings in which such a Tributary is installed,
a Tributary may be installed in one building for which there is not any
such customer.
SECTION 5.03. Reporting Requirements. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower shall
furnish to the Lenders:
(a) as soon as available and in any event within 15 days after the end
of each fiscal month of the Borrower, for a period of 12 months from the
date hereof (i) internal summary financial and operating statements for
such month, prepared by the Borrower's management for its chief executive
officer and (ii) a memorandum or letter discussing such internal summary
financial and operating statements and comparing such financial
<PAGE>
71
information to the pro forma financial information for such period set
forth in the business plan delivered pursuant to Section 3.01(i)(ii);
(b) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower (i)
internal summary financial and operating statements for such quarter,
prepared by the Borrower's management for its chief executive officer and
(ii) a memorandum or letter discussing such internal summary financial and
operating statements and comparing such financial information to the pro
forma financial information for such period set forth in the budget for
such period delivered pursuant to Section 5.03(r);
(c) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower,
Consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such quarter and Consolidated and
consolidating statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, and, with respect to the
second fiscal quarter of any fiscal year of the Borrower, a certificate of
the chief financial officer of the Borrower (a "Compliance Certificate")
(i) duly certifying (subject to year-end adjustment audits) that such
balance sheets and statements of income and cash flow have been prepared in
accordance with GAAP and stating that, to the knowledge of such chief
financial officer, no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take
with respect thereto and (ii) attesting to the number of Voice Grade
Equivalents as of the end of such fiscal quarter;
(d) as soon as available and in any event within 120 days (or, after
the consolidated group of companies of which the Borrower is part is
subject to the reporting requirements of the Securities and Exchange Act of
1934, 90 days) after the end of each fiscal year of the Borrower, a copy of
the annual audit report for such year for the Borrower and its
Subsidiaries, containing Consolidated and consolidating balance sheets of
the Borrower and its Subsidiaries as of the end of such fiscal year and
Consolidated and consolidating statements of income and cash flows of the
Borrower and its Subsidiaries for such fiscal year, in each case
accompanied by (i) an opinion acceptable to the Required Lenders from a
firm of nationally recognized independent certified public accountants,
together with (A) a certificate of such accounting firm to the Lenders
stating that in the course of the regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted by such accounting
firm in accordance with GAAP, such accounting firm has obtained no
knowledge that would cause them to believe that a Default has occurred and
is continuing, or if, in the opinion of such accounting firm, a Default has
occurred and is continuing, a statement as to the nature thereof and (B) a
schedule in form satisfactory to the Administrative Agent of the
computations used by
<PAGE>
72
such accountants in determining, as of the end of such fiscal year,
compliance with the covenants contained in Section 5.04 and (ii) a
certificate of the chief financial officer of the Borrower (A) stating that
to his or her knowledge no Default has occurred and is continuing or, if a
default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take
with respect thereto and (B) attesting to the number of Voice Grade
Equivalents as of the end of such fiscal year;
(e) promptly upon the discovery of the occurrence or existence
thereof, notice of (i) any Default under this Agreement, the Notes or the
Security Agreements, along with a statement of the Chief Executive Officer
or Chief Financial Officer of the Borrower setting forth the details of
such Default and the action that the Borrower has taken and proposes to
take with respect thereto, (ii) any event, development or circumstance
which would cause the financial statements most recently furnished to the
Lenders in accordance with Section 5.03(c) or (d) to fail in any material
respect to fairly present, in accordance with GAAP, the financial condition
and operating results of the Borrower and its Subsidiaries as of the date
of such financial statements, and (iii) the occurrence of a Material
Adverse Effect;
(f) promptly after the commencement thereof, notice of all actions,
suits, investigations, litigation and proceedings before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of
its Subsidiaries of the type described in Section 3.01(a), and promptly
after the occurrence thereof, notice of any adverse change in the status or
the financial effect on any Loan Party or any of its Subsidiaries of the
Disclosed Litigation from that described on Schedule 3.01(a)(i) hereto;
(g) (i) promptly and in any event within 10 days after the Borrower or
any ERISA Affiliate knows or has reason to know that any ERISA Event has
occurred, a statement of the chief executive officer or chief financial
officer of the Borrower describing such ERISA Event and the action, if any,
that the Borrower or such ERISA Affiliate has taken and proposes to take
with respect thereto and (ii) on the date any records, documents or other
information must be furnished to the PBGC with respect to any Plan pursuant
to Section 4010 of ERISA, a copy of such records, documents and
information;
(h) promptly and in any event within three Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice from
the PBGC stating its intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(i) promptly and in any event within 30 days after the receipt thereof
by the Borrower or any ERISA Affiliate, a copy of the annual actuarial
report for each Plan the
<PAGE>
73
funded current liability percentage (as defined in Section 302(d)(8) of
ERISA) of which is less than 90% or the unfunded current liability of which
exceeds $1,000,000;
(j) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, copies of each notice concerning (i) the imposition of
Withdrawal Liability by any such Multiemployer Plan, (ii) the
reorganization or termination, within the meaning of Title IV of ERISA, of
any such Multiemployer Plan or (iii) the amount of liability incurred, or
that may be incurred, by the Borrower or any ERISA Affiliate in connection
with any event described in clause (i) or (ii);
(k) as soon as available and in any event not later than 60 days after
the end of each fiscal year of the Borrower, an updated business plan of
the Borrower approved by its Board of Directors, with respect at least to
the period ending on the fifth anniversary of the Tranche A Effective Date,
including projections and budgets and otherwise in substantially the form
and scope of the business plan delivered pursuant to Section 3.01(i)(ii);
(l) promptly after the sending or filing thereof, copies of all proxy
statements, financial statements and reports that any Loan Party or any of
its Subsidiaries sends to its stockholders or partners, and copies of all
regular, periodic and special reports, and all registration statements,
that any Loan Party or any of it Subsidiaries filed with the Securities and
Exchange Commission or any governmental authority that may be substituted
therefor, or with any national securities exchange;
(m) promptly after the furnishing thereof, copies of any statement or
report furnished to any holder of Debt securities of any Loan Party or of
any of its Subsidiaries pursuant to the terms of any indenture, loan or
creditor similar agreement and not otherwise required to be furnished to
the Lender Parties pursuant to any other clause of this Section 5.03;
(n) promptly upon receipt thereof, copies of all notices of default
received by any Loan Party or any of its Subsidiaries under or pursuant to
any License, Material Contract or instrument, indenture, loan or credit or
similar agreement and, from time to time upon request by the Administrative
Agent, such information and reports regarding the Licenses, the Material
Contracts and such instruments, indentures and loan and credit and similar
agreements as the Administrative Agent may reasonably request;
(o) promptly after the assertion or occurrence thereof, notice of any
Environmental Action against or of any noncompliance by any Loan Party or
any of its Subsidiaries with any Environmental Law or Environmental Permit
that could reasonably be expected to have a Material Adverse Effect;
<PAGE>
74
(p) promptly after the adoption by the Borrower or any of its
Subsidiaries thereof, notice of any change in the accounting policies and
reporting practices of such Borrower or Subsidiary;
(q) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of
Borrower's operations or financial affairs prepared by the Borrower's
independent accounts and provided to the Board of Directors of the Borrower
(and not otherwise contained in other materials provided hereunder);
(r) at least 30 days but not more than 90 days prior to the beginning
of each fiscal year, an annual budget prepared on a monthly basis for the
Borrower for such fiscal year (displaying anticipated statements of income
and cash flows and balance sheets) and any revisions of such annual or
other budgets;
(s) such other information respecting the Borrower or any of its
Subsidiaries as any Lender through the Administrative Agent may from time
to time reasonably request;
(t) (i) for each Core Territory in which the Licenses are not subject
to a perfected Lien in favor of the Collateral Agent, within 30 days after
(A) the date falling 45 days after the beginning of each fiscal quarter and
(B) the end of each fiscal quarter, and (ii) in each other Core Territory,
within 30 days after the end of each fiscal quarter, a list of all real
property with an aggregate value in excess of $50,000 and personal property
with an aggregate value in excess of $10,000 in each case located in such
Core Territory and including in each case, without limitation, all accounts
receivable, assets acquired through capital expenditures and general
intangibles, that have been acquired by the Borrower or any Subsidiary
thereof and not included in any prior report under this Section 5.03(t) and
as to which the Collateral Agent does not have a perfected Lien; and
(u) as of the date of any Advance subsequent to the initial Advance,
amended forms of Schedules 4.01(b), (f), (o), (t), (v), (w), (x), (y) (z),
(dd) and (ii) to the extent necessary to make the representations and
warranties relating to such amended Schedules true and correct as of such
date.
SECTION 5.04. Operational and Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower:
(a) Revenue. Shall not permit its Revenue for the period beginning on
the first day of the Borrower's fiscal year in which a date set forth below
occurs and ending
<PAGE>
75
on such date to be less than the amount corresponding to such date under
the heading "Revenue" set forth below:
<TABLE>
<CAPTION>
--------------------------------
Date Revenue
--------------------------------
<S> <C>
12/31/1999 $650,000
--------------------------------
03/31/2000 $305,000
--------------------------------
06/30/2000 $917,000
--------------------------------
09/30/2000 $3,050,000
--------------------------------
12/31/2000 $6,100,000
--------------------------------
03/31/2001 $3,350,000
--------------------------------
06/30/2001 $7,000,000
--------------------------------
09/30/2001 $15,800,000
--------------------------------
12/31/2001 $28,000,000
--------------------------------
03/31/2002 $17,000,000
--------------------------------
06/30/2002 $41,500,000
--------------------------------
09/30/2002 $74,000,000
--------------------------------
12/31/2002 $122,000,000
--------------------------------
03/31/2003 $50,000,000
--------------------------------
06/30/2003 $103,000,000
--------------------------------
09/30/2003 $165,000,000
--------------------------------
12/31/2003 $239,000,000
--------------------------------
03/31/2004 $80,800,000
--------------------------------
06/30/2004 $165,500,000
--------------------------------
09/30/2004 $265,500,000
--------------------------------
12/31/2004 $385,000,000
--------------------------------
03/31/2005 $125,000,000
--------------------------------
06/30/2005 $255,500,000
--------------------------------
09/30/2005 $397,500,000
--------------------------------
12/31/2005 $567,500,000
--------------------------------
03/31/2006 $179,000,000
--------------------------------
06/30/2006 $366,000,000
--------------------------------
09/30/2006 $561,500,000
--------------------------------
12/31/2006 $780,000,000
--------------------------------
</TABLE>
(b) Total Voice Grade Equivalents. Shall not permit the total number
of Voice Grade Equivalents of the Borrower and its Subsidiaries as of any
date set forth below to be less than the number corresponding to such date
under the heading "Number" set forth below:
<PAGE>
76
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
12/31/1999 736
06/30/2000 1,784
12/31/2000 6,230
06/30/2001 21,968
12/31/2001 42,471
06/30/2002 136,555
12/31/2002 241,199
06/30/2003 356,268
12/31/2003 528,939
06/30/2004 645,959
12/31/2004 855,496
06/30/2005 974,049
12/31/2005 1,240,963
06/30/2006 1,364,914
12/31/2006 1,652,157
</TABLE>
(c) EBITDA. Shall not permit EBITDA for the four fiscal quarters of
the Borrower immediately preceding any date set forth below to be less than
the amount set forth under the heading "Amount" corresponding to such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/1999 $(33,400,000)
06/30/2000 $(48,500,000)
12/31/2000 $(50,500,000)
06/30/2001 $(50,500,000)
12/31/2001 $(43,600,000)
06/30/2002 $(19,800,000)
12/31/2002 $16,500,000
06/30/2003 $45,300,000
12/31/2003 $82,500,000
06/30/2004 $108,500,000
12/31/2004 $169,000,000
06/30/2005 $199,000,000
12/31/2005 $269,900,000
06/30/2006 $305,500,000
12/31/2006 $389,000,000
</TABLE>
<PAGE>
77
(d) Total Debt to Contributed Capital. Shall not permit the ratio of
(i) Total Debt outstanding as of any date of determination to (ii)
Contributed Capital as of such date of determination to be greater than the
ratio corresponding to the date set forth below on or at any time during
the 12 months immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 4.50x
12/31/2000 4.50x
12/31/2001 4.50x
12/31/2002 4.50x
12/31/2003 4.00x
12/31/2004 3.50x
12/31/2005 3.00x
12/31/2006 2.50x
</TABLE>
(e) Total Secured Debt to Contributed Capital. Shall not permit the
ratio of (i) Total Debt owed by the Borrower secured by Shared Liens
outstanding as of any date of determination to (ii) Contributed Capital as
of such date of determination to be greater than the ratio corresponding to
the date set forth below on or immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 2.00x
06/30/2000 2.00x
12/31/2000 2.00x
06/30/2001 2.75x
12/31/2001 2.75x
06/30/2002 2.75x
12/31/2002 2.75x
06/30/2003 2.70x
12/31/2003 2.70x
06/30/2004 2.30x
12/31/2004 2.30x
06/30/2005 2.00x
12/31/2005 2.00x
06/30/2006 1.95x
12/31/2006 1.95x
</TABLE>
<PAGE>
78
(f) Total Secured Debt to EBITDA (Cash Flow multiple). Shall not
permit the ratio of (i) Total Debt owed by the Borrower secured by Shared
Liens outstanding at of any date of determination to (ii) EBITDA for the
four consecutive fiscal quarters of the Borrower most recently ended on or
prior to such date of determination to exceed the ratio corresponding to
the date set forth below on or immediately proceeding such date of
determination:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 16.00x
06/30/2003 4.40x
12/31/2003 3.39x
06/30/2004 2.30x
12/31/2004 1.30x
06/30/2005 0.80x
12/31/2005 0.40x
06/30/2006 0.30x
12/31/2006 0.20x
</TABLE>
(g) EBITDA to Total Cash Debt Service (Debt service coverage ratio).
Permit the ratio of (i) EBITDA for the four consecutive fiscal quarters
ending on any of the dates set forth below to (ii) Total Cash Debt Service
for the same period to be less than the ratio set forth below opposite such
date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 0.44x
06/30/2003 0.58x
12/31/2003 0.85x
06/30/2004 1.05x
12/31/2004 1.40x
06/30/2005 1.50x
12/31/2005 2.00x
06/30/2006 3.00x
12/31/2006 5.50x
</TABLE>
<PAGE>
79
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable or the Borrower shall fail to pay any
interest on any Advance or make any other payment of fees or other amounts
payable under this Agreement or any Note within three days after the same
becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) in connection with any Loan Document shall prove to have been
incorrect in any material respect when made; provided that, if such
inaccuracy is capable of remedy and is in respect of any representation and
warranty other than those contained in Sections 4.01(a), (b), (c), (d),
(g), (h), (i), (j), (k), (n) and (y), such inaccuracy shall continue
unremedied for a period of 10 days; or
(c) either:
(i) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 2.13, 5.01(e), (f), (k) or
(n), 5.02 or 5.04, or
(ii) the Borrower shall fail to perform or observe any other
covenant in this Agreement or any Loan Party shall fail to perform or
observe any other covenant to be performed or observed by it in any
other Loan Document, and in any case such failure shall continue
unremedied for a period of 30 days; or
(d) any Security Agreement, once executed and delivered, shall cease
to provide to the Collateral Agent and the Lenders, with the Liens,
priority, security interests, rights, titles, interests, remedies, powers
and privileges intended to be created thereby; or
(e) any of the following shall occur:
(i) any License or portion thereof shall become invalid or
unenforceable or shall terminate or not be renewed and, with respect
to any such portion, such occurrence is reasonably likely to have a
material adverse effect on the ability of the Borrower to perform its
payment obligations under the Loan Documents;
<PAGE>
80
(ii) any rights of the Borrower or any of its Subsidiaries
thereunder shall be changed and such change is reasonably likely to
have a material adverse effect on the ability of the Borrower to
perform its payment obligations under the Loan Documents;
(iii) any proceeding shall be commenced with the intention of
revoking the Licenses or a portion thereof that (A) has a reasonable
likelihood of succeeding and could reasonably be expected to prevent
the Borrower from operating a material portion of its Network or does
succeed in revoking all of the Licenses or (B) could reasonably be
expected to result in or which actually results in, a material adverse
effect on the ability of the Borrower to perform its payment
obligations under the Loan Documents; or
(iv) any Core Territory shall impose any obligation on the
Borrower or any of its Subsidiaries in respect of any License that is
reasonably likely to have a material adverse effect on the ability of
the Borrower to perform its payment obligations under the Loan
Documents; or
(f) either:
(i) the Borrower or any of its Subsidiaries shall fail to pay (A)
any principal of or premium or interest on or any other amount payable
in respect of any Debt or (B) any principal of any Subordinated Debt
or Intercompany Mirror Subordinated Debt, in each case that is
outstanding in a principal or notional amount of at least $5,000,000
in the aggregate (but excluding Debt outstanding hereunder) of the
Borrower or such Subsidiary (as the case may be), when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if
the effect of such event or condition is to accelerate, or to permit
the acceleration of, the maturity of such Debt; or any such Debt shall
be declared to be due and payable, or required to be prepaid or
redeemed (other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof; or
(ii) the Parent shall fail to pay any principal of or premium or
interest on or any other amount payable in respect of any Debt that is
outstanding in a principal or notional amount of at least $5,000,000
in the aggregate, when the
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same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue after the applicable grace period, if any, specified in the
agreement or instrument relating to such Debt; or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if
the effect of such event or condition is to accelerate the maturity of
such Debt; or any such Debt shall be declared to be due and payable,
or required to be prepaid or redeemed (other than by a regularly
scheduled required prepayment or redemption), purchased or defeased,
or an offer to prepay, redeem, purchase or defease such Debt shall be
required to be made, in each case prior to the stated maturity
thereof; or
(g) the Parent or any Loan Party shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Parent,
any Loan Party or any of its Subsidiaries seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
concordato, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency,
reorganization or concordato or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its property
and, in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith,
either such proceeding shall remain undismissed, unvacated or unstayed for
a period of 60 days, or any of the actions sought in such proceeding
(including without limitation the entry of an order for relief against, or
the appointment of a receiver, trustee, custodian or other similar official
for, it or for any substantial part of its property) shall occur; or the
Parent, any Loan Party or any of its Subsidiaries shall take any corporate
action to authorize any of the actions set forth above in this subsection
(g); or
(h) any judgment or order for the payment of money in excess of
$5,000,000 shall be rendered against the Parent, the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(i) any non-monetary judgment or order shall be rendered against the
Borrower or any of its Subsidiaries that could be reasonably expected to
have a Material Adverse Effect, and there shall be any period of 30
consecutive days during which a stay
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of enforcement of such judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; or
(j) the Borrower or any of its ERISA Affiliates shall incur, or in the
reasonable opinion of the Required Lenders shall be reasonably likely to
incur liability in excess of $1,000,000 in the aggregate as a result of one
or more of the following: (i) the occurrence of any ERISA Event; (ii) the
partial or complete withdrawal of the Borrower or any of its ERISA
Affiliates from a Multiemployer Plan; or (iii) the reorganization or
termination of a Multiemployer Plan; or
(k) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against any Loan Party party to it, or any such Loan Party
shall so state in writing; or
(l) any material provisions of this Agreement or any other Loan
Document shall be or become invalid or unenforceable against the Loan
Parties that are parties thereto, or any Loan Party shall so assert; or
(m) a Change of Control shall occur; or the Borrower shall at any time
for any reason cease to be the record and beneficial owner of all of the
outstanding Equity Interests in its Subsidiaries other than any Equity
Interests held by other Persons as of the date hereof; or
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(n) any Core Territory shall declare a moratorium on the payment of
external debt or impose any restrictions on access to foreign exchange or
transfer of funds, in any case, and such declaration or imposition is
reasonably likely to have a Material Adverse Effect; or
(o) there shall occur any condemnation, taking or expropriation of any
assets of the Borrower or any of its Subsidiaries that is reasonably likely
to result in a Material Adverse Effect; or
(p) in the view of the Lenders, a Material Adverse Change shall occur;
or
(q) any default on the part of the Borrower or any of its Subsidiaries
to comply with its obligations under Section 11.2 of the Supply Agreement
or any payment obligations set forth in any other agreements entered into
by the Borrower or any of its Subsidiaries with the Vendor or its
Affiliates; or
(r) the Parent or any of its direct or indirect Subsidiaries (other
than the Borrower and the other Loan Parties) shall engage to any material
extent in the business of providing data, voice or video services or any
business that competes with the business conducted by the Borrower and the
other Loan Parties, in each case, in any Core Territory;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Supermajority Lenders, by written notice to the
Borrower, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower, and (iii) shall at the
request, or may with the consent, of the Required Lenders, foreclose on any and
all of the Collateral in accordance with the terms of the relevant Security
Agreements; provided that upon the occurrence of an Event of Default under
clause 6.01(g) above, (A) the obligation of each Lender to make Advances shall
automatically be terminated and (B) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
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ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under this Agreement as are delegated
to the Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto. As to any matters not expressly
provided for by this Agreement (including without limitation enforcement or
collection of the Notes), the Administrative Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided that the Administrative Agent shall not be required to take any action
that exposes the Administrative Agent to personal liability or that is contrary
to this Agreement or applicable law. The Administrative Agent agrees to give to
each Lender prompt notice of each notice given to it by the Borrower pursuant to
the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Administrative Agent nor
any of its 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, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (i) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender that is the payee of such Note, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult
with legal counsel (including counsel for the Borrower), 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; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (iv) 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 on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other instrument or document
furnished pursuant hereto; and (vi) shall incur no liability under or in respect
of this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram or telex) believed
by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Agent and Affiliates. With respect to its Commitment, the
Advances made by it and the Note issued to it, if any, the Person serving as the
Administrative Agent hereunder shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Administrative Agent; and the term
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"Lender" or "Lenders" shall, unless otherwise expressly indicated, include the
Administrative Agent in its individual capacity. Any Person serving as
Administrative Agent and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, the Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any such Subsidiary, all as if the Person serving as Administrative
Agent were not the Administrative Agent and without any duty to account therefor
to the Lenders.
SECTION 7.04. 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 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and 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.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to the respective principal amounts of the Notes then held by each of
the Lenders (or if no Notes are at the time outstanding or if the Notes are held
by Persons that are not Lenders, ratably according to the respective amounts of
their Commitments), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that 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 action taken or omitted by the
Administrative Agent under this Agreement (collectively, the "Indemnified
Costs"); provided that no Lender shall be liable for any portion of the
Indemnified Costs resulting from the gross negligence or willful misconduct of
the Administrative Agent. Without limitation of 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
it 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, to the extent that such agent is not
reimbursed for such expenses by the Borrower. In the case of any investigation,
litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05
applies whether any such investigation, litigation or proceeding is brought by
the Administrative Agent, any Lender or a third party.
SECTION 7.06. Successor Agent. The Administrative Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no
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successor Administrative Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after such
retiring agent's giving of notice of resignation or the Required Lenders'
removal of such retiring agent, then such retiring agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed to do business under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $1,000,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Administrative
Agent and the retiring Administrative Agent shall be discharged from its duties
and obligations under this Agreement. After any such retiring agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that
(a) no amendment, waiver or consent shall, unless in writing and
signed by all of the Lenders (other than any Lender Party that is, at such
time, a Defaulting Lender), do any of the following at any time:
(i) waive any of the conditions specified in Section 3.01 or, in
the case of the initial Advance, Section 3.02,
(ii) change the number of Lenders or the percentage of (A) the
Commitments, or (B) the aggregate unpaid principal amount of the
Advances that, in each case, shall be required for the Lenders or any
of them to take any action hereunder,
(iii) reduce or limit the obligations of any Guarantor under
Section 1.0 of its Guaranty or otherwise limit any Guarantor's
liability with respect to the Obligations owing to any Agent and the
Lenders,
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(iv) release any Collateral in any transaction or series of
related transactions or permit the creation, incurrence, assumption or
existence of any Lien on any item of Collateral in any transaction or
series of related transactions to secure any Obligations other than
Obligations owing to the Secured Creditors under the Loan Documents,
(v) amend this Section 8.01,
(vi) increase the Commitments of the Lenders or subject the
Lenders to any additional obligations,
(vii) reduce the principal of, or interest on, the Advances or
any fees or other amounts payable hereunder,
(viii) postpone any date fixed for any payment of principal of,
or interest on, the Borrowings or any fees or other amounts payable,
or
(ix) limit the liability of any Loan Party under any of the Loan
Documents, and
(b) no amendment, waiver or consent shall, unless in writing and
signed by an Agent in addition to the Lenders required above to take such
action, affect the rights or (in the case of the Administrative Agent)
duties of such Agent under this Agreement.
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SECTION 8.02. Notices, Etc. All notices and other communications provided for
hereunder shall be in writing (including telecopier, telegraphic or telex
communication) and mailed, telecopied, telegraphed, telexed or delivered, if to
the Borrower, at its address at Diginet Americas, Inc.,3201 New Mexico Ave. NW,
Suite 320, Washington, D.C. 20016, Attention: Laurence A. Hinz; if to the
Initial Lender, at its Lending Office specified opposite its name on the
signature pages hereto; if to any other Lender, at its Lending Office specified
in the Assignment and Acceptance pursuant to which it became a Lender; and if to
the Administrative Agent, at its address at 283 King George Road, Warren, NJ
07059, Attention: Assistant Treasurer - Customer Finance, Fax: (908) 559-1711;
or, as to the Borrower or the Administrative Agent, at such other address as
shall be designated by such party in a written notice to the other parties and,
as to each other party, at such other address as shall be designated by such
party in a written notice to the Borrower and the Administrative Agent. All such
notices and communications shall, when hand delivered, telecopied, telegraphed
or telexed, be effective when hand delivered, telecopied, delivered to the
telegraph company or confirmed by telex answerback, respectively, and when sent
by regular mail, postage prepaid, return receipt requested shall be effective 5
days after the date of its deposit in the mails, except that notices and
communications to the Administrative Agent pursuant to Article II, III or VII
shall not be effective until received by the Administrative Agent. Delivery by
telecopier of an executed counterpart of any amendment or waiver of any
provision of this Agreement or the Notes or of any Exhibit to be executed and
delivered hereunder shall be effective as delivery of a manually executed
counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender,
the Administrative Agent or the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under any Note 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. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 8.04. Costs and Expenses; Indemnification. (a) The Borrower will
pay on demand
(i) all costs and expenses of the Administrative Agent and the Lenders
in connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without
limitation, (A) all due diligence, collateral review, syndication,
transportation, computer, duplication, appraisal, audit, insurance,
consultant, search, filing and recording fees and expenses, (B) the
reasonable fees and expenses of a single counsel for the Agents in each
relevant jurisdiction with respect thereto, and (C) the reasonable fees and
expenses of a single counsel for the Agents in each relevant jurisdiction
with respect to advising the Agents as to their respective rights and
responsibilities, or the perfection, protection or preservation of rights
or interests, under the Loan Documents, with respect to negotiations with
any Loan Party or with other creditors of any Loan Party or any of its
Subsidiaries arising out of any Default or any events or circumstances that
may give rise to a Default and with
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respect to presenting claims in or otherwise participating in or monitoring
any bankruptcy, insolvency or other similar proceeding involving creditors'
rights generally and any proceeding ancillary thereto), and
(ii) all costs and expenses of the Administrative Agent and the Lender
Parties in connection with the enforcement of the Loan Documents, whether
in any action, suit or litigation, any bankruptcy, insolvency or other
similar proceeding affecting creditors' rights generally (including,
without limitation, the reasonable fees and expenses of a single counsel
for the Administrative Agent and each Lender Party in each relevant
jurisdiction with respect thereto).
(b) The Borrower will indemnify and hold harmless the Administrative Agent
and each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including without
limitation reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising in any
way out of or in connection with or by reason of (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances, except to the extent such claim, damage, loss,
liability or expense resulted from such Indemnified Party's gross negligence or
willful misconduct. In the case of an investigation, litigation or other
proceeding to which the indemnity in this Section 8.04(b) applies, such
indemnity shall be effective whether or not such investigation, litigation or
proceeding is brought by the Borrower, its directors, shareholders or creditors
or an Indemnified Party or any other Person or any Indemnified Party is
otherwise a party thereto and whether or not the transactions contemplated
hereby are consummated. The Borrower also agrees not to assert any claim against
the Agent, any Lender, any of their Affiliates, or any of their respective
directors, officers, employees, attorneys and agents, on any theory of
liability, for special, indirect, consequential or punitive damages arising out
of or otherwise relating to the Notes, this Agreement, any of the transactions
contemplated herein or the actual or proposed use of the proceeds of the
Advances.
(c) If any payment of principal of any Advance is made by the Borrower to
or for the account of a Lender other than on the last day of the Interest Period
for such Advance, as a result of a payment pursuant to Section 2.09(c) and (d),
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, the Borrower shall, upon written demand by such Lender (with a
copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender any amounts reasonably required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including without limitation any
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
The loss to any Lender attributable to any such event shall be deemed to be an
amount determined by such Lender to be equal to the excess, if any, of (i) the
amount of interest that such Lender would pay for a deposit equal to the
principal amount of the applicable Eurodollar Rate Advance so prepaid or
accelerated, as applicable, for the period from the date of such payment or
acceleration to the last day of the then current Interest Period for
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such Eurodollar Rate Advance if the interest rate payable on such deposit were
equal to the Eurodollar Rate for such Interest Period, over (ii) the amount of
interest that such Lender would earn on such principal amount for such period if
such Lender were to invest such principal amount for such period at the interest
rate that would be bid by such Lender (or an Affiliate of such Lender) for
dollar deposits from other banks in the eurodollar market at the commencement of
such period. A certificate as to the amount of such loss, cost or expense,
submitted to the Borrower by such Lender, shall be conclusive and binding for
all purposes, absent manifest error.
(d) If any Loan Party fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of such Loan Party by the Agents or any Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.09, 2.11 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or such Affiliate to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower in writing after any such set-off and
application; provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender and its
Affiliates under this Section 8.05 are in addition to other rights and remedies
(including without limitation other rights of set-off) that such Lender and its
Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective (other
than Section 2.01(a), which shall only become effective upon satisfaction of the
conditions precedent set forth in Sections 3.01), when (i) this Agreement shall
have been executed by the Borrower, the Administrative Agent and the Initial
Lender, and thereafter this Agreement shall be binding upon and inure to the
benefit of the Borrower, the Administrative Agent and each Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lenders.
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SECTION 8.07. Assignments and Participations. (a) Each Lender may assign to
an Eligible Assignee all or a portion of its rights and obligations under this
Agreement (including without limitation all or a portion of its Commitment, the
Advances owing to it and the Note or Notes held by it and either outstanding
Advances or Commitments); provided that (i) except in the case of an assignment
to a Person that, immediately prior to such assignment, was a Lender or an
assignment of all of a Lender's rights and obligations under this Agreement, the
amount of the Advances and unfunded Commitment of the assigning Lender being
assigned pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $5,000,000 (except that this clause shall not prohibit the assignment
of a Fronting Commitment as contemplated by Section 2.02 in an amount equal to
the Advance that the Initial Lender would have made but for such assignment) and
(ii) the parties to each such assignment shall execute and deliver to the
Administrative Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with any Note subject to such assignment
and, except in the case of an assignment by the Initial Lender, a processing and
recordation fee of $3,500. Notwithstanding the foregoing, nothing in this
Section shall be construed to prohibit the assignment of a proportionate part of
all of the assigning Lender's rights and obligations in respect of (A) Advances
separately from (or without assigning) Commitments, (B) Commitments separately
from (or without assigning) Advances, (C) Tranche A Commitments or Tranche A
Advances separately from (or without assigning) Tranche B Commitments or Tranche
B Advances or (D) Tranche B Commitments or Tranche B Advances separately from
(or without assigning) Tranche A Commitments or Tranche A Advances. Upon such
execution, delivery, acceptance and recording, from and after the effective date
specified in each Assignment and Acceptance, (x) the assignee thereunder shall
be a party hereto and, to the extent that rights and obligations hereunder have
been assigned to it pursuant to such Assignment and Acceptance, have the rights
and obligations of a Lender hereunder and (y) the Lender assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall upon
such assignment cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of, or the perfection or priority of any lien or security interest created
or purported to be created under or in connection with, this Agreement or any
other instrument or document furnished pursuant hereto; (ii) such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement and the Intercreditor
Agreement, together with copies of the
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financial statements referred to in Section 4.01 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (iv) such assignee will,
independently and without reliance upon the Administrative Agent, such assigning
Lender 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; (v) such assignee confirms
that it is an Eligible Assignee; (vi) such assignee appoints and authorizes the
Administrative Agent and the Collateral Agent to take such action as agent on
its behalf and to exercise such powers and discretion under this Agreement as
are delegated to the Administrative Agent and the Collateral Agent by the terms
hereof, together with such powers and discretion as are reasonably incidental
thereto; and (vii) such assignee agrees that it will perform in accordance with
their terms all of the obligations that by the terms of this Agreement and the
Intercreditor Agreement are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Advances owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent, the Collateral Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes of this Agreement. The Register shall be available for
inspection by the Borrower or any Lender at any reasonable time and from time to
time upon reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Note or Notes subject to such assignment, the Administrative
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register and (iii) give
prompt written notice thereof to the Borrower. Within five Business Days after
its receipt of such notice and at the request of such assignee Lender, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for any surrendered Note a new Note to the order of such
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
hereunder, a new Note to the order of the assigning Lender in an amount equal to
the Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit A.
(e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including without
limitation all or a portion of its Commitment, the Advances owing to it and the
Note or Notes held by it); provided that (i) such
<PAGE>
93
Lender's obligations under this Agreement (including without limitation its
Commitment to the Borrower hereunder) shall remain unchanged, (ii) such Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, (iii) such Lender shall remain the holder of any such Note
for all purposes of this Agreement, (iv) the Borrower, the Administrative Agent,
the Collateral Agent and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of this Agreement or any Note, or any consent to any departure by the
Borrower therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, postpone any date fixed for any payment of principal of, or
interest on, the Notes or any fees or other amounts payable hereunder, in each
case to the extent subject to such participation, or to the extent that any such
amendment or consent provides for a release of the Borrower's obligations under
the Security Agreements or any Subsidiary's obligations under any Guaranty.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree in writing to
preserve the confidentiality of any Confidential Information relating to the
Borrower received by it from such Lender.
(g) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including without limitation the Advances owing to
it and the Note held by it) in favor of any Federal Reserve Bank in accordance
with Regulation A of the Board of Governors of the Federal Reserve System.
SECTION 8.08. Confidentiality. Neither the Administrative Agent nor any
Lender shall disclose any Confidential Information to any other Person without
the consent of the Borrower, other than (a) to the Administrative Agent's, the
Collateral Agent or such Lender's Affiliates and their officers, directors,
employees, agents and advisors and, as contemplated by Section 8.07(f), to
actual or prospective assignees and participants, and then only on a
confidential basis, (b) to any party to the Intercreditor Agreement, (c) as
required by any law, rule or regulation or judicial process and (d) as requested
or required by any state, federal or foreign authority or examiner regulating
banks or banking.
SECTION 8.09. Governing Law. This Agreement and the Notes shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 8.10. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of
<PAGE>
94
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 8.11. Jurisdiction, Judgment Currency, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City in the
Borough of Manhattan, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the Notes, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or the Notes in the courts of any
jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or the Notes in any New
York State or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
(c) (i) If, for the purpose of obtaining judgment in any court, it is
necessary to convert a sum due hereunder to any party hereunder in one currency
into another currency, the parties hereto agree, to the fullest extent permitted
by law, that the rate of exchange used shall be that at which in accordance with
its normal banking procedures such party could purchase the first currency with
such other currency on the day which is at least two Business Days prior to the
day on which final judgment is rendered.
(ii) To the fullest extent permitted by law, the obligation of any party in
respect of any sum payable hereunder by it to any other party hereunder shall,
notwithstanding any judgment in a currency (the "Judgment Currency") other than
Dollars (the "Agreement Currency"), be discharged only to the extent that on the
Business Day following receipt by such other party of any sum adjudged to be so
due in the Judgment Currency such other party may in accordance with normal
banking procedures purchase the Agreement Currency with the Judgment Currency;
if the amount of the Agreement Currency which could have been so purchased is
less than the sum originally due to such other party in the Agreement Currency,
such first party agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such other party against such loss, and, if the amount of
the Agreement Currency which could have been so purchased exceeds the sum
originally due to such other party, such
<PAGE>
95
other party agrees to remit to such first party such excess; provided that
neither any Lender nor the Administrative Agent shall have any obligation to
remit any such excess as long as the Borrower shall have failed to pay any
Lender or the Administrative Agent, as the case may be, any obligations due and
payable under this Agreement, in which case such excess may be applied to such
obligations of the Borrower hereunder in accordance with the terms of this
Agreement.
SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the
Administrative Agent and the Lenders hereby irrevocably waive, to the extent
permitted by law, all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the Notes or the actions of any Agent or any
Lender in the negotiation, administration, performance or enforcement thereof.
SECTION 8.13. Intercreditor Arrangements. Each of the Lenders and the
Borrower acknowledge that the Lenders hereunder, together with any Other Secured
Creditors, shall be considered to be joint creditors (credores solidarios) with
respect to the Obligations under the Loan Documents and the obligations owed to
such Other Secured Creditors; provided that if requested by the Borrower, any
Other Secured Creditors or potential Other Secured Creditors, the Lenders and
the Agents agree to negotiate in good faith with a view to agreeing to a
substitute structure governing the equal sharing of Collateral under Brazilian
law and to documentation reflecting such structure.
SECTION 8.14. Intercreditor Agreement; Amendments to Ericsson Credit
Agreement. Except with the consent of the Borrower, the Lenders shall not amend
or modify Section 4.1(a) of the Intercreditor Agreement in a manner that would
add to the limitations set forth therein on the ability of the lenders party to
any Permitted Loan Agreement (as defined in the Intercreditor Agreement) to
agree to amendments to or modifications of such Permitted Loan Agreement. The
Borrower shall not enter into any amendment to or modification of the Ericsson
Credit Agreement unless it shall at the same time have offered to enter into an
amendment to or modification of this Agreement on substantially the same terms.
<PAGE>
96
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
DIVEO, INC.
By
-------------------------------------
Title:
LUCENT TECHNOLOGIES INC., as
Administrative Agent and Initial Lender
By
-------------------------------------
Title:
Tranche A Commitment: $62,500,000 LUCENT TECHNOLOGIES INC.
Tranche B Commitment: $37,500,000
(plus undrawn Tranche A Commitments
at the Tranche A Termination Date)
Lending Office and Address for Notices:
283 King George Road
Warren, NJ 07059
Attention: Assistant Treasurer - Customer Finance
Fax: (908) 559-1711
<PAGE>
EXECUTION COPY
WAIVER AND AMENDMENT NO. 2
TO THE CREDIT AGREEMENTS
Dated as of March 24, 2000
To: Ericsson Credit AB, as Lender
under the Ericsson Credit Agreement referred to below
Lucent Technologies Inc., as Lender
under the Lucent Credit Agreement referred to below
Ladies and Gentlemen:
We refer to the Amended and Restated Credit Agreement dated as of
November 24, 1999 (as amended pursuant to Waiver and Amendment No.1 to the
Credit Agreements dated as of January 14, 2000 and as otherwise amended or
modified from time to time, the "Ericsson Credit Agreement"), among Diveo, Inc.
-------------------------
(the "Borrower"), Ericsson Credit AB, as Initial Lender, and Ericsson Credit AB,
--------
as Administrative Agent ("Ericsson") and to the Credit Agreement dated as of
--------
November 22, 1999 (as amended pursuant to Waiver and Amendment No.1 to the
Credit Agreements dated as of January 14, 2000 and as otherwise amended or
modified from time to time, the "Lucent Credit Agreement", and together with the
-----------------------
Ericsson Credit Agreement, the "Credit Agreements"), among Diveo, Inc. (the
-----------------
"Borrower"), Lucent Technologies Inc., as Initial Lender, and Lucent
--------
Technologies Inc., as Administrative Agent ("Lucent"). With respect to each
------
Credit Agreement, capitalized terms not otherwise defined in this Waiver and
Amendment No. 2 have the same meanings as specified in such Credit Agreement.
1. We hereby request from Ericsson that the Ericsson Credit Agreement be
amended as follows:
(a) The first paragraph of the recitals to the Agreement be deleted in its
entirety and replaced with the following:
"The Borrower has been formed in order to plan, construct,
operate and maintain digital wireless local loop voice and data
networks and Internet infrastructure for web hosting, collocation and
other enhanced Internet services (each, a "Network") in the United
-------
States of America, Mexico, Central America and South America (the
"Territory") (the planning, construction, operation and maintenance of
---------
the Networks being the "Project")."
-------
(b) The definition of "Blocked Account" be amended by inserting the words
"owing to the Vendor" before the phrase "under the Supply Agreement".
<PAGE>
(c) The definition of "Core Territories" be deleted in its entirety and
replaced with the following:
""Core Territories" means the United States of America,
----------------
Argentina, Brazil, Colombia, Panama, Peru and Uruguay."
(d) The definition of "Tranche B Commitment" be deleted in its entirety
and replaced with the following:
""Tranche B Commitment" means, with respect to any Lender at any
--------------------
time, the amount set forth opposite such Lender's name on the
signature page hereof or, if such Lender has entered into one or more
Assignment and Acceptances, set forth in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c) as such Lender's
"Tranche B Commitment", as such amount may be reduced from time to
time pursuant to Section 2.04."
(e) The definition of "Tranche B Effective Date" be deleted in its
entirety and replaced with the following:
""Tranche B Effective Date" means, with respect to the Tranche B
------------------------
Commitments of the Lenders, January 1, 2001."
(f) The definition of "Tranche B Termination Date" be deleted in its
entirety and replaced with the following:
""Tranche B Termination Date" means the earlier of the eighteen
--------------------------
month anniversary of the Tranche B Effective Date and the date of
termination in whole of the Tranche B Commitments pursuant to Section
2.04 or 6.01."
(g) Section 2.01 be amended as follows:
(i) The second sentence of Section 2.01(a) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche A Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply Agreement during the period from the
16/th/ day of the month preceding the month in which the date of
the proposed Borrowing falls to the 16/th/ day of the month in
which the date of the proposed Borrowing falls and (B) that were
not paid with the proceeds of any prior Borrowing and (ii)
interest owing on Borrowings to be paid with the proceeds
thereof."; and
(ii) The second sentence of Section 2.01(b) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche B Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply
<PAGE>
Agreement during the period from the 16/th/ day of the month
preceding the month in which the date of the proposed Borrowing
falls to the 16/th/ day of the month in which the date of the
proposed Borrowing falls and (B) that were not paid with the
proceeds of any prior Borrowing and (ii) interest owing on
Borrowings to be paid with the proceeds thereof."
(h) Section 2.02(a) be amended as follows:
(i) Insertion of a new subclause (C): "whether such Borrowing will
be a Tranche A Borrowing or a Tranche B Borrowing,"; and the
renaming of existing subclause (C) as subclause (D); and
(ii) Insertion of a new subclause (E): "the third party invoices for
Ancillary Services (as defined in Annex 6 to the Supply
Agreement) to be paid with the proceeds of such Borrowing, the
respective amounts of such invoices to be paid and the aggregate
amount of such invoices to be paid, and"; and the renaming of
existing subclause (D) as subclause (F).
(i) Section 2.03(b) be amended as follows:
The word "1.10%" contained in the third to last line of Section
2.03(b) be deleted and replaced with the word "1.45%".
(j) Section 2.05(b) be amended as follows:
The first sentence be deleted and replaced with the following:
"The Borrower shall repay to the Administrative Agent for the ratable
account of the Lenders that have made Tranche B Advances the aggregate
outstanding principal amount of the Tranche B Advances in nine
installments (i) the first of which shall be payable on January 1,
2003 and (ii) otherwise payable on the last day of every sixth
calendar month after the twenty-four month anniversary of the Tranche
B Effective Date, each in an amount equal to the product obtained by
multiplying (a) the unpaid principal amount of such Tranche B Advances
outstanding on the Tranche B Termination Date by (b) 11.111%; provided
--------
that the last such installment shall be in an amount necessary to
repay in full the unpaid principal amount of the Tranche B Advances."
(k) Section 2.13 be amended as follows:
(i) deleting the last sentence in its entirety and replacing it with
the following:
"The proceeds of the Advances available to make Back-to-Back
Loans described in clause (a) of the preceding sentence shall be
paid directly to the financial institution providing Back-to-Back
Loans and the proceeds of such Back-to-Back Loans made to
Operating Subsidiaries in Argentina, Brazil, Peru and Uruguay (in
the case of Uruguay, subject to applicable
<PAGE>
law) to be used to pay invoices issued by the Vendor under the
Supply Agreement shall at all times be held in Blocked Accounts
until disbursed to pay invoices owing to the Vendor under the
Supply Agreement."; and
(ii) adding after the first paragraph a second paragraph to read as
follows:
"Notwithstanding anything in the Supply Agreement to the
contrary, the Operating Subsidiaries shall use commercially
reasonable efforts to use the proceeds of the Back-to-Back Loans
to pay amounts owing under invoices issued or accepted by the
Vendor pursuant to the Supply Agreement, and as specified in the
related Notice of Borrowing, no later than the last day of the
month in which such proceeds were received."
(l) Section 5.02(a) be amended as follows:
(i) insertion of a new clause (xii) containing the following:
"Debt in the form of promissory notes issued to the selling
stockholders in connection with the acquisition of INEA, S.A.,
in a principal amount not to exceed $2,800,000, and";
(ii) the existing clause (xii) of Section 5.02(a) be renamed clause
(xiii), and the word "(xi)" in the second line of the renamed
clause (xiii) be deleted and replaced with the word "(xii)"; and
(iii) clause (vi) be deleted in its entirety and replaced with the
following:
"(vi) Debt incurred in connection with the entering into by the
Borrower or a Subsidiary thereof of Capitalized Leases in
aggregate principal amount (including any such Debt incurred to
refinance such Debt, as permitted by clause (xii) below) at any
one time outstanding not exceeding (A) $100,000,000, with
respect to any indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber,"
(m) Section 5.02(o) be deleted in its entirety and replaced with the
following:
"(o) Gross PP&E. Make or permit its Subsidiaries to make any
----------
Capital Expenditures that would cause the Gross PP&E of the
Borrower and its Subsidiaries in any period set forth below to
exceed the amount set forth below for such period.
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 115,000,000
12/31/00 $ 325,564,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12/31/01 $ 466,052,000
12/31/02 $ 587,322,000
12/31/03 $ 716,357,000
12/31/04 $ 867,065,000
12/31/05 $1,028,336,000
12/31/06 $1,204,626,000
</TABLE>
"
(n) Section 5.02(p) be deleted in its entirety and replaced with the
following:
"(p) Lease Obligations. Create, incur, assume or suffer to exist,
-----------------
or permit any of its Subsidiaries to create, incur, assume
or suffer to exist
(i) any obligations as lessee for the rental or hire of
real or personal property of any kind under leases or
agreements to lease having a term of one year or more
from the date of execution thereof (other than
Capitalized Leases) that would cause the direct and
contingent liabilities of it and its Subsidiaries, on a
Consolidated basis, in respect of all such obligations
in any period set forth below to exceed the amount set
forth below for such period;
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 7,500,000
12/31/00 $12,723,000
12/31/01 $18,283,000
12/31/02 $31,472,000
12/31/03 $42,835,000
12/31/04 $55,702,000
12/31/05 $69,685,000
12/31/06 $86,153,000
</TABLE>
or
(ii) any obligations under Capitalized Leases that would
cause the direct and contingent liabilities of it and its
Subsidiaries, on a Consolidated basis, in respect of all
such obligations to exceed at any time (A) $100,000,000,
with respect to indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber."
<PAGE>
(o) Section 5.04(a) be deleted in its entirety and replaced with the
following:
"(a) Revenue. Shall not permit its Revenue for the
-------
period beginning on the first day of the Borrower's fiscal year
in which a date set forth below occurs and ending on such date to
be less than the amount corresponding to such date under the
heading "Revenue" set forth below:
<TABLE>
<CAPTION>
Date Revenue
-------
----------------------------------------------------
<S> <C>
12/31/1999 $ 650,000
----------------------------------------------------
03/31/2000 $ 519,000
----------------------------------------------------
06/30/2000 $ 1,530,000
----------------------------------------------------
09/30/2000 $ 3,165,000
----------------------------------------------------
12/31/2000 $ 6,501,000
----------------------------------------------------
03/31/2001 $ 4,739,000
----------------------------------------------------
06/30/2001 $ 11,659,000
----------------------------------------------------
09/30/2001 $ 21,275,000
----------------------------------------------------
12/31/2001 $ 34,331,000
----------------------------------------------------
03/31/2002 $ 21,066,000
----------------------------------------------------
06/30/2002 $ 52,052,000
----------------------------------------------------
09/30/2002 $ 96,045,000
----------------------------------------------------
12/31/2002 $ 157,550,000
----------------------------------------------------
03/31/2003 $ 69,264,000
----------------------------------------------------
06/30/2003 $ 155,844,000
----------------------------------------------------
09/30/2003 $ 249,350,000
----------------------------------------------------
12/31/2003 $ 346,319,000
----------------------------------------------------
03/31/2004 $ 117,257,000
----------------------------------------------------
06/30/2004 $ 263,828,000
----------------------------------------------------
09/30/2004 $ 422,124,000
----------------------------------------------------
12/31/2004 $ 586,283,000
----------------------------------------------------
03/31/2005 $ 177,795,000
----------------------------------------------------
06/30/2005 $ 389,456,000
----------------------------------------------------
09/30/2005 $ 618,049,000
----------------------------------------------------
12/31/2005 $ 846,643,000
----------------------------------------------------
03/31/2006 $ 239,958,000
----------------------------------------------------
06/30/2006 $ 512,637,000
----------------------------------------------------
09/30/2006 $ 796,223,000
----------------------------------------------------
12/31/2006 $1,090,717,000
----------------------------------------------------
</TABLE>
"
(p) Section 5.04(b) be deleted in its entirety and replaced with the
following:
"(b) Total Voice Grade Equivalents. Shall not permit the total
-----------------------------
number of Voice Grade Equivalents of the Borrower and its
Subsidiaries as of any
<PAGE>
date set forth below to be less than the number corresponding to such
date under the heading "Number" set forth below:
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
12/31/1999 736
06/30/2000 3,071
12/31/2000 9,040
06/30/2001 22,999
12/31/2001 50,859
06/30/2002 154,612
12/31/2002 251,548
06/30/2003 398,177
12/31/2003 544,806
06/30/2004 723,723
12/31/2004 902,639
06/30/2005 1,074,614
12/31/2005 1,246,590
06/30/2006 1,428,556
12/31/2006 1,610,522
</TABLE>
"
(q) Section 5.04(c) be deleted in its entirety and replaced with the
following:
"(c) EBITDA. Shall not permit EBITDA for the four fiscal quarters
------
of the Borrower immediately preceding any date set forth below to
be less than the amount set forth under the heading "Amount"
corresponding to such date:
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
12/31/1999 $ (33,400,000)
06/30/2000 $ (65,781,000)
12/31/2000 $ (99,000,000)
06/30/2001 $(104,973,000)
12/31/2001 $ (94,147,000)
06/30/2002 $ (70,976,000)
12/31/2002 $ (18,000,000)
06/30/2003 $ 63,982,000
12/31/2003 $ 106,506,000
06/30/2004 $ 174,099,000
12/31/2004 $ 254,406,000
06/30/2005 $ 332,296,000
12/31/2005 $ 404,196,000
$ 482,098,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
06/30/2006
12/31/2006 $ 543,904,000
</TABLE>
"
(r) Section 5.04(d) be deleted in its entirety and replaced with the
following:
"(d) Total Debt to Contributed Capital. Shall not permit the
---------------------------------
ratio of (i) Total Debt outstanding as of any date of
determination to (ii) Contributed Capital as of such date of
determination to be greater than the ratio corresponding to the
date set forth below on or at any time during the 12 months
immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 4.50x
12/31/2000 2.50x
12/31/2001 2.50x
12/31/2002 2.50x
12/31/2003 2.50x
12/31/2004 2.50x
12/31/2005 2.50x
12/31/2006 2.50x
</TABLE>
"
(s) Section 5.04(e) be deleted in its entirety and replaced with the
following:
"(e) Total Secured Debt to Contributed Capital. Shall not permit
-----------------------------------------
the ratio of (i) Total Debt owed by the Borrower secured by
Shared Liens outstanding as of any date of determination to (ii)
Contributed Capital as of such date of determination to be
greater than the ratio corresponding to the date set forth below
on or immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 2.00x
06/30/2000 1.75x
12/31/2000 1.75x
06/30/2001 1.75x
12/31/2001 1.75x
06/30/2002 1.75x
12/31/2002 1.75x
06/30/2003 1.75x
12/31/2003 1.75x
06/30/2004 1.75x
1.75x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2004
06/30/2005 1.75x
12/31/2005 1.75x
06/30/2006 1.75x
12/31/2006 1.75x
</TABLE>
"
(t) Section 5.04(f) be deleted in its entirety and replaced with the
following:
"(f) Total Secured Debt to EBITDA (Cash Flow multiple). Shall not
-------------------------------------------------
permit the ratio of (i) Total Debt owed by the Borrower secured
by Shared Liens outstanding at of any date of determination to
(ii) EBITDA for the four consecutive fiscal quarters of the
Borrower most recently ended on or prior to such date of
determination to exceed the ratio corresponding to the date set
forth below on or immediately proceeding such date of
determination:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 N/A
06/30/2003 6.06x
12/31/2003 3.90x
06/30/2004 2.30x
12/31/2004 1.30x
06/30/2005 0.80x
12/31/2005 0.40x
06/30/2006 0.30x
12/31/2006 0.20x
</TABLE>
"
(u) Section 5.04(g) be deleted in its entirety and replaced with the
following:
"(g) EBITDA to Total Cash Debt Service (Debt service coverage
--------------------------------------------------------
ratio). Permit the ratio of (i) EBITDA for the four consecutive
-----
fiscal quarters ending on any of the dates set forth below to
(ii) Total Cash Debt Service for the same period to be less than
the ratio set forth below opposite such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 N/A
12/31/2002 0.58x
12/31/2003 0.62x
06/30/2004 1.05x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2004 1.40x
06/30/2005 1.50x
12/31/2005 2.00x
06/30/2006 3.00x
12/31/2006 3.65x
</TABLE>
"
(v) Section 5.02(f) be deleted in its entirety and replaced with the
following:
"(f) Other Business. Engage or permit any Subsidiary to engage,
--------------
directly or indirectly, in any business other than the offering of
data, voice or video services in the Territory, whether as a
competitive access provider, a competitive local exchange carrier,
Internet access provider or provider of enhanced Internet services."
(w) Section 6.01(q) be amended by inserting the words "of Annex 6"
immediately before the phrase "of the Supply Agreement".
(x) The signature page be amended by deleting the words "(plus undrawn
Tranche A Commitments at the Tranche A Termination Date)" from the
Tranche B Commitment language set forth opposite Ericsson's name
thereon.
2. We hereby request from Lucent that the Lucent Credit Agreement be amended
as follows:
(a) The first paragraph of the recitals to the Agreement be deleted in its
entirety and replaced with the following:
"The Borrower has been formed in order to plan, construct,
operate and maintain digital wireless local loop voice and data
networks and Internet infrastructure for web hosting, collocation and
other enhanced Internet services (each, a "Network") in the United
-------
States of America, Mexico, Central America and South America (the
"Territory") (the planning, construction, operation and maintenance of
---------
the Networks being the "Project")."
-------
(b) The definition of "Blocked Account" be amended by inserting the words
"owing to the Vendor" before the phrase "under the Supply Agreement".
(c) The definition of "Core Territories" be deleted in its entirety and
replaced with the following:
""Core Territories" means the United States of America,
----------------
Argentina, Brazil, Colombia, Panama, Peru and Uruguay."
<PAGE>
(d) The definition of "Tranche B Commitment" be deleted in its entirety
and replaced with the following:
""Tranche B Commitment" means, with respect to any Lender at any
--------------------
time, the amount set forth opposite such Lender's name on the
signature page hereof or, if such Lender has entered into one or more
Assignment and Acceptances, set forth in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c) as such Lender's
"Tranche B Commitment", as such amount may be reduced from time to
time pursuant to Section 2.04."
(e) The definition of "Tranche B Effective Date" be deleted in its
entirety and replaced with the following:
""Tranche B Effective Date" means, with respect to the Tranche B
------------------------
Commitments of the Lenders, January 1, 2001."
(f) The definition of "Tranche B Termination Date" be deleted in its
entirety and replaced with the following:
""Tranche B Termination Date" means the earlier of the eighteen
--------------------------
month anniversary of the Tranche B Effective Date and the date of
termination in whole of the Tranche B Commitments pursuant to Section
2.04 or 6.01."
(g) Section 2.01 be amended as follows:
(i) The second sentence of Section 2.01(a) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche A Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply Agreement during the period from the 16th
day of the month preceding the month in which the date of the
proposed Borrowing falls to the 16th day of the month in which
the date of the proposed Borrowing falls and (B) that were not
paid with the proceeds of any prior Borrowing and (ii) interest
owing on Borrowings to be paid with the proceeds thereof."; and
(ii) The second sentence of Section 2.01(b) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche B Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply Agreement during the period from the 16th
day of the month preceding the month in which the date of the
proposed Borrowing falls to the 16th day of the month in which
the date of the proposed Borrowing falls and (B) that were not
paid with the proceeds of any prior Borrowing and (ii) interest
owing on Borrowings to be paid with the proceeds thereof."
(h) Section 2.02(a)(ii) be amended as follows:
<PAGE>
(i) Insertion of a new subclause (C): "whether such Borrowing will
be a Tranche A Borrowing or a Tranche B Borrowing,"; and the
renaming of existing subclauses (C) and (D) as new subclauses (D)
and (E); and
(ii) The newly renamed subclause (D) be deleted in its entirety and
replaced with the following: "(D) the invoices issued or
accepted by the Vendor pursuant to the Supply Agreement to be
paid with the proceeds of such Borrowing, the respective amounts
of such invoices to be paid and the aggregate amount of such
invoices to be paid, and".
(i) Section 2.03(b) be amended as follows:
The word "1.10%" contained in the third to last line of Section
2.03(b) be deleted and replaced with the word "1.45%".
(j) Section 2.05(b) be amended as follows:
The first sentence be deleted and replaced with the following:
"The Borrower shall repay to the Administrative Agent for the ratable
account of the Lenders that have made Tranche B Advances the aggregate
outstanding principal amount of the Tranche B Advances in nine
installments (i) the first of which shall be payable on January 1,
2003 and (ii) otherwise payable on the last day of every sixth
calendar month after the twenty-four month anniversary of the Tranche
B Effective Date, each in an amount equal to the product obtained by
multiplying (a) the unpaid principal amount of such Tranche B Advances
outstanding on the Tranche B Termination Date by (b) 11.111%; provided
--------
that the last such installment shall be in an amount necessary to
repay in full the unpaid principal amount of the Tranche B Advances."
(k) Section 2.13 be amended as follows:
(i) deleting the last sentence in its entirety and replacing it with
the following:
"The proceeds of the Advances available to make Back-to-Back
Loans described in clause (a) of the preceding sentence shall be
paid directly to the financial institution providing Back-to-Back
Loans and the proceeds of such Back-to-Back Loans made to
Operating Subsidiaries in Argentina, Brazil, Peru and Uruguay (in
the case of Uruguay, subject to applicable law) to be used to pay
invoices issued by the Vendor under the Supply Agreement shall at
all times be held in Blocked Accounts until disbursed to pay
invoices owing to the Vendor under the Supply Agreement."; and
(ii) adding after the first paragraph a second paragraph to read as
follows:
"Notwithstanding anything in the Supply Agreement to the
contrary, the
<PAGE>
Operating Subsidiaries shall use commercially reasonable efforts
to use the proceeds of the Back-to-Back Loans to pay amounts
owing under invoices issued or accepted by the Vendor pursuant
to the Supply Agreement, and as specified in the related Notice
of Borrowing, no later than the last day of the month in which
such proceeds were received."
(l) Section 5.02(a) be amended as follows:
(i) insertion of a new clause (xii) containing the following:
"Debt in the form of promissory notes issued to the selling
stockholders in connection with the acquisition of INEA, S.A.,
in a principal amount not to exceed $2,800,000, and";
(ii) the existing clause (xii) of Section 5.02(a) be renamed clause
(xiii), and the word "(xi)" in the second line of the renamed
clause (xiii) be deleted and replaced with the word "(xii)"; and
(iii) clause (vi) be deleted in its entirety and replaced with the
following:
"(vi) Debt incurred in connection with the entering into by the
Borrower or a Subsidiary thereof of Capitalized Leases in
aggregate principal amount (including any such Debt incurred to
refinance such Debt, as permitted by clause (xii) below) at any
one time outstanding not exceeding (A) $100,000,000, with
respect to any indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber,"
(m) Section 5.02(o) be deleted in its entirety and replaced with the
following:
"(o) Gross PP&E. Make or permit its Subsidiaries to make any
----------
Capital Expenditures that would cause the Gross PP&E of the
Borrower and its Subsidiaries in any period set forth below to
exceed the amount set forth below for such period.
Year Ending In Amount
-------------- ------
12/31/99 $ 115,000,000
12/31/00 $ 325,564,000
12/31/01 $ 466,052,000
12/31/02 $ 587,322,000
12/31/03 $ 716,357,000
12/31/04 $ 867,065,000
12/31/05 $1,028,336,000
<PAGE>
12/31/06 $1,204,626,000
(n) Section 5.02(p) be deleted in its entirety and replaced with the
following:
"(p) Lease Obligations. Create, incur, assume or suffer to exist,
-----------------
or permit any of its Subsidiaries to create, incur, assume
or suffer to exist:
(i) any obligations as lessee for the rental or hire of
real or personal property of any kind under leases or
agreements to lease having a term of one year or more from
the date of execution thereof (other than Capitalized
Leases) that would cause the direct and contingent
liabilities of it and its Subsidiaries, on a Consolidated
basis, in respect of all such obligations in any period set
forth below to exceed the amount set forth below for such
period;
Year Ending In Amount
-------------- ------
12/31/99 $ 7,500,000
12/31/00 $12,723,000
12/31/01 $18,283,000
12/31/02 $31,472,000
12/31/03 $42,835,000
12/31/04 $55,702,000
12/31/05 $69,685,000
12/31/06 $86,153,000
or
(ii) any obligations under Capitalized Leases that would
cause the direct and contingent liabilities of it and its
Subsidiaries, on a Consolidated basis, in respect of all
such obligations to exceed at any time (A) $100,000,000,
with respect to indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber."
(o) Section 5.04(a) be deleted in its entirety and replaced with the
following:
"(a) Revenue. Shall not permit its Revenue for the period
-------
beginning on the first day of the Borrower's fiscal year in which
a date set forth below
<PAGE>
occurs and ending on such date to be less than the amount
corresponding to such date under the heading "Revenue" set forth
below:
Date Revenue
-------
-----------------------------------------------
12/31/1999 $ 650,000
-----------------------------------------------
03/31/2000 $ 519,000
----------------------------------------------
06/30/2000 $ 1,530,000
----------------------------------------------
09/30/2000 $ 3,165,000
----------------------------------------------
12/31/2000 $ 6,501,000
----------------------------------------------
03/31/2001 $ 4,739,000
----------------------------------------------
06/30/2001 $ 11,659,000
----------------------------------------------
09/30/2001 $ 21,275,000
----------------------------------------------
12/31/2001 $ 34,331,000
----------------------------------------------
03/31/2002 $ 21,066,000
----------------------------------------------
06/30/2002 $ 52,052,000
----------------------------------------------
09/30/2002 $ 96,045,000
----------------------------------------------
12/31/2002 $ 157,550,000
----------------------------------------------
03/31/2003 $ 69,264,000
----------------------------------------------
06/30/2003 $ 155,844,000
----------------------------------------------
09/30/2003 $ 249,350,000
----------------------------------------------
12/31/2003 $ 346,319,000
----------------------------------------------
03/31/2004 $ 117,257,000
----------------------------------------------
06/30/2004 $ 263,828,000
----------------------------------------------
09/30/2004 $ 422,124,000
----------------------------------------------
12/31/2004 $ 586,283,000
----------------------------------------------
03/31/2005 $ 177,795,000
----------------------------------------------
06/30/2005 $ 389,456,000
----------------------------------------------
09/30/2005 $ 618,049,000
----------------------------------------------
12/31/2005 $ 846,643,000
----------------------------------------------
03/31/2006 $ 239,958,000
----------------------------------------------
06/30/2006 $ 512,637,000
----------------------------------------------
09/30/2006 $ 796,223,000
----------------------------------------------
12/31/2006 $1,090,717,000
----------------------------------------------
(p) Section 5.04(b) be deleted in its entirety and replaced with the
following:
"(b) Total Voice Grade Equivalents. Shall not permit the total
number of Voice Grade Equivalents of the Borrower and its
Subsidiaries as of any date set forth below to be less than the
number corresponding to such date under the heading "Number" set
forth below:
Date Number
---- ------
12/31/1999 736
<PAGE>
Date Number
---- ------
06/30/2000 3,071
12/31/2000 9,040
06/30/2001 22,999
12/31/2001 50,859
06/30/2002 154,612
12/31/2002 251,548
06/30/2003 398,177
12/31/2003 544,806
06/30/2004 723,723
12/31/2004 902,639
06/30/2005 1,074,614
12/31/2005 1,246,590
06/30/2006 1,428,556
12/31/2006 1,610,522
(q) Section 5.04(c) be deleted in its entirety and replaced with the
following:
"(c) EBITDA. Shall not permit EBITDA for the four fiscal
quarters of the Borrower immediately preceding any date set forth
below to be less than the amount set forth under the heading
"Amount" corresponding to such date:
Date Amount
----- ------
12/31/1999 $ (33,400,000)
06/30/2000 $ (65,781,000)
12/31/2000 $ (99,000,000)
06/30/2001 $(104,973,000)
12/31/2001 $ (94,147,000)
06/30/2002 $ (70,976,000)
12/31/2002 $ (18,000,000)
06/30/2003 $ 63,982,000
12/31/2003 $ 106,506,000
06/30/2004 $ 174,099,000
12/31/2004 $ 254,406,000
06/30/2005 $ 332,296,000
12/31/2005 $ 404,196,000
06/30/2006 $ 482,098,000
12/31/2006 $ 543,904,000
<PAGE>
(r) Section 5.04(d) be deleted in its entirety and replaced with the
following:
"(d) Total Debt to Contributed Capital. Shall not permit the
---------------------------------
ratio of (i) Total Debt outstanding as of any date of
determination to (ii) Contributed Capital as of such date of
determination to be greater than the ratio corresponding to the
date set forth below on or at any time during the 12 months
immediately preceding such date:
Date Ratio
---- -----
12/31/1999 4.50x
12/31/2000 2.50x
12/31/2001 2.50x
12/31/2002 2.50x
12/31/2003 2.50x
12/31/2004 2.50x
12/31/2005 2.50x
12/31/2006 2.50x
(s) Section 5.04(e) be deleted in its entirety and replaced with the
following:
"(e) Total Secured Debt to Contributed Capital. Shall not permit
-----------------------------------------
the ratio of (i) Total Debt owed by the Borrower secured by
Shared Liens outstanding as of any date of determination to (ii)
Contributed Capital as of such date of determination to be
greater than the ratio corresponding to the date set forth below
on or immediately preceding such date:
Date Ratio
---- -----
12/31/1999 2.00x
06/30/2000 1.75x
12/31/2000 1.75x
06/30/2001 1.75x
12/31/2001 1.75x
06/30/2002 1.75x
12/31/2002 1.75x
06/30/2003 1.75x
12/31/2003 1.75x
06/30/2004 1.75x
12/31/2004 1.75x
06/30/2005 1.75x
12/31/2005 1.75x
06/30/2006 1.75x
12/31/2006 1.75x
<PAGE>
(t) Section 5.04(f) be deleted in its entirety and replaced with the
following:
"(f) Total Secured Debt to EBITDA (Cash Flow multiple). Shall not
------------------------------------------------
permit the ratio of (i) Total Debt owed by the Borrower secured
by Shared Liens outstanding at of any date of determination to
(ii) EBITDA for the four consecutive fiscal quarters of the
Borrower most recently ended on or prior to such date of
determination to exceed the ratio corresponding to the date set
forth below on or immediately proceeding such date of
determination:
Date Ratio
---- -----
12/31/2002 N/A
06/30/2003 6.06x
12/31/2003 3.90x
06/30/2004 2.30x
12/31/2004 1.30x
06/30/2005 0.80x
12/31/2005 0.40x
06/30/2006 0.30x
12/31/2006 0.20x
(u) Section 5.04(g) be deleted in its entirety and replaced with the
following:
"(g) EBITDA to Total Cash Debt Service (Debt service coverage
--------------------------------------------------------
ratio). Permit the ratio of (i) EBITDA for the four consecutive
-----
fiscal quarters ending on any of the dates set forth below to
(ii) Total Cash Debt Service for the same period to be less than
the ratio set forth below opposite such date:
Date Ratio
---- -----
12/31/2002 N/A
06/30/2003 0.58x
12/31/2003 0.62x
06/30/2004 1.05x
12/31/2004 1.40x
06/30/2005 1.50x
12/31/2005 2.00x
06/30/2006 3.00x
12/31/2006 3.65x
<PAGE>
(v) Section 5.02(f) be deleted in its entirety and replaced with the
following:
"(f) Other Business. Engage or permit any Subsidiary to engage,
directly or indirectly, in any business other than the offering of
data, voice or video services in the Territory, whether as a
competitive access provider, a competitive local exchange carrier,
Internet access provider or provider of enhanced Internet services."
(w) The signature page be amended by deleting the words "(plus undrawn
Tranche A Commitments at the Tranche A Termination Date)" from the
Tranche B Commitment language set forth opposite Lucent's name
thereon.
3. We hereby request that the Administrative Agent under each Credit Agreement
waive:
(a) until April 30, 2000 the requirements of Sections 5.01(k) and
5.02(k)(viii)(B) of such Credit Agreement (and any Default pursuant to
Section 6.01(c) caused by the failure to fulfill such requirements)
with respect to Investments made by the Borrower and its Subsidiaries
pursuant to Section 5.02(k)(viii)(B) in Tellink S.A. and Eritown,
S.A.;
(b) with respect to any Borrowing under such Credit Agreement occurring
prior to April 30, 2000, the requirements of the last sentence of
Section 2.13;
(c) until April 30, 2000 any misrepresentation under Section 4.01(bb) of
such Credit Agreement (and any Default pursuant to Section 6.01(b)
caused by such misrepresentation) due to the existence of undisclosed
taxes, levies, imposts, deductions, charges or withholdings imposed,
levied or made by or in Uruguay or any political subdivision or taxing
authority thereof or therein.
4. We hereby request that Ericsson acknowledge that the requirements of
Section 3.03(h) and 3.03(i)(viii) (with respect to the Ericsson Credit
Agreement) and Lucent acknowledge that the requirements of Section 3.01(h) and
3.01(i)(viii) (with respect to the Lucent Credit Agreement) do not include the
execution and delivery of (i) a pledge of accounts receivable by Diveo do Brasil
Telecomunicacoes Ltda. (or the creation and perfection of any Liens contemplated
thereunder) or (ii) an agreement executed by Diginet Peru Sociedad Comercial de
Responsabilidad Limitada pledging, conveying or otherwise granting Liens upon
substantially all of its assets (or the creation and perfection of any Liens
contemplated thereunder). We hereby further request that each Administrative
Agent waive our obligation set forth in paragraph 4 of Waiver and Amendment No.
1 to the Credit Agreements dated as of January 14, 2000 with respect to the
documents described in clauses (i) and (ii) of the immediately preceding
sentence; we agree to execute and deliver such documents described prior to
April 30, 2000 or the obligation of the Lenders to make Advances under each
Credit Agreement shall terminate. We hereby further request that Lucent waive
our noncompliance with the requirement of Section 2.03(d) under the Lucent
Credit Agreement to pay the Tranche A Facility Fee on the Tranche A
<PAGE>
Effective Date, provided that we shall have made payment of the Tranche A
Facility Fee to Lucent on or before the date hereof.
5. We hereby acknowledge and consent that Harris Corporation and its
Affiliates shall be considered an "Eligible Assignee" for purposes of each
Credit Agreement and Ericsson or Lucent, as the case may be, may assign to said
party a portion of its rights and obligations under such Credit Agreement in
accordance with Section 8.07 thereof.
6. We hereby agree with Ericsson and Lucent that the amendments set forth in
items 1(m) through (u) (inclusive) and in items 2(m) through (u) (inclusive),
respectively, shall cease to be effective if, within 15 days after the date
hereof, the Parent fails to raise at least $125,000,000 of cash equity capital
in excess of the cash equity capital raised by it prior to the date hereof.
7. This Waiver and Amendment No. 2 shall become effective as of the date first
above written when, and only when, on or before March 29, 2000, the
Administrative Agent under each Credit Agreement shall have received
counterparts of this Waiver and Amendment No. 2 executed by the Required Lenders
or, as to any of the Lenders, advice satisfactory to such Administrative Agent
that such Lender has executed this Waiver and Amendment No. 2. With respect to
each Credit Agreement, this Waiver and Amendment No. 2 is subject to the
provisions of Section 8.01 of such Credit Agreement.
8. Each Credit Agreement, except to the extent of the waivers and amendments
specifically provided above, is and shall continue to be in full force and
effect and is hereby in all respects ratified and confirmed. The execution,
delivery and effectiveness of this Waiver and Amendment No. 2 shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of any Party under any Credit Agreement, nor constitute a waiver of any
provision of any Credit Agreement.
9. On and after the effectiveness of this Waiver and Amendment No. 2, each
reference in each Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to such Credit Agreement, and each reference in
each of the other Loan Documents relating to such Credit Agreement to "the
Credit Agreement", "thereunder", "thereof" or words of like import referring to
such Credit Agreement, shall mean and be a reference to such Credit Agreement,
as amended by this Waiver and Amendment No. 2.
10. If you agree to the terms and provisions of this Waiver and Amendment No.
2, please evidence such agreement by executing and returning at least two
counterparts of this Waiver and Amendment No. 2 to each of (i) Nicole Jerabek at
Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022 (Telecopier: (212)
848-7179; Telephone: (212) 848-4835) and (ii) George Schoen at Cravath, Swaine &
Moore, 825 Eighth Avenue, New York, NY 10019 (Telecopier: (212) 474-3700;
Telephone (212) 474-1740).
11. This Waiver and Amendment No. 2 may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Waiver and
<PAGE>
Amendment No. 2 by telecopier shall be effective as delivery of a manually
executed counterpart of this Waiver and Amendment No. 2.
12. This Waiver and Amendment No. 2 shall be governed by, and construed in
accordance with, the laws of the State of New York.
DIVEO, INC.
By ______________________________________
Name:
Title:
Agreed as of the date first above written:
ERICSSON CREDIT AB
By________________________
Name:
Title:
LUCENT TECHNOLOGIES INC.
By________________________
Name:
Title:
<PAGE>
CONSENT
EACH OF THE UNDERSIGNED, as of the date of the foregoing Amendment,
consents to such Amendment and confirms and agrees that notwithstanding the
effectiveness of such Amendment and any prior amendments to the Credit
Agreement, the Guaranties and each other Loan Document to which it is a party
are, and shall continue to be, in full force and effect and are hereby ratified
and confirmed in all respects, except that, on and after the effectiveness of
such Amendment, each reference in each such Loan Document to the "Credit
Agreement", "thereunder", "thereof" or words of like import shall mean and be a
reference to the Credit Agreement, as amended by such Amendment and all prior
amendments thereto.
DIGINET ARGENTINA, INC. DIGINET BRAZIL, INC.
By_________________________ By_________________________
Title: Title:
DIGINET COLOMBIA, INC. DIGINET PANAMA INC.
By_________________________ By_________________________
Title: Title:
DIGINET VENTURES/MEGALINK, INC. DIGINET PERU INC.
By_________________________ By_________________________
Title: Title:
<PAGE>
DIGINET ARGENTINA S.A. DIGINET COMUTACAO DIGITAL LTDA.
By_________________________ By_________________________
Title: Title:
DIVEO DO BRASIL DIGINET TELECOMUNICACIONES DE
TELECOMUNICACOES LTDA. PANAMA S.A.
By_________________________ By_________________________
Title: Title:
DIGINET PERU SOCIEDAD COMERCIAL DE
RESPONSIBILIDA LIMITADA
By_________________________
Title:
<PAGE>
Exhibit 10.2
EXECUTION COPY
U.S. $300,000,000
AMENDED AND RESTATED CREDIT AGREEMENT
dated as of November 24, 1999
among
DIVEO, INC.,
as Borrower,
the LENDERS party hereto,
and
ERICSSON CREDIT AB,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 2
SECTION 1.01. Certain Defined Terms 2
SECTION 1.02. Computation of Time Periods 27
SECTION 1.03. Accounting Terms 27
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES 27
SECTION 2.01. The Advances 27
SECTION 2.02. Making the Advances 28
SECTION 2.03. Fees 30
SECTION 2.04. Termination or Reduction of the Commitments 31
SECTION 2.05. Repayment of Advances 31
SECTION 2.06. Interest 32
SECTION 2.07. Interest Rate Determination 33
SECTION 2.08. Prepayments 33
SECTION 2.09. Increased Costs, Etc. 36
SECTION 2.10. Payments and Computations 38
SECTION 2.11. Taxes 40
SECTION 2.12. Sharing of Payments, Etc. 42
SECTION 2.13. Use of Proceeds 42
SECTION 2.14. First Eurodollar Method and Second Eurodollar Method 43
SECTION 2.15. Redistribution of Payments 43
ARTICLE III CONDITIONS TO EFFECTIVENESS AND LENDING 44
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01 44
SECTION 3.02. Conditions Precedent to Each Borrowing 44
SECTION 3.03. Conditions Precedent to Effectiveness of this Agreement 45
ARTICLE IV REPRESENTATIONS AND WARRANTIES 50
SECTION 4.01. Representations and Warranties of the Borrower 50
ARTICLE V COVENANTS OF THE BORROWER 58
SECTION 5.01. Affirmative Covenants 58
SECTION 5.02. Negative Covenants 63
SECTION 5.03. Reporting Requirements 73
SECTION 5.04. Operational and Financial Covenants 77
ARTICLE VI EVENTS OF DEFAULT 81
SECTION 6.01. Events of Default 81
ARTICLE VII THE ADMINISTRATIVE AGENT 87
SECTION 7.01. Authorization and Action 87
SECTION 7.02. Agent's Reliance, Etc. 87
SECTION 7.03. Agent and Affiliates 88
SECTION 7.04. Lender Credit Decision 88
SECTION 7.05. Indemnification 88
SECTION 7.06. Successor Agent 89
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE VIII MISCELLANEOUS 89
SECTION 8.01. Amendments, Etc. 89
SECTION 8.02. Notices, Etc. 90
SECTION 8.03. No Waiver; Remedies 91
SECTION 8.04. Costs and Expenses; Indemnification 91
SECTION 8.05. Right of Set-off 93
SECTION 8.06. Binding Effect 93
SECTION 8.07. Assignments and Participations 93
SECTION 8.08. Confidentiality 96
SECTION 8.09. Governing Law 96
SECTION 8.10. Execution in Counterparts 96
SECTION 8.11. Jurisdiction, Judgment Currency, Etc. 97
SECTION 8.12. Waiver of Jury Trial 98
SECTION 8.13. Intercreditor Arrangements 98
SECTION 8.14. Intercreditor Agreement; Amendments to Lucent Credit Agreement. 98
</TABLE>
<PAGE>
iii
Page
SCHEDULES
Schedule 3.01(a)(i) Disclosed Litigation
Schedule 4.01(b) Subsidiaries
Schedule 4.01(f) Authorizations, Approvals, Notices and Filings
Schedule 4.01(o) Liens
Schedule 4.01(t) Leases of Real Property
Schedule 4.01(v) Existing Debt
Schedule 4.01(w) Investments
Schedule 4.01(x) Material Contracts
Schedule 4.01(y) Licenses
Schedule 4.01(z) Insurance Policies
Schedule 4.01(dd) Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(ii) Material Licenses
Schedule 5.02(u) Stock Purchase Agreements
EXHIBITS
Exhibit A Form of Note
Exhibit B Form of Notice of Borrowing
Exhibit C Form of Assignment and Acceptance
Exhibit D-1 Form of Operating Subsidiary Guaranty
Exhibit D-2 Form of Intermediate Holding Company Subsidiary Guaranty
Exhibit E Terms of Intercompany Mirror Subordinated Debt
Exhibit F Form of Intercompany Mirror Subordinated Debt Subordination
Agreement
Exhibit G Form of Subordination Agreement
Exhibit H Form of Blocked Account Letter Agreement
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
AMENDED AND RESTATED CREDIT AGREEMENT dated as of November 24, 1999 among
DIVEO, INC., a Delaware corporation (the "Borrower"), ERICSSON CREDIT AB (the
"Initial Lender") and ERICSSON CREDIT AB as administrative agent (the
"Administrative Agent") for the Lenders (as hereinafter defined).
RECITALS
The Borrower has been formed in order to plan, construct, operate and
maintain digital wireless local loop voice and data networks (each, a "Network")
in Mexico, Central America and South America (the "Territory") (the planning,
construction, operation and maintenance of the Networks being the "Project").
The Borrower entered into the Relationship Agreement dated as of June 25,
1999 with LM Ericsson Telefonaktiebolaget (together with any of its Subsidiaries
providing services pursuant to the Relationship Agreement or providing financing
hereunder, "Vendor") (the "Relationship Agreement", and together with any
Specific Agreements (as defined therein), in each case as amended, modified or
supplemented from time to time, the "Supply Agreement") pursuant to which
Subsidiaries of the Borrower will purchase from Subsidiaries of the Vendor, and
Subsidiaries of the Vendor will sell to Subsidiaries of the Borrower, certain
telecommunications equipment, software, engineering and other services in
connection with the Project. In connection with the execution of the Supply
Agreement, the Borrower and the Vendor entered into the Credit Agreement dated
as of June 25, 1999 (the "Original Credit Agreement"), pursuant to which the
Vendor as Initial Lender would provide financing for purchases made by
Subsidiaries of the Borrower pursuant to the Supply Agreement.
In connection with an amendment to the Supply Agreement, the Borrower and
the Lenders desire to amend and restate the Original Credit Agreement in its
entirety in accordance with the terms hereof (the "Agreement" or "this
Agreement"). Pursuant to this Agreement, the Borrower has requested that (i) the
Lenders extend credit to it from time to time in order to finance certain costs
of the Project, including, among other things, purchases under the Supply
Agreement and (ii) the terms and conditions of the Original Credit Agreement
with respect to credit extended by the Lenders thereunder prior to the date
hereof be superseded by the terms and conditions of this Agreement with respect
to such credit. The Lenders have agreed to extend credit to the Borrower from
time to time under the terms and conditions of this Agreement, and the Lenders
have agreed that the terms and conditions of this Agreement shall supersede the
terms and conditions of the Original Credit Agreement with respect to credit
extended thereunder prior to the date of effectiveness of this Agreement
pursuant to Section 3.03.
<PAGE>
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements contained herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Administrative Agent" has the meaning specified in the preamble to
this Agreement.
"Administrative Agent's Account" means the account of the
Administrative Agent maintained by the Administrative Agent at SEB Bank
with its office at Telefonvagen 30, SE 126 25, Stockholm, Sweden, Account
No. 55578207286, Attention: Erik Ramstrom, Re: Diginet.
"Advance" means a Tranche A Advance or a Tranche B Advance.
"Affiliate" means, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Agent" means the Administrative Agent or the Collateral Agent.
"Agreement Currency" has the meaning set forth in Section 8.11(c)(ii).
"Amendment Effective Date" has the meaning specified in Section 3.03.
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and an Eligible Assignee, and accepted by the
Administrative Agent, in substantially the form of Exhibit C.
"Back-to-Back Loans" means, with respect to any Advance, any of the
following:
(a) any loan made by the Borrower to an Intermediate Holding
Company Subsidiary other than Comutacao Digital Ltda.;
<PAGE>
3
(b) any loan made by the Borrower to a financial institution;
(c) any Investment made by the Borrower in a financial
institution;
provided that, in the case of (a), (b) or (c), such loan or
Investment:
(i) was made from the proceeds of such Advance on
substantially the economic terms of such Advance,
(ii) shall have been pledged by the Borrower to the
Collateral Agent, and
(iii) the proceeds of which shall have been used by the
recipient thereof to make a loan described in subsection (d)
below; or
(d) a loan made by the recipient of a Back-to-Back Loan described
in subsection (a), (b) or (c) above with the proceeds of such
Back-to-Back Loan or by the Borrower from the proceeds of Advances, in
either case to an Operating Subsidiary:
(i) on substantially the economic terms of such related
Back-to-Back Loan or Advance, as applicable,
(ii) that shall have been pledged by the lender (if the
Borrower or an Intermediate Holding Company Subsidiary) to the
Collateral Agent, and
(iii) the proceeds of which shall have been used by such an
Operating Subsidiary for purposes specified in Section 2.13(a).
"Base Rate" means a fluctuating interest rate per annum in effect from
time to time, which rate per annum shall at all times be equal to the
higher of:
(a) the average of the rates of interest announced publicly by
the Reference Banks in New York, New York, from time to time, as such
banks' base rates, and
(b) 1/2 of 1% per annum above the Federal Funds Rate.
"Blocked Account" means an account of an Operating Subsidiary that is
established for the purpose of transmitting proceeds of Advances that are
to be applied to
<PAGE>
4
pay invoices under the Supply Agreement and is subject to a Blocked Account
Letter Agreement or a written agreement with the financial institution with
whom such proceeds are deposited acknowledging substantially similar
limitations on the uses of such proceeds.
"Blocked Account Letter Agreement" means an account agreement
substantially in the form of Exhibit H attached hereto.
"Borrower" has the meaning specified in the preamble to this
Agreement.
"Borrower Security Agreement" means, collectively, any security
agreements of the Borrower in favor of the Collateral Agent and the Lenders
entered into pursuant to Section 3.01(i)(viii), as amended, modified or
supplemented from time to time.
"Borrowing" means a borrowing consisting of Advances of the same
tranche made on the same day by the Lenders.
"Business Day" means a day of the year on which banks are not required
or authorized by law to close, with respect to any date of Borrowing, in
New York City, U.S.A. and Stockholm, Sweden, and otherwise in New York
City, U.S.A.; Sao Paulo, Brazil; Buenos Aires, Argentina; Santa Fe de
Bogota, Colombia; Panama City, Panama; Lima, Peru; and Stockholm, Sweden
and days on which dealings are carried on in the London interbank market.
"Capital Assets" means, with respect to any Person and at any date,
all equipment, fixed assets and real property or improvements of such
Person, or replacements or substitutions therefor or additions thereto,
that have been or should be, in accordance with GAAP for such Person,
reflected as additions to property, plant or equipment on the balance sheet
of such Person at such date or that have a useful life of more than one
year.
"Capital Expenditures" means, for any period, all expenditures that
have been or should be, in accordance with GAAP, reflected as capital
expenditures to such period, less any indefeasible rights of use of fiber
subject to Capitalized Leases.
"Capitalized Leases" means all leases that have been or should be, in
accordance with GAAP, recorded as capitalized leases.
"Cash Equivalents" means:
(a) as to the Borrower, any Intermediate Holding Company
Subsidiary of the Borrower and any Operating Subsidiary of the
Borrower subject to the jurisdiction of the United States or any state
or district thereof, any of the
<PAGE>
5
following, to the extent owned by the Borrower or such Intermediate
Holding Company Subsidiary free and clear of all Liens:
(i) readily marketable direct obligations of the Government
of the United States or any agency or instrumentality thereof or
obligations unconditionally guaranteed by the full faith and
credit of the Government of the United States having a maturity
of not greater than 720 days from the date of acquisition
thereof;
(ii) insured certificates of deposit of or time deposits
with any commercial bank having a maturity of not greater than
720 days from the date of acquisition thereof that:
(A) is a Lender or a member of the Federal Reserve
System,
(B) issues (or the parent of which issues) commercial
paper rated as described in clause (iii),
(C) is organized under the laws of the United States or
any State thereof, and
(D) has combined capital and surplus of at least
$500,000,000;
(iii) commercial paper in any amount at any time having a
maturity of not greater than 720 days from the date of
acquisition thereof, issued by any corporation organized under
the laws of any State of the United States and rated at least
"Prime-1" (or the then equivalent grade) by Moody's Investors
Service, Inc. or "A-1" (or the then equivalent grade) by Standard
& Poor's Corporation; or
(iv) mutual funds issued by an entity organized in the
United States whose investments are comprised of items described
in clauses (i) to (iii) above and having a cash to assets ratio
of 10% or more; and
(b) as to any Operating Subsidiary subject to the jurisdiction of
a government other than that of the United States of any state or
district thereof, any of the following, to the extent owned by the
relevant Subsidiary free and clear of all Liens and having a maturity
of not greater than 360 days from the date of acquisition thereof:
<PAGE>
6
(i) certificates of deposit or any other fixed-rate
instrument issued by (A) major banks organized under the laws of
such jurisdiction or (B) branches of international banks located
in such jurisdiction, in each case having at the date of any
investment combined capital and surplus and retained earnings of
not less than U.S.$500,000,000 ("Permitted Banks");
(ii) money-market funds managed by a Permitted Bank;
(iii) foreign-currency-indexed financial instruments, such
as Government bonds, issued by such jurisdiction, certificates of
deposit or any other fixed-rate instrument issued by an
investment fund, managed by a Permitted Bank; or
(iv) direct obligations of such jurisdiction, the central
bank of the country of such jurisdiction or any agency or
instrumentality the obligations of which have the full faith and
credit of the government of such jurisdiction.
"Change of Control" means the occurrence of any of the following:
(a) any Competitor shall have acquired beneficial ownership
(within the meaning of Rule 13d-3 of the Securities and Exchange
Commission under the Securities Exchange Act of 1934), directly or
indirectly, of Voting Stock of the Parent (or other securities
convertible into such Voting Stock) representing 5% or more of the
combined voting power of all Voting Stock of the Parent;
(b) during any period of up to 24 consecutive months, commencing
on or after June 25, 1999, designees who at the beginning of such
24-month period were directors of the Borrower shall cease for any
reason to constitute a majority of the board of directors of the
Borrower;
(c) any Competitor or two or more Competitors acting in concert
shall have acquired by contract or otherwise, or shall have entered
into a contract or arrangement that, upon consummation, will result in
its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of
the Parent or control over Voting Stock of the Parent (or other
securities convertible into such Voting Stock) representing 5% or more
of the combined voting power of all Voting Stock of the Parent;
(d) the Parent shall cease to own 100% of the Equity Interests in
the Borrower; or
<PAGE>
7
(e) any Person or two or more Persons acting in concert shall
have acquired, or shall have entered into a contract or arrangement
that, upon consummation, will result in its or their acquisition of,
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act
of 1934), directly or indirectly, of Voting Stock of the Parent (or
other securities convertible into such Voting Stock) representing 50%
or more of the combined voting power of all Voting Stock of the
Parent.
"Collateral" means all "Collateral" referred to in the Security
Agreements and all other property that is subject to any Lien in favor of
the Collateral Agent or the Lenders.
"Collateral Agent" means Citibank, N.A. and its successors as
collateral agent under the Intercreditor Agreement.
"Collateral Agent Letter" means the letter agreement between the
Collateral Agent and the Borrower referred to in Section 3.03(f).
"Commitment" means a Tranche A Commitment or a Tranche B Commitment.
"Competitor" means any Person that (a) has total annual revenues in
excess of $1,000,000,000 and derives 10% or more of its gross revenues or
profits or (b) has a division or Subsidiary has total annual revenues in
excess of $100,000,000 and derives 10% or more of its gross revenues or
profits, from the manufacture of telecommunications or data communications
equipment or from another activity from which the Vendor or an Affiliate of
the Vendor derives more than 10% of its gross revenues or profits, or an
Affiliate of any such Person.
"Compliance Certificate" has the meaning specified in Section 5.03(b).
"Confidential Information" means information that the Borrower
furnishes to the Administrative Agent or any Lender in a writing designated
as confidential, but does not include any such information that is or
becomes generally available to the public other than as a result of a
violation of Section 8.08 or that is or becomes available to the
Administrative Agent or such Lender from a source other than the Borrower.
"Consolidated" refers to the consolidation of accounts in accordance
with GAAP.
"Contributed Capital" means at any date, the aggregate amount of cash
equity capital contributed to the Borrower by its shareholders prior to
such date less any reductions in equity capital resulting from
distributions made by the Borrower in excess of the Borrower's retained
earnings.
<PAGE>
8
"Core Territories" means Argentina, Brazil, Colombia, Panama and Peru.
"Current Assets" of any Person at any date means (a) all assets of
such Person that would, in accordance with GAAP, at such date, be
classified as current assets of a company conducting a business the same as
or similar to that of such Person, after deducting adequate reserves in
each case in which a reserve is proper in accordance with GAAP and (b)
value added tax credits accrued within one year prior to such date.
"Current Liabilities" of any Person means at any date:
(a) all Debt of such Person that by its terms is payable on
demand or matures within one year after such date (excluding any Debt
renewable or extendable, at the option of such Person, to a date more
than one year from such date or arising under a revolving credit or
similar agreement that obligates the lender or lenders to extend
credit during a period of more than one year from such date), and
(b) all other liabilities of such Person that in accordance with
GAAP would be classified as current liabilities of such Person.
"Customer Premise Equipment" means any equipment that is (a) owned by
an Operating Subsidiary, (b) located at the office or other premises owned
by a customer or leased by a customer from a third party independent from
the Borrower and its Affiliates, (c) sold, leased or transferred by such
Operating Subsidiary to such customer, or to a third party lessor
(independent from the Borrower and its Affiliates) of such equipment to
such customer, in each case on which customer's premises such equipment is
located and (d) of any of the following types: routers, firewalls,
integrated access devices, radio systems, tdm multiplexors, atm
multiplexors, PBX, server computers, LAN hubs, DSL multiplexors or protocol
converters.
"Debt" of any Person means, without duplication:
(a) all indebtedness of such Person for borrowed money,
(b) all Obligations of such Person for the deferred purchase
price of property or services (other than trade payables not overdue
by more than 60 days incurred in the ordinary course of such Person's
business),
(c) all Obligations of such Person evidenced by notes, bonds,
debentures or other similar instruments,
<PAGE>
9
(d) all Obligations of such Person created or arising under any
conditional sale or other title retention agreement with respect to
property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property),
(e) all Obligations of such Person as lessee under Capitalized
Leases,
(f) all Obligations, contingent or otherwise, of such Person
under acceptance, letter of credit or similar facilities,
(g) all Obligations of such Person in respect of Hedge
Agreements,
(h) all Debt of others referred to in clauses (a) through (g)
above or clause (i) below guaranteed directly or indirectly in any
manner by such Person, or in effect guaranteed directly or indirectly
by such Person through an agreement (A) to pay or purchase such Debt
or to advance or supply funds for the payment or purchase of such
Debt, (B) to purchase, sell or lease (as lessee or lessor) property,
or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Debt or to assure the holder of
such Debt against loss or (C) the primary purpose of which is to
assure a creditor of such Person against loss, and
(i) all Debt referred to in clauses (a) through (g) above secured
by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property
(including without limitation accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable
for the payment of such Debt.
"Default" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"Disclosed Litigation" has the meaning specified in Section 3.01(a).
"EBITDA" means for any period:
(a) Net Income for such period (excluding, to the extent
otherwise included in Net Income, Consolidated interest income), plus
(b) the following, in each case without duplication and to the
extent deducted from Revenue in accordance with GAAP in determining
Net Income for such period:
<PAGE>
10
(i) consolidated interest expense of the Borrower and its
Subsidiaries for such period,
(ii) taxes based upon Net Income,
(iii) depreciation and amortization, and
(iv) other non-cash charges.
"Eligible Assignee" means (a) a Lender; (b) an Affiliate of a Lender;
(c) a commercial bank organized under the laws of the United States, or any
State thereof, and having total assets in excess of $1,000,000,000; (d) a
savings and loan association or savings bank organized under the laws of
the United States, or any State thereof, and having total assets in excess
of $1,000,000,000; (e) a commercial bank organized under the laws of any
other country that is a member of the OECD or has concluded special lending
arrangements with the International Monetary Fund associated with its
General Arrangements to Borrow, or a political subdivision of any such
country, and having total assets in excess of $1,000,000,000, so long as
such bank is acting through a branch or agency located in the United
States; (f) the central bank of any country that is a member of the OECD;
and (g) a finance company, insurance company or other financial
institution, or fund (whether a corporation, partnership, trust or other
entity) that is engaged in making, purchasing or otherwise investing in
commercial loans in the ordinary course of its business and having total
assets (in the case of a fund, together with any other funds managed by the
same fund manager) in excess of $1,000,000,000; provided that no Loan Party
or Affiliate of a Loan Party shall qualify as an Eligible Assignee under
this definition.
"Environmental Action" means any action, suit, demand, demand letter,
claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, Environmental
Permit or Hazardous Materials or arising from alleged injury or threat of
injury to health, safety or the environment, including without limitation
(a) by any governmental or regulatory authority for enforcement, cleanup,
removal, response, remedial or other actions or damages and (b) by any
governmental or regulatory authority or any third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief.
"Environmental Law" means any federal, state, local or foreign
statute, law, ordinance, rule, regulation, code, order, judgment, decree or
judicial or agency interpretation, policy or guidance relating to pollution
or protection of the environment, health, safety or natural resources,
including without limitation those relating to the use,
<PAGE>
11
handling, transportation, treatment, storage, disposal, release or
discharge of Hazardous Materials.
"Environmental Permit" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law.
"Equity Interests" means, with respect to any Person, shares of
capital stock or contribution of (or other ownership or profit interests
in) such Person, warrants, options or other rights for the purchase or
other acquisition from such Person of shares of capital stock of (or other
ownership or profit interests in) such Person, securities convertible into
or exchangeable for shares of capital stock of (or other ownership or
profit interests in) such Person or warrants, rights or options for the
purchase or other acquisition from such Person of such shares (or such
other interests), and other ownership or profit interests in such Person
(including, without limitation, partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares,
warrants, options, rights or other interests are authorized or otherwise
existing on any date of determination.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
ERISA is a member of the controlled group of any Loan Party, or under
common control with any Loan Party, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC or (ii) the requirements of Section 4043(b) of ERISA
apply with respect to a contributing sponsor, as defined in Section
4001(a)(13) of ERISA, of a Plan, and an event described in paragraph (9),
(10), (11), (12) or (13) of Section 4043(c) of ERISA is reasonably expected
to occur with respect to such Plan within the following 30 days; (b) the
application for a minimum funding waiver with respect to a Plan; (c) the
provision by the administrator of any Plan of a notice of intent to
terminate such Plan, pursuant to Section 4041(a)(2) of ERISA (including any
such notice with respect to a plan amendment referred to in Section 4041(e)
of ERISA); (d) the cessation of operations at a facility of any Loan Party
or any ERISA Affiliate in the circumstances described in Section 4062(e) of
ERISA; (e) the withdrawal by any Loan Party or any ERISA Affiliate from a
Multiple Employer Plan during a plan year for which it was a substantial
employer, as defined in Section 4001(a)(2) of ERISA; (f) the conditions for
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to any Plan; (g) the adoption of an amendment to a Plan requiring
the provision of security to such
<PAGE>
12
Plan pursuant to Section 307 of ERISA; or (h) the institution by the PBGC
of proceedings to terminate a Plan pursuant to Section 4042 of ERISA, or
the occurrence of any event or condition described in Section 4042 of ERISA
that constitutes grounds for the termination of, or the appointment of a
trustee to administer, such Plan.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Board of Governors of the Federal Reserve System, as in
effect from time to time.
"Eurodollar Rate" means, for any Interest Period for each Advance
comprising part of the same Borrowing, an interest rate per annum equal to
the rate per annum obtained by dividing
(a) LIBOR for such Interest Period by
(b) a percentage equal to 100% minus the Eurodollar Rate Reserve
Percentage for such Interest Period.
The Eurodollar Rate for any Interest Period for each Advance comprising
part of the same Borrowing shall be determined by the Administrative Agent,
subject, however, to the provisions of Section 2.07.
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
Advances comprising part of the same Borrowing means the reserve percentage
applicable two Business Days before the first day of such Interest Period
under regulations issued from time to time by the Board of Governors of the
Federal Reserve System (or any successor) for determining the maximum
reserve requirement (including without limitation any emergency,
supplemental or other marginal reserve requirement) for a member bank of
the Federal Reserve System in New York City with respect to liabilities or
assets consisting of or including Eurocurrency Liabilities having a term
equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
"Excess Cash Flow" means for any period the positive amount, if any,
of:
(a) EBITDA for such period, minus
(b) the sum of the following, to the extent paid in cash by the
Borrower and its Subsidiaries during such period:
(i) scheduled debt service,
<PAGE>
13
(ii) taxes,
(iii) permitted Capital Expenditures (except for any capital
expenditures that have been financed with Debt incurred during
such period),
(iv) payments for spectrum rights other than payments in
advance of the date due, and
(v) extraordinary cash charges,
(c) plus any decrease or minus any increase, as the case may be,
in Working Capital Investments between the first and last day of such
period.
"Existing Debt" means Debt of the Borrower and its Subsidiaries
outstanding as of June 25, 1999.
"Extraordinary Receipt" means any cash received by or paid to or for
the account of any Person not in the ordinary course of business,
including, without limitation, tax refunds, pension plan reversions,
proceeds of insurance (other than proceeds of business interruption
insurance to the extent such proceeds constitute compensation for lost
earnings), condemnation awards (and payments in lieu thereof) and indemnity
payments.
"Federal Funds Rate" means, for any period, a fluctuating interest
rate per annum 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 that is a Business Day, the
average of the quotations for such day on such transactions received by the
Administrative Agent from three Federal-funds brokers of recognized
standing selected by it.
"Federal Reserve System" means the system established by the Federal
Reserve Act of 1913 to regulate the U.S. monetary and banking system.
"First Eurodollar Method" means the terms and provisions of this
Agreement applicable to Advances when the First Eurodollar Method is to be
applied pursuant to Section 2.14.
"GAAP" has the meaning specified in Section 1.03.
<PAGE>
14
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Gross PP&E" means at any date, Consolidated gross plant, property and
equipment of the Borrower and its Subsidiaries less any indefeasible rights
of use of fiber subject to Capitalized Leases, in each case as of such date
and as determined in accordance with GAAP.
"Guarantor" means any Subsidiary of the Borrower that executes a
Guaranty.
"Guaranty" means a guaranty or reaffirmation issued in favor of the
Administrative Agent and the Lenders (i) in the case of any Operating
Subsidiary, in substantially in the form of Exhibit D-1, (ii) in the case
of any Intermediate Holding Company, in substantially the form of Exhibit
D-2 or (iii) in the case of any Intermediate Holding Company Subsidiary or
Operating Subsidiary that entered into a Guaranty prior to the Amendment
Effective Date or shall enter into a Guaranty prior to the date of
effectiveness of any subsequent amendment requiring a reaffirmation of such
guaranty, a reaffirmation of guaranty by each such Subsidiary in
substantially the form of Exhibit D-3.
"Hazardous Materials" means:
(a) petroleum and petroleum products, byproducts or breakdown
products, radioactive materials, asbestos-containing materials,
polychlorinated biphenyls and radon gas, and
(b) any other chemicals, materials or substances designated,
classified or regulated as hazardous or toxic or as a pollutant or
contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
interest rate future or option contracts, currency swap agreements,
currency future or option contracts and other similar agreements.
"Indemnified Costs" has the meaning specified in Section 7.05.
"Initial Lender" has the meaning specified in the preamble to this
Agreement.
"Insignificant Subsidiary" means any Subsidiary of the Borrower having
assets with a value not exceeding $500,000 or in which no more than
$500,000 has been invested.
<PAGE>
15
"Intercompany Mirror Subordinated Debt" means unsecured Debt owing by
the Borrower to the Parent that:
(a) is loaned to the Borrower by the Parent and designated by the
Borrower as representing proceeds from the incurrence of Debt (the
"Parent Mirror Debt") issued by the Parent;
(b) has an interest rate not exceeding the lesser of (i) the
interest rate applicable to the related Parent Mirror Debt and (ii) a
rate of 20% per annum;
(c) does not provide for any payment of principal prior to the
final scheduled maturity date for the last repayment of Advances of
either Tranche; and
(d) has defaults, covenants and other provisions that comply with
Exhibit E and subordination terms substantially in the form of Exhibit
F.
"Intercreditor Agreement" means the amended and restated Intercreditor
Agreement entered into pursuant to Section 3.03(e) among the Collateral
Agent, the Administrative Agent, the Initial Lender, Lucent Technologies,
Inc. as administrative agent and as initial lender pursuant to the Lucent
Credit Agreement and the other administrative agents and lenders from time
to time party thereto, as amended, amended and restated, supplemented or
otherwise modified from time to time.
"Interest Period" means:
(a) when the First Eurodollar Method is applicable, for each
Advance comprising part of the same Borrowing, the period commencing
on the date of the initial Advance and ending six months thereafter
and, thereafter, each subsequent six-month period commencing on the
last day of the immediately preceding Interest Period and ending on
the last day of such period; and
(b) when the Second Eurodollar Method is applicable, for each
Advance comprising part of the same Borrowing, the period commencing
on the date of such Advance and ending six months thereafter and,
thereafter, each subsequent six-month period commencing on the last
day of the immediately preceding Interest Period and ending on the
last day of such period;
provided, in each case, that:
(a) in the event the last day of the Interest Period immediately
preceding the Tranche A Termination Date would occur on a day other
than the
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16
Tranche A Termination Date, the last day of such Interest Period shall
be shortened to occur on the Tranche A Termination Date;
(b) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next-succeeding
Business Day; provided that, if such extension would cause the last
day of such Interest Period to occur in the next-following calendar
month, the last day of such Interest Period shall occur on the
next-preceding Business Day; and
(c) whenever the last day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the sixth calendar month thereafter, such
Interest Period shall end on the last Business Day of such sixth
calendar month.
"Intermediate Holding Company Security Agreement" means a security
agreement of an Intermediate Holding Company Subsidiary in favor of the
Collateral Agent and the Lenders entered into pursuant to Section
5.01(k)(ii), as amended, modified or supplemented from time to time.
"Intermediate Holding Company Subsidiary" means any Subsidiary of the
Borrower that:
(a) has no assets other than (i) capital stock of an Operating
Subsidiary or Intermediate Holding Company Subsidiary, and (ii)
Investments permitted under Section 5.02(k)(iii)(B) and (iii)
intercompany loans made to such Subsidiaries that are permitted under
Section 5.02(k)(vii);
(b) has no Debt or other liabilities other than intercompany
loans permitted under Section 5.02(a)(v); and
(c) is primarily engaged in the business of holding the capital
stock of or Investments in an Operating Subsidiary or Intermediate
Holding Company Subsidiary.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Investment" in any Person means any loan or advance to such Person,
any purchase or other acquisition of any capital stock, warrants, rights,
options, obligations or other securities of such Person, any capital
contribution to such Person or any other investment in such Person,
including without limitation any arrangement pursuant to
<PAGE>
17
which the investor incurs Debt of the types referred to in clauses (a) and
(i) of the definition of "Debt" in respect of such Person.
"Judgment Currency" has the meaning set forth in Section 8.11(c)(ii).
"Lender Party" means any Lender or the Administrative Agent.
"Lenders" means the Initial Lender and each Person that shall become a
Lender hereunder pursuant to Section 8.07.
"Lenders' Pro Rata Portion" means, at any time and with respect to any
amount, the Lenders' pro rata portion of such amount, calculated in
proportion with the outstanding principal amounts owing at such time by the
Borrower under the Permitted Loan Agreements (as defined in the
Intercreditor Agreement).
"Lending Office" means, with respect to any Lender, the office of such
Lender specified as its "Lending Office" opposite its name on the signature
page hereto or in the Assignment and Acceptance pursuant to which it became
a Lender, or such other office of such Lender as such Lender may from time
to time specify to the Borrower and the Administrative Agent.
"LIBOR" means, with respect to any Interest Period, an interest rate
per annum equal to the rate per annum obtained by the arithmetic mean
(rounded upwards to the nearest 1/16th of 1%) of the offered rates for
deposits in United States Dollars in approximately the same amount as such
Advance and having a tenor equal to the duration of such Interest Period,
commencing on the first day of such Interest Period, as such rates appear
on the "Reuters Screen LIBO Page" at approximately 11:00 A.M. (London time)
on the second Business Day preceding the first day of such Interest Period,
if at least two such offered rates appear on the Reuters Screen LIBO Page.
If fewer than two offered rates appear on the Reuters Screen LIBO Page on
such interest determination date, the Administrative Agent will request the
principal London offices of each of the Reference Banks to provide the
Administrative Agent with its offered quotations for deposits in United
States Dollars in approximately the same amount as such Advance and having
a tenor equal to the duration of such Interest Period, commencing on the
first day of such Interest Period, to prime banks in the London interbank
market at approximately 11:00 A.M. (London time) on such interest
determination date. If at least two such quotations are provided, LIBOR
shall be the arithmetic mean (rounded upwards to the nearest 1/16th of 1%)
of such quotations. If one such quotation is provided, LIBOR shall be the
rate mentioned in such quotation. If no such quotations are provided, LIBOR
shall be indeterminable.
<PAGE>
18
"Licenses" means, at any time, any license or spectrum right listed at
such time on Schedule 4.01(y) hereof, as amended pursuant to Section
5.03(u), and all other licenses and spectrum rights (other than licenses
relating to general business activities and the ownership and use of
property applicable to persons generally and not specifically required to
engage in business of the type proposed to be conducted by the Borrower and
its Subsidiaries) held by the Borrower and its Subsidiaries providing for
the right to operate the Networks in the Territory.
"Lien" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including without limitation the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Loan Documents" means this Agreement, the Notes issued hereunder, the
Security Agreements, the Intercreditor Agreement, any Guaranty, the
Collateral Agent Letter and the Blocked Account Letter Agreements.
"Loan Parties" means the Borrower and any Guarantor.
"Lucent Credit Agreement" means the Credit Agreement dated as of the
date hereof among the Borrower, the Lenders party thereto and Lucent
Technologies, Inc. as Administrative Agent.
"Margin Stock" has the meaning specified in Regulation U.
"Material Adverse Change" means any material adverse change in the
business, condition (financial or otherwise), operations, or performance of
the Borrower and its Subsidiaries, taken as a whole.
"Material Adverse Effect" means a material adverse effect on
(a) the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower and its
Subsidiaries taken as a whole,
(b) the ability of the Borrower to perform its payment
Obligations under the Loan Documents, or
(c) the validity or enforceability of any Lien in favor of the
Agents or the Lenders or the validity or enforceability of any Loan
Document.
<PAGE>
19
"Material Assets" means, with respect to any Person, an asset or
assets having either individually or in the aggregate a fair market value
of $2,000,000 or more.
"Material Contract" means, with respect to the Borrower and each of
its Subsidiaries, each contract to which the Borrower or such Subsidiary,
as the case may be, is a party involving aggregate consideration payable to
or by the Borrower or such Subsidiary, as the case may be, of $5,000,000 or
more in any calendar year.
"Material License" means, at any time, any License listed at such time
on Schedule 4.01(ii) hereof, as amended pursuant to Section 5.03(u), and
all other Licenses held by the Borrower and its Subsidiaries with respect
to the ownership and operation of digital wireless local loop data networks
constituting a portion of a Network in each of the Core Territories as well
as any other part of the Territory that are necessary for the Borrower to
fulfill the financial and operational projections set forth in the
Borrower's business plan dated October 29, 1999, including all Licenses
with respect to rights to use spectrum in the 15 GHz, 18 GHz, 23 GHz and 38
GHz bands.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
Loan Party or any ERISA Affiliate and at least one Person other than the
Loan Parties and the ERISA Affiliates or (b) was so maintained and in
respect of which any Loan Party or any ERISA Affiliate could have liability
under Section 4064 or 4069 of ERISA in the event such plan has been or were
to be terminated.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or issuance of any Debt or
capital stock or other ownership or profit interest, any securities
convertible into or exchangeable for capital stock or other ownership or
profit interest or any warrants, rights, options or other securities to
acquire capital stock or other ownership or profit interest by any Person,
or any Extraordinary Receipt received by or paid to or for the account of
any Person, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection with
such transaction after deducting therefrom only (without duplication):
<PAGE>
20
(a) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finder's fees and other similar fees
and commissions and
(b) the amount of taxes payable in connection with or as a result
of such transaction,
in each case to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate of such Person or any Loan Party or any
Affiliate of any Loan Party and are properly attributable to such
transaction or to the asset that is the subject thereof.
"Net Income" means for any period the Consolidated net income or net
loss, as the case may be, of Borrower and its Subsidiaries, excluding
extraordinary gains and losses, in each case for such period and as
determined in accordance with GAAP.
"Network" has the meaning specified in the recitals to this Agreement.
"Note" means a promissory note of the Borrower payable to the order of
any Lender, in substantially the form of Exhibit A, evidencing the
aggregate Debt of the Borrower to such Lender resulting from the Advances
made by such Lender.
"Notice of Borrowing" has the meaning specified in Section 2.02.
"Obligation" means, with respect to any Person, any payment,
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01(g). Without limiting the generality
of the foregoing, the Obligations of the Loan Parties under the Loan
Documents include (a) the obligation to pay principal, interest, charges,
expenses, fees, attorneys' fees and disbursements, indemnities and other
amounts payable by any Loan Party under any Loan Document and (b) the
obligation of any Loan Party to reimburse any amount in respect of any of
the foregoing that any Lender Party, in its sole discretion, may elect to
pay or advance on behalf of such Loan Party.
"Operating Subsidiary" means any Subsidiary of the Borrower engaged in
the business of operating one or more Networks.
<PAGE>
21
"Operating Subsidiary Security Agreement" means a security agreement
of an Operating Subsidiary in favor of the Collateral Agent and the Lenders
entered into pursuant to Section 5.01(k)(ii), as amended, modified or
supplemented from time to time.
"Other Secured Creditors" means Secured Creditors other than the
Lenders.
"Parent" means Diginet Americas, Inc.
"PBGC" means the Pension Benefit Guaranty Corporation (or any
successor).
"Permitted Liens" means such of the following as to which no
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced:
(a) Liens for taxes, assessments and governmental charges or
levies to the extent not required to be paid under Section 5.01(b)
hereof;
(b) Liens imposed by law, such as materialmen's, mechanics',
carriers', workmen's and repairmen's Liens and other similar Liens
arising in the ordinary course of business securing obligations that
are not overdue for a period of more than 30 days;
(c) pledges or deposits to secure obligations under workers'
compensation laws or similar legislation or to secure public or
statutory obligations; and
(d) easements, rights of way and other encumbrances on title to
real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such
property for its present purposes.
"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association,
joint venture, limited liability company or other entity, or a government
or any political subdivision or agency thereof.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
"Project" has the meaning specified in the recitals of this Agreement.
"Reference Banks" means Citibank plc, Barclays Bank and The Chase
Manhattan Bank.
"Register" has the meaning specified in Section 8.07(c).
<PAGE>
22
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Regulatory Permits" means all permits needed to construct, install,
commission, service, maintain and operate the Networks in each Core
Territory.
"Relationship Agreement" has the meaning specified in the recitals to
this Agreement.
"Required Lenders" means at any time Lenders holding at least a
majority in interest of the sum of the then-outstanding aggregate unpaid
principal amount of the Advances owing to Lenders and then-outstanding
undrawn Commitments (including any Commitments not then available to be
drawn).
"Restricted Payment" means any distribution of the Borrower or any of
its Subsidiaries (in cash, property or obligations) on, or other payments
on account of, or the setting apart of money for a sinking or other
analogous fund for, or the purchase, redemption, retirement, prepayment or
other acquisition of
(a) any portion of any membership or other equity interest in the
Borrower or of any warrants, options or other rights to acquire any
such membership or equity interest (or to make any payments to any
Person where the amount thereof is calculated with reference to fair
market or equity value of the Borrower or any of its Subsidiaries), or
(b) any Intercompany Mirror Subordinated Debt or Subordinated
Debt.
"Revenue" means, for any period, Consolidated revenue of the Borrower
and its Subsidiaries for such period as determined in accordance with GAAP.
"S&P" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc.
"Second Eurodollar Method" means the terms and provisions of this
Agreement applicable to Advances when the Second Eurodollar Method is to be
applied pursuant to Section 2.14.
"Secured Creditors" means creditors of the Borrower or its
Subsidiaries holding Debt of the Borrower secured by Shared Liens.
<PAGE>
23
"Security Agreement" means the Borrower Security Agreement, any
Intermediate Holding Company Security Agreement, any Operating Subsidiary
Security Agreement or other security agreement entered into pursuant to
this Agreement in favor of the Collateral Agent and the Lenders, as
amended, amended and restated, modified or supplemented from time to time,
and any other agreement that creates or purports to create a Lien in favor
of the Collateral Agent for the benefit of the Lenders or in favor of the
Lenders.
"Securities Act" has the meaning set forth in Section 2.08(b)(iv).
"Shared Liens" means Liens securing Debt permitted pursuant to Section
5.02(a)(vii) and (viii).
"Single Employer Plan" means a single employer plan, as defined in
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
Loan Party or any ERISA Affiliate and no Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which
any Loan Party or any ERISA Affiliate could have liability under Section
4069 of ERISA in the event such plan has been or were to be terminated.
"Solvent" means, 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 without limitation
contingent liabilities, of such Person,
(b) 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
(c) such Person is not engaged in business or a transaction, and
is not about to engage in business or a transaction, for which such
Person's property would constitute an unreasonably small capital.
"Subordinated Debt" means any Debt of the Borrower owed to the Parent
that is subordinated to the Advances pursuant to a Subordination Agreement.
"Subordination Agreement" means a subordination agreement
substantially in the form of Exhibit G.
<PAGE>
24
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of:
(a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any
other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency),
(b) the interest in the capital or profits of such limited
liability company, partnership or joint venture, or
(c) the beneficial interest in such trust or estate,
is at the time directly or indirectly owned or controlled by such Person,
by such Person and one or more of its other Subsidiaries or by one or more
of such Person's other Subsidiaries.
"Supermajority Lenders" means at any time Lenders owed at least a
662/3% in interest of the sum of the then-outstanding aggregate unpaid
principal amount of the Advances owing to Lenders and then-outstanding
undrawn Commitments (including any Commitments not then available to be
drawn).
"Supplemental Tranche A Facility Fee" has the meaning specified in
Section 2.03(c).
"Supply Agreement" has the meaning specified in the recitals to this
Agreement.
"Territory" has the meaning specified in the recitals to this
Agreement.
"Total Cash Debt Service" means for any period scheduled total cash
payments by the Borrower and its Subsidiaries during such period in respect
of interest (plus any indemnities payable in respect of withholding taxes
or stamp duties in respect of such interest payments) and principal in
respect of Debt of the Borrower and its Subsidiaries.
"Total Debt" means, at any date, the aggregate principal amount of
Debt of the Borrower and its Subsidiaries then outstanding.
"Tranche A Advance" has the meaning specified in Section 2.01(a).
"Tranche A Commitment" means, with respect to any Lender at any time,
the amount set forth opposite such Lender's name on the signature pages
hereof or, if such
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25
Lender has entered into one or more Assignment and Acceptances, set forth
in the Register maintained by the Administrative Agent pursuant to Section
8.07(c) as such Lender's "Tranche A Commitment", as such amount may be
reduced from time to time pursuant to Section 2.04.
"Tranche A Effective Date" has the meaning specified in Section
3.01(a).
"Tranche A Facility Fee" has the meaning specified in Section 2.03(c).
"Tranche A Termination Date" means the earlier of the second
anniversary of the Amendment Effective Date and the date of termination in
whole of the Tranche A Commitments pursuant to Section 2.04 or 6.01.
"Tranche B Advance" has the meaning specified in Section 2.01(b).
"Tranche B Commitment" means, with respect to any Lender at any time:
(a) the amount set forth opposite such Lender's name on the
signature page hereof or, if such Lender has entered into one or more
Assignment and Acceptances, set forth in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c) as such Lender's
"Tranche B Commitment" plus
(b) the undrawn amount of such Lender's Tranche A Commitment on
the Tranche A Termination Date,
as such amount may be reduced from time to time pursuant to Section
2.04.
"Tranche B Effective Date" means, with respect to the Tranche B
Commitments of the Lenders, the earlier of (a) the second anniversary of
the Amendment Effective Date and (b) the first date, after all Tranche A
Commitments shall have been drawn, on which the Borrower shall have
complied with the covenants set forth in Section 5.04 applicable on such
second anniversary of the Amendment Effective Date.
"Tranche B Facility Fee" has the meaning specified in Section 2.03(d).
"Tranche B Termination Date" means the earliest of (i) the eighteen
month anniversary of the Tranche B Effective Date, (ii) the forty-two month
anniversary of the Amendment Effective Date and (iii) the date of
termination in whole of the Tranche B Commitments pursuant to Section 2.04
or 6.01.
"Tributary" has the meaning set forth in Section 5.02(v).
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26
"Vendor" has the meaning specified in the recitals to this Agreement.
"Voice Grade Equivalents" means, at any time, the sum of kilobits per
second in service for each customer at such time, divided by 64 kilobits
per second.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing similar functions) of such
Person, even if the right so to vote has been suspended by the happening of
such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
ERISA, that is maintained for employees of any Loan Party or in respect of
which any Loan Party could have liability.
"Wholly Owned Subsidiary" of any Person means any corporation,
partnership, joint venture, limited liability company, trust or estate of
which (or in which) 100% of (a) the issued and outstanding capital stock
having ordinary voting power to elect a majority of the Board of Directors
of such corporation (irrespective of whether at the time capital stock of
any other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the
capital or profits of such partnership, joint venture or limited liability
company or (c) the beneficial interest in such trust or estate is at the
time directly or indirectly owned or controlled by such Person, by such
Person and one or more of its other Subsidiaries or by one or more of such
Person's other Subsidiaries; provided that, if applicable law prohibits the
exercise of such percentage of direct or indirect ownership or control, the
ownership or control held by such Person and one or more of its other
Subsidiaries shall be the maximum percentage permitted under such
applicable law.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
"Working Capital Investments" means, as at any date, the difference
(positive or negative) between the amount of current assets (excluding cash
and Cash Equivalents) of the Borrower as of such date minus the amount of
current liabilities (excluding current liabilities in respect of Debt) of
the Borrower as of such date, in each case determined on a consolidated
basis in accordance with GAAP.
SECTION 1.02. 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".
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27
SECTION 1.03. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with United States generally
accepted accounting principles consistent with those consistently applied in the
preparation of the financial statements ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances. (a) The Tranche A Advances. Each Lender having
a Tranche A Commitment severally agrees, on the terms and conditions hereinafter
set forth, to make Advances (each, a "Tranche A Advance") to the Borrower from
time to time on any Business Day during the period from the Tranche A Effective
Date until the Tranche A Termination Date in an aggregate amount not to exceed
at any time outstanding such Lender's Tranche A Commitment. Each Borrowing
consisting of Tranche A Advances shall be in an amount not exceeding (i) amounts
owing under invoices issued or accepted by the Vendor pursuant to the Supply
Agreement during the calendar month immediately preceding the date of the
proposed Borrowing and that were not paid with the proceeds of any prior
Borrowing and (ii) interest owing on Borrowings to be paid with the proceeds
thereof. Each such Borrowing shall consist of Advances made on the same day by
the Lenders ratably according to their respective Tranche A Commitments. Amounts
borrowed hereunder and repaid or prepaid may not be reborrowed.
(b) The Tranche B Advances. Each Lender having a Tranche B Commitment
severally agrees, on the terms and conditions hereinafter set forth, to make
Advances (each, a "Tranche B Advance") to the Borrower from time to time on any
Business Day during the period from the Tranche B Effective Date until the
Tranche B Termination Date in an aggregate amount not to exceed at any time
outstanding such Lender's Tranche B Commitment. Each Borrowing consisting of
Tranche B Advances shall be in an amount not exceeding (i) amounts owing under
invoices issued or accepted by the Vendor pursuant to the Supply Agreement
during the calendar month immediately preceding the date of the proposed
Borrowing and that were not paid with the proceeds of any prior Borrowing and
(ii) interest owing on Borrowings to be paid with the proceeds thereof. Each
such Borrowing shall consist of Advances made on the same day by the Lenders
ratably according to their respective Tranche B Commitments. Amounts borrowed
hereunder and repaid or prepaid may not be reborrowed.
SECTION 2.02. Making the Advances. (a) Each Borrowing shall be made on
notice, given not later than 11:00 A.M. (New York City time) on the third
Business Day prior to the date of the proposed Borrowing by the Borrower to the
Administrative Agent; provided that, except with respect to Borrowings the
proceeds of which shall be used to pay interest owing on Borrowings as permitted
hereunder:
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28
(i) the Borrower may not give more than one such notice in any
calendar month; and
(ii) the date of each Borrowing shall be the twentieth day of each
calendar month; provided that if such date is not a Business Day, the date
of Borrowing shall be the next Business Day.
The Administrative Agent shall give to each Lender prompt notice thereof by
telecopier or telex. Each such notice of a Borrowing (a "Notice of Borrowing")
shall be in writing, in substantially the form of Exhibit B, specifying therein:
(A) the requested date of such Borrowing,
(B) the requested aggregate amount of such Borrowing,
(C) the Vendor's invoices to be paid with the proceeds of such
Borrowing, the respective amounts of such invoices to be paid and the
aggregate amount of such invoices to be paid, and
(D) any payments of interest owing on Borrowings to be paid with the
proceeds of such Borrowing as permitted hereunder.
Each Lender having an applicable Commitment to fund an Advance shall, before
11:00 A.M. (New York City time) on the date of such Borrowing, make available
for the account of its Lending Office to the Administrative Agent at the
Administrative Agent's Account, in same day funds, such Lender's ratable portion
of such Borrowing. After the Administrative Agent's receipt of such funds and
upon fulfillment of the applicable conditions set forth in Article III, the
Administrative Agent will make such funds available to the Borrower. The
Borrower irrevocably directs the Administrative Agent to make available to the
Borrower the portion of any Borrowing to be used to pay amounts owing to the
Vendor, as specified in the related Notice of Borrowing to account no.
55578207286 of the Borrower or such other account as notified to the
Administrative Agent in the related Notice of Borrowing and to pay the portion
to of any Borrowing to be used to pay interest owing to the Lenders to the
extent permitted hereunder, as specified in the related Notice of Borrowing, to
the Lenders entitled thereto; provided that, if such account is not with the
Administrative Agent such Borrowing shall be deemed to have been made when the
Administrative Agent shall have initiated the transfer of funds comprising such
Borrowing to such account.
(b) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. 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 or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including
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29
(without limitation) any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by such Lender
to fund the Advance to be made by such Lender as part of such Borrowing when
such Advance, as a result of such failure, is not made on such date. The loss to
any Lender attributable to any such failure shall be deemed to be an amount
determined by such Lender to be equal to the excess, if any, of (i) the amount
of interest that such Lender would pay for a deposit equal to the principal
amount of the applicable Eurodollar Rate Advance not borrowed for the duration
of the Interest Period that would have resulted from such borrowing if the
interest rate payable on such deposit were equal to the Eurodollar Rate for such
Interest period, over (ii) the amount of interest that such Lender would earn on
such principal amount for such period if such Lender were to invest such
principal amount for such period at the interest rate that would be bid by such
Lender (or an Affiliate of such Lender) for dollar deposits from other banks in
the eurodollar market at the commencement of such period. A certificate as to
the amount of such loss, cost or expense, submitted to the Borrower by such
Lender, shall be conclusive and binding for all purposes, absent manifest error.
(c) Unless the Administrative Agent shall have received notice from a
Lender that has an applicable Commitment prior to the date of any Borrowing that
such Lender will not make available to the Administrative Agent such Lender's
ratable portion of such Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative Agent on the date
of such Borrowing in accordance with subsection (a) of this Section 2.02 and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower on such date a corresponding amount. If and to the extent that such
Lender shall not have so made such ratable portion available to the
Administrative Agent, such Lender and the Borrower severally agree to repay to
the Administrative Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Administrative
Agent, at (i) in the case of the Borrower, the interest rate applicable at the
time to Advances comprising such Borrowing and (ii) in the case of such Lender,
the Federal Funds Rate. If such Lender shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Lender's
Advance as part of such Borrowing for purposes of this Agreement.
(d) The failure of any Lender obligated to make an Advance to make such
Advance to be made by it as part of any Borrowing shall not relieve any other
Lender of its obligation, if any, hereunder to make its Advance on the date of
such Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make any Advance to be made by such other Lender on the date of any
Borrowing.
SECTION 2.03. Fees. (a) Tranche A Commitment Fee. The Borrower shall pay to
the Administrative Agent for the account of each Lender having a Tranche A
Commitment a commitment fee on the average daily unused portion of each Lender's
Tranche A Commitment from the Tranche A Effective Date in the case of the
Initial Lender and from the effective date
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30
specified in the Assignment and Acceptance pursuant to which it became a Lender
in the case of each other such Lender, until the Tranche A Termination Date at
the rate of 1.10% per an-num, payable in cash on the last day of each Interest
Period or, in the event no Advance is then outstanding, in arrears semi-annually
on the last Business Day of each of June and December, commencing on December
31, 1999, and on the Tranche A Termination Date.
(b) Tranche B Commitment Fee. The Borrower shall pay to the Administrative
Agent for the account of each Lender having a Tranche B Commitment a commitment
fee on the average daily unused portion of such Lender's Tranche B Commitment,
from the Tranche B Effective Date, in the case of each Person that is such a
Lender on such date, and from the effective date specified in the Assignment and
Acceptance pursuant to which it became a Lender in the case of each other such
Lender, until the Tranche B Termination Date at the rate of 1.10% per annum,
payable in cash on the last day of each Interest Period or, in the event no
Advance is then outstanding, in arrears semi-annually on the last Business Day
of each of June and December, commencing on June 30, 2001, and on the Tranche B
Termination Date.
(c) Tranche A Facility Fee. On the Tranche A Effective Date the Borrower
paid to the Administrative Agent for distribution to the Initial Lender, in
cash, a one-time facility fee (the "Tranche A Facility Fee") of $437,500.00. The
Borrower shall pay to the Administrative Agent for distribution to the Initial
Lender, in cash, on the Amendment Effective Date, a one-time facility fee (the
"Incremental Tranche A Facility Fee") of 1.10% of the increase in the Initial
Lender's Tranche A Commitment over the Initial Lender's Tranche A Commitment
under the Original Credit Agreement as of the date hereof.
(d) Tranche B Facility Fee. The Borrower shall pay to the Administrative
Agent for distribution to each Lender that has a Tranche B Commitment, in cash,
on the Tranche B Effective Date, a one-time facility fee (the "Tranche B
Facility Fee") of 1.10% of such Tranche B Lender's Tranche B Commitment, other
than any portion thereof reflecting the transfer of any undrawn portion of such
Lender's Tranche A Commitment on the Tranche A Termination Date.
(e) Administrative Agent's Fees. The Borrower shall pay to the
Administrative Agent for its own account the fee separately agreed with the
Administrative Agent.
SECTION 2.04. Termination or Reduction of the Commitments. (a) The Borrower
shall have the right, upon at least 10 Business Days' notice to the
Administrative Agent, to terminate in whole or reduce ratably in part the unused
portions of the respective Commitments of the Lenders; provided that each
partial reduction shall be in the aggregate amount of $3,000,000 or an integral
multiple of $1,000,000 in excess thereof.
(b) On any date on which a mandatory prepayment of Advances would be
required to be prepaid pursuant to Section 2.08(b), the Commitments shall be
automatically
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31
reduced by an amount equal to the excess, if any, of the aggregate
principal amount of the Advances that would be required to be prepaid on such
date if the Commitments were fully drawn (whether or not in fact available for
draw on such date) over the aggregate principal unpaid amount of the Advances
then outstanding.
SECTION 2.05. Repayment of Advances. (a) Repayment of Tranche A Advances.
The Borrower shall repay to the Administrative Agent for the ratable account of
the Lenders that have made Tranche A Advances the aggregate outstanding
principal amount of the Tranche A Advances in six installments payable on the
last day of every sixth calendar month after the second anniversary of the
Amendment Effective Date each in an amount equal to the product obtained by
multiplying (i) the unpaid principal amount of such Tranche A Advances
outstanding on the Tranche A Termination Date by (ii) 16-2/3%; provided that the
last such installment shall be in an amount necessary to repay in full the
aggregate then-unpaid principal amount of the Tranche A Advances. Each repayment
shall be applied to the unpaid principal amount of Tranche A Advances ratably
across all Borrowings. At the time of such repayment, the Borrower also will pay
accrued and unpaid interest owing on the principal amount of the Tranche A
Advances then being repaid.
(b) Repayment of Tranche B Advances. The Borrower shall repay to the
Administrative Agent for the ratable account of the Lenders that have made
Tranche B Advances the aggregate outstanding principal amount of the Tranche B
Advances in seven installments payable on the last day of every sixth calendar
month after the eighteen month anniversary of the Tranche B Effective Date each
in an amount equal to the product obtained by multiplying (a) the unpaid
principal amount of such Tranche B Advances outstanding on the Tranche B
Termination Date by (b) 14.29%; provided that the last such installment shall be
in an amount necessary to repay in full the unpaid principal amount of the
Tranche B Advances. Each repayment shall be applied to the unpaid principal
amount of Tranche B Advances ratably across all Borrowings. At the time of such
repayment, the Borrower also will pay accrued and unpaid interest owing on the
principal amount of the Tranche B Advances then being repaid.
SECTION 2.06. Interest. (a) Scheduled Interest. Except as otherwise
provided in Section 2.09, the Borrower shall pay interest on the unpaid
principal amount of each Advance owing to each Lender from the date of such
Advance until such principal amount shall be paid in full, at a rate per annum
equal at all times during each Interest Period for such Advance to the sum of
(x) the Eurodollar Rate for such Interest Period for such Advance plus (y)
5.75%, payable in arrears on the last day of such Interest Period and on the
date such Advance shall be paid in full.
(b) Default Interest. Upon the occurrence and during the continuance of an
Event of Default under Section 6.01(a), the Borrower shall pay interest on (i)
the unpaid principal amount of each Advance owing to each Lender, payable in
arrears on the dates referred to in clause (a) above or Section 2.09(c) or (d)
and on demand, at a rate per annum equal at all
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32
times to 2% per annum above the rate per annum required to be paid on such
Advance pursuant to clause (a) above or Section 2.09(c) or (d) and (ii) to the
fullest extent permitted by law, the amount of any interest, fee or other amount
payable hereunder that is not paid when due, from the date such amount shall be
due until such amount shall be paid in full, payable in arrears on the date such
amount shall be paid in full and on demand, at a rate per annum equal at all
times to 2% per annum above the rate per annum required to be paid on Advances
pursuant to clause (a) above.
SECTION 2.07. Interest Rate Determination. The Administrative Agent shall
give prompt notice to the Borrower and the Lenders of the applicable interest
rate determined by the Administrative Agent for purposes of Section 2.06(a) or
Section 2.09(c) or (d) prior to the commencement of each Interest Period;
provided that any failure by the Administrative Agent to give such notice shall
not affect such applicable interest rate or the Borrower's obligations
hereunder, or give rise to any liability on behalf of the Administrative Agent.
SECTION 2.08. Prepayments. (a) Optional Prepayments. The Borrower may, upon
at least 10 Business Days' notice to the Administrative Agent stating the
proposed date and aggregate principal amount of the prepayment, and if such
notice is given the Borrower shall, prepay the outstanding principal amount of
the Advances; provided that (i) each partial prepayment shall be in an aggregate
principal amount of $3,000,000 or an integral multiple of $1,000,000 in excess
thereof and (ii) the Borrower shall be obligated to reimburse the Lenders in
respect thereof pursuant to Section 8.04(c).
(b) Mandatory Prepayments. (i) Sales of Assets. The Borrower shall, on each
date on which the Borrower or any Subsidiary thereof receives any Net Cash
Proceeds from the sale, lease, transfer or other disposition (other than
commercial sales in the ordinary course of business), of any Material Assets of
the Borrower or any Subsidiary thereof, prepay an aggregate principal amount of
the Advances equal to the Lenders' Pro Rata Portion of such Net Cash Proceeds
(or, if less, the aggregate principal amount of all Advances); provided that the
Borrower shall not be required to make any prepayment pursuant to this
subsection from any such Net Cash Proceeds it intends to apply to the purchase
of any Capital Assets so long as:
(A) the Borrower shall have notified the Administrative Agent of such
intent by the date on which such prepayment otherwise would be required;
(B) the Borrower shall have purchased such Capital Assets within 180
days after the date the Borrower or a Subsidiary thereof received such Net
Cash Proceeds; and
(C) the Borrower shall have provided the Administrative Agent with
evidence satisfactory to the Administrative Agent that such Capital Assets
were purchased within such 180-day period.
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33
If the Borrower shall not have made a prepayment pursuant to this subsection
because of the proviso hereto and shall not have fulfilled the conditions set
forth in such proviso within the period specified therein, it shall make the
prepayment required by this subsection at the end of such period and the proviso
hereto shall no longer be applicable to such prepayment.
(ii) Insurance Recoveries. The Borrower shall, on each date on which it or
any Subsidiary thereof receives any Net Cash Proceeds from any property and
casualty insurance recovery, prepay an aggregate principal amount of the
Advances equal to the Lenders' Pro Rata Portion of such Net Cash Proceeds (or,
if less, the aggregate principal amount of all Advances); provided that the
Borrower shall not be required to make any prepayment pursuant to this
subsection from any such Net Cash Proceeds it intends to apply to the repair or
replacement of the damaged property so long as:
(A) the Borrower shall have notified the Administrative Agent of such
intent by the date on which such prepayment otherwise would be required;
(B) such Net Cash Proceeds shall have been so applied within 60 days
after the date the Borrower or a Subsidiary thereof received such Net Cash
Proceeds; and
(C) the Borrower or any Subsidiary thereof shall have provided the
Administrative Agent with evidence satisfactory to the Administrative Agent
that such Net Cash Proceeds were so applied within such 60-day period.
If the Borrower shall not have made a prepayment pursuant to this subsection
because of the proviso hereto and shall not have fulfilled the conditions set
forth in such proviso within the period specified therein, it shall make the
prepayment required by this subsection at the end of such period and the proviso
hereto shall no longer be applicable to such prepayment.
(iii) Condemnation Recoveries. The Borrower shall, on each date on which it
or any Subsidiary thereof receives any Net Cash Proceeds from any condemnation
proceeds or similar awards received by the Borrower or any Subsidiary thereof in
connection with any governmental taking of assets of the Borrower or any
Subsidiary thereof, prepay an aggregate principal amount of the Advances equal
to the Lenders' Pro Rata Portion of such Net Cash Proceeds (or, if less, the
aggregate principal amount of all Advances); provided that the Borrower shall
not be required to make any prepayment pursuant to this subsection from any such
Net Cash Proceeds it intends to apply to the replacement of the condemned or
taken property so long as:
(A) the Borrower shall have notified the Administrative Agent of such
intent by the date on which such prepayment otherwise would be required;
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34
(B) such Net Cash Proceeds shall have been so applied within 60 days
after the date the Borrower or a Subsidiary thereof received such Net Cash
Proceeds; and
(C) the Borrower or any Subsidiary thereof shall have provided the
Administrative Agent with evidence satisfactory to the Administrative Agent
that such Net Cash Proceeds were so applied within such 60-day period.
If the Borrower shall not have made a prepayment pursuant to this subsection
because of the proviso hereto and shall not have fulfilled the conditions set
forth in such proviso within the period specified therein, it shall make the
prepayment required by this subsection at the end of such period and the proviso
hereto shall no longer be applicable to such prepayment.
(iv) Offering of Debt Securities. The Borrower shall, on each date on which
it or any Subsidiary receives any Net Cash Proceeds from the issuance of any
securities evidencing Debt of the Borrower or a Subsidiary thereof issued (A) to
qualified institutional buyers pursuant to Regulation S under the United States
Securities Act of 1933 (as amended from time to time, the "Securities Act"), (B)
under Section 4(2) of the Securities Act or (C) in accordance with the
registration and delivery requirements of Section 5 of the Securities Act,
prepay an aggregate principal amount of the Advances comprising part of the same
Borrowings equal to 50% of the Lenders' Pro Rata Portion of such Net Cash
Proceeds (or, if less, the aggregate principal amount of all Advances).
(v) Excess Cash Flow. The Borrower shall, within five Business Days of each
date upon which the Borrower is required to furnish to the Lenders its annual
financial statements pursuant to Section 5.03(d), deposit into an escrow account
(the terms of which shall be reasonably satisfactory to the Administrative
Agent) an amount equal to 50% of the Borrower's Excess Cash Flow for the
Borrower's fiscal year reflected in such report (for such fiscal year, the
"Excess Cash Flow Amount"). Upon the last day of the Interest Period during
which such deposit was made, the Borrower shall prepay an aggregate principal
amount of the Advances equal to the Lenders' Pro Rata Portion of such Excess
Cash Flow Amount (or, if the outstanding principal amount of the Advances is
less than the Lenders' Pro Rata Portion of such Excess Cash Flow Amount on such
day, the aggregate principal amount of all Advances). Any amounts remaining in
such escrow amount after such prepayment shall be released to the Borrower
immediately following such prepayment.
(vi) Notice. The Borrower shall give the Administrative Agent at least five
Business Days' prior written notice of (A) each prepayment required by this
Section 2.08(b) and (B) the application of any Net Cash Proceeds pursuant to any
notice delivered in accordance with Section 2.08(b)(ii) or (iii). Such Notice
shall state the aggregate amount of such prepayment or application, as the case
may be, and the date upon which such prepayment or application shall or has been
made.
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35
(c) Mechanics of Prepayments. All prepayments under this Section 2.08 shall
be made together with accrued interest to the date of such prepayment on the
principal amount prepaid and together with any amounts owing to the Lenders
pursuant to Section 8.04(c) in respect of such prepayment. Any prepayment of
Advances pursuant to this Section 2.08 shall be applied to the installments
thereof in inverse order of maturity, ratably across all Advances being so
prepaid. All prepayments under this Section 2.08 shall be made ratably with
prepayments to lenders under the other Permitted Loan Agreements (as defined in
the Intercreditor Agreement), in proportion with the outstanding principal
amounts owing by the Borrower under the Permitted Loan Agreements.
SECTION 2.09. Increased Costs, Etc. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation 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), there shall be
any increase in the cost to any Lender of agreeing to make or of making, funding
or maintaining Advances (excluding for purposes of this Section 2.09 any such
increased costs resulting from (A) Taxes or Other Taxes (as to which Section
2.11 shall govern) or (B) changes in the basis of taxation of overall net income
or overall gross income by the jurisdiction or state under the laws of which
such Lender is organized or has its Lending Office or any political subdivision
thereof), then the Borrower shall from time to time, upon demand by such Lender
(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; provided that a
Lender claiming additional amounts under this Section 2.09(a) agrees to use
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to designate a different Lending Office if the making of such a
designation would avoid the need for, or reduce the amount of, such increased
cost that may thereafter accrue and would not, in the reasonable judgment of
such Lender be otherwise disadvantageous to such Lender. If any Lender becomes
entitled to claim any additional amounts pursuant to this Section 2.09(a), it
will promptly notify the Borrower (with a copy of such notice to the
Administrative Agent) of the event by reason of which it has become so entitled
and provide a detailed calculation of the amount to be paid; provided that no
Lender shall be required to disclose in connection with such calculation any
information that it deems to be proprietary or confidential, including, without
limitation, any allocation of internal costs. A certificate as to the amount of
such increased cost, submitted to the Borrower by such Lender, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or regulation or
any guideline or request from any central bank or other governmental authority
(whether or not having the force of law) affects or would affect the amount of
capital required or expected to be maintained by such Lender or any corporation
controlling such Lender and that the amount of such capital is increased by or
based upon the existence of such Lender's commitment to lend
<PAGE>
36
hereunder then, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), the Borrower shall pay to the Administrative Agent for
the account of such Lender, from time to time as specified by such Lender,
additional amounts sufficient to compensate such Lender in the light of such
circumstances, to the extent that such Lender reasonably determines such
increase in capital to be allocable to the existence of such Lender's commitment
to lend hereunder; provided that, before making any such demand, such Lender
will use reasonable efforts (consistent with its internal policy and legal and
regulatory restrictions) to designate a different Lending Office if the making
of such a designation would allow such Lender or its Lending Office to continue
to perform its obligations to make Advances or to continue to fund or maintain
Advances and would not, in the judgment of such Lender, be otherwise
disadvantageous to such Lender. If any Lender becomes entitled to claim any
additional amounts pursuant to this Section 2.09(b), it will promptly notify the
Borrower (with a copy of such notice to the Administrative Agent) of the event
by reason of which it has become so entitled and provide a detailed calculation
of the amount to be paid; provided that no Lender shall be required to disclose
in connection with such calculation any information that it deems to be
proprietary or confidential, including, without limitation, any allocation of
internal costs. A certificate as to such amounts submitted to the Borrower by
such Lender shall be conclusive and binding for all purposes, absent manifest
error.
(c) If, with respect to any Advances, a majority in interest of the Lenders
participating in such Advances notify the Administrative Agent that the
Eurodollar Rate for any Interest Period for such Advances will not adequately
reflect the cost to such Lenders of making, funding or maintaining their
Advances for such Interest Period, the Administrative Agent shall forthwith so
notify the Borrower, whereupon (i) each such Advance will automatically, on the
last day of the then existing Interest Period therefor, cease to bear interest
pursuant to Section 2.06(a) and from such date bear interest at a rate per annum
equal at all times to the sum of (A) the Base Rate in effect from time to time
plus (B) 6.25%, payable in arrears semi-annually on the last day of December and
June until the Administrative Agent shall notify the Borrower that such Lenders
have determined that the circumstances causing such suspension no longer exist
and (ii) the Borrower shall pay interest on the unpaid principal amount of each
Advance made after the giving of such notice by the Required Lenders from the
date of such Advance until the earlier of (A) the payment in full of such
Advance and (B) the date upon which the Administrative Agent has notified the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist, at a rate per annum equal to the actual cost
incurred by the Lenders in making such Advance plus 6.25%, payable in arrears
semi-annually on the last day of December and June. A certificate as to the rate
referred to in clause (ii) above submitted to the Borrower by such Lenders shall
be conclusive and binding for all purposes, absent manifest error.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Lending Office
to perform its obligations hereunder to make Advances or to continue to fund or
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37
maintain Advances hereunder, then, on notice thereof and demand therefor by the
Required Lenders to the Borrower through the Administrative Agent, (i) each
Advance will automatically, on such demand, cease to bear interest pursuant to
Section 2.06(a) and from such demand bear interest at a rate per annum equal at
all times to the sum of (A) the Base Rate in effect from time to time plus (B)
6.25%, payable in arrears semi-annually on the last day of each December and
June until the Administrative Agent shall notify the Borrower that such Lender
has determined that the circumstances causing such suspension no longer exist,
and (ii) the Borrower shall pay interest on the unpaid principal amount of each
Advance made after the giving of such notice by the Required Lenders from the
date of such Advance until the earlier of (A) the payment in full of such
Advance and (B) the date upon which the Administrative Agent has notified the
Borrower that such Lenders have determined that the circumstances causing such
suspension no longer exist, at a rate per annum equal to the actual cost
incurred by the Lenders in making such Advance plus 6.25%, payable in arrears
semi-annually on the last day of December and June; provided that, before making
any such demand, such Lender will use reasonable efforts (consistent with its
internal policy and legal and regulatory restrictions) to designate a different
Lending Office if the making of such a designation would allow such Lender or
its Lending Office to continue to perform its obligations to make Advances or to
continue to fund or maintain Advances and would not, in the judgment of such
Lender, be otherwise disadvantageous to such Lender. A certificate as to the
rate referred to in clause (ii) above submitted to the Borrower by such Lenders
shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.10. Payments and Computations. (a) The Borrower shall make each
payment hereunder and under the Notes issued hereunder not later than 11:00 A.M.
(New York City time) on the day when due in U.S. dollars to the Administrative
Agent at the Administrative Agent's Account in same-day funds. The
Administrative Agent will promptly thereafter cause to be distributed like funds
relating to the payment of principal or interest or fees ratably (other than
amounts payable pursuant to Section 2.09, 2.11 or 8.04(c)) to the Lenders
entitled thereto for the account of their respective Lending Offices, and like
funds relating to the payment of any other amount payable to any Lender to such
Lender for the account of its Lending Office, in each case to be applied in
accordance with the terms of this Agreement. Upon its acceptance of an
Assignment and Acceptance and recording of the information contained therein in
the Register pursuant to Section 8.07(d), from and after the effective date
specified in such Assignment and Acceptance, the Administrative Agent shall make
all payments hereunder and under the Notes issued hereunder in respect of the
interest assigned thereby to the Lender assignee thereunder, and the parties to
such Assignment and Acceptance shall make all appropriate adjustments in such
payments for periods prior to such effective date directly between themselves
and the Borrower shall have no further obligation to such assignee with respect
to such adjustments.
(b) Promptly on request by any Lender, the Borrower will deliver to such
Lender a Note payable to the order of such Lender.
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(c) All computations of interest based on the Base Rate shall be made by
the Administrative Agent on the basis of a year of 365 or 366 days, as the case
may be, and all computations of other interest and of fees shall be made by the
Administrative Agent on the basis of a year of 360 days, in each case for the
actual number of days (including the first day but excluding the last day)
occurring in the period for which such interest or fees are payable. Each
determination by the Administrative Agent of an interest rate hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes issued hereunder
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or commitment
fee, as the case may be; provided that, if such extension would cause payment of
interest on or principal of Advances to be made in the next following calendar
month, such payment shall be made on the next-preceding Business Day.
(e) Unless the Administrative Agent shall have received notice from the
Borrower prior to the date on which any payment is due to the Lenders hereunder
that the Borrower will not make such payment in full, the Administrative Agent
may assume that the Borrower has made such payment in full to the Administrative
Agent on such date and the Administrative Agent may, in reliance upon such
assumption, cause to be distributed to each Lender on such due date an amount
equal to the amount then due such Lender. If and to the extent the Borrower
shall not have so made such payment in full to the Administrative Agent, each
Lender shall repay to the Administrative Agent forthwith on demand such amount
distributed to such Lender together with interest thereon, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to the Administrative Agent, at the Federal Funds Rate.
(f) The obligation of the Borrower to make any payment under this Agreement
or any other Loan Document, including without limitation payments of principal,
interest, fees, costs and expenses due in accordance with the terms of the Loan
Documents, shall be unconditional and absolute, irrespective among other things
of the following:
(i) any set-off, counterclaim, recoupment, deduction, abatement,
suspension, diminution, reduction, defense or other right that the Borrower
may have against the Vendor at any time for any reason whatsoever arising
under or pursuant to the Supply Agreement or otherwise relating to the
purchase of goods, equipment, other property or services from or by the
Vendor;
(ii) any defect in the condition, design, operation or fitness for use
of, or any damage to or loss or destruction of, any equipment or material
provided by the Vendor;
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39
(iii) any actual or alleged default by the Vendor or any other Person
under the Supply Agreement; or
(iv) any other fact or circumstance relating to the Supply Agreement.
SECTION 2.11. Taxes. (a) Any and all payments by the Borrower hereunder or
under the Notes issued hereunder shall be made, in accordance with Section 2.10,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender and the Administrative
Agent, taxes that are imposed on its overall net income by the United States and
taxes that are imposed on its overall net income (and franchise taxes imposed in
lieu thereof) by the state or foreign jurisdiction under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or any
political subdivision thereof and, in the case of each Lender, taxes that are
imposed on its overall net income (and franchise taxes imposed in lieu thereof)
by the state or foreign jurisdiction of such Lender's Lending Office or any
political subdivision thereof (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities in respect of payments
hereunder or under the Notes being hereinafter referred to as "Taxes"). If the
Borrower shall be required by law to deduct any Taxes from or in respect of any
sum payable hereunder or under any Note to any Lender or the Administrative
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.11) such Lender or the Administrative Agent
(as the case may be) receives an amount equal to the sum it would have received
had no such deductions been made, (ii) the Borrower shall make such deductions
and (iii) the Borrower shall pay the full amount deducted to the relevant
taxation authority or other authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, performing under, or otherwise with respect to,
this Agreement, the Notes or the other Loan Documents (hereinafter referred to
as "Other Taxes").
(c) The Borrower shall indemnify each Lender and the Administrative Agent
for and hold it harmless against the full amount of Taxes or Other Taxes
(including without limitation taxes of any kind imposed by any jurisdiction on
amounts payable under this Section 2.11) imposed on or paid by such Lender or
the Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
This indemnification shall be made within 30 days from the date such Lender or
the Administrative Agent (as the case may be) makes written demand therefor.
(d) Within 60 days after the date of any payment of Taxes, the Borrower
shall furnish to the Administrative Agent, at its address referred to in Section
8.02, the original or a
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40
certified copy of a receipt evidencing such payment. In the case of any payment
hereunder or under the Notes by or on behalf of the Borrower through an account
or branch outside the United States or by or on behalf of the Borrower by a
payor that is not a United States person, if the Borrower determines that no
Taxes are payable in respect thereof, the Borrower shall furnish, or shall cause
such payor to furnish, to the Administrative Agent, at such address, an opinion
of counsel acceptable to the Administrative Agent stating that such payment is
exempt from Taxes. For purposes of this subsection (d) and subsection (e), the
terms "United States" and "United States person" shall have the meanings
specified in Section 7701 of the Internal Revenue Code or (in the case of a
Lender that has certified in writing to the Administrative Agent that it is not
a "bank" as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form
W-8 (and, if such Lender delivers a form W-8, a certificate representing that
such Lender is not a "bank" for purposes of Section 881(c) of the Internal
Revenue Code, is not a 10-percent shareholder (within the meaning of Section
871(h)(3)(B) of the Internal Revenue Code) of the Borrower and is not a
controlled foreign corporation related to the Borrower (within the meaning of
Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any
successor or other form prescribed by the Internal Revenue Service, certifying
that such Lender is exempt from or entitled to a reduced rate of United States
withholding tax on payments pursuant to this Agreement or the Notes or, in the
case of a Lender providing a form W-8, certifying that such Lender is a foreign
corporation, partnership, estate or trust. If the forms provided by a Lender at
the time such Lender first becomes a party to this Agreement indicates a United
States interest withholding tax rate in excess of zero, withholding tax at such
rate shall be considered excluded from Taxes unless and until such Lender
provides the appropriate form certifying that a lesser rate applies, whereupon
withholding tax at such lesser rate only shall be considered excluded from Taxes
for periods governed by such form; provided that, if at the date of the
Assignment and Acceptance pursuant to which a Lender becomes a party to this
Agreement, the Lender assignor was entitled to payments under subsection (a) in
respect of United States withholding tax with respect to interest paid at such
date, then, to such extent, the term Taxes shall include (in addition to
withholding taxes that may be imposed in the future or other amounts otherwise
includable in Taxes) United States withholding tax, if any, applicable with
respect to the Lender assignee on such date. If any form or document referred to
in this subsection (d) requires the disclosure of information, other than
information necessary to compute the tax payable and information required on the
date hereof by Internal Revenue Service form 1001, 4224 or W-8 (or the related
certificate described above), that the Lender reasonably considers to be
confidential, the Lender shall give notice thereof to the Borrower and shall not
be obligated to include in such form or document such confidential information.
(e) For any period with respect to which a Lender has failed to provide the
Borrower with the appropriate form described in Section 2.11(d) (other than if
such failure is due to a change in law occurring subsequent to the date on which
a form originally was required to be provided, or if such form otherwise is not
required under subsection (d) above), such Lender shall not be entitled to
indemnification under Section 2.11(a) or (c) with respect to Taxes imposed by
the United States by reason of such failure; provided that should a Lender
become
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41
subject to Taxes because of its failure to deliver a form required
hereunder, the Borrower shall take such steps as the Lender shall reasonably
request to assist the Lender to recover such Taxes.
SECTION 2.12. Sharing of Payments, Etc. If any Lender shall obtain any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) on account of the Advances owing to it (other than
pursuant to Section 2.09, 2.11 or 8.04(c)) in excess of its ratable share of
payments on account of the Advances obtained by all the Lenders, such Lender
shall forthwith purchase from the other Lenders such participations in the
Advances owing to them as shall be necessary to cause such purchasing Lender to
share the excess payment ratably with each of them; provided that if all or any
portion of such excess payment is thereafter recovered from such purchasing
Lender, such purchase from each Lender shall be rescinded and such Lender shall
repay to the purchasing Lender the purchase price to the extent of such recovery
together with an amount equal to such Lender's ratable share (according to the
proportion of (a) the amount of such Lender's required repayment to (b) the
total amount so recovered from the purchasing Lender) of any interest or other
amount paid or payable by the purchasing Lender in respect of the total amount
so recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.12 may, to the fullest extent
permitted by law, exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation. With
respect to any reduction or termination of Commitments pursuant to Section 2.04,
the reduction or termination of the Commitments shall be made ratably among the
Commitments of all Lenders outstanding at the time of such reduction or
termination. With respect to any repayment or prepayment made by the Borrower
hereunder other than scheduled amortization pursuant to Section 2.05, such
repayment or prepayment shall be distributed ratably among all Lenders in
proportion with the principal amount of the Advances held by each such Lender
outstanding at the time of such repayment or prepayment. With respect to any
repayment of scheduled amortization made by the Borrower hereunder pursuant to
Section 2.05, such repayments shall be distributed ratably among all Lenders of
the relevant tranche in proportion with the principal amount of the Advances of
such tranche held by each such Lender of outstanding at the time of such
repayment or prepayment.
SECTION 2.13. Use of Proceeds. The proceeds of the Advances shall be
available to the Borrower and its Subsidiaries, directly or indirectly, solely
(a) to make Back-to-Back Loans that shall be used by Operating Subsidiaries to
purchase telecommunications equipment, software, engineering and other services
(i) pursuant to or in accordance with the Supply Agreement and subject to the
limitations set forth therein for the purpose of planning, constructing,
operating and maintaining Networks in the Core Territories and (ii) described in
the letter dated June 18, 1999 from LM Ericsson Telefonaktiebolaget to the
Borrower, (b) to pay interest payable to the Lenders on each interest payment
date occurring on or prior to the first anniversary of the Amendment Effective
Date and (c) to pay fees payable pursuant to Section 2.03 and expenses payable
pursuant to Section 8.04(a)(i)(A) and (B), in each case with respect to the
Lenders. The proceeds of all Advances to be used as described in clause (a) of
the preceding
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42
sentence shall be paid directly to the financial institution providing
Back-to-Back Loans and the proceeds of such Back-to-Back Loans made to Operating
Subsidiaries in Argentina, Brazil and Peru shall at all times be held in Blocked
Accounts until disbursed to pay invoices under the Supply Agreement.
SECTION 2.14. First Eurodollar Method and Second Eurodollar Method. The
First Eurodollar Method shall be applicable at all times until such time as the
Second Eurodollar Method becomes applicable. If there is a Lender in addition to
or other than the Initial Lender (other than an Affiliate of the Initial Lender)
and the Administrative Agent at the direction of any Lender shall have notified
the Borrower that the Second Eurodollar Method shall be applicable, the Second
Eurodollar Method shall become applicable immediately as of the date of such
notice for all new Advances made as of and following the date of such notice.
After becoming applicable, the Second Eurodollar Method shall remain applicable
at all times thereafter.
SECTION 2.15. Redistribution of Payments. In the event that a repayment
under Section 2.05 or a prepayment under Section 2.08 is required to be
redistributed by the Lenders to the lenders (the "Other Lenders") under another
Permitted Loan Agreement (as defined in the Intercreditor Agreement) pursuant to
Section 4.2 or 4.3 of the Intercreditor Agreement, (i) the Borrower authorizes
the Lenders to act as its agent in connection with such redistribution and make
such redistribution to the Other Lenders on its behalf and acknowledges that any
amount so redistributed shall be deemed not to have been paid by the Borrower to
the Lenders in their capacity as Lenders hereunder and (ii) the Lenders agree to
act as agent for the Borrower in connection with such redistribution and agree
to make such redistribution to the Other Lenders on its behalf. In the event
that a repayment or prepayment made by the Borrower pursuant to another
Permitted Loan Agreement to the Other Lenders party thereto is required to be
redistributed by such Other Lenders pursuant to Section 4.2 or 4.3 of the
Intercreditor Agreement, the Lenders acknowledge that any amount so
redistributed (I) shall have been paid by the Other Lenders acting as agent for
the Borrower in connection with such redistribution, (II) shall be deemed to
have been paid by the Borrower to the Lenders in respect of the Advances
pursuant to Section 2.05 or 2.08, as the case may be, and (III) shall be
allocated among the Lenders in accordance with Section 2.12.
ARTICLE III
CONDITIONS TO EFFECTIVENESS AND LENDING
SECTION 3.01. Conditions Precedent to Effectiveness of Section 2.01(a).
Certain conditions were required to be fulfilled by the Borrower prior to the
initial Borrowing under the Original Credit Agreement. On or prior to August 27,
1999, the Administrative Agent received certain documents and other evidence as
to the satisfaction of such conditions, satisfactory to the Administrative Agent
(and, to the extent required, to each Lender) in form and
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43
substance, or such conditions were waived in accordance with the Original Credit
Agreement, and as a result Section 2.01(a) of this Agreement became effective on
and as of August 27, 1999 (the "Tranche A Effective Date").
SECTION 3.02. Conditions Precedent to Each Borrowing. The obligation of
each Lender having a Commitment to make an Advance on the occasion of each
Borrowing shall be subject to the conditions precedent that on the date of such
Borrowing the following statements shall be true (and each of the giving of the
applicable Notice of Borrowing and the acceptance by the Borrower of the
proceeds of such Borrowing shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing such statements are true):
(a) the representations and warranties contained in Section 4.01 shall
be correct in all material respects on and as of the date of such Borrowing
(or, to the extent stated to relate to an earlier date, as of such earlier
date), before and after giving effect to such Borrowing and to the
application of the proceeds therefrom, as though made on and as of such
date,
(b) no addition or amendment to the authorizations, approvals or other
actions by, and notices or filings with, any governmental authority or
third party set forth on the Schedule 4.01(f) delivered on the Tranche A
Effective Date shall materially adversely affect (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes or any other Loan Document to which it is or is to be
a party or for the consummation of the transactions contemplated hereby and
thereby, (ii) the grant of the Liens granted by any Loan Party pursuant to
this Agreement, the Security Agreements and the Notes (including to the
extent permitted by applicable law and subject to Permitted Liens and
Shared Liens the first-priority nature thereof) other than Permitted Liens
and Shared Liens and (iii) the exercise by the Administrative Agent, the
Collateral Agent or any Lender of its rights under this Agreement, the
Notes or any other Loan Document or of the remedies in respect of the
Collateral granted pursuant to the Security Agreements, in each case as
reasonably determined by the Lenders,
(c) no event shall have occurred and be continuing, or would result
from such Borrowing or from the application of the proceeds therefrom, that
constitutes a Default, and
(d) at any time that the Initial Lender shall have any Commitment
hereunder, the Supply Agreement has not been terminated by Vendor for cause
in accordance with Section 15.2(b) of the Relationship Agreement or the
corresponding provision of any Specific Agreement or by Borrower without
cause, in each case in accordance with the terms thereof,
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44
provided that the provisions of clauses (a), (b) and (c) of this Section
3.02 shall not be applicable with respect to any Borrowing to the extent
the proceeds thereof will be used to pay interest in accordance with
Section 2.13.
SECTION 3.03. Conditions Precedent to Effectiveness of this Agreement. This
Agreement shall become effective on and as of the first date (the "Amendment
Effective Date") on which the following conditions precedent have been
satisfied:
(a) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of their Subsidiaries pending
or, to the best of the Borrower's knowledge, threatened before any court,
governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect other than the matters described on Schedule
3.01(a)(i) hereto (the "Disclosed Litigation") or (ii) purports to
adversely affect the legality, validity or enforceability of any material
provision of this Agreement, any Note or any other Loan Document or the
consummation of any of the transactions contemplated hereby.
(b) All material governmental and third party consents and approvals
necessary in connection with the transactions contemplated hereby which are
required to be obtained by the Borrower in connection with its activities
being conducted on such date and all Regulatory Permits shall have been
obtained and shall remain in effect; all applicable waiting periods shall
have expired without any action being taken by any competent authority.
(c) The Borrower shall have a minimum amount of $145,000,000 in fully
paid-up equity capital, which shall include expenditures of the Parent
prior to the date hereof in connection with the development of the business
of the Borrower and its Subsidiaries.
(d) The Supply Agreement shall have been duly executed and delivered
and be in full force and effect and there shall be no material default
thereunder, and the Administrative Agent shall have received a certified
copy thereof.
(e) The Intercreditor Agreement shall have been duly executed and
delivered and be in full force and effect and there shall be no material
default thereunder, and the Administrative Agent shall have received a
certified copy thereof.
(f) The Collateral Agent Letter shall have been duly executed and
delivered and be in full force and effect, and the Administrative Agent
shall have received a certified copy thereof.
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45
(g) All stock and capital contributions of the Borrower's Subsidiaries
shall be owned by the Borrower or one or more of the Borrower's
Subsidiaries, in each case free and clear of any Liens (except for the
Liens created pursuant to the Security Agreements), except as set forth in
Section 4.01(b).
(h) The Collateral Agent and/or the Lenders shall have a valid and
perfected first-priority Lien and security interest in the capital stock
and capital contributions of all the Operating Subsidiaries and, to the
extent permitted by applicable law and subject to Permitted Liens, in the
Collateral referred to in the Security Agreements, all searches necessary
or desirable in connection with such Liens and security interests having
been duly made.
(i) The Administrative Agent shall have received on or before the
Tranche A Effective Date the following, each dated such day, in form and
substance satisfactory to the Administrative Agent and (except for the
Notes) in sufficient copies for each Lender:
(i) Notes payable to the order of the Initial Lender.
(ii) A business plan, in form and substance satisfactory to the
Lenders.
(iii) A copy of the annual audit report for the Borrower for the
most recent fiscal year of the Borrower and its Subsidiaries,
containing Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of such fiscal year and
Consolidated and consolidating statements of income and cash flows of
the Borrower and its Subsidiaries for such fiscal year.
(iv) Consolidated and consolidating balance sheets of the
Borrower and its Subsidiaries as of the end of each fiscal quarter
since the most recent fiscal year of the Borrower and Consolidated and
consolidating statements of income and cash flows of the Borrower and
its Subsidiaries for the period commencing at the end of the most
recent fiscal year of the Borrower and ending with the end of its most
recent fiscal quarter.
(v) Evidence that the Borrower and its Subsidiaries have obtained
Licenses sufficient to permit the operation of the Networks up until
the seventh anniversary of the date hereof, in form and substance
satisfactory to the Lenders.
(vi) Certificates of the Borrower and each of its Subsidiaries
executing a Guaranty or Security Agreement on or prior to the
Amendment Effective Date, in each case attaching the charter of such
Person and each amendment thereto on file in such office and
certifying that (A) such charter is a true and complete copy thereof,
(B) such amendments are the only amendments to such charter, (C) such
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46
Person has paid all franchise taxes to the date of such certificate
and (D) such Person is duly organized and, if applicable, in good
standing under the laws of its jurisdiction of incorporation.
(vii) Certificates of each of the Borrower and its Subsidiaries
executing a Guaranty or Security Agreement on or prior to the
Amendment Effective Date, signed on behalf of each such Person by the
President, a Vice President, the Secretary or any Assistant Secretary
of each such Person (the statements made in such certificate shall be
true and correct on and as of the Tranche A Effective Date),
certifying as to:
(A) the absence of any amendments to the charter of each
such Person since the date of the certificate referred to in
3.01(i)(vi);
(B) a true and correct copy of the by-laws of such Person as
in effect on the Tranche A Effective Date;
(C) the due incorporation and good standing of such Person
as a corporation or a limited liability company, as the case may
be, under the laws of the jurisdiction of its organization and
the absence of any proceeding for the dissolution or liquidation
of such Person;
(D) that attached thereto is a true and complete copy of
resolutions duly adopted by the board of directors or the general
assembly of partners, as the case may be, of such Person
authorizing the execution, delivery and performance of each Loan
Document to which such Person is a party;
(E) in the case of each such Person, that such resolutions
have not been revoked, annulled or modified in any manner and are
in full force and effect; and
(F) in the case of each such Person, the incumbency and
specimen signature of each officer of such Person executing each
of the Loan Documents to which such Person is a party, on behalf
of such Person, and a certification of another officer of each
such Person as to the signature of the officers signing
certificates referred to in this subclause (vii).
(viii) Security Agreements, in form and substance reasonably
satisfactory to the Administrative Agent, duly executed by the
Borrower, each
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47
Intermediate Holding Company Subsidiary and each Operating Subsidiary
party thereto, together with:
(A) certificates representing any Pledged Shares referred to
therein;
(B) executed copies of any proper financing statements and
other filings and registrations filed in order to perfect and
protect the Liens created by the Security Agreements, covering
the Collateral described therein, and any acknowledgments which
may be customarily delivered by the appropriate authorities of
the jurisdictions in which such Liens have been perfected and
protected, in each case in form and substance satisfactory to the
Lenders;
(C) copies of any Assigned Agreements referred to in the
Security Agreements; and
(D) evidence that all other action necessary as of such date
in order to perfect and protect the Liens created by the Security
Agreements has been taken.
(ix) Guaranties duly executed by each Operating Subsidiary and
Intermediate Holding Company Subsidiary.
(x) A favorable opinion of Stroeter & Ohno Advogados Associados,
Brazilian counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xi) A favorable opinion of Cibils, Blaquier & Boneo Villagas,
Argentine counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xii) A favorable opinion of Posse Herrera & Ruiz, Colombian
counsel for the Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent.
(xiii) A favorable opinion of Arias, Fabrega & Fabrega,
Panamanian counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
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48
(xiv) A favorable opinion of Miranda & Amado, Peruvian counsel
for the Loan Parties, in form and substance reasonably satisfactory to
the Administrative Agent
(xv) A favorable opinion of Milbank, Tweed, Hadley & McCloy, New
York counsel for the Loan Parties, in form and substance reasonably
satisfactory to the Administrative Agent.
(xvi) A favorable opinion of Pinheiro Guimaraes - Advogados,
Brazilian counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xvii) A favorable opinion of Marval, O'Farrell & Mairal,
Argentine counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xviii) A favorable opinion of Arenas, Lopez, Montealgre y
Plazas, Colombian counsel for the Secured Creditors, in form and
substance reasonably satisfactory to the Administrative Agent.
(xix) A favorable opinion of Aleman, Cordero, Galindo & Lee,
Panamanian counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xx) A favorable opinion of Estudio Luis Echecopar Garcia,
Peruvian counsel for the Secured Creditors, in form and substance
reasonably satisfactory to the Administrative Agent.
(xxi) A favorable opinion of Wilson, Sonsini, Goodrich and
Rosati, U.S. counsel for the Loan Parties, in form and substance
reasonably satisfactory to the Administrative Agent.
(xxii) Copies of process-agent letters for each of the Loan
Parties organized in a jurisdiction outside the United States.
(j) The Borrower shall have paid all accrued fees and expenses of the
Agents and the Lenders (including the accrued fees and expenses of counsel
and local counsel to the Agents and the Lenders).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
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49
SECTION 4.01. Representations and Warranties of the Borrower. The Borrower
represented and warranted as follows as of the Tranche A Effective Date, and
represents and warrants as follows on the Amendment Effective Date and on the
date of each Borrowing hereunder:
(a) The Borrower (i) has been duly formed and is validly existing and
in good standing as a corporation under the laws of Delaware with full
corporate power and authority (including without limitation all material
governmental licenses, permits and other approvals) necessary to conduct
its business as described herein, (ii) is duly qualified and is authorized
to do business and is in good standing in each other jurisdiction in which
the conduct of its business requires it to be so qualified or authorized
and (iii) has all requisite corporate power and authority to own its
properties and to carry on its business as now conducted and as proposed to
be conducted.
(b) Set forth on Schedule 4.01(b) hereto as amended from time to time
pursuant to Section 5.03(u) is a complete and accurate list of all
Operating Subsidiaries, Intermediate Holding Company Subsidiaries and
Insignificant Subsidiaries showing (as to each such Subsidiary) whether it
is an Operating Subsidiary, an Intermediate Holding Company Subsidiary or
an Insignificant Subsidiary, the jurisdiction of its incorporation, the
number of shares of each class of capital stock or participations
authorized, and the number outstanding, and the percentage of the
outstanding shares or participations of each such class owned (directly or
indirectly) by the Borrower and the number of shares or participations
covered by all outstanding options, warrants, rights of conversion or
purchase and similar rights. All of the outstanding capital stock or
participations of all of the Subsidiaries set forth on Schedule 4.01(b)
hereto, as amended from time to time pursuant to Section 5.03(u), has been
fully issued, is fully paid and non-assessable and is owned by the Borrower
or one or more of its Subsidiaries, except as set forth on Schedule 4.01(b)
hereto, free and clear of all Liens, except those created by the Security
Agreements. Each Subsidiary set forth on Schedule 4.01(b) hereto, as
amended from time to time pursuant to Section 5.03(u), (i) is a corporation
or a limited liability company duly organized, validly existing and, if
applicable, in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and, if applicable, in good standing
as a foreign corporation in each other jurisdiction in which the conduct of
its business requires it to so qualify and (iii) has all requisite
corporate power and authority to own or lease and operate its properties
and to carry on its business as now conducted and as proposed to be
conducted. Other than as set forth in Schedule 4.01(b) hereto, no Person
other than the Borrower has any rights to acquire any capital stock or
participations of any Operating Company Subsidiary or Intermediate Holding
Company Subsidiary of the Borrower during the period when any Advances
shall be outstanding.
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50
(c) Each Loan Party has full corporate power and authority to enter
into, deliver and perform its obligations under this Agreement, the Notes
and each other Loan Document to which it is or is to be a party and to
consummate the transactions contemplated hereby and thereby, and has taken
all necessary corporate action to authorize the execution, delivery and
performance by it of this Agreement, the Notes and each other Loan
Document.
(d) The execution, delivery and performance by each Loan Party of this
Agreement, the Notes and each other Loan Document to which it is or is to
be a party and the consummation of the transactions contemplated hereby and
thereby are within its corporate powers and shall not and will not (i)
contravene (A) its organizational documents or (B) any law, rule,
regulation or order or any contractual restriction binding on or affecting
it or (ii) conflict with or result in a breach of, constitute a default
under or result in the creation or imposition of any Lien (except for the
Liens created pursuant to the Loan Documents) upon any of its property or
assets or under any contract, loan agreement, indenture, mortgage, deed of
trust, lease or other instrument to which it is a party or by which it is
bound or to which the property or assets of it is subject, except where
such contravention, conflict, breach, default or failure to comply would
not have a Material Adverse Effect.
(e) No Loan Party is in violation of any law, rule, regulation, order,
writ, judgment, injunction, decree, determination or award or in breach of
any contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which is reasonably likely to
have a Material Adverse Effect.
(f) Except as otherwise described on Schedule 4.01 (f) as amended from
time to time pursuant to Section 5.03 (u) no authorization or approval or
other action by, and no notice to or filing with, any governmental
authority or any other third party is required for (i) the due execution,
delivery, recordation, filing or performance by any Loan Party of this
Agreement, the Notes or any other Loan Document to which it is or is to be
a party or for the consummation of the transactions contemplated hereby and
thereby, (ii) the grant of the Liens granted by any Loan Party pursuant to
this Agreement, the Security Agreements, the Blocked Account Letter
Agreements and the Notes (including to the extent permitted by applicable
law and subject to Permitted Liens and Shared Liens the first-priority
nature thereof) other than Permitted Liens and Shared Liens and (iii) the
exercise by the Administrative Agent, the Collateral Agent or any Lender of
its rights under this Agreement, the Notes or any other Loan Document or of
the remedies in respect of the collateral granted pursuant to the Security
Agreements.
(g) This Agreement, the Notes and each other Loan Document to which it
is a party have been duly executed and delivered by the Borrower and, when
executed and delivered hereunder, will constitute legal, valid and binding
obligations of the Borrower
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51
and each of its Subsidiaries that is a party thereto, enforceable against
the Borrower and such Subsidiaries in accordance with their respective
terms except as such enforceability may be limited by (i) applicable
bankruptcy, insolvency, liquidation, fraudulent conveyance, reorganization,
concordato, moratorium or similar laws now or hereafter in effect affecting
the enforcement of creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
(h) The balance sheet of the Borrower as at September 30, 1999 and the
related statement of income and cash flows of the Borrower for the three
month period then ended, copies of which have been furnished to each
Lender, fairly present in all material respects (subject to year-end audit
adjustments) the financial condition of the Borrower as at such date and
the results of operations of the Borrower for the period ended on such
date, all in accordance with generally accepted accounting principles
applied on a consistent basis. The Consolidated forecasted balance sheets,
income statements and cash flow statements of the Borrower and its
Subsidiaries delivered to the Lenders in connection with the Project were
prepared in good faith on the basis of the assumptions stated therein,
which assumptions the Borrower believes were fair in the light of
conditions existing at the time of delivery of such forecasts, and
represented, at the time of delivery, the Borrower's best estimate of its
future financial performance, it being understood that nothing set forth in
such Consolidated forecasted balance sheets, income statements and cash
flow statements shall be construed as a representation, warranty, covenant,
undertaking, guaranty or assurance by the Borrower or any of its
Subsidiaries as to the future financial or business performance of the
Borrower and its Subsidiaries and that the forward-looking statements
contained in such Consolidated forecasted balance sheets, income statements
and cash flow statements involve known and unknown risks, contingencies,
uncertainties and other factors that may cause the actual results, events
or developments pertaining to the Borrower and its Subsidiaries to be
materially and adversely different from any future results, events or
developments contemplated, expressed or implied by such Consolidated
forecasted balance sheets, income statements and cash flow statements.
Since September 30, 1999, there has been no Material Adverse Change.
(i) No information, exhibit or report furnished in writing by (or on
behalf of) the Borrower to the Administrative Agent, the Collateral Agent
or any Lender in connection with the negotiation of the Loan Documents or
pursuant to the terms of the Loan Documents contained at the time when
furnished any untrue statement of material fact or omitted to state a
material fact necessary to make the statements made therein (taken as a
whole) not misleading.
(j) Except as otherwise described on Schedule 3.01(a)(i), there is no
pending or, to the best of the Borrower's knowledge, threatened action,
suit, investigation,
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52
litigation or proceeding, including without limitation any Environmental
Action, affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator that (i) could be reasonably likely to
have a Material Adverse Effect or (ii) purports to affect the legality,
validity or enforceability of any Loan Document or the consummation of the
transactions contemplated hereby or thereby, and there has been no material
adverse change in the status, or financial effect on the Borrower or any of
its Subsidiaries, of the Disclosed Litigation from that described on
Schedule 3.01(a)(i) hereto.
(k) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying Margin Stock, and no proceeds of
any Advance will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin
Stock.
(l) The operations and properties of the Borrower and Subsidiaries
comply in all material respects with all applicable Environmental Laws and
Environmental Permits, except where the failure to be in such compliance
could not reasonably be expected to have a Material Adverse Effect.
(m) The Borrower and each of its Subsidiaries has filed, has caused to
be filed or has been included in all tax returns (national, departmental,
local, municipal and foreign) required to be filed and has paid or caused
to be paid all taxes, assessments, fees and other charges shown thereon to
be due, together with applicable interest and penalties, other than the
payment of any taxes, assessment, fees or other charges (i) the nonpayment
of which would not have a Material Adverse Effect or (ii) that are being
contested in good faith and by proper proceedings and for which appropriate
reserves are being maintained.
(n) The obligations of the Borrower and each of its Subsidiaries under
this Agreement, the Notes and each other Loan Document to which it is or is
to be a party constitute direct, unconditional and unsubordinated
obligations of the Borrower.
(o) Set forth on Schedule 4.01(o) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all of the
Liens created by, or otherwise existing on property of the Borrower and
each of its Subsidiaries in favor of any other Person showing the parties
listed as the secured parties thereunder, subject matter and term thereof,
except for Liens created pursuant to the Loan Documents.
(p) The Borrower and its Subsidiaries have valid and uncontested legal
title to and are the beneficial owners of the Collateral and all of their
respective other material properties and assets, free and clear of all
Liens other than Permitted Liens and the Liens created pursuant to the Loan
Documents.
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53
(q) The Borrower and each of its Subsidiaries is in compliance in all
material respects with all applicable laws, ordinances, rules, regulations,
and requirements of all governmental authorities (including without
limitation certificates, permits, franchises and other governmental
authorizations necessary to the ownership of its respective properties or
to the conduct of its respective business, Environmental Laws and laws with
respect to social security and pension fund obligations), except in each
case to the extent where such failure to comply would not have a Material
Adverse Effect.
(r) Neither the Borrower nor any of its Subsidiaries is an "investment
company", or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended. Neither the making of any
advance under this Agreement nor the application of the proceeds or
repayment thereof by the Borrower, nor the consummation of the other
transactions contemplated hereby, shall violate any provision of such Act
or any rule, regulation or order thereunder.
(s) The Borrower is, individually and together with its Subsidiaries,
Solvent.
(t) Set forth on Schedule 4.01(t) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all leases
of real property (other than leases of cell sites) under which the Borrower
or any of its Subsidiaries is the lessee, showing the street address,
county or other relevant jurisdiction, state, lessor, lessee, expiration
date and annual rental cost thereof.
(u) Neither the Borrower nor any of its Subsidiaries has any patents,
trademarks, trade names, service marks or copyrights that are material to
the conduct of its business.
(v) Set forth on Schedule 4.01(v) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of (i) all
Existing Debt in excess of $250,000 showing the principal amount
outstanding thereunder and (ii) the total aggregate amount of all Existing
Debt equal to or less than $100,000.
(w) Set forth on Schedule 4.01(w) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
Investments in excess of $100,000 held by the Borrower or any of its
Subsidiaries, showing the amount, obligor or issuer and maturity, if any,
thereof.
(x) Set forth on Schedule 4.01(x) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
Material Contracts of the Borrower and its Subsidiaries, showing the
parties thereto. Each such Material Contract
<PAGE>
54
has been duly authorized, executed and delivered by the Borrower or its
Subsidiary, as the case may be, is in full force and effect and is binding
upon and enforceable against the Borrower or its Subsidiary, as the case
may be, in accordance with its terms except as such enforceability may be
limited by (i) applicable bankruptcy, insolvency, liquidation, fraudulent
conveyance, reorganization, concordato, moratorium or similar laws now or
hereafter in effect affecting the enforcement of creditors' rights
generally, and (ii) general principles of equity (regardless of whether
such enforceability is considered in a proceeding at law or in equity), and
there exists no default under any Material Contract by the Borrower or its
Subsidiaries, as the case may be, which default could reasonably be
expected to have a Material Adverse Effect.
(y) Set forth on Schedule 4.01(y) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
licenses and spectrum rights (other than licenses relating to general
business activities and the ownership and use of property applicable to
persons generally and not specifically required to engage in business of
the type proposed to be conducted by the Borrower and its Subsidiaries)
providing for the right to operate the Networks in the Territory.
(z) Set forth on Schedule 4.01(z) hereto, as amended from time to time
pursuant to Section 5.03(u), is a complete and accurate list of all
insurance policies naming the Lenders and the other Secured Creditors as
loss payees thereunder. The amounts of such insurance and the risks covered
thereby are the same as those provided for in the insurance policies
usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Borrower or such
Subsidiary operates and such insurance is sufficient to cover the risks
associated with the conduct of the Borrower's or such Subsidiary's business
and the Project.
(aa) The activities of the Borrower's Subsidiaries contemplated by the
Project and this Agreement are commercial in nature rather than
governmental or public. The Borrower's Subsidiaries are not entitled to any
right of immunity on the grounds of sovereignty with respect to such
activities in any legal action or proceeding to enforce, or collect upon,
or otherwise arising out of or relating to this Agreement, any of the other
Loan Documents or Material Contracts.
(bb) As of the date hereof, there is no tax, levy, impost, deduction,
charge or withholding imposed, levied or made by or in any Core Territory
or New York or any political subdivision or taxing authority thereof or
therein (i) on or by virtue of the execution, delivery, performance,
enforcement or admissibility into evidence of this Agreement or any of the
other Loan Documents or (ii) on any payment to be made by the Borrower's
Subsidiaries pursuant to this Agreement or any of the other Loan Documents,
except that (A) all payments made under a Guaranty granted by the Operating
Subsidiary that is a resident of Brazil will be subject to withholding
income tax at the rate of 15% (or
<PAGE>
55
25% in case of payments made to a Person that is a resident of a country
that does not tax income or taxes it at a maximum rate of 20%) or such
lower rate as provided in an applicable tax treaty between Brazil and
another country, and pursuant to Brazilian tax laws, a Brazilian Loan Party
may pay such additional amounts as will result in receipt by the applicable
payee of such amounts as would have been received by them had no such
withholding been required; (B) (i) any interest payments made by an
Argentine Loan Party may be subject to Argentine withholding tax at the
current rate of 35%; (ii) a court tax of up to 3% of the amount in
controversy imposed with respect to the institution of any judicial
proceeding to enforce any claim in the City of Buenos Aires or in any other
jurisdiction in Argentina; and (iii) each Chattel Mortgage registered
pursuant to the Master Chattel Mortgage Agreement will be subject to
registration fee of 0.2% of the amount secured by such Chattel Mortgage (in
the case of the Province of Buenos Aires), and to a stamp tax at a rate of
1.0% (subject to the provisions of the Fiscal Code of the Province of
Buenos Aires) on the amount secured (in the case of the Province of Buenos
Aires); (C) in the case of Colombia, the value of the foreclosure in any
auction in Colombia is subject to a 3% tax and the payments made by the
Colombian Operating Subsidiary to any Colombian trustee appointed under the
Loan Documents may be subject to a tax; (D) in the case of Panama, (i)
interest and other financial commissions and charges payable under the
Credit Agreement allocated to the value of the credits assigned for the
Panama operation would be subject to withholding tax at a 6% rate provided
such payments were made from Panama and (ii) documentary taxes of US$1.00
per US$1000.00 of face value would be payable on the Credit Agreement and
the Security Agreements at the time of enforcement in a Panama court should
this take place; and (E) in the case of Peru, payments of interest, fees,
commissions and other expenses made by the Borrower under any Loan Document
to Persons (excluding individuals) domiciled outside of Peru are subject to
(1) Peruvian income withholding tax, at the current rate of 1%, so long as
(x) the interest rate borne by the loans under the Loan Documents does not
exceed LIBOR plus 7% or the Prime Rate plus 6%, (y) there is no economic
link between the Borrower and the Lenders to whom such interest is paid and
(z) the proceeds, if in cash, of the loans under the Loan Documents are
received in Peru by the Borrower and (2) Peruvian value added tax (VAT) at
a rate of 18%, solely to the extent such amounts are paid to non-banking,
non-financial or non-credit institutions. With respect to Peru, (I) any
portion of the interest rates applying to the loans under the Loan
Documents that exceeds the rates specified in clause (ii)(E)(1)(x) above
will be subject to taxation at a 30% income tax withholding rate; (II) if
the conditions specified in clause (ii)(E)(1)(y) or (z) are not satisfied,
interest on the relevant loans under the Loan Documents will be subject to
taxation at a 30% income tax withholding rate (for this purpose, all
expenses and commissions, premiums and any other sum payable in addition to
interest agreed upon that are paid to a foreign beneficiary will also be
considered as interest).
(cc) (intentionally omitted)
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56
(dd) Set forth on Schedule 4.01(dd) hereto, as amended from time to
time pursuant to Section 5.03(u), is a complete and accurate list of all
Plans, Multiemployer Plans and Welfare Plans.
(ee) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan that, when taken together with all other ERISA
Events that are reasonably expected to occur with respect to any Plan,
could reasonably be expected to have a Material Adverse Effect.
(ff) Schedule B (Actuarial Information) to the most recent annual
report (Form 5500 Series) for each Plan, copies of which have been filed
with the Internal Revenue Service and furnished to the Lender Parties, is
complete and accurate and fairly presents the funding status of such Plan,
and since the date of such Schedule B there has been no material adverse
change in such funding status.
(gg) Neither any Loan Party nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability exceeding U.S.$50,000
to any Multiemployer Plan.
(hh) Neither any Loan Party nor any ERISA Affiliate has been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no such Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title IV of
ERISA.
(ii) Set forth on Schedule 4.01(ii) hereto, as amended from time to
time pursuant to Section 5.03(u), is a complete and accurate list of all
Licenses with respect to the ownership and operation of digital wireless
local loop data networks constituting a portion of a Network in each of the
Core Territories as well as any other part of the Territory that are
necessary for the Borrower to fulfill the financial and operational
projections set forth in the Borrower's business plan dated October 29,
1999, including all Licenses with respect to rights to use spectrum in the
15 GHz, 18 GHz, 23 GHz and 38 GHz bands.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower shall:
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57
(a) Compliance with Laws, Etc. Comply, and cause each of its
Subsidiaries to comply, in all material respects, with all applicable laws,
rules, regulations and orders, such compliance to include, without
limitation, compliance with Environmental Laws, except when contested in
good faith by appropriate proceedings and for which an adequate reserve has
been established or where non-compliance could not reasonably be expected
to have a Material Adverse Effect.
(b) Payment of Taxes, Etc. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided that neither the Borrower
nor any of its Subsidiaries shall be required to pay or discharge any such
tax, assessment, charge, levy or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors, or where
non-payment could reasonably be expected to have a Material Adverse Effect.
(c) Compliance with Environmental Laws. Comply, and cause each of its
Subsidiaries and all lessees and other Persons occupying its properties to
comply, in all material respects, with all Environmental Laws and
Environmental Permits applicable to its operations and properties except
where noncompliance could not reasonably be expected to have a Material
Adverse Effect; obtain and renew, and cause each of its Subsidiaries to
obtain and renew, all Environmental Permits necessary for its operations
and properties except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
(d) Maintenance of Insurance. Cause each Operating Subsidiary to
maintain property and third-party liability insurance providing for the
designation of the Collateral Agent as loss payee thereunder with reputable
and internationally recognized insurance companies or associations in such
amounts and covering such risks as is usually carried by companies engaged
in similar businesses and owning similar properties in the same general
areas in which such Operating Subsidiary operates, subject to the
availability of such insurance on reasonable terms in the commercial
insurance market.
(e) Preservation of Existence, Etc. Preserve and maintain, and cause
each of its Subsidiaries to preserve and maintain, its corporate existence
and its rights (contractual and statutory) with respect to the Networks;
provided that the Borrower and its Subsidiaries may consummate any merger
or consolidation permitted under Section 5.02 (c); and provided further
that neither the Borrower nor any of its Subsidiaries shall be required to
preserve any right or franchise if the Board of Directors or the General
Assembly of Partners, as the case may be, of the Borrower or such
Subsidiary shall
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58
determine that the preservation thereof is no longer desirable in the
conduct of the business of the Borrower or such Subsidiary, as the case may
be, and that the loss thereof could not reasonably be expected to have a
Material Adverse Effect.
(f) Visitation Rights. At any reasonable time and from time to time
upon reasonable advance notice, permit the Administrative Agent, the
Collateral Agent or any of the Lenders or any agents or representatives
thereof, to examine and make copies of and abstracts from the records and
books of account of, and visit the properties of, the Borrower and any of
its Subsidiaries, and to discuss the affairs, finances and accounts of the
Borrower and any of its Subsidiaries with any of their officers or
directors and with their independent certified public accountants (at which
discussions representatives of the Borrower may be present if Borrower so
desires).
(g) Keeping of Books. Keep, and cause each of its Subsidiaries to
keep, proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of
the Borrower and each such Subsidiary in accordance with GAAP, in each case
to the extent necessary to enable the Borrower to comply with the periodic
reporting requirements of this Agreement.
(h) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of its properties
that are used or useful in the conduct of its business in good working
order and condition, ordinary wear and tear and obsolescence excepted, and
not commit or suffer any waste with respect to any of its respective
properties except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
(i) Compliance with Terms of Leaseholds. (i) Make all payments and
otherwise perform all obligations in respect of all leases of real property
to which it is a party, keep such leases in full force and effect and use
commercially reasonable efforts to not allow such leases to lapse or to be
terminated or any rights to renew such leases to be forfeited or canceled,
notify the Administrative Agent and the Collateral Agent of any default by
any party with respect to such leases and cooperate with the Administrative
Agent and the Collateral Agent in all respects to cure any such default,
and cause each of its Subsidiaries to do so except where the failure to do
so could not, individually or cumulatively, reasonably be expected to have
a Material Adverse Effect and (ii) request, and cause each Operating
Subsidiary to request, that any landlord, mortgagee or easement grantor of
such Operating Subsidiary give the Collateral Agent and the Administrative
Agent, on a best-efforts basis, notice of any default on the part of the
applicable Operating Subsidiary under any agreement with such Operating
Subsidiary and allow the Collateral Agent and its agents to inspect and
remove Collateral after the occurrence and during the continuance of an
Event of Default.
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59
(j) Performance of Material Contracts. Except where the failure to do
so could not reasonably be expected to have a Material Adverse Effect,
perform and observe in all material respects all the terms and provisions
of each Material Contract to be performed or observed by it, maintain each
such Material Contract in full force and effect and enforce each such
Material Contract in accordance with its terms. For the purposes of this
Agreement, a voluntary termination or suspension of a Material Contract by
the Borrower in accordance with the terms and conditions thereof shall be
deemed to not have a Material Adverse Effect.
(k) New Operating Subsidiaries and Intermediate Holding Company
Subsidiaries. Upon the creation of any Operating Subsidiary or Intermediate
Holding Company Subsidiary not in existence on the date hereof or upon an
Insignificant Subsidiary's becoming an Operating Subsidiary or an
Intermediate Holding Company Subsidiary, the Borrower will at its expense:
(i) cause such Subsidiary to duly execute and deliver to the
Administrative Agent and the Collateral Agent a Guaranty substantially
in the form of Exhibit D-2 (for Intermediate Holding Company
Subsidiaries) or D-1 (for Operating Subsidiaries);
(ii) cause such Subsidiary to duly execute and deliver to the
Administrative Agent and the Collateral Agent an Operating Subsidiary
Security Agreement or Intermediate Holding Company Security Agreement,
as applicable (with such changes thereto as the Administrative Agent
may reasonably request) and such other mortgages, pledges, assignments
and other security agreements, in form and substance reasonably
satisfactory to the Agents, securing payment of all of the obligations
of such Subsidiary under the Guaranty and the obligations of the Loan
Parties under this Agreement and constituting Liens on all Collateral
described therein; and pledge, or cause to be pledged, to the
Collateral Agent on behalf of the Secured Parties, all authorized,
issued and outstanding capital stock or capital contributions of such
Subsidiary; and execute and/or deliver to the Administration Agent
each other document or instrument required to be delivered in
connection with the execution and delivery of such Operating Security
Agreement or Intermediate Holding Company Security Agreement;
(iii) deliver to the Administrative Agent a signed copy of
favorable opinions, addressed to the Agents and the Lenders, of
counsel for the Borrower reasonably acceptable to the Administrative
Agent as to such matters relating to such Operating Subsidiary as
either Agent may reasonably request;
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60
(iv) deliver to the Administrative Agent a copy of a
process-agent letter for such Subsidiary if it is organized in a
jurisdiction outside the United States; and
(v) at any time and from time to time, promptly execute and
deliver any and all further instruments and documents and take all
such other action as either Agent may deem desirable in obtaining the
full benefits of or in preserving the Liens of each Security Agreement
delivered pursuant to this Section 5.01(k) and mortgages and other
agreements and instruments entered into by such Operating Subsidiary.
(l) Obtain and Maintain Licenses and Permits. Obtain, maintain and
comply and cause each of its Subsidiaries to obtain, maintain and comply
with all licenses, permits, approvals or consents and the Licenses and the
Regulatory Permits required to conduct the Borrower's and its Subsidiaries
business in the Territory and make all payments when due of all amounts
owing in respect of the Licenses and any spectrum clearances except (with
respect to Licenses other than Material Licenses) where the failure to do
so could not reasonably be expected to have a Material Adverse Effect.
(m) Maintain Governmental Approvals. Obtain and maintain, and cause
each of its Subsidiaries to obtain and maintain, in full force and effect
all governmental approvals that may be required for the validity or
enforceability of this Agreement, the Notes, each other Loan Document, and
any other agreement entered into in connection with the transactions
contemplated hereby and thereby.
(n) No Transfer of Licenses. Maintain or cause its Subsidiaries to
maintain the Licenses and refrain from transferring any such Licenses to a
third party without prior written approval of the Lenders, except (with
respect to Licenses other than Material Licenses) where the failure to do
so could not reasonably be expected to have a material adverse effect on
the ability of the Borrower to perform its payment obligations under the
Loan Documents.
(o) Syndication Matters. At the Borrower's expense, (i) promptly and
in any event within 30 days after being requested to do so by the Initial
Lender, prepare an information memorandum reasonably satisfactory to the
Initial Lender in form and scope customary for information memoranda
prepared for loan syndications of similar borrowers, thereafter upon
reasonable notice from the Initial Lender provide reasonable updates of the
information contained in such information memorandum and at the time of
delivery of such update cause such information memorandum not to contain
any untrue statement of material fact or omit to state a material fact
necessary to make the statements made therein not misleading during such
period, (ii) make senior managers of the Borrower and its Subsidiaries
reasonably available at meetings with prospective lenders
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61
in connection with the syndication of this Agreement, (iii) do such other
acts and things as the Lender may reasonably request that are customary in
connection with the syndication of credit agreements in order successfully
to syndicate this Agreement and (iv) at the Lenders' expense, cooperate,
and cause the Borrower to cooperate, with the Lenders in obtaining
political risk insurance.
(p) Consularization, Etc. At the Borrower's expense, take such actions
with respect to any Loan Document as may by necessary or appropriate or
reasonably requested by any Agent or Lender in any jurisdiction where any
Loan Party is located in order to ensure the validity or enforceability of
the Loan Documents against the Loan Parties in such jurisdictions,
including without limitation the consularization of the Loan Documents
where the laws of the relevant Core Territory may so require.
(q) Additional Collateral. To the extent the cost of creating,
perfecting and maintaining a Lien on any such Collateral does not,
individually or in the aggregate, exceed the value of any recovery proceeds
reasonably expected to be obtained by the Collateral Agent in connection
with the enforcement of such Lien against such Collateral, within 30 days
after delivering the report required pursuant to Section 5.03(t) with
respect to additional Collateral, cause such relevant Operating Subsidiary,
at its expense, to assign and pledge to the Collateral Agent for the
benefit of the Secured Creditors the property described in such report,
except such property encumbered by Liens permitted pursuant to Section
5.02(b)(vi), pursuant to Security Agreements and other instruments
satisfactory in form and substance to the Collateral Agent; and will cause
such Operating Subsidiary to make such registrations and filings, and do
such other or further acts and things as may be necessary to perfect the
Lien of the Collateral Agent in respect of such property. The Borrower or
such Subsidiary, as the case may be, shall not be required to assign or
pledge any such property if such assignment or pledge is not permitted
under any applicable laws.
SECTION 5.02. Negative Covenants. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower will not:
(a) Indebtedness. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Debt, other than:
(i) Debt owing hereunder and Existing Debt,
(ii) Debt created under Hedge Agreements entered into by the
Borrower,
(iii) Debt of any Person that becomes a Subsidiary of the
Borrower after the date hereof in accordance with the terms of Section
5.02(k)(i) which
<PAGE>
62
Debt is existing at the time such Person becomes a Subsidiary of the
Borrower (other than Debt incurred solely in contemplation of such
Person becoming a Subsidiary of the Borrower),
(iv) Subordinated Debt,
(v) Debt of the Borrower to any of its Subsidiaries, or of a
Subsidiary to the Borrower or to a Subsidiary of the Borrower;
provided that such Debt shall have been pledged to the Collateral
Agent,
(vi) Debt incurred in connection with the entering into by the
Borrower or a Subsidiary thereof of Capitalized Leases in aggregate
principal amount (including any such Debt incurred to refinance such
Debt, as permitted by clause (xii) below) at any one time outstanding
not exceeding (A) $50,000,000, with respect to any indefeasible rights
of use of fiber and (B) $10,000,000, with respect to Capitalized
Leases other than indefeasible rights of use of fiber,
(vii) Secured Debt for the purpose of financing working-capital
requirements of the Borrower and its Subsidiaries in an aggregate
principal amount (including any such Debt incurred to refinance such
Debt, as permitted by clause (xii) below) at any time outstanding not
exceeding 10% of Contributed Capital at such time; provided that upon
the incurrence of such Debt the creditors thereof shall become parties
to the Intercreditor Agreement,
(viii) Secured Debt (including Debt under the Lucent Credit
Agreement) incurred for the purchase price of property or services to
be used for the conduct of the Borrower's or any of its Subsidiary's
business; provided that, immediately upon incurrence of such Debt, the
Borrower shall be in compliance with the terms of Sections 5.04(d),
(e), (f) and (g) and provided further that upon the incurrence of
Secured Debt pursuant to this clause, the creditors thereof shall
become parties to the Intercreditor Agreement,
(ix) Intercompany Mirror Subordinated Debt,
(x) Debt incurred to finance the purchase price of equipment or
other property ancillary to the Borrower's business and secured by
Liens permitted under Section 5.02(b)(vi), in an aggregate principal
amount (including any such Debt incurred to refinance such Debt, as
permitted by clause (xii) below) at any time outstanding not exceeding
1% of Contributed Capital at such time,
(xi) Debt in the form of Back-to-Back Loans, and
<PAGE>
63
(xii) Debt incurred in connection with the refinancing of any
Debt which may be incurred under clauses (i) through (xi) above;
provided that (A) such Debt does not exceed the amount of Debt being
refinanced, (B) in the case of the refinancing of any Subordinated
Debt, any such Debt shall also be subordinated on substantially the
same terms and (C) in the case of Intercompany Mirror Subordinated
Debt, such Debt still qualifies as Intercompany Mirror Subordinated
Debt;
provided that at the time of incurrence of any of the Debt referred to in
clauses (i) to (ix) above, and immediately after giving effect thereto, no
event has occurred and is continuing that constitutes a Default.
(b) Liens, Etc. Create, incur, assume or suffer to exist, or permit
any of its Subsidiaries to create, incur, assume or suffer to exist, any
Lien on or with respect to any of its properties, whether now owned or
hereafter acquired, or assign, or permit any of its Subsidiaries to assign,
any right to receive income, other than
(i) Liens created under the Loan Documents,
(ii) Permitted Liens,
(iii) Shared Liens,
(iv) Liens existing on the date hereof and described on Schedule
4.01(o) hereto,
(v) Liens arising in connection with Capitalized Leases permitted
under Section 5.02(a)(vi); provided that no such Lien shall extend to
or cover any Collateral or assets other than the assets subject to
such Capitalized Leases,
(vi) purchase money Liens to secure Debt incurred in accordance
with Section 5.02(a)(x); provided that no such Lien shall extend to or
cover any property other than the property being acquired, and no
extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended, renewed
or replaced,
(vii) Liens arising in connection with the lease or transfer of
Customer Premise Equipment permitted under Section 5.02(j)(vi),
(viii) Liens on Blocked Accounts created under the Blocked
Account Letter Agreements (as each term is defined both herein and in
the Lucent Credit Agreement), and
<PAGE>
64
(ix) the replacement, extension or renewal of any Lien permitted
by clauses (iii) through (viii) above upon or in the same property
theretofore subject thereto or the replacement, extension or renewal
(without increase in the amount or change in any direct or contingent
obligor) of the Debt secured thereby.
(c) Mergers, Etc. Merge into or consolidate with any Person or permit
any Person to merge into it, or permit any of its Subsidiaries to do so,
except that (i) any Subsidiary of the Borrower may merge into or
consolidate with any other Subsidiary of the Borrower so long as the Person
formed by such merger or consolidation is a Subsidiary of the Borrower,
(ii) any of the Borrower's Subsidiaries may merge into the Borrower so long
as the Borrower is the surviving corporation and (iii) the Borrower or any
of its Subsidiaries may merge with any other Person so long as, in the case
of any such merger to which the Borrower is a party, the Borrower is the
surviving corporation and, in the case of any such merger to which a
Subsidiary of the Borrower is a party, such Subsidiary is the surviving
corporation; provided that in each case, immediately after giving effect
thereto, no event shall occur and be continuing that constitutes a Default.
(d) Changes in Fiscal Year. Make or permit any change in its fiscal
year or permit any of its Subsidiaries to make or permit any change in its
fiscal year.
(e) Transactions with Affiliates. Either (i) enter into or permit any
Subsidiary to enter into any agreement or arrangement with any Affiliate of
the Borrower if such agreement or arrangement contains pricing and terms
that provide to such Affiliate fees, profits, premiums or terms materially
in excess of or materially more favorable than the fees, profits, premiums
or terms that the Borrower or a Subsidiary thereof could reasonably be
expected to pay or provide to a third party in connection with a similar
transaction, other than agreements providing for management fees payable by
an Operating Subsidiary to the Borrower or (ii) without limiting the
foregoing, enter into or permit any Subsidiary to enter into any
tax-sharing agreement or arrangement with the Parent or any other Person
pursuant to which the Borrower and its Subsidiaries will make any payments
or agree to make any payments in lieu of income taxes unless the cumulative
sum of such payments does not exceed to any material extent the cumulative
sum of income taxes that the Borrower and its Subsidiaries would have paid
if the Borrower and its Subsidiaries had always filed income tax returns on
a consolidated basis as a separate affiliated group (as such term is
defined in section 1504(a) of the Internal Revenue Code of 1986) of
corporations consisting of only the Borrower and its Subsidiaries.
(f) Other Business. Engage or permit any Subsidiary to engage,
directly or indirectly, in any business other than the offering of data,
voice or video services,
<PAGE>
65
whether as a competitive access provider, a competitive local exchange
carrier or an Internet access provider other than in the Territory.
(g) Modification of Organizational Documents. Modify or permit any
Subsidiary to modify its organizational documents in a manner that affects
materially and adversely the fulfillment of its or such Subsidiary's
obligations under any Loan Document to which it or such Subsidiary is a
party or changes in any material respect the nature of its or such
Subsidiary's business, its accounting policies or reporting practices.
(h) Amendment; Etc. of Material Contracts. Cancel or terminate any
Material Contract or consent to or accept any cancellation or termination
thereof, amend or otherwise modify any Material Contract or give any
consent, waiver or approval thereunder, waive any default under or any
breach of any Material Contract or agree in any manner to any other
amendment, modification or change of any term or condition of any Material
Contract if any of such actions could reasonably be expected to result in a
Material Adverse Effect or take any other action in connection with any
Material Contract that would impair the value of the interest or rights of
the Borrower thereunder or that would impair the interest or rights of the
Administrative Agent or any Lender thereunder, or permit any of its
Subsidiaries to do any of the foregoing if any of such actions could
reasonably be expected to result in a Material Adverse Effect.
(i) Negative Pledge. Enter into or suffer to exist, or permit any of
its Subsidiaries to enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or assumption of any Lien upon any
of its property or assets except (i) in favor of the Secured Creditors or
(ii) in connection with (A) any Capitalized Lease permitted by Section
5.02(a)(vi) solely to the extent that such Capitalized Lease prohibits a
Lien on the property subject thereto or (B) any Debt outstanding on the
date any Subsidiary of the Borrower becomes such a Subsidiary (so long as
such agreement was not entered into solely in contemplation of such
Subsidiary becoming a Subsidiary of the Borrower).
(j) Sales of Assets. Sell, lease, transfer, liquidate, wind up or
otherwise dispose of, or permit any of its Subsidiaries to sell, lease,
transfer, liquidate, wind up or otherwise dispose of, any Collateral or any
substantial part of its assets other than Collateral, including without
limitation substantially all assets constituting the business of a
division, branch or other unit operation, or grant any option or other
right to purchase, lease or otherwise acquire any Collateral other than
inventory to be sold in the ordinary course of its business, except:
(i) sales and disposal of inventory in the ordinary course of
business,
(ii) in a transaction authorized by subsection (c) of this
Section 5.02,
<PAGE>
66
(iii) sales of Material Assets for cash and for fair value in an
aggregate amount not to exceed $10,000,000 in any fiscal year, the Net
Cash Proceeds of which are applied in accordance with Section 2.08(b),
(iv) the limited recourse sale of accounts receivable in
connection with the securitization thereof, which sale is non-recourse
to the extent customary in securitizations, the Net Cash Proceeds of
which are applied in accordance with Section 2.08(b),
(v) sales and disposal of obsolete equipment in the ordinary
course of business,
(vi) sales, leases and transfers of Customer Premise Equipment in
the ordinary course of business, and
(vii) sales of other assets for cash and for fair value in an
aggregate amount not to exceed $2,500,000 in any fiscal year.
(k) Investments in Other Persons. Make or hold, or permit any of its
Subsidiaries to make or hold, any Investment in any Person other than:
(i) Investments by the Borrower and its Subsidiaries in their
Insignificant Subsidiaries, Operating Subsidiaries and Intermediate
Holding Company Subsidiaries outstanding on the date hereof and
additional investments in Insignificant Subsidiaries, Operating
Subsidiaries and Intermediate Holding Company Subsidiaries engaged in
businesses permitted under Section 5.02(f) in the Core Territories;
provided that:
(A) the Borrower shall have complied with the provisions set
forth in Section 5.01(k),
(B) each Operating Subsidiary shall be a Wholly Owned
Subsidiary of the Borrower or an Intermediate Holding Company
Subsidiary,
(C) in the case of any such Subsidiary created after the
date hereof, such Subsidiary shall be a Wholly Owned Subsidiary,
(D) in the case of any Intermediate Holding Company
Subsidiary in existence on the date hereof, the Borrower shall
directly hold 100% of each class and series of Equity Interests
of such Subsidiary;
<PAGE>
67
(ii) loans and advances to employees in the ordinary course of
the business of the Borrower and its Subsidiaries as presently
conducted in an aggregate principal amount not to exceed $250,000, at
any time outstanding;
(iii) Investments by
(A) the Operating Subsidiaries in Cash Equivalents in an
aggregate amount not to exceed $20,000,000 at any one time
outstanding, and
(B) any Intermediate Holding Company Subsidiary in Cash
Equivalents in an aggregate amount not to exceed $5,000,000 at
any one time outstanding; provided that no Intermediate Holding
Company Subsidiary shall maintain any such Investment for more
than five Business Days;
(iv) Investments existing on the date hereof and described on
Schedule 4.01(w) hereto;
(v) Investments by the Borrower in Hedge Agreements permitted
under Section 5.02(a)(ii); provided that the transactions contemplated
by such agreements do not violate the provisions of Section 5.02(t);
(vi) Investments consisting of intercompany Debt permitted under
Section 5.02(a)(v);
(vii) Investments by the Borrower or an Intermediate Holding
Company Subsidiary in Back-to-Back Loans; and
(viii) Investments by the Borrower and its Subsidiaries in the
capital stock of:
(A) Subsidiaries engaged in businesses permitted under
Section 5.02(f) in any country other than any Core Territory in
an aggregate amount invested not to exceed $25,000,000 at any
time outstanding and as to which the Borrower shall have complied
with its obligations under Section 5.01(k), and
(B) Companies engaged in businesses permitted under Section
5.02(f) (I) in any Core Territory, in an aggregate not to exceed
$35,000,000 in any calendar year or (II) in the Territory other
than in any Core Territory in an aggregate not to exceed
$15,000,000 amount at any
<PAGE>
68
time outstanding; provided that in each case any capital stock so
acquired shall have been pledged to the Collateral Agent for the
benefit of the Lenders within 30 days after such acquisition
pursuant to security agreements and other instruments reasonably
satisfactory in form and substance to the Required Lenders and
the Person making such Investments shall have taken such other
action with respect to such collateral security as would be
required under Section 5.01(k) with respect to collateral
security if such Person were a newly created Subsidiary of the
Borrower.
(l) Restricted Payments. Declare or pay or make any Restricted
Payment or permit any of its Subsidiaries to make any Restricted
Payment, except that the Borrower may
(i) make scheduled payments of interest in respect of
Intercompany Mirror Subordinated Debt at any time after December
31, 2001, so long as no Default has occurred and is continuing at
the time of or after giving effect to any such payment; and
(ii) make a cash distribution to the Parent in respect of
tax obligations of the Parent due in respect of (I) the existence
of the Parent or (II) the activities of the Borrower or any of
its Subsidiaries, but in either case only to the extent that such
distribution would be permitted under tax-sharing agreements or
arrangements permitted under Section 5.02(e).
(m) Prepayments of Debt. Prepay:
(i) any Subordinated Debt and Intercompany Mirror
Subordinated Debt, or
(ii) any other Debt, other than Debt permitted under Section
5.02(a)(vi), (x) or (xi), unless the Borrowings and such other
Debt shall be ratably prepaid in accordance with the respective
then outstanding aggregate principal amounts thereof.
(n) Liquidation, Etc. of Business. Wind up, dissolve or liquidate
the Borrower or any of its Subsidiaries except as permitted under
Section 5.01(e), or abandon its conduct of its business in the
Territory.
(o) Gross PP&E. Make or permit its Subsidiaries to make any
Capital Expenditures that would cause the Gross PP&E of the Borrower
and its Subsidiaries in any period set forth below to exceed the
amount set forth below for such period.
<PAGE>
69
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 52,000,000
12/31/00 $156,500,000
12/31/01 $253,000,000
12/31/02 $377,500,000
12/31/03 $450,500,000
12/31/04 $523,500,000
12/31/05 $616,300,000
12/31/06 $720,300,000
</TABLE>
(p) Lease Obligations. Create, incur, assume or suffer to exist,
or permit any of its Subsidiaries to create, incur, assume or suffer
to exist:
(i) any obligations as lessee for the rental or hire of real
or personal property of any kind under leases or agreements to
lease having a term of one year or more from the date of
execution thereof (other than Capitalized Leases) that would
cause the direct and contingent liabilities of it and its
Subsidiaries, on a Consolidated basis, in respect of all such
obligations in any period set forth below to exceed the amount
set forth below for such period;
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 7,500,000
12/31/00 $12,500,000
12/31/01 $17,500,000
12/31/02 $22,500,000
12/31/03 $27,500,000
12/31/04 $47,500,000
12/31/05 $57,500,000
12/31/06 $72,500,000
</TABLE>
or
(ii) any obligations under Capitalized Leases that would
cause the direct and contingent liabilities of it and its
Subsidiaries, on a Consolidated basis, in respect of all such
obligations to exceed at any time (A) $50,000,000, with
<PAGE>
70
respect to indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber.
(q) Restrictions on Activities. Conduct any significant business
other than holding Equity Interests of Intermediate Holding Company
Subsidiaries and incurring liabilities and holding Investments
permitted under this Agreement or permit any of its Intermediate
Holding Company Subsidiaries to:
(i) hold any assets that would cause them to fail to qualify
as Intermediate Holding Company Subsidiaries,
(ii) incur debt or other liabilities other than intercompany
loans under Section 5.02(a)(v), and
(iii) conduct any significant business other than holding
the capital stock or contributions of, providing managerial
oversight for and supporting and consolidating the corporate
functions of, an Operating Subsidiary or Intermediate Holding
Company Subsidiary.
(r) Payment Restrictions Affecting Subsidiaries. Directly or
indirectly, enter into or suffer to exist, or permit any of its
Subsidiaries to enter into or suffer to exist, any agreement or
arrangement limiting the ability of any of its Subsidiaries to declare
or pay dividends or other distributions in respect of its Equity
Interests or repay or prepay any Debt owed to, make loans or advances
to, or otherwise transfer assets to or invest in, the Borrower or any
Subsidiary of the Borrower (whether through a covenant restricting
dividends, loans, asset transfers or investments, a financial covenant
or otherwise), except the Loan Documents.
(s) Partnerships, Etc. Become a general partner in any general or
limited partnership or joint venture, or permit any of its
Subsidiaries to do so.
(t) Speculative Transactions. Engage, or permit any of its
Subsidiaries to engage, in any transaction involving commodity options
or futures contracts or any similar speculative transactions.
(u) Issuance of Capital Stock or Contributions by Subsidiaries.
Permit any of its Subsidiaries to issue any capital stock or
contributions to any Person other than to the Borrower or a Wholly
Owned Subsidiary of such Subsidiary, except pursuant to any agreement
in effect and listed in the form of Schedule 5.02(u).
(v) Speculative Build-Outs. Install or permit any of its
Subsidiaries to install a portion of any Network intended to provide
direct service to end-user customers (a
<PAGE>
71
"Tributary") in any building unless there is at least one bona fide
significant customer using such Tributary in such building, except
that for every 100 buildings in which such a Tributary is installed, a
Tributary may be installed in one building for which there is not any
such customer.
SECTION 5.03. Reporting Requirements. So long as any Advance shall remain
unpaid or any Lender shall have any Commitment hereunder, the Borrower shall
furnish to the Lenders:
(a) as soon as available and in any event within 15 days after the end
of each fiscal month of the Borrower, for a period of 12 months from the
date hereof (i) internal summary financial and operating statements for
such month, prepared by the Borrower's management for its chief executive
officer and (ii) a memorandum or letter discussing such internal summary
financial and operating statements and comparing such financial information
to the pro forma financial information for such period set forth in the
business plan delivered pursuant to Section 3.01(i)(ii);
(b) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower (i)
internal summary financial and operating statements for such quarter,
prepared by the Borrower's management for its chief executive officer and
(ii) a memorandum or letter discussing such internal summary financial and
operating statements and comparing such financial information to the pro
forma financial information for such period set forth in the budget for
such period delivered pursuant to Section 5.03(r);
(c) as soon as available and in any event within 45 days after the end
of each of the first three quarters of each fiscal year of the Borrower,
Consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such quarter and Consolidated and
consolidating statements of income and cash flows of the Borrower and its
Subsidiaries for the period commencing at the end of the previous fiscal
year and ending with the end of such quarter, and, with respect to the
second fiscal quarter of any fiscal year of the Borrower, a certificate of
the chief financial officer of the Borrower (a "Compliance Certificate")
(i) duly certifying (subject to year-end adjustment audits) that such
balance sheets and statements of income and cash flow have been prepared in
accordance with GAAP and stating that, to the knowledge of such chief
financial officer, no Default has occurred and is continuing or, if a
Default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take
with respect thereto and (ii) attesting to the number of Voice Grade
Equivalents as of the end of such fiscal quarter;
(d) as soon as available and in any event within 120 days (or, after
the consolidated group of companies of which the Borrower is part is
subject to the reporting
<PAGE>
72
requirements of the Securities and Exchange Act of 1934, 90 days) after the
end of each fiscal year of the Borrower, a copy of the annual audit report
for such year for the Borrower and its Subsidiaries, containing
Consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such fiscal year and Consolidated and
consolidating statements of income and cash flows of the Borrower and its
Subsidiaries for such fiscal year, in each case accompanied by (i) an
opinion acceptable to the Required Lenders from a firm of nationally
recognized independent certified public accountants, together with (A) a
certificate of such accounting firm to the Lenders stating that in the
course of the regular audit of the business of the Borrower and its
Subsidiaries, which audit was conducted by such accounting firm in
accordance with GAAP, such accounting firm has obtained no knowledge that
would cause them to believe that a Default has occurred and is continuing,
or if, in the opinion of such accounting firm, a Default has occurred and
is continuing, a statement as to the nature thereof and (B) a schedule in
form satisfactory to the Administrative Agent of the computations used by
such accountants in determining, as of the end of such fiscal year,
compliance with the covenants contained in Section 5.04 and (ii) a
certificate of the chief financial officer of the Borrower (A) stating that
to his or her knowledge no Default has occurred and is continuing or, if a
default has occurred and is continuing, a statement as to the nature
thereof and the action that the Borrower has taken and proposes to take
with respect thereto and (B) attesting to the number of Voice Grade
Equivalents as of the end of such fiscal year;
(e) promptly upon the discovery of the occurrence or existence
thereof, notice of (i) any Default under this Agreement, the Notes or the
Security Agreements, along with a statement of the Chief Executive Officer
or Chief Financial Officer of the Borrower setting forth the details of
such Default and the action that the Borrower has taken and proposes to
take with respect thereto, (ii) any event, development or circumstance
which would cause the financial statements most recently furnished to the
Lenders in accordance with Section 5.03(c) or (d) to fail in any material
respect to fairly present, in accordance with GAAP, the financial condition
and operating results of the Borrower and its Subsidiaries as of the date
of such financial statements, and (iii) the occurrence of a Material
Adverse Effect;
(f) promptly after the commencement thereof, notice of all actions,
suits, investigations, litigation and proceedings before any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of
its Subsidiaries of the type described in Section 3.01(a), and promptly
after the occurrence thereof, notice of any adverse change in the status or
the financial effect on any Loan Party or any of its Subsidiaries of the
Disclosed Litigation from that described on Schedule 3.01(a)(i) hereto;
<PAGE>
73
(g) (i) promptly and in any event within 10 days after the Borrower or
any ERISA Affiliate knows or has reason to know that any ERISA Event has
occurred, a statement of the chief executive officer or chief financial
officer of the Borrower describing such ERISA Event and the action, if any,
that the Borrower or such ERISA Affiliate has taken and proposes to take
with respect thereto and (ii) on the date any records, documents or other
information must be furnished to the PBGC with respect to any Plan pursuant
to Section 4010 of ERISA, a copy of such records, documents and
information;
(h) promptly and in any event within three Business Days after receipt
thereof by the Borrower or any ERISA Affiliate, copies of each notice from
the PBGC stating its intention to terminate any Plan or to have a trustee
appointed to administer any Plan;
(i) promptly and in any event within 30 days after the receipt thereof
by the Borrower or any ERISA Affiliate, a copy of the annual actuarial
report for each Plan the funded current liability percentage (as defined in
Section 302(d)(8) of ERISA) of which is less than 90% or the unfunded
current liability of which exceeds $1,000,000;
(j) promptly and in any event within five Business Days after receipt
thereof by the Borrower or any ERISA Affiliate from the sponsor of a
Multiemployer Plan, copies of each notice concerning (i) the imposition of
Withdrawal Liability by any such Multiemployer Plan, (ii) the
reorganization or termination, within the meaning of Title IV of ERISA, of
any such Multiemployer Plan or (iii) the amount of liability incurred, or
that may be incurred, by the Borrower or any ERISA Affiliate in connection
with any event described in clause (i) or (ii);
(k) as soon as available and in any event not later than 60 days after
the end of each fiscal year of the Borrower, an updated business plan of
the Borrower approved by its Board of Directors, with respect at least to
the period ending on the fifth anniversary of the Tranche A Effective Date,
including projections and budgets and otherwise in substantially the form
and scope of the business plan delivered pursuant to Section 3.01(i)(ii);
(l) promptly after the sending or filing thereof, copies of all proxy
statements, financial statements and reports that any Loan Party or any of
its Subsidiaries sends to its stockholders or partners, and copies of all
regular, periodic and special reports, and all registration statements,
that any Loan Party or any of it Subsidiaries filed with the Securities and
Exchange Commission or any governmental authority that may be substituted
therefor, or with any national securities exchange;
(m) promptly after the furnishing thereof, copies of any statement or
report furnished to any holder of Debt securities of any Loan Party or of
any of its Subsidiaries
<PAGE>
74
pursuant to the terms of any indenture, loan or creditor similar agreement
and not otherwise required to be furnished to the Lender Parties pursuant
to any other clause of this Section 5.03;
(n) promptly upon receipt thereof, copies of all notices of default
received by any Loan Party or any of its Subsidiaries under or pursuant to
any License, Material Contract or instrument, indenture, loan or credit or
similar agreement and, from time to time upon request by the Administrative
Agent, such information and reports regarding the Licenses, the Material
Contracts and such instruments, indentures and loan and credit and similar
agreements as the Administrative Agent may reasonably request;
(o) promptly after the assertion or occurrence thereof, notice of any
Environmental Action against or of any noncompliance by any Loan Party or
any of its Subsidiaries with any Environmental Law or Environmental Permit
that could reasonably be expected to have a Material Adverse Effect;
(p) promptly after the adoption by the Borrower or any of its
Subsidiaries thereof, notice of any change in the accounting policies and
reporting practices of such Borrower or Subsidiary;
(q) promptly upon receipt thereof, any additional reports, management
letters or other detailed information concerning significant aspects of
Borrower's operations or financial affairs prepared by the Borrower's
independent accounts and provided to the Board of Directors of the Borrower
(and not otherwise contained in other materials provided hereunder);
(r) at least 30 days but not more than 90 days prior to the beginning
of each fiscal year, an annual budget prepared on a monthly basis for the
Borrower for such fiscal year (displaying anticipated statements of income
and cash flows and balance sheets) and any revisions of such annual or
other budgets;
(s) such other information respecting the Borrower or any of its
Subsidiaries as any Lender through the Administrative Agent may from time
to time reasonably request;
(t) (i) for each Core Territory in which the Licenses are not subject
to a perfected Lien in favor of the Collateral Agent, within 30 days after
(A) the date falling 45 days after the beginning of each fiscal quarter and
(B) the end of each fiscal quarter, and (ii) in each other Core Territory,
within 30 days after the end of each fiscal quarter, a list of all real
property with an aggregate value in excess of $50,000 and personal property
with an aggregate value in excess of $10,000 in each case located in such
Core Territory and including in each case, without limitation, all accounts
receivable, assets
<PAGE>
75
acquired through capital expenditures and general intangibles, that have
been acquired by the Borrower or any Subsidiary thereof and not included in
any prior report under this Section 5.03(t) and as to which the Collateral
Agent does not have a perfected Lien; and
(u) as of the date of any Advance subsequent to the initial Advance,
amended forms of Schedules 4.01(b), (f), (o), (t), (v), (w), (x), (y), (z),
(dd) and (ii) to the extent necessary to make the representations and
warranties relating to such amended Schedules true and correct as of such
date.
SECTION 5.04. Operational and Financial Covenants. So long as any Advance
shall remain unpaid or any Lender shall have any Commitment hereunder, the
Borrower:
(a) Revenue. Shall not permit its Revenue for the period beginning on
the first day of the Borrower's fiscal year in which a date set forth below
occurs and ending on such date to be less than the amount corresponding to
such date under the heading "Revenue" set forth below:
<TABLE>
<CAPTION>
----------------------------------------
Date Revenue
----------------------------------------
<S> <C>
12/31/1999 $ 650,000
----------------------------------------
03/31/2000 $ 305,000
----------------------------------------
06/30/2000 $ 917,000
----------------------------------------
09/30/2000 $ 3,050,000
----------------------------------------
12/31/2000 $ 6,100,000
----------------------------------------
03/31/2001 $ 3,350,000
----------------------------------------
06/30/2001 $ 7,000,000
----------------------------------------
09/30/2001 $ 15,800,000
----------------------------------------
12/31/2001 $ 28,000,000
----------------------------------------
03/31/2002 $ 17,000,000
----------------------------------------
06/30/2002 $ 41,500,000
----------------------------------------
09/30/2002 $ 74,000,000
----------------------------------------
12/31/2002 $122,000,000
----------------------------------------
03/31/2003 $ 50,000,000
----------------------------------------
06/30/2003 $103,000,000
----------------------------------------
09/30/2003 $165,000,000
----------------------------------------
12/31/2003 $239,000,000
----------------------------------------
03/31/2004 $ 80,800,000
----------------------------------------
06/30/2004 $165,500,000
----------------------------------------
09/30/2004 $265,500,000
----------------------------------------
12/31/2004 $385,000,000
----------------------------------------
03/31/2005 $125,000,000
----------------------------------------
06/30/2005 $255,500,000
----------------------------------------
</TABLE>
<PAGE>
76
<TABLE>
<S> <C>
09/30/2005 $397,500,000
----------------------------------------
12/31/2005 $567,500,000
----------------------------------------
03/31/2006 $179,000,000
----------------------------------------
06/30/2006 $366,000,000
----------------------------------------
09/30/2006 $561,500,000
----------------------------------------
12/31/2006 $780,000,000
----------------------------------------
</TABLE>
(b) Total Voice Grade Equivalents. Shall not permit the total number
of Voice Grade Equivalents of the Borrower and its Subsidiaries as of any
date set forth below to be less than the number corresponding to such date
under the heading "Number" set forth below:
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
12/31/1999 736
06/30/2000 1,784
12/31/2000 6,230
06/30/2001 21,968
12/31/2001 42,471
06/30/2002 136,555
12/31/2002 241,199
06/30/2003 356,268
12/31/2003 528,939
06/30/2004 645,959
12/31/2004 855,496
06/30/2005 974,049
12/31/2005 1,240,963
06/30/2006 1,364,914
12/31/2006 1,652,157
</TABLE>
(c) EBITDA. Shall not permit EBITDA for the four fiscal quarters of
the Borrower immediately preceding any date set forth below to be less than
the amount set forth under the heading "Amount" corresponding to such date:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/1999 $ (33,400,000)
06/30/2000 $ (48,500,000)
12/31/2000 $ (50,500,000)
06/30/2001 $ (50,500,000)
</TABLE>
<PAGE>
77
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
12/31/2001 $ (43,600,000)
06/30/2002 $ (19,800,000)
12/31/2002 $ 16,500,000
06/30/2003 $ 45,300,000
12/31/2003 $ 82,500,000
06/30/2004 $ 108,500,000
12/31/2004 $ 169,000,000
06/30/2005 $ 199,000,000
12/31/2005 $ 269,900,000
06/30/2006 $ 305,500,000
12/31/2006 $ 389,000,000
</TABLE>
(d) Total Debt to Contributed Capital. Shall not permit the ratio of
(i) Total Debt outstanding as of any date of determination to (ii)
Contributed Capital as of such date of determination to be greater than the
ratio corresponding to the date set forth below on or at any time during
the 12 months immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 4.50x
12/31/2000 4.50x
12/31/2001 4.50x
12/31/2002 4.50x
12/31/2003 4.00x
12/31/2004 3.50x
12/31/2005 3.00x
12/31/2006 2.50x
</TABLE>
(e) Total Secured Debt to Contributed Capital. Shall not permit the
ratio of (i) Total Debt owed by the Borrower secured by Shared Liens
outstanding as of any date of determination to (ii) Contributed Capital as
of such date of determination to be greater than the ratio corresponding to
the date set forth below on or immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 2.00x
06/30/2000 2.00x
12/31/2000 2.00x
</TABLE>
<PAGE>
78
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
06/30/2001 2.75x
12/31/2001 2.75x
06/30/2002 2.75x
12/31/2002 2.75x
06/30/2003 2.70x
12/31/2003 2.70x
06/30/2004 2.30x
12/31/2004 2.30x
06/30/2005 2.00x
12/31/2005 2.00x
06/30/2006 1.95x
12/31/2006 1.95x
</TABLE>
(f) Total Secured Debt to EBITDA (Cash Flow multiple). Shall not
permit the ratio of (i) Total Debt owed by the Borrower secured by Shared
Liens outstanding at of any date of determination to (ii) EBITDA for the
four consecutive fiscal quarters of the Borrower most recently ended on or
prior to such date of determination to exceed the ratio corresponding to
the date set forth below on or immediately proceeding such date of
determination:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 16.00x
06/30/2003 4.40x
12/31/2003 3.39x
06/30/2004 2.30x
12/31/2004 1.30x
06/30/2005 0.80x
12/31/2005 0.40x
06/30/2006 0.30x
12/31/2006 0.20x
</TABLE>
(g) EBITDA to Total Cash Debt Service (Debt service coverage ratio).
Permit the ratio of (i) EBITDA for the four consecutive fiscal quarters
ending on any of the dates set forth below to (ii) Total Cash Debt Service
for the same period to be less than the ratio set forth below opposite such
date:
<PAGE>
79
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 0.44x
06/30/2003 0.58x
12/31/2003 0.85x
06/30/2004 1.05x
12/31/2004 1.40x
06/30/2005 1.50x
12/31/2005 2.00x
06/30/2006 3.00x
12/31/2006 5.50x
</TABLE>
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events of
Default") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of any Advance when
the same becomes due and payable or the Borrower shall fail to pay any
interest on any Advance or make any other payment of fees or other amounts
payable under this Agreement or any Note within three days after the same
becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) in connection with any Loan Document shall prove to have been
incorrect in any material respect when made; provided that, if such
inaccuracy is capable of remedy and is in respect of any representation and
warranty other than those contained in Sections 4.01(a), (b), (c), (d),
(g), (h), (i), (j), (k), (n) and (y), such inaccuracy shall continue
unremedied for a period of 10 days; or
(c) either:
(i) the Borrower shall fail to perform or observe any term,
covenant or agreement contained in Section 2.13, 5.01(e), (f), (k) or
(n), 5.02 or 5.04, or
(ii) the Borrower shall fail to perform or observe any other
covenant in this Agreement or any Loan Party shall fail to perform or
observe any other covenant to be performed or observed by it in any
other Loan Document, and in any case such failure shall continue
unremedied for a period of 30 days; or
<PAGE>
80
(d) any Security Agreement, once executed and delivered, shall cease
to provide to the Collateral Agent and the Lenders, with the Liens,
priority, security interests, rights, titles, interests, remedies, powers
and privileges intended to be created thereby; or
(e) any of the following shall occur:
(i) any License or portion thereof shall become invalid or
unenforceable or shall terminate or not be renewed and, with respect
to any such portion, such occurrence is reasonably likely to have a
material adverse effect on the ability of the Borrower to perform its
payment obligations under the Loan Documents;
(ii) any rights of the Borrower or any of its Subsidiaries
thereunder shall be changed and such change is reasonably likely to
have a material adverse effect on the ability of the Borrower to
perform its payment obligations under the Loan Documents;
(iii) any proceeding shall be commenced with the intention of
revoking the Licenses or a portion thereof that (A) has a reasonable
likelihood of succeeding and could reasonably be expected to prevent
the Borrower from operating a material portion of its Network or does
succeed in revoking all of the Licenses or (B) could reasonably be
expected to result in or which actually results in, a material adverse
effect on the ability of the Borrower to perform its payment
obligations under the Loan Documents; or
(iv) any Core Territory shall impose any obligation on the
Borrower or any of its Subsidiaries in respect of any License that is
reasonably likely to have a material adverse effect on the ability of
the Borrower to perform its payment obligations under the Loan
Documents; or
(f) either:
(i) the Borrower or any of its Subsidiaries shall fail to pay (A)
any principal of or premium or interest on or any other amount payable
in respect of any Debt or (B) any principal of any Subordinated Debt
or Intercompany Mirror Subordinated Debt, in each case that is
outstanding in a principal or notional amount of at least $5,000,000
in the aggregate (but excluding Debt outstanding hereunder) of the
Borrower or such Subsidiary (as the case may be), when the same
becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), and such failure shall
continue
<PAGE>
81
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Debt; or any other event shall occur or
condition shall exist under any agreement or instrument relating to
any such Debt and shall continue after the applicable grace period, if
any, specified in such agreement or instrument, if the effect of such
event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt; or any such Debt shall be declared to be
due and payable, or required to be prepaid or redeemed (other than by
a regularly scheduled required prepayment or redemption), purchased or
defeased, or an offer to prepay, redeem, purchase or defease such Debt
shall be required to be made, in each case prior to the stated
maturity thereof; or
(ii) the Parent shall fail to pay any principal of or premium or
interest on or any other amount payable in respect of any Debt that is
outstanding in a principal or notional amount of at least $5,000,000
in the aggregate, when the same becomes due and payable (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise), and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Debt; or any other event shall occur or condition shall exist
under any agreement or instrument relating to any such Debt and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such event or condition is
to accelerate the maturity of such Debt; or any such Debt shall be
declared to be due and payable, or required to be prepaid or redeemed
(other than by a regularly scheduled required prepayment or
redemption), purchased or defeased, or an offer to prepay, redeem,
purchase or defease such Debt shall be required to be made, in each
case prior to the stated maturity thereof; or
(g) the Parent or any Loan Party shall generally not pay its debts as
such debts become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors; or any proceeding shall be instituted by or against the Parent,
any Loan Party or any of its Subsidiaries seeking to adjudicate it as
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
concordato, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency,
reorganization or concordato or relief of debtors, or seeking the entry of
an order for relief or the appointment of a receiver, trustee, custodian or
other similar official for it or for any substantial part of its property
and, in the case of any such proceeding instituted against it (but not
instituted by it) that is being diligently contested by it in good faith,
either such proceeding shall remain undismissed, unvacated or unstayed for
a period of 60 days, or any of the actions sought in such proceeding
(including without limitation the entry of an order for relief against, or
the appointment of a receiver, trustee, custodian or other similar official
for, it or for any substantial part of its property) shall occur; or the
Parent, any Loan Party or any of its Subsidiaries shall
<PAGE>
82
take any corporate action to authorize any of the actions set forth above
in this subsection (g); or
(h) any judgment or order for the payment of money in excess of
$5,000,000 shall be rendered against the Parent, the Borrower or any of its
Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or order or (ii) there shall
be any period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall
not be in effect; or
(i) any non-monetary judgment or order shall be rendered against the
Borrower or any of its Subsidiaries that could be reasonably expected to
have a Material Adverse Effect, and there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect;
or
(j) the Borrower or any of its ERISA Affiliates shall incur, or in the
reasonable opinion of the Required Lenders shall be reasonably likely to
incur liability in excess of $1,000,000 in the aggregate as a result of one
or more of the following: (i) the occurrence of any ERISA Event; (ii) the
partial or complete withdrawal of the Borrower or any of its ERISA
Affiliates from a Multiemployer Plan; or (iii) the reorganization or
termination of a Multiemployer Plan; or
(k) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against any Loan Party party to it, or any such Loan Party
shall so state in writing; or
(l) any material provisions of this Agreement or any other Loan
Document shall be or become invalid or unenforceable against the Loan
Parties that are parties thereto, or any Loan Party shall so assert; or
(m) a Change of Control shall occur; or the Borrower shall at any time
for any reason cease to be the record and beneficial owner of all of the
outstanding Equity Interests in its Subsidiaries other than any Equity
Interests held by other Persons as of the date hereof; or
<PAGE>
83
(n) any Core Territory shall declare a moratorium on the payment of
external debt or impose any restrictions on access to foreign exchange or
transfer of funds, in any case, and such declaration or imposition is
reasonably likely to have a Material Adverse Effect; or
(o) there shall occur any condemnation, taking or expropriation of any
assets of the Borrower or any of its Subsidiaries that is reasonably likely
to result in a Material Adverse Effect; or
(p) in the view of the Lenders, a Material Adverse Change shall occur;
or
(q) any default on the part of the Borrower or any of its Subsidiaries
to comply with its obligations under Section 12.2 of the Supply Agreement
or any payment obligations set forth in any other agreements entered into
by the Borrower or any of its Subsidiaries with the Vendor or its
Affiliates; or
(r) the Parent or any of its direct or indirect Subsidiaries (other
than the Borrower and the other Loan Parties) shall engage to any material
extent in the business of providing data, voice or video services or any
business that competes with the business conducted by the Borrower and the
other Loan Parties, in each case, in any Core Territory;
then, and in any such event, the Administrative Agent (i) shall at the request,
or may with the consent, of the Supermajority Lenders, by written notice to the
Borrower, declare the obligation of each Lender to make Advances to be
terminated, whereupon the same shall forthwith terminate, (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower, declare the Notes, all interest thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower, and (iii) shall at the
request, or may with the consent, of the Required Lenders, foreclose on any and
all of the Collateral in accordance with the terms of the relevant Security
Agreements; provided that upon the occurrence of an Event of Default under
clause 6.01(g) above, (A) the obligation of each Lender to make Advances shall
automatically be terminated and (B) the Notes, all such interest and all such
amounts shall automatically become and be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are hereby expressly
waived by the Borrower.
<PAGE>
84
ARTICLE VII
THE ADMINISTRATIVE AGENT
SECTION 7.01. Authorization and Action. Each Lender hereby appoints and
authorizes the Administrative Agent to take such action as agent on its behalf
and to exercise such powers and discretion under this Agreement as are delegated
to the Administrative Agent by the terms hereof, together with such powers and
discretion as are reasonably incidental thereto. As to any matters not expressly
provided for by this Agreement (including without limitation enforcement or
collection of the Notes), the Administrative Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lenders and all holders of Notes;
provided that the Administrative Agent shall not be required to take any action
that exposes the Administrative Agent to personal liability or that is contrary
to this Agreement or applicable law. The Administrative Agent agrees to give to
each Lender prompt notice of each notice given to it by the Borrower pursuant to
the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Administrative Agent nor
any of its 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, except for its or their own gross negligence or willful
misconduct. Without limitation of the generality of the foregoing, the
Administrative Agent: (i) may treat the payee of any Note as the holder thereof
until the Administrative Agent receives and accepts an Assignment and Acceptance
entered into by the Lender that is the payee of such Note, as assignor, and an
Eligible Assignee, as assignee, as provided in Section 8.07; (ii) may consult
with legal counsel (including counsel for the Borrower), 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; (iii) makes no warranty or
representation to any Lender and shall not be responsible to any Lender for any
statements, warranties or representations (whether written or oral) made in or
in connection with this Agreement; (iv) 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 on the part of the Borrower or to inspect the
property (including the books and records) of the Borrower; (v) shall not be
responsible to any Lender for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other instrument or document
furnished pursuant hereto; and (vi) shall incur no liability under or in respect
of this Agreement by acting upon any notice, consent, certificate or other
instrument or writing (which may be by telecopier, telegram or telex) believed
by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. Agent and Affiliates. With respect to its Commitment, the
Advances made by it and the Note issued to it, if any, the Person serving as the
Administrative Agent hereunder shall have the same rights and powers under this
Agreement as any other Lender and may exercise the same as though it were not
the Administrative Agent; and the term
<PAGE>
85
"Lender" or "Lenders" shall, unless otherwise expressly indicated, include the
Administrative Agent in its individual capacity. Any Person serving as
Administrative Agent and its Affiliates may accept deposits from, lend money to,
act as trustee under indentures of, accept investment banking engagements from
and generally engage in any kind of business with, the Borrower, any of its
Subsidiaries and any Person who may do business with or own securities of the
Borrower or any such Subsidiary, all as if the Person serving as Administrative
Agent were not the Administrative Agent and without any duty to account therefor
to the Lenders.
SECTION 7.04. 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 4.01 and
such other documents and information as it has deemed appropriate, made its own
credit analysis and 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.
SECTION 7.05. Indemnification. The Lenders agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to the respective principal amounts of the Notes then held by each of
the Lenders (or if no Notes are at the time outstanding or if the Notes are held
by Persons that are not Lenders, ratably according to the respective amounts of
their Commitments), from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever that 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 action taken or omitted by the
Administrative Agent under this Agreement (collectively, the "Indemnified
Costs"); provided that no Lender shall be liable for any portion of the
Indemnified Costs resulting from the gross negligence or willful misconduct of
the Administrative Agent. Without limitation of 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
it 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, to the extent that such agent is not
reimbursed for such expenses by the Borrower. In the case of any investigation,
litigation or proceeding giving rise to any Indemnified Costs, this Section 7.05
applies whether any such investigation, litigation or proceeding is brought by
the Administrative Agent, any Lender or a third party.
SECTION 7.06. Successor Agent. The Administrative Agent may resign at any
time by giving written notice thereof to the Lenders and the Borrower and may be
removed at any time with or without cause by the Required Lenders. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no
<PAGE>
86
successor Administrative Agent shall have been so appointed by the Required
Lenders, and shall have accepted such appointment, within 30 days after such
retiring agent's giving of notice of resignation or the Required Lenders'
removal of such retiring agent, then such retiring agent may, on behalf of the
Lenders, appoint a successor Administrative Agent, which shall be a commercial
bank organized or licensed to do business under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $1,000,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights, powers, discretion, privileges and duties of the retiring Administrative
Agent and the retiring Administrative Agent shall be discharged from its duties
and obligations under this Agreement. After any such retiring agent's
resignation or removal hereunder as Administrative Agent, the provisions of this
Article VII shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Administrative Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the Notes, nor consent to any departure by the Borrower
therefrom, shall in any event be effective unless the same shall be in writing
and signed by the Required Lenders, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given; provided that
(a) no amendment, waiver or consent shall, unless in writing and
signed by all of the Lenders (other than any Lender Party that is, at such
time, a Defaulting Lender), do any of the following at any time:
(i) waive any of the conditions specified in Section 3.01 or, in
the case of the initial Advance, Section 3.02,
(ii) change the number of Lenders or the percentage of (A) the
Commitments, or (B) the aggregate unpaid principal amount of the
Advances that, in each case, shall be required for the Lenders or any
of them to take any action hereunder,
(iii) reduce or limit the obligations of any Guarantor under
Section 1.0 of its Guaranty or otherwise limit any Guarantor's
liability with respect to the Obligations owing to any Agent and the
Lenders,
<PAGE>
87
(iv) release any Collateral in any transaction or series of
related transactions or permit the creation, incurrence, assumption or
existence of any Lien on any item of Collateral in any transaction or
series of related transactions to secure any Obligations other than
Obligations owing to the Secured Creditors under the Loan Documents,
(v) amend this Section 8.01,
(vi) increase the Commitments of the Lenders or subject the
Lenders to any additional obligations,
(vii) reduce the principal of, or interest on, the Advances or
any fees or other amounts payable hereunder,
(viii) postpone any date fixed for any payment of principal of,
or interest on, the Borrowings or any fees or other amounts payable,
or
(ix) limit the liability of any Loan Party under any of the Loan
Documents, and
(b) no amendment, waiver or consent shall, unless in writing and
signed by an Agent in addition to the Lenders required above to take such
action, affect the rights or (in the case of the Administrative Agent)
duties of such Agent under this Agreement.
SECTION 8.02. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telecopier, telegraphic or telex
communication) and mailed, telecopied, telegraphed, telexed or delivered, if to
the Borrower, at its address at Diginet Americas, Inc.,3201 New Mexico Ave. NW,
Suite 320, Washington, D.C. 20016, Attention: Laurence A. Hinz; if to the
Initial Lender, at its Lending Office specified opposite its name on the
signature pages hereto; if to any other Lender, at its Lending Office specified
in the Assignment and Acceptance pursuant to which it became a Lender; and if to
the Administrative Agent, at its address at Ericsson Credit AB, Telefonvagen 30,
SE 126 25, Stockholm, Sweden, Attention: Erik Ramstrom, Re: Diginet; or, as to
the Borrower or the Administrative Agent, at such other address as shall be
designated by such party in a written notice to the other parties and, as to
each other party, at such other address as shall be designated by such party in
a written notice to the Borrower and the Administrative Agent. All such notices
and communications shall, when hand delivered, telecopied, telegraphed or
telexed, be effective when hand delivered, telecopied, delivered to the
telegraph company or confirmed by telex answerback, respectively, and when sent
by regular mail, postage prepaid, return receipt requested shall be effective 5
days after the date of its deposit in the mails, except that notices and
communications to the Administrative Agent pursuant to Article II, III or VII
shall not be effective until received by the Administrative Agent. Delivery by
telecopier of an executed counterpart of any amendment or
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88
waiver of any provision of this Agreement or the Notes or of any Exhibit to be
executed and delivered hereunder shall be effective as delivery of a manually
executed counterpart thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender,
the Administrative Agent or the Collateral Agent to exercise, and no delay in
exercising, any right hereunder or under any Note 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. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
SECTION 8.04. Costs and Expenses; Indemnification. (a) The Borrower will
pay on demand
(i) all costs and expenses of the Administrative Agent and the Lenders
in connection with the preparation, execution, delivery, administration,
modification and amendment of the Loan Documents (including, without
limitation, (A) all due diligence, collateral review, syndication,
transportation, computer, duplication, appraisal, audit, insurance,
consultant, search, filing and recording fees and expenses, (B) the
reasonable fees and expenses of a single counsel for the Agents in each
relevant jurisdiction with respect thereto, and (C) the reasonable fees and
expenses of a single counsel for the Agents in each relevant jurisdiction
with respect to advising the Agents as to their respective rights and
responsibilities, or the perfection, protection or preservation of rights
or interests, under the Loan Documents, with respect to negotiations with
any Loan Party or with other creditors of any Loan Party or any of its
Subsidiaries arising out of any Default or any events or circumstances that
may give rise to a Default and with respect to presenting claims in or
otherwise participating in or monitoring any bankruptcy, insolvency or
other similar proceeding involving creditors' rights generally and any
proceeding ancillary thereto), and
(ii) all costs and expenses of the Administrative Agent and the Lender
Parties in connection with the enforcement of the Loan Documents, whether
in any action, suit or litigation, any bankruptcy, insolvency or other
similar proceeding affecting creditors' rights generally (including,
without limitation, the reasonable fees and expenses of a single counsel
for the Administrative Agent and each Lender Party in each relevant
jurisdiction with respect thereto).
(b) The Borrower will indemnify and hold harmless the Administrative Agent
and each Lender and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
any and all claims, damages, losses, liabilities and expenses (including without
limitation reasonable fees and expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party, in each case arising in any
way out of or in connection with or by reason of (i) the Notes, this Agreement,
any of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances, except to the extent such claim, damage, loss,
liability or expense resulted from such
<PAGE>
89
Indemnified Party's gross negligence or willful misconduct. In the case of an
investigation, litigation or other proceeding to which the indemnity in this
Section 8.04(b) applies, such indemnity shall be effective whether or not such
investigation, litigation or proceeding is brought by the Borrower, its
directors, shareholders or creditors or an Indemnified Party or any other Person
or any Indemnified Party is otherwise a party thereto and whether or not the
transactions contemplated hereby are consummated. The Borrower also agrees not
to assert any claim against the Agent, any Lender, any of their Affiliates, or
any of their respective directors, officers, employees, attorneys and agents, on
any theory of liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to the Notes, this Agreement, any
of the transactions contemplated herein or the actual or proposed use of the
proceeds of the Advances.
(c) If any payment of principal of any Advance is made by the Borrower to
or for the account of a Lender other than on the last day of the Interest Period
for such Advance, as a result of a payment pursuant to Section 2.09(c) and (d),
acceleration of the maturity of the Notes pursuant to Section 6.01 or for any
other reason, the Borrower shall, upon written demand by such Lender (with a
copy of such demand to the Administrative Agent), pay to the Administrative
Agent for the account of such Lender any amounts reasonably required to
compensate such Lender for any additional losses, costs or expenses that it may
reasonably incur as a result of such payment, including without limitation any
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by any Lender to fund or maintain such Advance.
The loss to any Lender attributable to any such event shall be deemed to be an
amount determined by such Lender to be equal to the excess, if any, of (i) the
amount of interest that such Lender would pay for a deposit equal to the
principal amount of the applicable Eurodollar Rate Advance so prepaid or
accelerated, as applicable, for the period from the date of such payment or
acceleration to the last day of the then current Interest Period for such
Eurodollar Rate Advance if the interest rate payable on such deposit were equal
to the Eurodollar Rate for such Interest Period, over (ii) the amount of
interest that such Lender would earn on such principal amount for such period if
such Lender were to invest such principal amount for such period at the interest
rate that would be bid by such Lender (or an Affiliate of such Lender) for
dollar deposits from other banks in the eurodollar market at the commencement of
such period. A certificate as to the amount of such loss, cost or expense,
submitted to the Borrower by such Lender, shall be conclusive and binding for
all purposes, absent manifest error.
(d) If any Loan Party fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of such Loan Party by the Agents or any Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
Sections 2.09, 2.11 and 8.04 shall survive the payment in full of principal,
interest and all other amounts payable hereunder and under the Notes.
<PAGE>
90
SECTION 8.05. Right of Set-off. Upon (i) the occurrence and during the
continuance of any Event of Default and (ii) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the
Administrative Agent to declare the Notes due and payable pursuant to the
provisions of Section 6.01, each Lender and each of its Affiliates is hereby
authorized at any time and from time to time, to the fullest extent permitted by
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender or such Affiliate to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement and the Note held by such Lender,
whether or not such Lender shall have made any demand under this Agreement or
such Note and although such obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower in writing after any such set-off and
application; provided that the failure to give such notice shall not affect the
validity of such set-off and application. The rights of each Lender and its
Affiliates under this Section 8.05 are in addition to other rights and remedies
(including without limitation other rights of set-off) that such Lender and its
Affiliates may have.
SECTION 8.06. Binding Effect. The amendment and restatement of the Original
Credit Agreement, as set forth in this Agreement, shall become effective when
(i) this Agreement shall have been executed by the Borrower, the Administrative
Agent and the Initial Lender and (ii) the conditions set forth in Section 3.03
shall have been fulfilled and thereafter this Agreement shall be binding upon
and inure to the benefit of the Borrower, the Administrative Agent and each
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights hereunder or any interest herein
without the prior written consent of the Lenders.
SECTION 8.07. Assignments and Participations. (a) Each Lender may assign to
an Eligible Assignee all or a portion of its rights and obligations under this
Agreement (including without limitation all or a portion of its Commitment, the
Advances owing to it and the Note or Notes held by it and either outstanding
Advances or Commitments); provided that (i) except in the case of an assignment
to a Person that, immediately prior to such assignment, was a Lender or an
assignment of all of a Lender's rights and obligations under this Agreement, the
amount of the Advances and unfunded Commitment of the assigning Lender being
assigned pursuant to each such assignment (determined as of the date of the
Assignment and Acceptance with respect to such assignment) shall in no event be
less than $5,000,000 and (ii) the parties to each such assignment shall execute
and deliver to the Administrative Agent, for its acceptance and recording in the
Register, an Assignment and Acceptance, together with any Note subject to such
assignment and a processing and recordation fee of $3,500. Notwithstanding the
foregoing, nothing in this Section shall be construed to prohibit the assignment
of a proportionate part of all of the assigning Lender's rights and obligations
in respect of (A) Advances separately from (or without assigning) Commitments,
(B) Commitments separately from (or without assigning) Advances, (C) Tranche A
Commitments or Tranche A Advances separately from (or without assigning) Tranche
B Commitments or Tranche B Advances or (D) Tranche B Commitments or Tranche B
Advances separately from (or without assigning) Tranche A Commitments or Tranche
A Advances. Upon such execution, delivery, acceptance and recording, from and
after the
<PAGE>
91
effective date specified in each Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender hereunder and (y) the
Lender assignor thereunder shall, to the extent that rights and obligations
hereunder have been assigned by it pursuant to such Assignment and Acceptance,
relinquish its rights and be released from its obligations under this Agreement
(and, in the case of an Assignment and Acceptance covering all or the remaining
portion of an assigning Lender's rights and obligations under this Agreement,
such Lender shall upon such assignment cease to be a party hereto).
(b) By executing and delivering an Assignment and Acceptance, the Lender
assignor thereunder and the assignee thereunder confirm to and agree with each
other and the other parties hereto as follows: (i) other than as provided in
such Assignment and Acceptance, such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement or
the execution, legality, validity, enforceability, genuineness, sufficiency or
value of, or the perfection or priority of any lien or security interest created
or purported to be created under or in connection with, this Agreement or any
other instrument or document furnished pursuant hereto; (ii) such assigning
Lender makes no representation or warranty and assumes no responsibility with
respect to the financial condition of the Borrower or the performance or
observance by the Borrower of any of its obligations under this Agreement or any
other instrument or document furnished pursuant hereto; (iii) such assignee
confirms that it has received a copy of this Agreement and the Intercreditor
Agreement, together with copies of the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
Assignment and Acceptance; (iv) such assignee will, independently and without
reliance upon the Administrative Agent, such assigning Lender 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; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Administrative Agent
and the Collateral Agent to take such action as agent on its behalf and to
exercise such powers and discretion under this Agreement as are delegated to the
Administrative Agent and the Collateral Agent by the terms hereof, together with
such powers and discretion as are reasonably incidental thereto; and (vii) such
assignee agrees that it will perform in accordance with their terms all of the
obligations that by the terms of this Agreement and the Intercreditor Agreement
are required to be performed by it as a Lender.
(c) The Administrative Agent shall maintain at its address referred to in
Section 8.02 a copy of each Assignment and Acceptance delivered to and accepted
by it and a register for the recordation of the names and addresses of the
Lenders and the Commitment of, and principal amount of the Advances owing to,
each Lender from time to time (the "Register"). The entries in the Register
shall be conclusive and binding for all purposes, absent manifest error, and the
Borrower, the Administrative Agent, the Collateral Agent and the Lenders may
treat each Person whose name is recorded in the Register as a Lender hereunder
for all purposes
<PAGE>
92
of this Agreement. The Register shall be available for inspection by the
Borrower or any Lender at any reasonable time and from time to time upon
reasonable prior notice.
(d) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an assignee representing that it is an Eligible Assignee,
together with any Note or Notes subject to such assignment, the Administrative
Agent shall, if such Assignment and Acceptance has been completed and is in
substantially the form of Exhibit C, (i) accept such Assignment and Acceptance,
(ii) record the information contained therein in the Register and (iii) give
prompt written notice thereof to the Borrower. Within five Business Days after
its receipt of such notice and at the request of such assignee Lender, the
Borrower, at its own expense, shall execute and deliver to the Administrative
Agent in exchange for any surrendered Note a new Note to the order of such
Assignee in an amount equal to the Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Commitment
hereunder, a new Note to the order of the assigning Lender in an amount equal to
the Commitment retained by it hereunder. Such new Note or Notes shall be in an
aggregate principal amount equal to the aggregate principal amount of such
surrendered Note or Notes, shall be dated the effective date of such Assignment
and Acceptance and shall otherwise be in substantially the form of Exhibit A.
(e) Each Lender may sell participations to one or more banks or other
entities (other than the Borrower or any of its Affiliates) in or to all or a
portion of its rights and obligations under this Agreement (including without
limitation all or a portion of its Commitment, the Advances owing to it and the
Note or Notes held by it); provided that (i) such Lender's obligations under
this Agreement (including without limitation its Commitment to the Borrower
hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower, the Administrative Agent, the Collateral
Agent and the other Lenders shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and (v) no participant under any such participation shall have any
right to approve any amendment or waiver of any provision of this Agreement or
any Note, or any consent to any departure by the Borrower therefrom, except to
the extent that such amendment, waiver or consent would reduce the principal of,
or interest on, the Notes or any fees or other amounts payable hereunder, in
each case to the extent subject to such participation, postpone any date fixed
for any payment of principal of, or interest on, the Notes or any fees or other
amounts payable hereunder, in each case to the extent subject to such
participation, or to the extent that any such amendment or consent provides for
a release of the Borrower's obligations under the Security Agreements or any
Subsidiary's obligations under any Guaranty.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 8.07, disclose to
the assignee or participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower; provided that, prior to any such disclosure, the assignee or
participant or proposed assignee or participant shall agree in writing to
<PAGE>
93
preserve the confidentiality of any Confidential Information relating to the
Borrower received by it from such Lender.
(g) Notwithstanding any other provision set forth in this Agreement, any
Lender may at any time create a security interest in all or any portion of its
rights under this Agreement (including without limitation the Advances owing to
it and the Note held by it) in favor of any Federal Reserve Bank in accordance
with Regulation A of the Board of Governors of the Federal Reserve System.
SECTION 8.08. Confidentiality. Neither the Administrative Agent nor any
Lender shall disclose any Confidential Information to any other Person without
the consent of the Borrower, other than (a) to the Administrative Agent's, the
Collateral Agent or such Lender's Affiliates and their officers, directors,
employees, agents and advisors and, as contemplated by Section 8.07(f), to
actual or prospective assignees and participants, and then only on a
confidential basis, (b) to any party to the Intercreditor Agreement, (c) as
required by any law, rule or regulation or judicial process and (d) as requested
or required by any state, federal or foreign authority or examiner regulating
banks or banking.
SECTION 8.09. Governing Law. This Agreement and the Notes shall be governed
by, and construed in accordance with, the laws of the State of New York.
SECTION 8.10. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 8.11. Jurisdiction, Judgment Currency, Etc. (a) Each of the parties
hereto hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
federal court of the United States of America sitting in New York City in the
Borough of Manhattan, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement or the Notes, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement shall
affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or the Notes in the courts of any
jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have
<PAGE>
94
to the laying of venue of any suit, action or proceeding arising out of or
relating to this Agreement or the Notes in any New York State or federal court.
Each of the parties hereto hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
(c) (i) If, for the purpose of obtaining judgment in any court, it is
necessary to convert a sum due hereunder to any party hereunder in one currency
into another currency, the parties hereto agree, to the fullest extent permitted
by law, that the rate of exchange used shall be that at which in accordance with
its normal banking procedures such party could purchase the first currency with
such other currency on the day which is at least two Business Days prior to the
day on which final judgment is rendered.
(ii) To the fullest extent permitted by law, the obligation of any party in
respect of any sum payable hereunder by it to any other party hereunder shall,
notwithstanding any judgment in a currency (the "Judgment Currency") other than
Dollars (the "Agreement Currency"), be discharged only to the extent that on the
Business Day following receipt by such other party of any sum adjudged to be so
due in the Judgment Currency such other party may in accordance with normal
banking procedures purchase the Agreement Currency with the Judgment Currency;
if the amount of the Agreement Currency which could have been so purchased is
less than the sum originally due to such other party in the Agreement Currency,
such first party agrees, as a separate obligation and notwithstanding any such
judgment, to indemnify such other party against such loss, and, if the amount of
the Agreement Currency which could have been so purchased exceeds the sum
originally due to such other party, such other party agrees to remit to such
first party such excess; provided that neither any Lender nor the Administrative
Agent shall have any obligation to remit any such excess as long as the Borrower
shall have failed to pay any Lender or the Administrative Agent, as the case may
be, any obligations due and payable under this Agreement, in which case such
excess may be applied to such obligations of the Borrower hereunder in
accordance with the terms of this Agreement.
SECTION 8.12. Waiver of Jury Trial. Each of the Borrower, the
Administrative Agent and the Lenders hereby irrevocably waive, to the extent
permitted by law, all right to trial by jury in any action, proceeding or
counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the Notes or the actions of any Agent or any
Lender in the negotiation, administration, performance or enforcement thereof.
SECTION 8.13. Intercreditor Arrangements. Each of the Lenders and the
Borrower acknowledge that the Lenders hereunder, together with any Other Secured
Creditors, shall be considered to be joint creditors (credores solidarios) with
respect to the Obligations under the Loan Documents and the obligations owed to
such Other Secured Creditors; provided that if requested by the Borrower, any
Other Secured Creditors or potential Other Secured Creditors, the Lenders and
the Agents agree to negotiate in good faith with a view to agreeing to a
substitute structure governing the equal sharing of Collateral under Brazilian
law and to documentation reflecting such structure.
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95
SECTION 8.14. Intercreditor Agreement; Amendments to Lucent Credit
Agreement. Except with the consent of the Borrower, the Lenders shall not amend
or modify Section 4.1(a) of the Intercreditor Agreement in a manner that would
add to the limitations set forth therein on the ability of the lenders party to
any Permitted Loan Agreement (as defined in the Intercreditor Agreement) to
agree to amendments to or modifications of such Permitted Loan Agreement. The
Borrower shall not enter into any amendment to or modification of the Lucent
Credit Agreement unless it shall at the same time have offered to enter into an
amendment to or modification of this Agreement on substantially the same terms.
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96
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
DIVEO, INC.
By
-------------------------------------
Title:
ERICSSON CREDIT AB, as Administrative
Agent and Initial Lender
By
-------------------------------------
Title:
Tranche A Commitment: $187,500,000 ERICSSON CREDIT AB
Tranche B Commitment: $112,500,000
(plus undrawn Tranche A Commitments
at the Tranche A Termination Date)
Lending Office and Address for Notices:
Ericsson Credit AB
Telefonvagen 30
SE-126 25
Stockholm, Sweden
<PAGE>
EXECUTION COPY
WAIVER AND AMENDMENT NO. 2
TO THE CREDIT AGREEMENTS
Dated as of March 24, 2000
To: Ericsson Credit AB, as Lender
under the Ericsson Credit Agreement referred to below
Lucent Technologies Inc., as Lender
under the Lucent Credit Agreement referred to below
Ladies and Gentlemen:
We refer to the Amended and Restated Credit Agreement dated as of
November 24, 1999 (as amended pursuant to Waiver and Amendment No.1 to the
Credit Agreements dated as of January 14, 2000 and as otherwise amended or
modified from time to time, the "Ericsson Credit Agreement"), among Diveo, Inc.
-------------------------
(the "Borrower"), Ericsson Credit AB, as Initial Lender, and Ericsson Credit AB,
--------
as Administrative Agent ("Ericsson") and to the Credit Agreement dated as of
--------
November 22, 1999 (as amended pursuant to Waiver and Amendment No.1 to the
Credit Agreements dated as of January 14, 2000 and as otherwise amended or
modified from time to time, the "Lucent Credit Agreement", and together with the
-----------------------
Ericsson Credit Agreement, the "Credit Agreements"), among Diveo, Inc. (the
-----------------
"Borrower"), Lucent Technologies Inc., as Initial Lender, and Lucent
--------
Technologies Inc., as Administrative Agent ("Lucent"). With respect to each
------
Credit Agreement, capitalized terms not otherwise defined in this Waiver and
Amendment No. 2 have the same meanings as specified in such Credit Agreement.
1. We hereby request from Ericsson that the Ericsson Credit Agreement be
amended as follows:
(a) The first paragraph of the recitals to the Agreement be deleted in its
entirety and replaced with the following:
"The Borrower has been formed in order to plan, construct,
operate and maintain digital wireless local loop voice and data
networks and Internet infrastructure for web hosting, collocation and
other enhanced Internet services (each, a "Network") in the United
-------
States of America, Mexico, Central America and South America (the
"Territory") (the planning, construction, operation and maintenance of
---------
the Networks being the "Project")."
-------
(b) The definition of "Blocked Account" be amended by inserting the words
"owing to the Vendor" before the phrase "under the Supply Agreement".
<PAGE>
(c) The definition of "Core Territories" be deleted in its entirety and
replaced with the following:
""Core Territories" means the United States of America,
----------------
Argentina, Brazil, Colombia, Panama, Peru and Uruguay."
(d) The definition of "Tranche B Commitment" be deleted in its entirety
and replaced with the following:
""Tranche B Commitment" means, with respect to any Lender at any
--------------------
time, the amount set forth opposite such Lender's name on the
signature page hereof or, if such Lender has entered into one or more
Assignment and Acceptances, set forth in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c) as such Lender's
"Tranche B Commitment", as such amount may be reduced from time to
time pursuant to Section 2.04."
(e) The definition of "Tranche B Effective Date" be deleted in its
entirety and replaced with the following:
""Tranche B Effective Date" means, with respect to the Tranche B
------------------------
Commitments of the Lenders, January 1, 2001."
(f) The definition of "Tranche B Termination Date" be deleted in its
entirety and replaced with the following:
""Tranche B Termination Date" means the earlier of the eighteen
--------------------------
month anniversary of the Tranche B Effective Date and the date of
termination in whole of the Tranche B Commitments pursuant to Section
2.04 or 6.01."
(g) Section 2.01 be amended as follows:
(i) The second sentence of Section 2.01(a) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche A Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply Agreement during the period from the
16/th/ day of the month preceding the month in which the date of
the proposed Borrowing falls to the 16/th/ day of the month in
which the date of the proposed Borrowing falls and (B) that were
not paid with the proceeds of any prior Borrowing and (ii)
interest owing on Borrowings to be paid with the proceeds
thereof."; and
(ii) The second sentence of Section 2.01(b) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche B Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply
<PAGE>
Agreement during the period from the 16/th/ day of the month
preceding the month in which the date of the proposed Borrowing
falls to the 16/th/ day of the month in which the date of the
proposed Borrowing falls and (B) that were not paid with the
proceeds of any prior Borrowing and (ii) interest owing on
Borrowings to be paid with the proceeds thereof."
(h) Section 2.02(a) be amended as follows:
(i) Insertion of a new subclause (C): "whether such Borrowing will
be a Tranche A Borrowing or a Tranche B Borrowing,"; and the
renaming of existing subclause (C) as subclause (D); and
(ii) Insertion of a new subclause (E): "the third party invoices for
Ancillary Services (as defined in Annex 6 to the Supply
Agreement) to be paid with the proceeds of such Borrowing, the
respective amounts of such invoices to be paid and the aggregate
amount of such invoices to be paid, and"; and the renaming of
existing subclause (D) as subclause (F).
(i) Section 2.03(b) be amended as follows:
The word "1.10%" contained in the third to last line of Section
2.03(b) be deleted and replaced with the word "1.45%".
(j) Section 2.05(b) be amended as follows:
The first sentence be deleted and replaced with the following:
"The Borrower shall repay to the Administrative Agent for the ratable
account of the Lenders that have made Tranche B Advances the aggregate
outstanding principal amount of the Tranche B Advances in nine
installments (i) the first of which shall be payable on January 1,
2003 and (ii) otherwise payable on the last day of every sixth
calendar month after the twenty-four month anniversary of the Tranche
B Effective Date, each in an amount equal to the product obtained by
multiplying (a) the unpaid principal amount of such Tranche B Advances
outstanding on the Tranche B Termination Date by (b) 11.111%; provided
--------
that the last such installment shall be in an amount necessary to
repay in full the unpaid principal amount of the Tranche B Advances."
(k) Section 2.13 be amended as follows:
(i) deleting the last sentence in its entirety and replacing it with
the following:
"The proceeds of the Advances available to make Back-to-Back
Loans described in clause (a) of the preceding sentence shall be
paid directly to the financial institution providing Back-to-Back
Loans and the proceeds of such Back-to-Back Loans made to
Operating Subsidiaries in Argentina, Brazil, Peru and Uruguay (in
the case of Uruguay, subject to applicable
<PAGE>
law) to be used to pay invoices issued by the Vendor under the
Supply Agreement shall at all times be held in Blocked Accounts
until disbursed to pay invoices owing to the Vendor under the
Supply Agreement."; and
(ii) adding after the first paragraph a second paragraph to read as
follows:
"Notwithstanding anything in the Supply Agreement to the
contrary, the Operating Subsidiaries shall use commercially
reasonable efforts to use the proceeds of the Back-to-Back Loans
to pay amounts owing under invoices issued or accepted by the
Vendor pursuant to the Supply Agreement, and as specified in the
related Notice of Borrowing, no later than the last day of the
month in which such proceeds were received."
(l) Section 5.02(a) be amended as follows:
(i) insertion of a new clause (xii) containing the following:
"Debt in the form of promissory notes issued to the selling
stockholders in connection with the acquisition of INEA, S.A.,
in a principal amount not to exceed $2,800,000, and";
(ii) the existing clause (xii) of Section 5.02(a) be renamed clause
(xiii), and the word "(xi)" in the second line of the renamed
clause (xiii) be deleted and replaced with the word "(xii)"; and
(iii) clause (vi) be deleted in its entirety and replaced with the
following:
"(vi) Debt incurred in connection with the entering into by the
Borrower or a Subsidiary thereof of Capitalized Leases in
aggregate principal amount (including any such Debt incurred to
refinance such Debt, as permitted by clause (xii) below) at any
one time outstanding not exceeding (A) $100,000,000, with
respect to any indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber,"
(m) Section 5.02(o) be deleted in its entirety and replaced with the
following:
"(o) Gross PP&E. Make or permit its Subsidiaries to make any
----------
Capital Expenditures that would cause the Gross PP&E of the
Borrower and its Subsidiaries in any period set forth below to
exceed the amount set forth below for such period.
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 115,000,000
12/31/00 $ 325,564,000
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12/31/01 $ 466,052,000
12/31/02 $ 587,322,000
12/31/03 $ 716,357,000
12/31/04 $ 867,065,000
12/31/05 $1,028,336,000
12/31/06 $1,204,626,000
</TABLE>
"
(n) Section 5.02(p) be deleted in its entirety and replaced with the
following:
"(p) Lease Obligations. Create, incur, assume or suffer to exist,
-----------------
or permit any of its Subsidiaries to create, incur, assume
or suffer to exist
(i) any obligations as lessee for the rental or hire of
real or personal property of any kind under leases or
agreements to lease having a term of one year or more
from the date of execution thereof (other than
Capitalized Leases) that would cause the direct and
contingent liabilities of it and its Subsidiaries, on a
Consolidated basis, in respect of all such obligations
in any period set forth below to exceed the amount set
forth below for such period;
<TABLE>
<CAPTION>
Year Ending In Amount
-------------- ------
<S> <C>
12/31/99 $ 7,500,000
12/31/00 $12,723,000
12/31/01 $18,283,000
12/31/02 $31,472,000
12/31/03 $42,835,000
12/31/04 $55,702,000
12/31/05 $69,685,000
12/31/06 $86,153,000
</TABLE>
or
(ii) any obligations under Capitalized Leases that would
cause the direct and contingent liabilities of it and its
Subsidiaries, on a Consolidated basis, in respect of all
such obligations to exceed at any time (A) $100,000,000,
with respect to indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber."
<PAGE>
(o) Section 5.04(a) be deleted in its entirety and replaced with the
following:
"(a) Revenue. Shall not permit its Revenue for the
-------
period beginning on the first day of the Borrower's fiscal year
in which a date set forth below occurs and ending on such date to
be less than the amount corresponding to such date under the
heading "Revenue" set forth below:
<TABLE>
<CAPTION>
Date Revenue
-------
----------------------------------------------------
<S> <C>
12/31/1999 $ 650,000
----------------------------------------------------
03/31/2000 $ 519,000
----------------------------------------------------
06/30/2000 $ 1,530,000
----------------------------------------------------
09/30/2000 $ 3,165,000
----------------------------------------------------
12/31/2000 $ 6,501,000
----------------------------------------------------
03/31/2001 $ 4,739,000
----------------------------------------------------
06/30/2001 $ 11,659,000
----------------------------------------------------
09/30/2001 $ 21,275,000
----------------------------------------------------
12/31/2001 $ 34,331,000
----------------------------------------------------
03/31/2002 $ 21,066,000
----------------------------------------------------
06/30/2002 $ 52,052,000
----------------------------------------------------
09/30/2002 $ 96,045,000
----------------------------------------------------
12/31/2002 $ 157,550,000
----------------------------------------------------
03/31/2003 $ 69,264,000
----------------------------------------------------
06/30/2003 $ 155,844,000
----------------------------------------------------
09/30/2003 $ 249,350,000
----------------------------------------------------
12/31/2003 $ 346,319,000
----------------------------------------------------
03/31/2004 $ 117,257,000
----------------------------------------------------
06/30/2004 $ 263,828,000
----------------------------------------------------
09/30/2004 $ 422,124,000
----------------------------------------------------
12/31/2004 $ 586,283,000
----------------------------------------------------
03/31/2005 $ 177,795,000
----------------------------------------------------
06/30/2005 $ 389,456,000
----------------------------------------------------
09/30/2005 $ 618,049,000
----------------------------------------------------
12/31/2005 $ 846,643,000
----------------------------------------------------
03/31/2006 $ 239,958,000
----------------------------------------------------
06/30/2006 $ 512,637,000
----------------------------------------------------
09/30/2006 $ 796,223,000
----------------------------------------------------
12/31/2006 $1,090,717,000
----------------------------------------------------
</TABLE>
"
(p) Section 5.04(b) be deleted in its entirety and replaced with the
following:
"(b) Total Voice Grade Equivalents. Shall not permit the total
-----------------------------
number of Voice Grade Equivalents of the Borrower and its
Subsidiaries as of any
<PAGE>
date set forth below to be less than the number corresponding to such
date under the heading "Number" set forth below:
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
12/31/1999 736
06/30/2000 3,071
12/31/2000 9,040
06/30/2001 22,999
12/31/2001 50,859
06/30/2002 154,612
12/31/2002 251,548
06/30/2003 398,177
12/31/2003 544,806
06/30/2004 723,723
12/31/2004 902,639
06/30/2005 1,074,614
12/31/2005 1,246,590
06/30/2006 1,428,556
12/31/2006 1,610,522
</TABLE>
"
(q) Section 5.04(c) be deleted in its entirety and replaced with the
following:
"(c) EBITDA. Shall not permit EBITDA for the four fiscal quarters
------
of the Borrower immediately preceding any date set forth below to
be less than the amount set forth under the heading "Amount"
corresponding to such date:
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
12/31/1999 $ (33,400,000)
06/30/2000 $ (65,781,000)
12/31/2000 $ (99,000,000)
06/30/2001 $(104,973,000)
12/31/2001 $ (94,147,000)
06/30/2002 $ (70,976,000)
12/31/2002 $ (18,000,000)
06/30/2003 $ 63,982,000
12/31/2003 $ 106,506,000
06/30/2004 $ 174,099,000
12/31/2004 $ 254,406,000
06/30/2005 $ 332,296,000
12/31/2005 $ 404,196,000
$ 482,098,000
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Number
---- ------
<S> <C>
06/30/2006
12/31/2006 $ 543,904,000
</TABLE>
"
(r) Section 5.04(d) be deleted in its entirety and replaced with the
following:
"(d) Total Debt to Contributed Capital. Shall not permit the
---------------------------------
ratio of (i) Total Debt outstanding as of any date of
determination to (ii) Contributed Capital as of such date of
determination to be greater than the ratio corresponding to the
date set forth below on or at any time during the 12 months
immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 4.50x
12/31/2000 2.50x
12/31/2001 2.50x
12/31/2002 2.50x
12/31/2003 2.50x
12/31/2004 2.50x
12/31/2005 2.50x
12/31/2006 2.50x
</TABLE>
"
(s) Section 5.04(e) be deleted in its entirety and replaced with the
following:
"(e) Total Secured Debt to Contributed Capital. Shall not permit
-----------------------------------------
the ratio of (i) Total Debt owed by the Borrower secured by
Shared Liens outstanding as of any date of determination to (ii)
Contributed Capital as of such date of determination to be
greater than the ratio corresponding to the date set forth below
on or immediately preceding such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/1999 2.00x
06/30/2000 1.75x
12/31/2000 1.75x
06/30/2001 1.75x
12/31/2001 1.75x
06/30/2002 1.75x
12/31/2002 1.75x
06/30/2003 1.75x
12/31/2003 1.75x
06/30/2004 1.75x
1.75x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2004
06/30/2005 1.75x
12/31/2005 1.75x
06/30/2006 1.75x
12/31/2006 1.75x
</TABLE>
"
(t) Section 5.04(f) be deleted in its entirety and replaced with the
following:
"(f) Total Secured Debt to EBITDA (Cash Flow multiple). Shall not
-------------------------------------------------
permit the ratio of (i) Total Debt owed by the Borrower secured
by Shared Liens outstanding at of any date of determination to
(ii) EBITDA for the four consecutive fiscal quarters of the
Borrower most recently ended on or prior to such date of
determination to exceed the ratio corresponding to the date set
forth below on or immediately proceeding such date of
determination:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 N/A
06/30/2003 6.06x
12/31/2003 3.90x
06/30/2004 2.30x
12/31/2004 1.30x
06/30/2005 0.80x
12/31/2005 0.40x
06/30/2006 0.30x
12/31/2006 0.20x
</TABLE>
"
(u) Section 5.04(g) be deleted in its entirety and replaced with the
following:
"(g) EBITDA to Total Cash Debt Service (Debt service coverage
--------------------------------------------------------
ratio). Permit the ratio of (i) EBITDA for the four consecutive
-----
fiscal quarters ending on any of the dates set forth below to
(ii) Total Cash Debt Service for the same period to be less than
the ratio set forth below opposite such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2002 N/A
12/31/2002 0.58x
12/31/2003 0.62x
06/30/2004 1.05x
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
12/31/2004 1.40x
06/30/2005 1.50x
12/31/2005 2.00x
06/30/2006 3.00x
12/31/2006 3.65x
</TABLE>
"
(v) Section 5.02(f) be deleted in its entirety and replaced with the
following:
"(f) Other Business. Engage or permit any Subsidiary to engage,
--------------
directly or indirectly, in any business other than the offering of
data, voice or video services in the Territory, whether as a
competitive access provider, a competitive local exchange carrier,
Internet access provider or provider of enhanced Internet services."
(w) Section 6.01(q) be amended by inserting the words "of Annex 6"
immediately before the phrase "of the Supply Agreement".
(x) The signature page be amended by deleting the words "(plus undrawn
Tranche A Commitments at the Tranche A Termination Date)" from the
Tranche B Commitment language set forth opposite Ericsson's name
thereon.
2. We hereby request from Lucent that the Lucent Credit Agreement be amended
as follows:
(a) The first paragraph of the recitals to the Agreement be deleted in its
entirety and replaced with the following:
"The Borrower has been formed in order to plan, construct,
operate and maintain digital wireless local loop voice and data
networks and Internet infrastructure for web hosting, collocation and
other enhanced Internet services (each, a "Network") in the United
-------
States of America, Mexico, Central America and South America (the
"Territory") (the planning, construction, operation and maintenance of
---------
the Networks being the "Project")."
-------
(b) The definition of "Blocked Account" be amended by inserting the words
"owing to the Vendor" before the phrase "under the Supply Agreement".
(c) The definition of "Core Territories" be deleted in its entirety and
replaced with the following:
""Core Territories" means the United States of America,
----------------
Argentina, Brazil, Colombia, Panama, Peru and Uruguay."
<PAGE>
(d) The definition of "Tranche B Commitment" be deleted in its entirety
and replaced with the following:
""Tranche B Commitment" means, with respect to any Lender at any
--------------------
time, the amount set forth opposite such Lender's name on the
signature page hereof or, if such Lender has entered into one or more
Assignment and Acceptances, set forth in the Register maintained by
the Administrative Agent pursuant to Section 8.07(c) as such Lender's
"Tranche B Commitment", as such amount may be reduced from time to
time pursuant to Section 2.04."
(e) The definition of "Tranche B Effective Date" be deleted in its
entirety and replaced with the following:
""Tranche B Effective Date" means, with respect to the Tranche B
------------------------
Commitments of the Lenders, January 1, 2001."
(f) The definition of "Tranche B Termination Date" be deleted in its
entirety and replaced with the following:
""Tranche B Termination Date" means the earlier of the eighteen
--------------------------
month anniversary of the Tranche B Effective Date and the date of
termination in whole of the Tranche B Commitments pursuant to Section
2.04 or 6.01."
(g) Section 2.01 be amended as follows:
(i) The second sentence of Section 2.01(a) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche A Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply Agreement during the period from the 16th
day of the month preceding the month in which the date of the
proposed Borrowing falls to the 16th day of the month in which
the date of the proposed Borrowing falls and (B) that were not
paid with the proceeds of any prior Borrowing and (ii) interest
owing on Borrowings to be paid with the proceeds thereof."; and
(ii) The second sentence of Section 2.01(b) be deleted in its entirety
and replaced by the following: "Each Borrowing consisting of
Tranche B Advances shall be in an amount not exceeding (i)
amounts owing under invoices (A) issued or accepted by the Vendor
pursuant to the Supply Agreement during the period from the 16th
day of the month preceding the month in which the date of the
proposed Borrowing falls to the 16th day of the month in which
the date of the proposed Borrowing falls and (B) that were not
paid with the proceeds of any prior Borrowing and (ii) interest
owing on Borrowings to be paid with the proceeds thereof."
(h) Section 2.02(a)(ii) be amended as follows:
<PAGE>
(i) Insertion of a new subclause (C): "whether such Borrowing will
be a Tranche A Borrowing or a Tranche B Borrowing,"; and the
renaming of existing subclauses (C) and (D) as new subclauses (D)
and (E); and
(ii) The newly renamed subclause (D) be deleted in its entirety and
replaced with the following: "(D) the invoices issued or
accepted by the Vendor pursuant to the Supply Agreement to be
paid with the proceeds of such Borrowing, the respective amounts
of such invoices to be paid and the aggregate amount of such
invoices to be paid, and".
(i) Section 2.03(b) be amended as follows:
The word "1.10%" contained in the third to last line of Section
2.03(b) be deleted and replaced with the word "1.45%".
(j) Section 2.05(b) be amended as follows:
The first sentence be deleted and replaced with the following:
"The Borrower shall repay to the Administrative Agent for the ratable
account of the Lenders that have made Tranche B Advances the aggregate
outstanding principal amount of the Tranche B Advances in nine
installments (i) the first of which shall be payable on January 1,
2003 and (ii) otherwise payable on the last day of every sixth
calendar month after the twenty-four month anniversary of the Tranche
B Effective Date, each in an amount equal to the product obtained by
multiplying (a) the unpaid principal amount of such Tranche B Advances
outstanding on the Tranche B Termination Date by (b) 11.111%; provided
--------
that the last such installment shall be in an amount necessary to
repay in full the unpaid principal amount of the Tranche B Advances."
(k) Section 2.13 be amended as follows:
(i) deleting the last sentence in its entirety and replacing it with
the following:
"The proceeds of the Advances available to make Back-to-Back
Loans described in clause (a) of the preceding sentence shall be
paid directly to the financial institution providing Back-to-Back
Loans and the proceeds of such Back-to-Back Loans made to
Operating Subsidiaries in Argentina, Brazil, Peru and Uruguay (in
the case of Uruguay, subject to applicable law) to be used to pay
invoices issued by the Vendor under the Supply Agreement shall at
all times be held in Blocked Accounts until disbursed to pay
invoices owing to the Vendor under the Supply Agreement."; and
(ii) adding after the first paragraph a second paragraph to read as
follows:
"Notwithstanding anything in the Supply Agreement to the
contrary, the
<PAGE>
Operating Subsidiaries shall use commercially reasonable efforts
to use the proceeds of the Back-to-Back Loans to pay amounts
owing under invoices issued or accepted by the Vendor pursuant
to the Supply Agreement, and as specified in the related Notice
of Borrowing, no later than the last day of the month in which
such proceeds were received."
(l) Section 5.02(a) be amended as follows:
(i) insertion of a new clause (xii) containing the following:
"Debt in the form of promissory notes issued to the selling
stockholders in connection with the acquisition of INEA, S.A.,
in a principal amount not to exceed $2,800,000, and";
(ii) the existing clause (xii) of Section 5.02(a) be renamed clause
(xiii), and the word "(xi)" in the second line of the renamed
clause (xiii) be deleted and replaced with the word "(xii)"; and
(iii) clause (vi) be deleted in its entirety and replaced with the
following:
"(vi) Debt incurred in connection with the entering into by the
Borrower or a Subsidiary thereof of Capitalized Leases in
aggregate principal amount (including any such Debt incurred to
refinance such Debt, as permitted by clause (xii) below) at any
one time outstanding not exceeding (A) $100,000,000, with
respect to any indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber,"
(m) Section 5.02(o) be deleted in its entirety and replaced with the
following:
"(o) Gross PP&E. Make or permit its Subsidiaries to make any
----------
Capital Expenditures that would cause the Gross PP&E of the
Borrower and its Subsidiaries in any period set forth below to
exceed the amount set forth below for such period.
Year Ending In Amount
-------------- ------
12/31/99 $ 115,000,000
12/31/00 $ 325,564,000
12/31/01 $ 466,052,000
12/31/02 $ 587,322,000
12/31/03 $ 716,357,000
12/31/04 $ 867,065,000
12/31/05 $1,028,336,000
<PAGE>
12/31/06 $1,204,626,000
(n) Section 5.02(p) be deleted in its entirety and replaced with the
following:
"(p) Lease Obligations. Create, incur, assume or suffer to exist,
-----------------
or permit any of its Subsidiaries to create, incur, assume
or suffer to exist:
(i) any obligations as lessee for the rental or hire of
real or personal property of any kind under leases or
agreements to lease having a term of one year or more from
the date of execution thereof (other than Capitalized
Leases) that would cause the direct and contingent
liabilities of it and its Subsidiaries, on a Consolidated
basis, in respect of all such obligations in any period set
forth below to exceed the amount set forth below for such
period;
Year Ending In Amount
-------------- ------
12/31/99 $ 7,500,000
12/31/00 $12,723,000
12/31/01 $18,283,000
12/31/02 $31,472,000
12/31/03 $42,835,000
12/31/04 $55,702,000
12/31/05 $69,685,000
12/31/06 $86,153,000
or
(ii) any obligations under Capitalized Leases that would
cause the direct and contingent liabilities of it and its
Subsidiaries, on a Consolidated basis, in respect of all
such obligations to exceed at any time (A) $100,000,000,
with respect to indefeasible rights of use of fiber and (B)
$10,000,000, with respect to Capitalized Leases other than
indefeasible rights of use of fiber."
(o) Section 5.04(a) be deleted in its entirety and replaced with the
following:
"(a) Revenue. Shall not permit its Revenue for the period
-------
beginning on the first day of the Borrower's fiscal year in which
a date set forth below
<PAGE>
occurs and ending on such date to be less than the amount
corresponding to such date under the heading "Revenue" set forth
below:
Date Revenue
-------
-----------------------------------------------
12/31/1999 $ 650,000
-----------------------------------------------
03/31/2000 $ 519,000
----------------------------------------------
06/30/2000 $ 1,530,000
----------------------------------------------
09/30/2000 $ 3,165,000
----------------------------------------------
12/31/2000 $ 6,501,000
----------------------------------------------
03/31/2001 $ 4,739,000
----------------------------------------------
06/30/2001 $ 11,659,000
----------------------------------------------
09/30/2001 $ 21,275,000
----------------------------------------------
12/31/2001 $ 34,331,000
----------------------------------------------
03/31/2002 $ 21,066,000
----------------------------------------------
06/30/2002 $ 52,052,000
----------------------------------------------
09/30/2002 $ 96,045,000
----------------------------------------------
12/31/2002 $ 157,550,000
----------------------------------------------
03/31/2003 $ 69,264,000
----------------------------------------------
06/30/2003 $ 155,844,000
----------------------------------------------
09/30/2003 $ 249,350,000
----------------------------------------------
12/31/2003 $ 346,319,000
----------------------------------------------
03/31/2004 $ 117,257,000
----------------------------------------------
06/30/2004 $ 263,828,000
----------------------------------------------
09/30/2004 $ 422,124,000
----------------------------------------------
12/31/2004 $ 586,283,000
----------------------------------------------
03/31/2005 $ 177,795,000
----------------------------------------------
06/30/2005 $ 389,456,000
----------------------------------------------
09/30/2005 $ 618,049,000
----------------------------------------------
12/31/2005 $ 846,643,000
----------------------------------------------
03/31/2006 $ 239,958,000
----------------------------------------------
06/30/2006 $ 512,637,000
----------------------------------------------
09/30/2006 $ 796,223,000
----------------------------------------------
12/31/2006 $1,090,717,000
----------------------------------------------
(p) Section 5.04(b) be deleted in its entirety and replaced with the
following:
"(b) Total Voice Grade Equivalents. Shall not permit the total
number of Voice Grade Equivalents of the Borrower and its
Subsidiaries as of any date set forth below to be less than the
number corresponding to such date under the heading "Number" set
forth below:
Date Number
---- ------
12/31/1999 736
<PAGE>
Date Number
---- ------
06/30/2000 3,071
12/31/2000 9,040
06/30/2001 22,999
12/31/2001 50,859
06/30/2002 154,612
12/31/2002 251,548
06/30/2003 398,177
12/31/2003 544,806
06/30/2004 723,723
12/31/2004 902,639
06/30/2005 1,074,614
12/31/2005 1,246,590
06/30/2006 1,428,556
12/31/2006 1,610,522
(q) Section 5.04(c) be deleted in its entirety and replaced with the
following:
"(c) EBITDA. Shall not permit EBITDA for the four fiscal
quarters of the Borrower immediately preceding any date set forth
below to be less than the amount set forth under the heading
"Amount" corresponding to such date:
Date Amount
----- ------
12/31/1999 $ (33,400,000)
06/30/2000 $ (65,781,000)
12/31/2000 $ (99,000,000)
06/30/2001 $(104,973,000)
12/31/2001 $ (94,147,000)
06/30/2002 $ (70,976,000)
12/31/2002 $ (18,000,000)
06/30/2003 $ 63,982,000
12/31/2003 $ 106,506,000
06/30/2004 $ 174,099,000
12/31/2004 $ 254,406,000
06/30/2005 $ 332,296,000
12/31/2005 $ 404,196,000
06/30/2006 $ 482,098,000
12/31/2006 $ 543,904,000
<PAGE>
(r) Section 5.04(d) be deleted in its entirety and replaced with the
following:
"(d) Total Debt to Contributed Capital. Shall not permit the
---------------------------------
ratio of (i) Total Debt outstanding as of any date of
determination to (ii) Contributed Capital as of such date of
determination to be greater than the ratio corresponding to the
date set forth below on or at any time during the 12 months
immediately preceding such date:
Date Ratio
---- -----
12/31/1999 4.50x
12/31/2000 2.50x
12/31/2001 2.50x
12/31/2002 2.50x
12/31/2003 2.50x
12/31/2004 2.50x
12/31/2005 2.50x
12/31/2006 2.50x
(s) Section 5.04(e) be deleted in its entirety and replaced with the
following:
"(e) Total Secured Debt to Contributed Capital. Shall not permit
-----------------------------------------
the ratio of (i) Total Debt owed by the Borrower secured by
Shared Liens outstanding as of any date of determination to (ii)
Contributed Capital as of such date of determination to be
greater than the ratio corresponding to the date set forth below
on or immediately preceding such date:
Date Ratio
---- -----
12/31/1999 2.00x
06/30/2000 1.75x
12/31/2000 1.75x
06/30/2001 1.75x
12/31/2001 1.75x
06/30/2002 1.75x
12/31/2002 1.75x
06/30/2003 1.75x
12/31/2003 1.75x
06/30/2004 1.75x
12/31/2004 1.75x
06/30/2005 1.75x
12/31/2005 1.75x
06/30/2006 1.75x
12/31/2006 1.75x
<PAGE>
(t) Section 5.04(f) be deleted in its entirety and replaced with the
following:
"(f) Total Secured Debt to EBITDA (Cash Flow multiple). Shall not
------------------------------------------------
permit the ratio of (i) Total Debt owed by the Borrower secured
by Shared Liens outstanding at of any date of determination to
(ii) EBITDA for the four consecutive fiscal quarters of the
Borrower most recently ended on or prior to such date of
determination to exceed the ratio corresponding to the date set
forth below on or immediately proceeding such date of
determination:
Date Ratio
---- -----
12/31/2002 N/A
06/30/2003 6.06x
12/31/2003 3.90x
06/30/2004 2.30x
12/31/2004 1.30x
06/30/2005 0.80x
12/31/2005 0.40x
06/30/2006 0.30x
12/31/2006 0.20x
(u) Section 5.04(g) be deleted in its entirety and replaced with the
following:
"(g) EBITDA to Total Cash Debt Service (Debt service coverage
--------------------------------------------------------
ratio). Permit the ratio of (i) EBITDA for the four consecutive
-----
fiscal quarters ending on any of the dates set forth below to
(ii) Total Cash Debt Service for the same period to be less than
the ratio set forth below opposite such date:
Date Ratio
---- -----
12/31/2002 N/A
06/30/2003 0.58x
12/31/2003 0.62x
06/30/2004 1.05x
12/31/2004 1.40x
06/30/2005 1.50x
12/31/2005 2.00x
06/30/2006 3.00x
12/31/2006 3.65x
<PAGE>
(v) Section 5.02(f) be deleted in its entirety and replaced with the
following:
"(f) Other Business. Engage or permit any Subsidiary to engage,
directly or indirectly, in any business other than the offering of
data, voice or video services in the Territory, whether as a
competitive access provider, a competitive local exchange carrier,
Internet access provider or provider of enhanced Internet services."
(w) The signature page be amended by deleting the words "(plus undrawn
Tranche A Commitments at the Tranche A Termination Date)" from the
Tranche B Commitment language set forth opposite Lucent's name
thereon.
3. We hereby request that the Administrative Agent under each Credit Agreement
waive:
(a) until April 30, 2000 the requirements of Sections 5.01(k) and
5.02(k)(viii)(B) of such Credit Agreement (and any Default pursuant to
Section 6.01(c) caused by the failure to fulfill such requirements)
with respect to Investments made by the Borrower and its Subsidiaries
pursuant to Section 5.02(k)(viii)(B) in Tellink S.A. and Eritown,
S.A.;
(b) with respect to any Borrowing under such Credit Agreement occurring
prior to April 30, 2000, the requirements of the last sentence of
Section 2.13;
(c) until April 30, 2000 any misrepresentation under Section 4.01(bb) of
such Credit Agreement (and any Default pursuant to Section 6.01(b)
caused by such misrepresentation) due to the existence of undisclosed
taxes, levies, imposts, deductions, charges or withholdings imposed,
levied or made by or in Uruguay or any political subdivision or taxing
authority thereof or therein.
4. We hereby request that Ericsson acknowledge that the requirements of
Section 3.03(h) and 3.03(i)(viii) (with respect to the Ericsson Credit
Agreement) and Lucent acknowledge that the requirements of Section 3.01(h) and
3.01(i)(viii) (with respect to the Lucent Credit Agreement) do not include the
execution and delivery of (i) a pledge of accounts receivable by Diveo do Brasil
Telecomunicacoes Ltda. (or the creation and perfection of any Liens contemplated
thereunder) or (ii) an agreement executed by Diginet Peru Sociedad Comercial de
Responsabilidad Limitada pledging, conveying or otherwise granting Liens upon
substantially all of its assets (or the creation and perfection of any Liens
contemplated thereunder). We hereby further request that each Administrative
Agent waive our obligation set forth in paragraph 4 of Waiver and Amendment No.
1 to the Credit Agreements dated as of January 14, 2000 with respect to the
documents described in clauses (i) and (ii) of the immediately preceding
sentence; we agree to execute and deliver such documents described prior to
April 30, 2000 or the obligation of the Lenders to make Advances under each
Credit Agreement shall terminate. We hereby further request that Lucent waive
our noncompliance with the requirement of Section 2.03(d) under the Lucent
Credit Agreement to pay the Tranche A Facility Fee on the Tranche A
<PAGE>
Effective Date, provided that we shall have made payment of the Tranche A
Facility Fee to Lucent on or before the date hereof.
5. We hereby acknowledge and consent that Harris Corporation and its
Affiliates shall be considered an "Eligible Assignee" for purposes of each
Credit Agreement and Ericsson or Lucent, as the case may be, may assign to said
party a portion of its rights and obligations under such Credit Agreement in
accordance with Section 8.07 thereof.
6. We hereby agree with Ericsson and Lucent that the amendments set forth in
items 1(m) through (u) (inclusive) and in items 2(m) through (u) (inclusive),
respectively, shall cease to be effective if, within 15 days after the date
hereof, the Parent fails to raise at least $125,000,000 of cash equity capital
in excess of the cash equity capital raised by it prior to the date hereof.
7. This Waiver and Amendment No. 2 shall become effective as of the date first
above written when, and only when, on or before March 29, 2000, the
Administrative Agent under each Credit Agreement shall have received
counterparts of this Waiver and Amendment No. 2 executed by the Required Lenders
or, as to any of the Lenders, advice satisfactory to such Administrative Agent
that such Lender has executed this Waiver and Amendment No. 2. With respect to
each Credit Agreement, this Waiver and Amendment No. 2 is subject to the
provisions of Section 8.01 of such Credit Agreement.
8. Each Credit Agreement, except to the extent of the waivers and amendments
specifically provided above, is and shall continue to be in full force and
effect and is hereby in all respects ratified and confirmed. The execution,
delivery and effectiveness of this Waiver and Amendment No. 2 shall not, except
as expressly provided herein, operate as a waiver of any right, power or remedy
of any Party under any Credit Agreement, nor constitute a waiver of any
provision of any Credit Agreement.
9. On and after the effectiveness of this Waiver and Amendment No. 2, each
reference in each Credit Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to such Credit Agreement, and each reference in
each of the other Loan Documents relating to such Credit Agreement to "the
Credit Agreement", "thereunder", "thereof" or words of like import referring to
such Credit Agreement, shall mean and be a reference to such Credit Agreement,
as amended by this Waiver and Amendment No. 2.
10. If you agree to the terms and provisions of this Waiver and Amendment No.
2, please evidence such agreement by executing and returning at least two
counterparts of this Waiver and Amendment No. 2 to each of (i) Nicole Jerabek at
Shearman & Sterling, 599 Lexington Avenue, New York, NY 10022 (Telecopier: (212)
848-7179; Telephone: (212) 848-4835) and (ii) George Schoen at Cravath, Swaine &
Moore, 825 Eighth Avenue, New York, NY 10019 (Telecopier: (212) 474-3700;
Telephone (212) 474-1740).
11. This Waiver and Amendment No. 2 may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Waiver and
<PAGE>
Amendment No. 2 by telecopier shall be effective as delivery of a manually
executed counterpart of this Waiver and Amendment No. 2.
12. This Waiver and Amendment No. 2 shall be governed by, and construed in
accordance with, the laws of the State of New York.
DIVEO, INC.
By ______________________________________
Name:
Title:
Agreed as of the date first above written:
ERICSSON CREDIT AB
By________________________
Name:
Title:
LUCENT TECHNOLOGIES INC.
By________________________
Name:
Title:
<PAGE>
CONSENT
EACH OF THE UNDERSIGNED, as of the date of the foregoing Amendment,
consents to such Amendment and confirms and agrees that notwithstanding the
effectiveness of such Amendment and any prior amendments to the Credit
Agreement, the Guaranties and each other Loan Document to which it is a party
are, and shall continue to be, in full force and effect and are hereby ratified
and confirmed in all respects, except that, on and after the effectiveness of
such Amendment, each reference in each such Loan Document to the "Credit
Agreement", "thereunder", "thereof" or words of like import shall mean and be a
reference to the Credit Agreement, as amended by such Amendment and all prior
amendments thereto.
DIGINET ARGENTINA, INC. DIGINET BRAZIL, INC.
By_________________________ By_________________________
Title: Title:
DIGINET COLOMBIA, INC. DIGINET PANAMA INC.
By_________________________ By_________________________
Title: Title:
DIGINET VENTURES/MEGALINK, INC. DIGINET PERU INC.
By_________________________ By_________________________
Title: Title:
<PAGE>
DIGINET ARGENTINA S.A. DIGINET COMUTACAO DIGITAL LTDA.
By_________________________ By_________________________
Title: Title:
DIVEO DO BRASIL DIGINET TELECOMUNICACIONES DE
TELECOMUNICACOES LTDA. PANAMA S.A.
By_________________________ By_________________________
Title: Title:
DIGINET PERU SOCIEDAD COMERCIAL DE
RESPONSIBILIDA LIMITADA
By_________________________
Title:
<PAGE>
Exhibit 10.3
MASTER SUPPLY AGREEMENT
BY AND BETWEEN
DIVEO, INC.
AND
LUCENT TECHNOLOGIES WORLD SERVICES, INC.
Effective as of November 22, 1999
- --------------------------------------------------------------------------------
Master Supply Agreement Diveo / Lucent Confidential
<PAGE>
TABLE OF CONTENTS
1. AGREEMENT OVERVIEW......................................................1
1.1. General...............................................................1
1.2. Territory.............................................................1
1.3. Strategic Relationship................................................2
2. TERM....................................................................2
2.1. Initial Term..........................................................2
2.2. Extension.............................................................2
3. PURCHASING AND ORDERING.................................................3
3.1. Purchase Orders.......................................................3
3.2. Administrative Changes................................................4
3.3. Timing of Delivery....................................................4
3.4. Cancellation and Rescheduling of Purchase Orders......................6
3.5. Termination of Purchase Orders........................................7
3.6. Demonstration Products................................................8
4. SHIPPING AND DELIVERY...................................................8
4.1. Incorrect Delivery....................................................8
4.2. Purchase Order Tracking...............................................8
4.3. Packing...............................................................8
4.4. Labeling..............................................................9
4.5. Factory Testing.......................................................9
4.6. Shipping..............................................................9
4.7. Title and Risk of Loss...............................................10
5. DELIVERY OF SERVICES...................................................10
5.1. Use of Third Parties.................................................10
5.2. Key Lucent Positions and Management Escalation Process...............11
5.3. Implementation Plans, Milestones and Milestone Dates.................12
6. ACCEPTANCE TESTING AND FINAL ACCEPTANCE................................12
6.1. Acceptance Testing...................................................12
6.2. Acceptance Testing Failures, Cure Periods and Remedies...............13
6.3. Acceptance...........................................................13
7. SERVICE LEVELS.........................................................14
7.1. General..............................................................14
7.2. Failure to Perform...................................................14
7.3. Periodic Reviews.....................................................14
7.4. Measurement and Monitoring Tools.....................................15
8. SOFTWARE LICENSES AND PROPRIETARY RIGHTS...............................15
8.1. Licenses.............................................................15
8.2. Proprietary Rights...................................................16
8.3. Right to Resell and Sublicense.......................................17
8.4. Technical Materials Availability.....................................18
9. DIVEO RESPONSIBILITIES.................................................18
9.1. Facilities and Resources.............................................18
9.2. Savings Clause.......................................................18
10. CHARGES..............................................................19
10.1. General..............................................................19
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Master Supply Agreement i Diveo / Lucent Confidential
<PAGE>
10.2. Taxes................................................................19
10.3. Incidental Expenses..................................................20
10.4. Commitment...........................................................20
10.5. Lucent-Provided Financing............................................21
10.6. Competitive Pricing..................................................23
11. INVOICING AND PAYMENT................................................24
11.1. Invoicing............................................................24
11.2. Payment Due..........................................................25
11.3. Accountability.......................................................26
11.4. Proration............................................................26
11.5. Set Off..............................................................26
11.6. Disputed Charges.....................................................27
11.7. Encumbrances.........................................................27
12. CONFIDENTIALITY......................................................27
12.1. Confidential Information.............................................27
12.2. Obligations..........................................................27
12.3. Exclusions...........................................................28
12.4. No Implied Rights....................................................28
13. REPRESENTATIONS, WARRANTIES AND COVENANTS............................29
13.1. Pass-Through Warranties..............................................29
13.2. Ownership or Use.....................................................29
13.3. Authorization........................................................29
13.4. Inducements..........................................................29
13.5. Work Standards.......................................................30
13.6. Product Warranties...................................................30
13.7. Discontinued Lucent Products.........................................31
13.8. Compliance...........................................................32
13.9. Integration..........................................................32
13.10. Documentation........................................................33
13.11. Viruses..............................................................33
13.12. Disabling Code.......................................................33
13.13. Year 2000............................................................34
13.14. Disclaimer...........................................................34
14. TERMINATION..........................................................34
14.1. Termination for Cause................................................34
14.2. Termination by Lucent................................................35
14.3. Termination Option for Lucent's Failure to Provide Financing.........35
14.4. Disengagement Assistance.............................................35
15. LIABILITY............................................................35
15.1. General Intent.......................................................35
15.2. Liability Restrictions...............................................36
15.3. Force Majeure........................................................36
16. INDEMNIFICATION......................................................37
16.1. Indemnities by Lucent................................................37
16.2. Indemnities by Diveo.................................................38
16.3. Infringement.........................................................38
16.4. Indemnification Procedures...........................................39
17. DISPUTE RESOLUTION...................................................40
17.1. Informal Dispute Resolution..........................................40
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Master Supply Agreement ii Diveo / Lucent Confidential
<PAGE>
17.2. Litigation...........................................................40
17.3. Continued Performance................................................41
17.4. Governing Law........................................................41
18. INSURANCE REQUIREMENTS...............................................41
19. GENERAL..............................................................42
19.1. Binding Nature and Assignment........................................42
19.2. Entire Agreement.....................................................42
19.3. Notices..............................................................42
19.4. Counterparts.........................................................43
19.5. Relationship of Parties..............................................43
19.6. Severability.........................................................43
19.7. Consents and Approval................................................43
19.8. Waiver of Default....................................................44
19.9. Cumulative Remedies..................................................44
19.10. Survival.............................................................44
19.11. Public Disclosures...................................................44
19.12. Service Marks........................................................45
19.13. Third Party Beneficiaries............................................45
19.14. Amendment............................................................45
19.15. Interpretation.......................................................45
19.16. Incorporation by Reference and Order of Precedence...................45
19.17. Right of Access......................................................46
19.18. Export Control.......................................................46
LIST OF SCHEDULES
----------------------------------------------------
Glossary Glossary of Defined Terms
Schedule A Scope of Deliverables
Schedule B Service Level Agreements
Schedule C Pricing
Schedule D Territory
Schedule E Product Documentation and Specifications
Schedule F Acceptance Test Plans
Schedule G Training
Schedule H Warranty Periods
Schedule I Key Lucent Personnel and Escalation Procedures
Schedule J Purchase Order and Change Order Process
Schedule K City Plan Template
Schedule L Diveo Requirements Document
- --------------------------------------------------------------------------------
Master Supply Agreement iii Diveo / Lucent Confidential
<PAGE>
MASTER SUPPLY AGREEMENT
This Master Supply Agreement (together with the Schedules attached hereto,
the "Agreement"), effective as of November 22, 1999 (the "Effective Date"), is
entered into by and between DIVEO, INC., a Delaware corporation with offices
located at 3201 New Mexico Avenue, NW, Suite 320, Washington, D.C. 20016 (and
together with its Affiliates, "Diveo" or "Buyer"), and LUCENT TECHNOLOGIES WORLD
SERVICES, INC., a Delaware corporation with offices located at 2333 Ponce De
Leon Boulevard, Coral Gables, Florida 33134 ("Lucent" or "Seller"). The Parties
agree that the following terms and conditions shall apply to the products and
services to be provided by Lucent under this Agreement in consideration of
certain payments to be made by Diveo. Capitalized terms used in this Agreement
are defined in the "Glossary of Defined Terms" attached hereto and incorporated
herein by this reference.
1. AGREEMENT OVERVIEW
1.1. General.
(a) This Agreement sets forth the general terms and conditions
under which Diveo may purchase and receive Products and
Services from Lucent.
(b) The Parties acknowledge that this Agreement does not grant to
Lucent an exclusive privilege to sell or otherwise provide to
Diveo any or all of the Products or Services of the type
described in this Agreement. Diveo may contract with other
manufacturers and suppliers for the procurement of comparable
equipment, software, systems, deliverables or services. Lucent
is not restricted from selling the types of products or
services that may be purchased and ordered by Diveo hereunder
to other parties, except as provided in Section 8.2 with
respect to Developed Deliverables.
(c) Promptly following the Effective Date, Diveo shall cause its
Affiliates in the Territory to execute supplemental signature
pages to this Agreement in order to permit such Affiliates to
purchase Products and Services under this Agreement. Likewise,
Lucent shall, promptly following the Effective Date, cause its
Affiliates in the Territory to execute supplemental signature
pages to this Agreement to obligate such Affiliates to the
terms and conditions of this Agreement. Diveo and Lucent each
agree to guarantee the performance of their respective
Affiliates under this Agreement.
1.2. Territory.
(a) The Parties agree that as of the Effective Date the terms of
this Agreement shall apply with respect to Lucent's provision
of Products and Services within the Territory to Diveo and
Diveo's Affiliates.
(b) The Territory shall be expanded in the event that (i) the
Parties mutually agree to add a country to the list of those
countries comprising the Territory, in which case, the Parties
shall amend Schedule D to list such country or (ii) Lucent or
its Affiliates are directly selling in the normal course of
business in other countries in Latin America similar type
products and services as those that Diveo can
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Master Supply Agreement 1 Diveo / Lucent Confidential
<PAGE>
purchase hereunder, in which case, Schedule D shall be deemed
to be amended to include such additional countries.
1.3. Strategic Relationship.
(a) Lucent-provided Roof Rights and Building Access. If requested
by Diveo, Lucent shall grant to Diveo, at no cost to either
Party, roof and interior rights to buildings in the Territory
owned by Lucent. In addition, Lucent shall, at no out of
pocket cost from Lucent to a third party, reasonably assist
Diveo in obtaining such rights with respect to any other
buildings leased or occupied by Lucent in the Territory.
Nothing herein shall obligate Lucent to violate any of its
existing real property lease agreements or any other agreement
or legal instrument to which Lucent is subject. Within ninety
(90) days of the Effective Date and semi-annually thereafter
upon Diveo's written request, Lucent shall provide Diveo with
a written list of all addresses of current real estate
properties owned or leased by Lucent in the Territory.
(b) Business Development. The Parties will provide reasonable
marketing support to each other in connection with business
opportunities of each Party. Such support may also include
co-marketing activities where Lucent would also sell Diveo
services and products in conjunction with Lucent services and
products.
(c) Network Element Recommendations. From time to time during the
Term of this Agreement, Lucent may provide, under a Purchase
Order Project Engineering and Professional Services (as
referred to in Schedule A). In the Event Diveo engages Lucent
to provide such Project Engineering and Professional Services
pursuant to an accepted Purchase Order, Lucent agrees to
consider what is in the best interests of Diveo in making
product and services recommendations, including recommending
Third Party Products and services where appropriate, even
where Lucent has competing products and services.
2. TERM
2.1. Initial Term.
The term of this Agreement shall begin upon the Effective Date and
shall continue for a period of five years (the "Initial Term"),
unless terminated earlier or extended in accordance with this
Agreement.
2.2. Extension.
This Agreement shall be extended for additional one year periods on
the terms then in effect (each, an "Extended Term" and together with
the Initial Term, the "Term") unless (i) a Party gives the other
Party written notice sixty (60) days prior to the expiration of the
Initial Term or Extended Term or (ii) the Agreement is otherwise
terminated earlier in accordance with the terms of this Agreement.
- --------------------------------------------------------------------------------
Master Supply Agreement 2 Diveo / Lucent Confidential
<PAGE>
3. PURCHASING AND ORDERING
3.1. Purchase Orders.
(a) All purchases of Products or Services shall be made by means
of orders (each, a "Purchase Order", such term to include any
changes made to the Purchase Order pursuant to the terms of
this Agreement, including the Change Order process set forth
in Schedule J) issued and executed by Diveo or any of Diveo's
Affiliates to Lucent (or Lucent's applicable Affiliate, in the
case of Services to be performed in one of the countries
forming part of the Territory) from time to time pursuant to
this Section and Schedule J. Diveo will not be liable to
Lucent for any charges, additional or otherwise, for Products
or Services provided by Lucent unless set forth in a Purchase
Order, or otherwise mutually agreed upon by the Parties in
writing.
(b) Lucent agrees to provide and deliver, and Diveo agrees to
purchase according to the terms of this Agreement, including
the Purchase Order and Change Order Process and lead times set
forth in Schedule J:
(i) Any Product or Service listed in a Schedule hereto that
is specified by Diveo in a Purchase Order that conforms
to Subsection (f) of this Section; and
(ii) Any other Product or Service specified by Diveo in a
Purchase Order that conforms to Subsection (f) of this
Section and is accepted or is deemed to be accepted by
Lucent in accordance with Subsection (d) below.
(c) Schedule J contains Purchase Order processes that the Parties
will utilize in connection with the issuance of Purchase
Orders. Part of this process includes Purchase Order
Initiation Forms (POIFs).
(i) Within five (5) Business Days after Lucent's receipt of
a POIF, which Diveo may present in connection with the
potential supply of Third Party Content to be provided
on a cost plus basis or other Products and Services
(including those to be provided by Lucent) for which no
price is specified in Schedule C, Lucent shall
acknowledge its receipt of such POIF and shall provide
Diveo with its preliminary feedback regarding the
subject matter thereof.
(ii) As soon as practicable, but in any event within fifteen
(15) business days after Lucent's receipt of the POIF,
Lucent shall, to the extent applicable, identify for
Diveo's approval: (1) the proposed third party
suppliers, (2) their associated price quotations, (3)
any other proposed terms relating to the purchase of
such Products or Services from such third parties, and,
(4) in the case of Products or Services to be provided
by Lucent, the proposed Lucent price (subject to and in
accordance with the pricing set forth in this
Agreement).
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Master Supply Agreement 3 Diveo / Lucent Confidential
<PAGE>
(iii) If Lucent fails to comply with its obligations as
specified in this Subsection (c), but Diveo nevertheless
proceeds to order the related Third Party Content
through Lucent, Lucent shall only be entitled to an 8%
markup on such Third Party Content (i.e., Lucent shall
not be eligible for the full 20% markup that it
otherwise might have been able to earn with respect to
such purchase as provided in Schedule C); provided that
nothing in this provision shall be deemed to limit
Lucent's otherwise applicable obligations with respect
to such Third Party Content.
(d) To the extent that any Purchase Order is either consistent
with (i) the requirements of a City Plan approved by Lucent or
(ii) Lucent's ordering lead times set forth in Schedule J for
the Products and Services identified therein, then Lucent may
not reject such Purchase Order and shall be deemed to have
accepted a Purchase Order on the first business day
immediately following receipt of such Purchase Order.
Otherwise, Lucent shall be deemed to have accepted a Purchase
Order by close of business of the tenth (10th) business day
following receipt of such Purchase Order if Lucent has not
notified Diveo in writing of its rejection of the Purchase
Order pursuant to Section 19.3 prior to such time. In the
event of a disaster declared by Diveo, Lucent will use
commercially reasonable efforts to expedite the acceptance of
any Purchase Orders that are submitted by Diveo as a means of
mitigating the adverse effects to Diveo of such disaster;
provided, however, that the terms and conditions of Section
3.3(c) shall not apply to such Purchase Order.
(e) Estimates or forecasts furnished by Diveo to Lucent shall not
constitute Purchase Orders or commitments for purchases.
(f) Purchase Orders placed under this Agreement may be made by
means of mail or fax pursuant to Section 19.3, Diveo's
extranet ordering system, or such other mutually agreed upon
methods (e.g., electronic data interchange). No Purchase Order
or other ordering document which would otherwise modify or
supplement this Agreement or any Schedule shall add to or vary
the terms of this Agreement. All such proposed variations or
additions (whether submitted by either Party) are hereby
objected to and deemed material. Each Purchase Order shall
contain the applicable information set forth in Schedule J.
3.2. Administrative Changes.
Lucent will use commercially reasonable efforts to notify Diveo at
least thirty (30) calendar days in advance of any administrative
changes with respect to any Product set forth in Schedule A or
previously provided by Lucent to Diveo, such as changes in product
part numbers or descriptions, as well as newly compatible products
or components.
3.3. Timing of Delivery.
(a) The Delivery and Acceptance dates for Products and Delivery
for Services shall be firm. Lucent will deliver Products and
Services strictly in accordance with
- --------------------------------------------------------------------------------
Master Supply Agreement 4 Diveo / Lucent Confidential
<PAGE>
the terms and conditions of accepted or deemed accepted
Purchase Orders or Change Control Form (as such Change Control
Form is further described in Schedule J).
(b) If Lucent discovers any potential delay that threatens the
timely Delivery and Acceptance of Products or the Delivery of
Services with respect to a Purchase Order, Lucent shall
immediately notify Diveo of such delay. If requested by Diveo,
Lucent shall provide a written plan for correction of such
delay.
(c) Subject to Sections 3.1(d), 9.2 and 15.3, if Lucent fails to
deliver
(i) any Product or Service for which a corresponding
Delivery time is set forth in Schedule J of the
Agreement in accordance with such corresponding Delivery
time;
(ii) any other Products or Services in accordance with the
scheduled Delivery date or Acceptance date set forth in
the corresponding accepted Purchase Order;
then after five (5) business days following such scheduled
Delivery or Acceptance date, as applicable, Diveo shall be
entitled to deduct from the price of the Products, Services or
both (if included in the Purchase Order) an amount equal to
one-tenth of a percent (.1%) of the price of Products and
Services under such Purchase Order for each calendar day of
delay after such five-day grace period until actual Delivery
or Acceptance (or Provisional Acceptance), as applicable, of
such Products and Services, up to a maximum deduction of one
hundred percent (100%) of the price for such Products and
Services (the "Delivery Pricing Adjustment"). Notwithstanding
the preceding sentence, Lucent shall not be liable for a
Delivery Pricing Adjustment to the extent that Lucent can
demonstrate that its failure to deliver a Product or Service
in accordance with the scheduled Delivery or Acceptance date,
as applicable, set forth in the corresponding Purchase Order
is reasonably caused by (i) the wrongful actions of Diveo, or
(ii) a force majeure condition as defined in this Agreement,
or (iii) a change, revision, modification, or special
requirement with respect to such Product, or Service, or the
Delivery date for such Product or Service, each to the extent
requested by Diveo and approved by Lucent after Lucent has
accepted the Purchase Order corresponding to such Product or
Service. To the extent that Diveo has not otherwise terminated
the Purchase Order as provided in Subsection 3.5 below and
Diveo has elected to take the Delivery Pricing Adjustment as
provided above, such adjustment shall be Diveo's sole and
exclusive monetary remedy with respect to the delay
attributable to the failure to complete the Purchase Order;
provided, however, that in the event Lucent has persistent
delays over multiple Purchase Orders, such Delivery Pricing
Adjustment shall be in addition to any other rights or
remedies Diveo may have under this Agreement or at law or in
equity. Lucent agrees not to make an economic determination
not to deliver a Product or Service under a particular
Purchase Order due to the Delivery Pricing Adjustment.
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Master Supply Agreement 5 Diveo / Lucent Confidential
<PAGE>
(d) If Lucent fails to make any Delivery or Acceptance (or
Provisional Acceptance) of a Product or Delivery of a Service
within the lesser of
(i) forty-five (45) calendar days after the scheduled
Delivery date or Acceptance date set forth in the
corresponding Purchase Order, and
(ii) such other time period as mutually agreed by the
Parties,
Then Diveo shall be entitled to terminate the corresponding
Purchase Order in accordance with Section 3.5.
(e) Lucent agrees to use its commercially reasonable efforts to
have scheduled shipment dates for Purchase Orders to be as
close to the Delivery date as possible.
3.4. Cancellation and Rescheduling of Purchase Orders
(a) Diveo can cancel Purchase Orders with respect to Products
contained in such Purchase Orders, in whole or in part at no
cost or liability anytime up to forty-five (45) days prior to
the scheduled shipment date for such Product. Should Diveo
cancel any Purchase Order for Products, in whole or in part
other than pursuant to Section 3.5, during the forty-five (45)
day period prior to the scheduled shipment date, Diveo agrees
to pay to Lucent cancellation and reconfiguration charges
equal to:
(i) five percent (5%) of the value of the canceled portion
of the Purchase Order if the cancellation notice is
given between twenty (20) and forty-five (45) days prior
to the scheduled shipment date; or
(ii) twenty percent (20%) of the value of the canceled
portion of the Purchase Order if the cancellation notice
is given within twenty (20) days prior to the scheduled
shipment date.
(b) Diveo can cancel Purchase Orders with respect to Services
contained in such Purchase Orders, in whole or in part, at no
cost or liability anytime prior up to twenty (20) days prior
to the scheduled start date set forth in the Purchase Order.
Should Diveo cancel any Purchase Order for Services, in whole
or in part other than pursuant to Section 3.5, during the
twenty (20) day period prior to the scheduled start date,
Diveo agrees to pay to Lucent cancellation charges for which
Diveo has been given prior notice on an Out-of-Pocket Expenses
basis equal to Lucent's demonstrable cancellation fees payable
to a third party, if any, as a direct result of such Diveo
cancellation..
(c) Purchase Orders for Products only may not be canceled
following shipment of the Products. Purchase Orders for
Services only may not be canceled following start of the
Service. The foregoing shall not impact any rights or remedies
otherwise available to Diveo under this Agreement.
(d) Following the Change Control process as specified in Schedule
J, Diveo may change the "ship to" destination of any Product
corresponding to a Purchase
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Master Supply Agreement 6 Diveo / Lucent Confidential
<PAGE>
Order by submitting notice to Lucent in writing at least ten
(10) calendar days prior to delivery of the Product(s) at the
designated site. If such change is requested by Diveo with
less than forty-eight hours of notice prior to shipment,
Lucent will use all reasonable efforts to implement such
change. Diveo will be responsible for all additional
Out-of-Pocket Expenses that Lucent reasonably incurs as a
direct result of such change. Lucent will provide Diveo with
an estimate of such Out-of-Pocket Expenses as soon as possible
following Diveo's notice.
(e) Diveo may, without cost to Diveo, reschedule Delivery of any
Product corresponding to any Purchase Order at anytime prior
to actual shipment such that the resulting rescheduled
shipping date is up to one hundred twenty (120) days from the
original scheduled shipment date specified in the Purchase
Order (or such later date as either mutually agreed upon by
the Parties or identified as the ship date by Lucent);
provided, however, that unless otherwise agreed upon by the
Parties, Diveo may not reschedule any Product if the Delivery
of such Product was previously rescheduled by Diveo pursuant
to this Subsection (e). Such rescheduling shall be at no
liability to Diveo. Provided that the rescheduling was not
caused by delays by Lucent, Diveo shall be responsible solely
for additional Out-of-Pocket Expenses actually incurred by
Lucent for third party storage and transportation, if any.
(f) Diveo may reschedule Delivery of any Service corresponding to
any Purchase Order at anytime prior to scheduled start date
such that the resulting rescheduled delivery date is up to one
hundred twenty (120) days from the original start date
specified in the Purchase Order (or such later date as either
mutually agreed upon by the Parties). Such rescheduling shall
be at no cost or liability to Diveo.
(g) For the limited purpose of Diveo exercising its rights to
cancel or reschedule Delivery of Purchase Orders pursuant to
this Section only, all references in this Section 3.4 to the
scheduled shipment date specified in the Purchase Order shall
be extended day-for-day by the number of days Lucent is
delayed or is reasonably expected to be delayed in meeting the
scheduled shipment date.
3.5. Termination of Purchase Orders.
(a) As provided in Sections 3.3(d) and 6.2, Diveo may, by giving
written notice to Lucent, terminate the applicable Purchase
Order, in whole or in part, for cause as of a date specified
in the notice of termination. Additionally, in the event that
a Product fails to comply with the applicable Acceptance
Criteria as set forth in the Agreement, then Diveo may, by
giving written notice to Lucent, terminate, in whole or in
part for cause as of a date specified in the notice of
termination, any Purchase Orders under which Diveo has ordered
a quantity of the same Product or related Services and Lucent
has not yet Delivered such Products or related Services.
(b) In either of such events as described in Subsection (a), Diveo
may return to Lucent, those Products forming part of the same
Purchase Order that were delivered by Lucent during the sixty
(60) days immediately preceding the
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Master Supply Agreement 7 Diveo / Lucent Confidential
<PAGE>
termination of the Purchase Order and that were intended to be
integrated and/or installed by Lucent with the foregoing
Products subject of the events described in Subsection (a), in
which case Lucent shall promptly refund to Diveo all charges
paid by Diveo to Lucent for such Products, and Diveo shall
have no further payment obligations to Lucent with respect to
such Products. The foregoing refund will be in the form of a
credit and payable by Lucent to Diveo in accordance with
Section 11.1(c).
3.6. Demonstration Products.
From time to time and at Diveo's reasonable request and at Lucent's
discretion, Lucent may, at no charge, provide Diveo with limited
quantities of Lucent Products not previously introduced to the
market generally by Lucent for the purpose of Diveo's evaluation (or
demonstration) for a trial period. Such trial shall be conducted
upon written terms and conditions mutually acceptable to the
Parties.
4. SHIPPING AND DELIVERY
4.1. Incorrect Delivery.
(a) Early deliveries of Products may be refused due to space or
security considerations and returned or stored at Lucent's
expense and risk of loss.
(b) Diveo assumes no liability for Services rendered or Products
produced, processed, rendered or shipped in excess of the
amounts specified in any Purchase Order submitted pursuant to
this Agreement.
(c) If Lucent makes a proper shipment in a timely manner and the
Diveo facility is not prepared to receive the shipment, Diveo
will be responsible for unavoidable Out-of-Pocket Expenses
that Lucent reasonably incurs as a direct result of Diveo's
failure to prepare. Lucent will provide Diveo with an estimate
of such Out-of-Pocket Expenses as soon as possible following
Diveo's notice.
4.2. Purchase Order Tracking.
In accordance with Schedule J, Lucent shall be responsible for
tracking and reporting on the Delivery and Acceptance (if
installation Services are being provided) of all Products from
receipt of the corresponding Purchase Order until Delivery or
Acceptance, as applicable, of such Products to the Diveo-designated
place of Delivery or Acceptance. Lucent will provide Diveo with
current status reports and information on Purchase Orders on a
monthly basis or more often as requested by Diveo and such other
information and reports as reasonably requested by Diveo regarding
Purchase Orders.
4.3. Packing.
All Products delivered to Diveo pursuant to this Agreement shall be
preserved, packaged and packed by Lucent to ensure safe Delivery to
their destinations without damages due to shipment.
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Master Supply Agreement 8 Diveo / Lucent Confidential
<PAGE>
4.4. Labeling.
(a) Lucent will label each component of any Lucent Product no
later than at the time of Delivery of such components (or upon
installation if Lucent is to provide installation Services in
connection with such components). In addition to the
foregoing, Lucent will use reasonable and good faith efforts
to label each component of any Lucent Product, each container
and each set of packing documentation with any Diveo-provided
asset identification information prior to the Delivery or
installation of such components. Lucent shall follow industry
practices in labeling Products.
(b) Lucent will mark each shipping carton with (i) a brief
description of the contents and quantities of the Products
shipped within such shipping carton, and (ii) the address of
the Delivery destination specified on the applicable Purchase
Order.
4.5. Factory Testing.
The Lucent Products shall be tested by Lucent in accordance with
Lucent's relevant standard factory testing procedures. Diveo shall
have the right, but not the obligation, to be present during the
performance of such factory tests. If requested by Diveo, Lucent
agrees to provide results of the tests for such Lucent Products
purchased by Diveo hereunder, consistent with Lucent's applicable
policies.
4.6. Shipping
(a) Lucent will notify Diveo of Lucent's intent to ship Products
within a reasonable time prior to the scheduled Delivery date
as specified in the Purchase Order at the Delivery destination
address specified in a Purchase Order, so as to permit Diveo
to make necessary arrangements for receipt of the shipment.
The foregoing notwithstanding, Lucent shall deliver such
Products consistent with the agreed upon City Plan and
otherwise in accordance with the Agreement.
(b) Lucent will ship all Products to the Delivery destination
specified by Diveo in the corresponding Purchase Order in
accordance with applicable laws and regulations. All shipments
to Diveo's premises shall be consistent with Diveo's
reasonable shipping and delivery processes and procedures
provided or identified to Lucent in writing. Lucent will (i)
ship all deliveries complete unless otherwise agreed by Diveo,
and (ii) not ship any substitute item in place of a Product
specified in a Purchase Order that differs in form, fit or
function, unless otherwise agreed by Diveo in writing.
(c) Unless otherwise instructed by Diveo, Lucent will:
(i) enclose a packing memorandum with each shipment and,
when more than one package is shipped, identify the one
which contains the memorandum;
(ii) verify that bills of lading match corresponding shipping
invoices; and
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Master Supply Agreement 9 Diveo / Lucent Confidential
<PAGE>
(iii) forward applicable bills of lading and shipping notices
with items shipped.
(d) All deliveries will be made as provided in Schedule C.
4.7. Title and Risk of Loss.
(a) Risk of loss of any Product shipped to Diveo will pass to
Diveo upon delivery of the Product to the designated site. In
the event a Product or Products are ordered with installation,
implementation and/or engineering Services, Lucent shall
continue to be responsible for all risk of loss on such
Product or Products (as if risk of loss did not pass upon
Delivery) until Acceptance of the Product or Products. In
connection with all of the foregoing, Lucent shall obtain all
necessary insurance its own name and shall be responsible for
any loss to the Products prior to the time periods set forth
above.
(b) License to use Software and title to Products shall pass to
Diveo as follows:
(i) Where a Product or Software is shipped to the designated
site or destination specified in the Purchase Order from
a country that is different from the country of such
designated site or destination (the country of such
designated site or destination the "Destination
Country"), such title to the Product or license to use
such Software, as applicable, shall pass immediately
prior to importation in the Destination Country; or
(ii) Where a Product or Software is shipped to the designated
site or destination specified in the Purchase Order from
within the same country as the country of such
designated site or destination, such title to the
Product or license to use such Software, as applicable,
shall pass upon delivery of such Product or Software to
the designated site or destination specified in the
Purchase Order.
5. DELIVERY OF SERVICES
5.1. Use of Third Parties.
(a) Lucent shall notify Diveo in writing in advance of engaging
any subcontractor to perform any of the obligations of Lucent
hereunder. Diveo shall have five (5) business days (or two (2)
business days in the event of an emergency) from receipt of
such notification to approve or disapprove the named
subcontractor in writing, provided that any disapproval of a
subcontractor is reasonably based. In the event that Diveo
fails to disapprove a subcontractor within the aforesaid
period, Diveo shall be deemed to have approved the said
subcontractor.
(b) Lucent will remain solely responsible for all obligations
performed by its subcontractors to the same extent as if such
obligations were performed by Lucent itself. Lucent shall be
Diveo's sole point of contact regarding Products and Services
provided by such subcontractors, including with respect to
payment. Lucent will not disclose Confidential Information of
Diveo to a
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Master Supply Agreement 10 Diveo / Lucent Confidential
<PAGE>
subcontractor unless and until such subcontractor has agreed
in writing to protect the confidentiality of such information
in a manner substantially equivalent to that required of
Lucent under this Agreement, and in all respects, only on a
"need-to-know" basis.
(c) Upon Diveo's request, Lucent shall provide program management
with respect to Diveo's personnel and third party service
providers contracted directly by Diveo to perform services
related to the Products and Services. Subject to the terms of
this Agreement, Diveo retains the option (at its sole
discretion) to utilize their direct, indirect or contracted
personnel to perform services under this Agreement. In the
event Lucent intends to subcontract a particular component of
the Services to a third party, Lucent shall notify Diveo and
Diveo shall have the option (which option shall be exercised
within a reasonable time), in its sole discretion, to perform
such services itself or through its own subcontractor. Such
Diveo personnel and third parties shall not be considered
Lucent subcontractors for the purposes of this Agreement and
Lucent shall not be liable for the performance of such
services under this Agreement.
5.2. Key Lucent Positions and Management Escalation Process.
(a) Lucent shall assign individuals reasonably acceptable to Diveo
to fill the "Key Lucent Positions" set forth as such in
Schedule I, as Schedule I is amended from time to time by the
mutual written agreement of the Parties.
(b) In accordance with Section 17.1, issues arising between the
Parties may be escalated in accordance with management
escalation procedures set forth in Schedule I.
(c) Lucent agrees to use reasonable efforts to minimize any
turn-over or reassignment of the personnel filling the Key
Lucent Positions. Lucent agrees that personnel filling Key
Lucent Positions may not be transferred or re-assigned until a
suitable replacement has been put into place and the functions
and responsibilities of the individual being transferred or
re-assigned have been properly transitioned to the
replacement. Lucent agrees to consult with Diveo in connection
with the transfer or re-assignment of any personnel in the Key
Lucent Positions.
(d) As further provided in Schedule I, upon commencement of each
project (i.e., installation, implementation and/or engineering
Services), and until such time as the implementation for such
project is complete, Lucent shall appoint and maintain a
project manager, reasonably acceptable to Diveo, to devote the
necessary time and effort to the provision of the Services
required to fulfill the implementation of such project. Diveo
shall likewise appoint a project manager for each project.
Each Party's project manager shall be familiar with the
project and shall have authority to make day-to-day and
emergency decisions on behalf of such Party during the
implementation of the project.
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Master Supply Agreement 11 Diveo / Lucent Confidential
<PAGE>
5.3. Implementation Plans, Milestones and Milestone Dates.
For all projects (e.g., installation, implementation and/or
engineering Services) that result in the installation,
implementation and/or engineering of of Product(s):
(a) Lucent shall prepare for Diveo's review, comment and approval,
a detailed, task-level implementation plan delineating
milestones (each, a "Milestone"), Milestone completion dates
(each, a "Milestone Date"), together with each Party's
respective responsibilities associated with the installation
or implementation work.
(b) If Lucent fails to achieve a Milestone on or before the
corresponding Milestone Date, (i) Lucent's Country Project
Manager (or in the event such position no longer exists, an
executive with a similar level of responsibility) will meet
with Diveo in person at Diveo's facilities, explain to Diveo
the root cause for the delay, and present to Diveo a plan to
remedy such failure, (ii) Lucent will take appropriate
preventive measures so that the failure does not recur, and
reasonably demonstrate to Diveo that such measures have been
performed.
6. ACCEPTANCE TESTING AND FINAL ACCEPTANCE
6.1. Acceptance Testing.
(a) Schedule F (Acceptance Test Plans) describes the three levels
of testing for the Products (i.e., unit testing, network
element testing and system testing) and such testing will be
implemented in accordance with Schedule F.
(b) In the event Lucent is providing Services that includes
Acceptance testing of Products, Lucent shall perform the
testing (for Diveo's review and Acceptance) in accordance with
Schedule F and the applicable Acceptance Test Period.
Alternatively, if Diveo is performing the Acceptance testing
without the assistance of Lucent, Acceptance testing of the
Products shall be conducted by Diveo within the applicable
Acceptance Test Period.
(c) In either case as set forth in (b) above, if such Product(s)
meets its Acceptance Criteria, Diveo will notify Lucent in
writing that such Product has received Acceptance pursuant to
Section 6.3. If such Product(s) does not meet its Acceptance
Criteria, Diveo may notify Lucent in writing of the failures
of the Product(s) to meet its Acceptance Criteria and Lucent
shall correct such problems in accordance with Section 6.2;
provided, however, if Lucent is providing Services that
includes Acceptance testing, Diveo shall not be obligated to
provide such notice of failures until such time following
Lucent's notice to Diveo that the Products have passed the
applicable Acceptance Criteria (i.e., Lucent Certification)
and are available for verification by Diveo in accordance with
Schedule F. Alternatively, Diveo may accept such Product
pursuant to Section 6.3 upon the condition that such failures
will be corrected by Lucent within a period of time reasonably
specified by Diveo (such acceptance a "Provisional
Acceptance"). In the event Diveo or its Affiliates, as
applicable, places a Product into commercial, revenue
producing service, such Product shall
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Master Supply Agreement 12 Diveo / Lucent Confidential
<PAGE>
be considered Provisionally Accepted; provided that final
Acceptance of such Product shall be based upon the condition
that all other Products subject of the Purchase Order that are
required to be installed together and integrated as a complete
system also pass Acceptance.
6.2. Acceptance Testing Failures, Cure Periods and Remedies.
(a) If any Product(s) subject to Acceptance testing as described
in Section 6.1 fails to pass Acceptance testing, Diveo will
promptly (and in no event later than the applicable Acceptance
Testing Period) notify Lucent in writing, specifying the
nature of the failure in reasonable detail. Within ten (10)
days after receiving notice from Diveo, Lucent shall either
(i) correct all problems identified by Diveo, or, if that is
not reasonably possible, (ii) develop a plan for Diveo's
acceptance that describes in reasonable detail the steps
Lucent intends to take to correct such problem(s) within
thirty (30) days, and diligently proceed according to the plan
until all of the problem(s) are corrected. Upon completion of
such problem corrections, Diveo shall reconduct the Acceptance
testing as provided in Section 6.1 to the extent that Diveo
deems necessary to determine the compliance of the Product
with the Acceptance Criteria.
(b) Notwithstanding Subsection (a) above, if after a reasonable
number of repeated efforts (but not more than three (3)
attempts or more than a total of sixty (60) days for curing
all problems encountered), Lucent is unable to correct all of
the problems preventing Acceptance, Diveo may at its election:
(i) extend the testing periods for a reasonable period of
time and require Lucent to immediately replace the
non-conforming item(s);
(ii) accept the affected items at a mutually agreed reduced
price that reflects the diminished functionality, to be
replaced by full functionality items in the future at
Diveo's discretion, at which time full payment will be
made; or
(iii) cancel or modify the corresponding Purchase Order and
any other affected Purchase Order for cause and at no
cost to Diveo and Lucent shall promptly refund (not to
exceed 30 days) any amounts paid by Diveo or its
Affiliates for such Purchase Orders.
6.3. Acceptance.
A Product shall be considered to be accepted (the "Acceptance") only
as follows:
(a) With respect to a Product or Products subject of a Purchase
Order without installation, implementation and/or engineering
Services), such Products shall be Acceptance tested within
five (5) business days of delivery of the Product or Products
to the designated site or destination named in the Purchase
Order. Such Acceptance testing shall include an incoming
inspection to verify that such Product has been delivered in
accordance with the corresponding Purchase Order and meets the
Acceptance Criteria; and
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<PAGE>
(b) With respect to any other Product, such Product shall be
considered to be accepted upon the earliest of:
(i) receipt by Lucent of written notice by Diveo certifying
that such Product conforms to its Acceptance Criteria;
(ii) satisfaction of all conditions underlying a Provisional
Acceptance as described in Section 6.1, or
(iii) the expiration of the Acceptance Testing Period for such
Product without notice of non-acceptance or of the terms
of a Provisional Acceptance by Diveo.
Notwithstanding anything to the contrary herein, Acceptance of
a Product shall only occur in accordance with the terms of
this Agreement.
7. SERVICE LEVELS
7.1. General.
Lucent shall at all times meet or exceed the quantitative and
qualitative service levels identified in Schedule B (the "Service
Levels").
7.2. Failure to Perform.
(a) Lucent recognizes that its failure to meet Service Levels as
specified in Schedule B, may have a material adverse impact on
the business and operations of Diveo. Accordingly, in the
event that Lucent fails to meet such Service Levels for
reasons other than the wrongful actions of Diveo (including
Diveo's failure to perform its duties and obligations on a
timely basis) or circumstances that constitute force majeure
under this Agreement, Diveo may elect, in addition to any
other rights or remedies available to Diveo hereunder, to
pursue remedies according to Schedule B.
(b) If Lucent fails to meet any Service Level, Lucent shall (i)
investigate and report on the root causes of the problem; (ii)
advise Diveo, as and to the extent requested by Diveo, of the
status of remedial efforts being undertaken with respect to
such problems; (iii) correct the problem and begin meeting the
Service Levels in the case that the root causes of the problem
are within Lucent's control; and (iv) take appropriate
preventive measures so that the problem does not recur.
7.3. Periodic Reviews.
Within three (3) months after the expiration of the first year
following the Effective Date and at least annually thereafter, Diveo
and Lucent shall review the Service Levels and shall make
adjustments to them as appropriate to reflect improved performance
capabilities associated with advances in the technology and methods
used to provide the Products and perform the Services.
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Master Supply Agreement 14 Diveo / Lucent Confidential
<PAGE>
7.4. Measurement and Monitoring Tools.
Lucent shall use the measurement and monitoring tools and procedures
required to measure and report Lucent's performance of the Services
against the applicable Service Levels. Lucent shall report on all
Service Levels each month during the Term. Such measurement and
monitoring will permit reporting at a level of detail sufficient to
verify compliance with the Service Levels and will be subject to
audit by Diveo. Lucent shall provide Diveo with information and
access to such tools and procedures upon request, for purposes of
verification.
8. SOFTWARE LICENSES AND PROPRIETARY RIGHTS
8.1. Licenses.
(a) Commencing upon Delivery of Software pursuant to this
Agreement, Lucent grants Diveo and its Affiliates a perpetual,
transferable (as provided herein), nonexclusive, fully-paid,
royalty-free, irrevocable (except as provided by Subsection
(b) of this Section) and world-wide right and license (or
sublicense in the case of Software owned by a third party) to
use, copy (as provided herein), access, display, operate and
process the Software provided to Diveo pursuant to a Purchase
Order (collectively, the "Licenses"). These rights may be
exercised through officers, employees and agents for the sole
purpose of providing services to Diveo and its Affiliates.
Diveo may copy the Software for back-up purposes and for uses
that are in accordance with this Agreement. Any such
reproduction will include any copyright or similar proprietary
notice contained in the Software being reproduced. Diveo may
not decompile, disassemble or reverse engineer the Software.
(b) Lucent may revoke a particular License if and only if Diveo
(i) fails to pay undisputed licensing fees associated with
such License, and such nonpayment is not cured within thirty
(30) calendar days after written notice of such nonpayment
provided by Lucent to Diveo or (ii) fails to use commercially
reasonable efforts to cease from decompiling, disassembling or
reverse engineering the Software following receipt of notice
from Lucent.
(c) To the extent that Lucent is unable to secure the rights
specified in Section 8.1 with respect to Software associated
with Third Party Products, it shall be excused from that
obligation, provided that it gives Diveo prior written notice
of such inability sufficiently in advance so that Diveo may
seek alternate means of obtaining such rights.
(d) Diveo may, at no charge, relocate any Software to another
location for reuse with Equipment with which it was originally
delivered when such Equipment is itself to be relocated
consistent with this Agreement. Such relocation or reuse shall
not alter the Licenses.
(e) Diveo shall have the right to transfer any of the Licenses in
the event Diveo sells the Equipment with which such Software
is utilized or any component thereof in accordance with
Section 8.3, or in the event of an assignment or change in
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Master Supply Agreement 15 Diveo / Lucent Confidential
<PAGE>
control in accordance with Section 19.1. Such transfers shall
be subject to (i) the transferee undertaking the restrictions
and covenants of the license, (ii) reasonable creditworthiness
of the transferee, (iii) a limitation that the transferee is
not a direct competitor of Lucent in the area of
telecommunications equipment manufacture, and (iv) with
respect to Software that is embedded as part of Equipment, a
limitation that the Software may be used only with the
Equipment on which it was utilized prior to the transfer.
(f) Lucent agrees to furnish and convey, at no additional charge
to Diveo, such documentation, training materials, manuals,
appropriate designs, appropriate drawings, and other media and
material pertaining to the use and operation of Products as is
necessary to permit Diveo to use and maintain such items in
accordance with this Agreement (the "Documentation"). Lucent
will provide the Documentation in both hard- and soft-copy
formats. Diveo may make a reasonable number of copies of the
Documentation; provided, however, that all such copies shall
contain the copyright legends placed on the original versions
by Lucent.
(g) In the event that a Diveo employee violates the License
restrictions set forth in Subsection (a) of this Section,
Diveo shall, at its own expense take such reasonable actions
as may be necessary to remedy such violation and cooperate in
all reasonable respects to minimize the violation and any
damage resulting therefrom.
(h) Except as otherwise provided pursuant to Section 8.4, no
Source Code is included in Software provided under the
Agreement. Diveo acknowledges that, in the event it attempts
to decompile, disassemble or reverse engineer Software other
than any Developed Deliverable, Lucent may proceed directly to
court. If a court of competent jurisdiction should find that
Diveo has attempted to decompile, disassemble or reverse
engineer such Software, Diveo agrees that without any
additional findings of irreparable injury or other conditions
to injunctive relief, Lucent shall be entitled to seek the
entry of an appropriate order against Diveo without opposition
to restrain Diveo from any further attempt to decompile,
disassemble or reverse engineer such Software.
8.2. Proprietary Rights.
(a) Title to the Software shall remain in Lucent or its suppliers.
Title to any software owned or licensed directly by Diveo
(other than Software licensed from or through Lucent under
this Agreement) shall not be affected by this Agreement and
such title shall remain with Diveo or its suppliers. With
respect to any documentation, engineering, designs or other
requested Services that result in a documentation deliverable,
Diveo may use such deliverable in any manner and to the extent
such deliverable incorporates or is based on Diveo provided
technical information or specifications Lucent agrees not to
use such information or specifications in connection with any
other similar work for any other customer of Lucent.
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(b) The Parties do not expect that Lucent will develop custom
Software in the course of performance under this Agreement,
and nothing contained in the Agreement may be interpreted to
require Lucent to develop such custom Software.
(c) Diveo and Lucent may agree that Lucent will perform certain
custom development work pursuant to mutually agreed-upon
terms, conditions and fees set forth in a separate written
agreement duly signed by the Parties (such Deliverables the
"Developed Deliverables").
8.3. Right to Resell and Sublicense.
Except as may be otherwise provided by the terms and conditions of
the Credit Agreement, Diveo shall have the right to assign,
transfer, sell, alienate or lease Lucent Products, and, subject to
Section 8.1, sublicense the right to use the Software that is
embedded or otherwise provided with such Lucent Products to third
parties in conjunction with (A) the disposal of such Products,
provided that (i) Diveo shall not sell or otherwise transfer a
Lucent Product to any person or entity that is a manufacturer of
telecommunications products that compete directly with the Lucent
Products being disposed of, and (ii) all warranties applicable to
such Product shall automatically terminate at the time Diveo makes
delivery of the Product to the third party, and (B) (i) Customer
Colocations involving such Products, or (ii) Customer Virtual
Colocations involving such Products, and pass through to such
customers the standard warranty rights (and the applicable warranty
exclusions) granted by Lucent generally to its customers, which
rights shall be valid only for the remaining term, if any, of the
Initial Warranty Period applicable to such Products; provided,
however, if this Agreement is assigned as provided herein, the
rights granted to Diveo under this Agreement that are applicable to
such Lucent Products shall be assignable to the assignee of this
Agreement. In connection therewith:
(a) Each third party shall agree in writing that its license for
any Software to which Lucent maintains title under this
Agreement is revocable by Lucent in the event such third party
materially breaches the licensing restrictions imposed upon
Diveo under this Agreement pursuant to Section 8.1;
(b) Each such third party shall agree in writing to
confidentiality terms and conditions substantially similar to
those set forth in Article 12; and
(c) With respect to rights granted to Diveo under Article 13 and
passed through to such third parties, the Parties will agree
upon a reasonable means of administering Lucent's fulfillment
of its obligations with respect to such rights.
Where Diveo substantially complies with the obligations set forth
above, Diveo shall have no liability to Lucent for any action or
omission of such third parties except for providing Lucent
reasonable assistance in bringing claims as against the third party
for reasonable claims.
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8.4. Technical Materials Availability
(a) As used herein, a "Technical Materials Trigger Event" shall
mean the satisfaction of any of the following conditions: (i)
the insolvency of Lucent or the institution by Lucent of
insolvency, receivership or bankruptcy proceedings; (ii) a
general assignment by Lucent for the benefit of creditors;
(iii) the appointment of a receiver for Lucent; or (iv) the
filing of creditors of Lucent of a petition in bankruptcy
against Lucent which is not stayed or dismissed within sixty
(60) calendar days together with a material breach by Lucent
or where there is an inability for Lucent to perform within
such sixty (60) days.
(b) Upon the occurrence of a Technical Materials Trigger Event,
Lucent shall immediately deliver to Diveo the Source Code for
Lucent Products and grant to Diveo at no additional charge a
license to use, copy, access, display, modify, enhance,
operate, process and create derivative works of the Source
Code for the Lucent Product(s) then being used by Diveo and
any associated documentation for such Lucent Products to the
extent necessary for Diveo to modify, maintain and enhance
solely for its own use in accordance with the terms of this
Agreement, the Lucent Products that Diveo has the right to use
under this Agreement; provided, however, such license and
delivery of the Source Code will not be required where Diveo
can obtain, with Lucent's assistance (e.g., by providing a
third party with Source Code or by any other appropriate
method), the same support services that Lucent is required to
provide under this Agreement from another entity (either
working with or independently from Lucent) at a price that is
equal to or less than prices for such support as provided
herein. Any such released Source Code shall be subject to the
confidentiality provisions set forth in this Agreement.
(c) Lucent acknowledges that, in the event it breaches its
obligation to provide the Source Code and license as provided
in this Section, Diveo may be irreparably harmed. In such a
circumstance, Diveo may proceed directly to court.
9. DIVEO RESPONSIBILITIES
9.1. Facilities and Resources.
Diveo's responsibility for providing facilities, personnel and other
resources as necessary to permit Lucent to deliver the Products and
Services shall be as set forth in this Agreement.
9.2. Savings Clause.
(a) Diveo's failure to perform any of its responsibilities set
forth in this Agreement (other than Diveo obligations to pay
undisputed amounts under Article 10.3) shall not constitute a
material breach of the Agreement or otherwise be deemed to be
grounds for termination by Lucent.
(b) Each Party's nonperformance of its obligations under this
Agreement shall be excused (such Party the "Excused Party") if
and to the extent: (i) such
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<PAGE>
nonperformance is a direct result of the other Party's failure
to perform its responsibilities, (ii) the Excused Party
provides such other Party with reasonable notice of such
nonperformance, and (iii) the Excused Party uses commercially
reasonable efforts to perform notwithstanding such other
Party's failure to perform. Such other Party shall compensate
the Excused Party for any documented, out of pocket additional
and reasonable costs and expenses incurred by the Excused
Party as a direct result of such other Party's failure to
perform, or delay in performing, its obligations under the
Agreement.
10. CHARGES
10.1. General.
The charging mechanisms and pricing methodologies for Products,
other Products and Services are expressly set forth in the
Agreement. The Parties agree to supplement Schedule C in a manner
consistent with the other pricing terms of this Agreement as
necessary if and when Diveo purchases Products and Services for
which pricing is not set forth in Schedule C. Diveo will not be
liable to Lucent for any charges, additional or otherwise, for
Products or Services provided by Lucent unless such charges are
expressly set forth in a Purchase Order, this Agreement (including
its Schedules) or as otherwise may be mutually agreed by the Parties
in writing. As more definitively set forth in Schedule C, Lucent
shall pay all Delivery Duty Paid (DDP) (as set forth in the ICC
Incoterms 1990) related costs (i.e., transportation, insurance,
customs duties and taxes) related to the shipment of Products (less
the costs related to shipping FCA Miami which is included in the
price for the Products) under this Agreement ("Incremental DDP
Costs") and Diveo shall reimburse Lucent therefore on an
Out-of-Pocket Expense basis (i.e., no mark-up).
10.2. Taxes.
The Parties' respective responsibilities for taxes arising under or
in connection with this Agreement shall be as follows:
(a) Diveo shall bear all taxes, duties, levies and similar charges
(and any related interest and penalties), however designated,
imposed as a result of the existence or operation of this
Agreement, except (i) any tax imposed upon Lucent in a
jurisdiction other than the jurisdiction under the laws of
which Lucent was formed (hereinafter the "Resident
Jurisdiction") if such tax is allowable as a credit against
the Resident Jurisdiction income taxes of Lucent; and (ii) any
net income tax imposed upon Lucent by an government entity
within Lucent's Resident Jurisdiction. In order for the
exception contained in (i) to apply, Diveo must furnish Lucent
with such evidence as may be required by the Resident
Jurisdiction taxing authorities to establish that such tax has
been paid within thirty (30) days of issuance by the local
taxing authority so that Lucent may claim the credit.
(b) If Diveo is required to bear a tax, duty, levy or similar
charge pursuant to (a) above, then Diveo shall pay such tax,
duty, levy or similar charge and any additional amounts as are
necessary to ensure that the net amounts received by
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Master Supply Agreement 19 Diveo / Lucent Confidential
<PAGE>
Lucent hereunder after all such payments or withholdings equal
the amounts to which Lucent is otherwise entitled under this
Agreement as if such tax, duty, levy or similar charge did not
exist.
(c) Each Party shall bear all wage withholding, social security
and other employment related taxes with respect to its
employees. In no event shall Diveo be liable to Lucent for any
ex-pat related costs or expenses beyond payment for the price
of Services and costs and expenses that Diveo is specifically
required to reimburse to Lucent pursuant to this Agreement, if
any.
(d) Lucent shall not collect an otherwise applicable tax if
Diveo's purchase is exempt from Lucent's collection of such
tax and a valid exemption certificate is furnished by Diveo to
Lucent.
(e) The Parties agree to cooperate with each other to minimize, to
the extent legally permissible, taxes arising under this
Agreement. Lucent's invoices shall separately state the
amounts of any taxes Lucent is collecting from Diveo. Each
Party shall provide and make available to the other any resale
certificates, information regarding out-of-state or
out-of-country sales or use of equipment, materials or
services, and other exemption certificates or information
reasonably requested by either Party.
10.3. Incidental Expenses.
Lucent acknowledges that all expenses that Lucent expects to incur
in performing under this Agreement (including document reproduction
and long-distance telephone) are included in Lucent's charges under
in this Agreement. Accordingly, such Lucent expenses are not
separately reimbursable by Diveo unless, on a case-by-case basis for
unusual expenses, Diveo has agreed in advance and in writing to
reimburse Lucent for the expense.
10.4. Commitment.
(a) For purposes of this Agreement, "Commitment" shall mean
Diveo's agreement to issue and pay for Purchase Orders in
accordance with the terms of this Agreement for at least
twenty-five million dollars ($25,000,000) by the end of the
Initial Term subject to the provisions of this Section 10.4.
(b) Diveo shall be relieved from the Commitment:
(i) By the total price (or portion thereof if only partially
terminated) of the Products and Services ordered under
any Purchase Order that are terminated in accordance
with Section 3.5 or Section 14.1;
(ii) By the total price of any Product returned to Lucent for
failing to meet Acceptance in accordance with the terms
of this Agreement;
(iii) By the total price (or portion thereof if only partially
terminated) for Services ordered under a Purchase Order
that are terminated due to Lucent's failure to meet its
obligations under this Agreement; and
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<PAGE>
(iv) By the total amount of the Commitment not met if this
Agreement is terminated in accordance with Sections 14.1
or Section 14.3 prior to the expiration of the Initial
Term or by the total amount of the Commitment not met at
such time funding under the Credit Agreement is not
provided through no default of Diveo under the Credit
Agreement.
(c) In the event Diveo fails to issue and pay for Purchase Orders
to meet the Commitment (as such Commitment is reduced or
relieved as provided in Subsection (b) above, hereinafter the
"Adjusted Commitment") by the expiration of the Initial Term,
Diveo shall pay Lucent (from funds other than from the Lucent
financing) an amount equal to 50% of the difference between
the Adjusted Commitment and the total price for all Purchase
Orders issued and paid for by Diveo under this Agreement as of
the expiration date of Initial Term.
10.5. Lucent-Provided Financing.
(a) Lucent shall provide Diveo financing in accordance with the
Credit Agreement and otherwise in accordance with the terms of
this Agreement.
(b) For purposes of this Agreement, "Lucent Content" shall refer
to (i) all Lucent Products and Services, (ii) all Harris
radios, radio accessories and antennae (collectively, the
"Harris Radios"), subject to the limitation set forth in
Section 10.5(d)(ii) below, and (iii) all Incremental DDP Costs
related to the foregoing. In the event Harris is no longer
selling radios that will work in the Diveo Network or Lucent
fails to Deliver Harris radios, radio accessories and
antennae, Diveo may change Harris with another radio
manufacturer.
(c) For purposes of this Agreement, "Non-Lucent Content" shall
refer to (i) all Third Party Content and other services
ordered under this Agreement (including all Services provided
by Diveo under subcontract with Lucent) and (ii) all
Incremental DDP Costs related to the foregoing.
(d) Lucent agrees to provide financing (subject to the terms and
conditions set forth in the Credit Agreement, including limits
on the total financing amounts) for all Lucent Content and
Non-Lucent Content. For purposes of this Subsection (d) (i)
"Total Contract Year Draw Down" shall refer to the total
dollar amount drawn down by Diveo under the Credit Agreement
during a Contract Year and (ii) "Delta" shall mean that amount
equal to the difference between the actual total amount drawn
down by Diveo for Lucent Content during a Contract Year and
the total amount Diveo would have been required to have drawn
down so that eighty percent (80%) of the Total Contract Year
Draw Down for such Contract Year was for Lucent Content (the
Delta can be a positive number if Diveo's draw down of Lucent
Content exceeds 80% or a negative number if Diveo's draw down
is below 80%).
(i) Diveo may use up to eighty percent (80%) of the Total
Contract Year Draw Down during the each Contract Year
for Lucent Content and twenty percent (20%) of the Total
Contract Year Draw Down during each Contract Year for
Non-Lucent Content (up to fifty percent (50%) of
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Master Supply Agreement 21 Diveo / Lucent Confidential
<PAGE>
which twenty percent may be used towards Services
provided by Diveo under subcontract with Lucent; Lucent
shall have no obligation to provide financing for any
Diveo-provided Services in excess of such fifty percent
maximum).
(ii) As part of the Lucent Content, Diveo may use up to
twenty-five percent (25%) of the Total Contract Year
Draw Down during each Contract Year for Harris Radios.
In the event Diveo purchases Netro radios from Lucent,
the foregoing twenty-five percent will be reduced on a
pro rata basis based on the percentage of the Total
Contract Year Draw Down Diveo used for purchasing Netro
radios, but in no event shall the total percentage Diveo
may use for Harris Radios go below fifteen (15%) percent
of the Total Contract Year Draw Down.
(iii) Ninety (90) days prior to the end of each Contract Year
and at the end of each Contract Year, Lucent shall
provide for Diveo's review, and subject to Diveo's
confirmation, a reconciliation statement that specifies
the percentage of the Total Contract Year Draw Down (or
the then-current percentage for the statement provided
90 days prior to the end of the Contract Year) that was
used for Lucent Content and for Non-Lucent Content.
(1) Where the actual percentage for Lucent Content
subject of the Total Contract Year Draw Down is
lower than eighty percent (80%) in any Contract
Year, Diveo shall have a sixty (60) day period
from receipt of the reconciliation statement to
place Purchase Orders in order to increase the
percentage for Lucent Content. If at the end of
such sixty day period the percentage for Lucent
Content is less than eighty percent (80%) (taking
into account the additional Purchase Orders issued
by Diveo during the sixty day period), Diveo shall
pay Lucent, as Lucent's sole and exclusive remedy,
a "Surcharge" calculated as follows: (A) if the
Delta is between $1 and $1,000,000, 25% of such
amount; (B) if the Delta is between $1 and
$5,000,0000, 25% for the first $1,000,000 plus 15%
for such amount over $1,000,000.01; and (C) if the
Delta is greater than $5,000,000.01, 25% for the
first $1,000,000 plus 15% for amounts between
$1,000,000.01 and $5,000,000 plus 5% for amounts
over $5,000,000.01. Diveo shall be entitled to
offset against any Surcharge payable by any
Surcharge Credits (as calculated below) Diveo has
at the time the Surcharge is payable.
(2) Where the actual percentage for Lucent Content
subject of the Total Contract Year Draw Down is
greater than eighty percent (80%) in any Contract
Year, Diveo shall be entitled to a "Surcharge
Credit" calculated as follows: (A) if the Delta is
between $1 and $1,000,000, 25% of such amount; (B)
if the Delta is between $1 and $5,000,0000, 25%
for the first $1,000,000 plus 15% for such amount
over $1,000,000.01; and
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<PAGE>
(C) if the Delta is greater than $5,000,000.01,
25% for the first $1,000,000 plus 15% for amounts
between $1,000,000.01 and $5,000,000 plus 5% for
amounts over $5,000,000.01. Diveo shall be
entitled to use all Surcharge Credits against any
Surcharges payable by Diveo in any Contract Year;
provided, however, that if at the end of the
Initial Term Diveo has any Surcharge Credits that
have not been off set against Surcharges, such
excess Surcharge Credits shall be automatically
extinguished, and Lucent shall have no liability
to Diveo with respect to such excess Surcharge
Credits.
(e) Subject to the terms set forth in Subsection (d) above, this
Agreement (including Schedule C) and the Credit Agreement,
Lucent shall provide financing and purchase Non-Lucent Content
on behalf of Diveo (e.g., Third Party Content and third party
and Diveo provided services). Such Non-Lucent Content needs to
be reasonable related to the Diveo Network. Lucent shall pay
all such delivered invoices in accordance with the payment
terms set forth on such invoice or as otherwise directed by
Diveo.
(f) Lucent shall continue to provide Diveo with financing for
Products and Services during the Disengagement Period as
described in Section 14.4(a) subject to the terms set forth in
Subsection (b) above and the terms of the Credit Agreement.
10.6. Competitive Pricing.
(a) Lucent's prices, terms and conditions (including financing),
viewed collectively, to Diveo ("Diveo's Overall Terms") shall
be no less favorable than the prices, terms and conditions
(including financing, if any), viewed collectively, extended
by Lucent to another Lucent or Lucent Affiliate customer
(excluding Lucent Affiliates, distributors, resellers, sales
agents, and governmental entities) in an executed contract
during the Term of this Agreement ("Comparable Customer's
Overall Terms"), for comparable volumes, mix, and
configurations of Products and Services for similar use in a
country in the Territory (a "Comparable Purchase").
(b) If a Comparable Customer's Overall Terms for a Comparable
Purchase in any country in the Territory, are more favorable
than Diveo's Overall Terms for a Comparable Purchase in the
same country (the "Affected Country"), then Lucent shall
prospectively offer amended prices and/or amended terms and
conditions (the "Lucent Offer") to Diveo for Comparable
Purchases in the Affected Country only, such that Diveo's
Overall Terms shall be no less favorable than the Comparable
Customer's Overall Terms. Diveo shall have thirty (30) days
from receipt of the Lucent Offer to accept, in writing, such
Lucent Offer. In the event that Diveo accepts the Lucent
Offer, the Parties shall execute a corresponding amendment to
this Agreement, which amendment shall be effective as of the
date of Diveo's written acceptance of the Lucent Offer. In the
event that Diveo does not accept the Lucent Offer, the prices,
terms and conditions then in effect pursuant to this Agreement
shall remain in effect for all countries in the Territory.
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<PAGE>
(c) The following transactions shall not be considered in any
comparison of prices, terms and conditions: initial sales for
first entry into a geographic or product market ("market entry
sales"), sales made as part of the settlement of a dispute,
sales involving an exchange or the granting of intellectual
property rights (other than the granting of licenses to use
software furnished by Lucent to the customer), or the
provision of laboratory, trial, test, demonstration or
promotional hardware, software or services.
(d) Upon Diveo's written request, Lucent shall certify in writing
after its fiscal close each calendar year its compliance with
the undertakings in this Section.
11. INVOICING AND PAYMENT
11.1. Invoicing.
(a) Subject to Schedule C, Lucent will invoice Diveo for Products
and Services as follows:
(i) Products with Installation Services. With respect to
Products purchased by Diveo together with installation
Services pursuant to a Purchase Order, Lucent will
invoice Diveo for amounts due pursuant to this Agreement
for such Products as follows:
(1) ten percent (10%) of the value of the Purchase
Order upon Lucent's acceptance of a Purchase
Order;
(2) forty-five percent (45%) of the value of the
Purchase Order upon delivery of all Products
subject of the Purchase Order to the designated
site or destination specified in the Purchase
Order;
(3) twenty-five percent (25%) of the value of the
Purchase Order upon completion of installation of
all Products subject of the Purchase Order;
(4) five percent (5%) of the value of the Purchase
Order upon Provisional Acceptance (if applicable)
of all installed Products subject of the Purchase
Order;
(5) fifteen percent (15%) of the value of the Purchase
Order upon Acceptance of all Products subject of
the Purchase Order (if Provisional Acceptance) or
otherwise twenty percent (20%) of the value of the
Purchase Order.
All such invoices shall include: invoice date, shipment
number, Product part numbers and descriptions,
quantities, unit prices and total amount due and any
other data necessary for Diveo or the Diveo Affiliate to
reconcile such invoice, on a line by line basis, to the
originating Purchase Order(s) and Change Control
Order(s). Such invoices shall also indicate the
corresponding Purchase Order number for each invoiced
Product.
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<PAGE>
(ii) Products without Installation Services. Lucent shall
invoice Diveo for Products ordered without installation
Services one hundred percent (100%) upon Delivery.
(iii) Services (other than Installation Services with Products
as provided above). Unless otherwise agreed upon by the
Parties (e.g., invoice based on meeting performance
milestones), Lucent shall invoice Diveo for Services
monthly in arrears. All invoices for Services to be
performed in any country other than the United States
shall be issued by the Lucent Affiliate in such country
to the Diveo entity on the Purchase Order. Such invoice
shall include invoice date, quantities, unit prices and
total amount due. Each invoice shall also indicate the
corresponding Purchase Order for each line item and the
corresponding milestone for each Service (if
applicable).
(b) All invoices shall be in United States dollars for Products
and United States based Services and in local currency for
locally provided Services. On each invoice, Lucent shall
include the calculations utilized to establish any charges,
and each invoice shall show details and information as to
charges as may be reasonably specified by Diveo, including as
necessary to satisfy Diveo's internal accounting; provided,
however, that to the extent that a firm pricing quotation
previously delivered to Diveo by Lucent expressly provides
such calculations, details and information, Lucent may
cross-reference such quotation in the applicable invoice in
lieu of including such calculations, details or information,
as applicable, in such invoice. Each invoice shall also (i)
separately state the amounts of any taxes Lucent is collecting
from Diveo and (ii) identify that the invoice is a
Lucent-issued invoice.
(c) To the extent a credit may be due Diveo pursuant to this
Agreement, Lucent shall provide Diveo with an appropriate
credit against amounts then due and owing. To the extent that
an amount due Diveo pursuant to this Agreement is not credited
or paid within sixty (60) days of becoming due, Lucent shall
pay such amounts to Diveo within thirty (30) calendar days
after such sixty-day period.
11.2. Payment Due.
(a) Subject to the other provisions of this Article 11 and
Schedule C, charges shall be due and payable by Diveo in
accordance with the time period set forth in Schedule J after
receipt of a proper invoice for such amount (i.e., net
forty-five (45) days). Subject to the other terms of this
Article 11, in the event that any payments are not received by
Lucent within ten (10) days after written notice to Diveo by
Lucent indicating that such payments are due and owing and
unpaid, then commencing at the end of such ten (10) day
period, Diveo will also pay a late fee equal to the lesser of
(a) one (1) percent of the amount of such payment per month;
or (b) the maximum amount permissible by law.
(b) In the event that Diveo consistently and repeatedly fails to
pay material undisputed amounts due under Purchase Orders in
accordance with Subsection
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Master Supply Agreement 25 Diveo / Lucent Confidential
<PAGE>
(a) of this Section, and Diveo failure continues within sixty
(60) calendar days of notice from Lucent of such consistent
and repeated failures, then Lucent may, in addition to all
other remedies Lucent may have pursuant to this Agreement and
applicable law, condition acceptance of future Purchase Orders
on reasonable payment terms satisfactory to Lucent that
provide Lucent with reasonable assurances that it will be paid
in a satisfactory manner; provided, however, that such payment
terms shall be no less favorable to Diveo than prepayment in
full for such future Purchase Orders.
(c) All amounts due and payable to Lucent under this Article 11
shall be paid, at Diveo's option, (i) by check payable to the
order of Lucent, (ii) through draw-down of Lucent-provided
financing under the Credit Agreement, or (iii) by electronic
funds transfer to Lucent from account(s) designated by Diveo.
11.3. Accountability.
(a) Lucent shall maintain complete and accurate records of and
supporting documentation for the amounts billable to, and
payments made by, Diveo for (i) Services billed on a time and
materials basis, (ii) incidental expenses payable by Diveo
pursuant to Section 10.3, and (iii) any Out-of-Pocket Expenses
or costs payable by, or other expenses reimbursable by, Diveo
pursuant to the Agreement. Lucent shall maintain such records
and supporting documentation in accordance with generally
accepted accounting principles applied on a consistent basis.
(b) Lucent agrees to provide Diveo with documentation and other
information with respect to each invoice as may be reasonably
requested by Diveo to verify accuracy and compliance with the
provisions of this Agreement.
(c) Upon Diveo's reasonable request, Diveo and its authorized
agents and representatives shall, at Lucent's option, (i)
receive copies of or (ii) have access to such records and
supporting documentation as described in Subsection (a) of
this Section for purposes of audit during normal business
hours during the Term and during the period for which Lucent
is otherwise required to maintain such records. Lucent shall
reasonably cooperate with Diveo or its designees in connection
with audits or examinations by regulatory authorities.
11.4. Proration.
Periodic charges under this Agreement are to be computed on a
calendar month basis, and shall be prorated for any partial month.
11.5. Set Off.
With respect to any amount to be paid by Diveo hereunder, Diveo may
set off against such amount any amount that Lucent is obligated to
pay Diveo hereunder. With respect to any amount to be paid by Lucent
hereunder for which Diveo has provided Lucent with notification that
such amount is to be paid by Lucent, Lucent may set off against such
amount any amount that Diveo is obligated to pay Lucent hereunder.
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<PAGE>
11.6. Disputed Charges.
Subject to Section 11.5, Diveo shall pay undisputed charges when
such payments are due under this Article 11. Diveo may withhold
payment of particular charges that Diveo disputes in good faith.
Diveo shall notify Lucent of any disputed invoice amounts in
accordance with Schedule J. In the event a dispute over an invoiced
amount is resolved against Diveo, Diveo shall pay such amount within
forty-five (45) days together with interest at the rate set forth in
Section 11.2(a) from the original due date until the payment date.
11.7. Encumbrances.
Except to the extent granted in the Credit Agreement or otherwise
expressly set forth in this Agreement, Lucent shall not perfect a
security interest, lien or other encumbrance upon any Product,
Product component or Service provided pursuant to this Agreement.
12. CONFIDENTIALITY
12.1. Confidential Information.
Lucent and Diveo each acknowledge that they may be furnished with,
receive, or otherwise have access to information of or concerning
the other Party that such Party considers to be confidential,
proprietary, a trade secret or otherwise restricted. As used in this
Agreement and subject to Section 12.3, "Confidential Information"
means all information, in any form, furnished or made available
directly or indirectly by one Party (the "Disclosing Party") to the
other (the "Receiving Party") that (i) concerns the operations,
affairs and businesses of the Disclosing Party, the financial
affairs of the Disclosing Party, the relations of the Disclosing
Party with its customers, employees and service providers, and
technical information of a Disclosing Party, or (ii) is marked
confidential, restricted, proprietary, or with a similar
designation. The terms and conditions of this Agreement shall be
deemed Confidential Information.
12.2. Obligations.
The following obligations with respect to Confidential Information
shall survive the expiration or termination of this Agreement for a
period of seven (7) years or such longer period as required by
regulation, law or court order.
(a) Each Party's Confidential Information shall remain the
property of that Party except as expressly provided otherwise
by the other provisions of this Agreement. Each Party shall
each use at least the same degree of care, but in any event no
less than a reasonable degree of care, to prevent unauthorized
disclosure of Confidential Information as it employs to avoid
unauthorized disclosure of its own information of a similar
nature. Except as otherwise permitted hereunder, the Parties
may disclose such information to entities performing services
required hereunder or to third party consultants, agents or
contractors where the entity or person agrees in writing to
assume the obligations substantially similar to those
described in this Section 12.2.
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(b) Each Party shall take reasonable steps to ensure that its
employees, consultants, agents and contractors comply with
this Section 12.2. In the event of any disclosure or loss of,
or inability to account for, any Confidential Information of
the Disclosing Party, the Receiving Party shall promptly, at
its own expense: (i) notify the Disclosing Party in writing;
(ii) take such actions as may be necessary and cooperate in
all reasonable respects with the Disclosing Party to minimize
the violation and any damage resulting therefrom.
12.3. Exclusions.
(a) Confidential Information shall exclude any particular
information that the Receiving Party can demonstrate:
(i) At the time of disclosure, was lawfully in the public
domain or in the possession of the Receiving Party;
(ii) After disclosure, is lawfully published or otherwise
becomes part of the public domain through no fault of
the Receiving Party;
(iii) Was received after disclosure from a third party who had
a lawful right to disclose such information to the
Receiving Party without any obligation to restrict its
further use or disclosure;
(iv) Was lawfully independently developed by the Receiving
Party without reference to Confidential Information of
the Disclosing Party; or
(v) Was required to be disclosed to satisfy a legal
requirement of a competent government body; provided
that, immediately upon receiving such request and to the
extent that it may legally do so, the Receiving Party
advises the Disclosing Party promptly and prior to
making such disclosure in order that the Disclosing
Party may interpose an objection to such disclosure,
take action to assure confidential handling of the
Confidential Information, or take such other action as
it deems appropriate to protect the Confidential
Information.
(b) Either Party may disclose the terms and conditions of this
Agreement to third parties that (i) have expressed a bona fide
interest in consummating a significant financing, merger or
acquisition transaction between such third parties and such
Party, (ii) have a reasonable ability (financial and
otherwise) to consummate such transaction, and (iii) have
executed a nondisclosure agreement that includes within its
scope the terms and conditions of this Agreement and also
includes a procedure to limit the extent of copying and
distribution of this Agreement. Each Party shall endeavor to
delay the disclosure of the terms and conditions of this
Agreement until the status of discussions concerning such
transaction warrants such disclosure.
12.4. No Implied Rights.
Nothing contained in this Section shall be construed as obligating a
Party to disclose its Confidential Information to the other Party,
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<PAGE>
or as granting to or conferring on a Party, expressly or impliedly,
any rights or license to the Confidential Information of the other
Party.
13. REPRESENTATIONS, WARRANTIES AND COVENANTS
13.1. Pass-Through Warranties.
Without limiting any other representation, warranty or covenant
contained in this Article 13, Lucent may from time to time provide
certain Products and other items for which Lucent is entitled to
warranties and indemnities from the manufacturers, lessors or
licensors of such items. Lucent shall pass through to Diveo the
benefits of such warranties and indemnities to the extent that
Lucent is permitted pursuant to any agreements between Lucent and
such manufacturers, lessors or licensors. To the extent that Lucent
is able to pass through to Diveo any such benefits, Diveo may
enforce such benefits in Lucent's name, and Lucent shall reasonably
cooperate with Diveo as necessary to permit Diveo to enforce such
benefits.
13.2. Ownership or Use.
Lucent represents and warrants that Diveo shall receive good and
valid title to all Products (excluding Software Products) provided
pursuant to this Agreement and shall be entitled to the rights of
possession and quiet enjoyment thereto, free of any liens or
encumbrances, except as provided in the Credit Agreement.
13.3. Authorization.
(a) Each Party represents and warrants to the other that:
(i) It has the requisite corporate power and authority to
enter into this Agreement and to carry out the
transactions contemplated by this Agreement; and
(ii) the execution, delivery and performance of this
Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized
by the requisite corporate action on the part of such
Party.
(b) Each Party represents and warrants to the other that it is not
subject to any contractual or other obligation that would
prevent it from entering into this relationship.
13.4. Inducements.
Each Party represents and warrants that it has not offered or
provided any inducements in violation of law or the other Party's
policies, of which it has been given notice, in connection with this
Agreement.
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13.5. Work Standards.
(a) Lucent covenants that the Services shall be rendered by Lucent
with promptness and diligence and shall be executed in a
workmanlike manner, in accordance with the practices and high
professional standards used in well-managed operations
performing services similar to the Services. Lucent covenants
that it shall use adequate numbers of qualified individuals
with suitable training, education, experience, and skill to
perform the Services.
(b) If the Services prove not to be performed as required within a
twelve-(12) month period commencing on the date of completion
of the applicable Services, Lucent shall correct the defect or
non-conforming Services at no additional cost or expense to
Diveo. In the event the Services cannot be corrected within
the applicable time periods specifically identified in this
Agreement or thirty (30) days of Diveo's notice, whichever
period is shorter (or such additional period of time as may be
mutually agreed upon), Lucent shall at Diveo's option render a
full refund or credit based on the original charges for the
Services.
13.6. Product Warranties.
(a) During the Warranty Period and any Extended Warranty Periods
for each Lucent Product, Lucent shall perform the specific
warranty and extended warranty Services as may be set forth in
Schedule A.
(b) During the Warranty Period and any Extended Warranty Periods,
Lucent warrants that Products (other than Third Party
Products) provided under this Agreement shall be free from
defects in , material and workmanship, and shall operate in
accordance with applicable Acceptance Criteria, during the
Warranty Period and any Extended Warranty Periods.
(c) Lucent covenants that all Lucent Product components (except
for spare parts provided in the course of repair or
replacement, which may be refurbished or re-manufactured)
provided hereunder shall be new, not refurbished or
re-manufactured.
(d) During the applicable Warranty Period and Extended Warranty
Period, with respect to the Software associated with Lucent
Products, Lucent covenants that it shall provide to Diveo, at
no additional charge, error-fixes, corrections and revisions
to the Software that are necessary to maintain such Software
in compliance with the Acceptance Criteria or as otherwise
generally provided to any other customer of Lucent. The
foregoing warranties and covenants shall also apply with
respect to new versions, upgrades and enhancements provided by
Lucent to the Software.
(e) During the term of this Agreement, Lucent covenants that it
shall provide updated Documentation reflecting any changes to
Products (other than Third Party Products).
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(f) During the Warranty Period and any Extended Warranty Periods,
Lucent shall provide telephone support to Diveo in order to
assist Diveo to locate and correct functional or operational
problems with Products (other than Third Party Products). Such
support shall be provided on a 8 hour, 5-days-per-week basis
(provided that if Diveo purchases maintenance Services offered
by Lucent, such support is provided on a 24 hour,
7-days-per-week basis). Lucent shall provide a toll-free
number for Diveo's calls to Lucent.
(g) During the Warranty Period and any Extended Warranty Periods,
Lucent will provide Diveo with all software updates to
Software. Lucent shall implement all updates to all Lucent
Products. Upgrades and new software releases will be charged
in accordance with the price established at the time the
upgrade is implemented by Diveo or on Diveo's behalf and
incorporated into Schedule C subject to the following: Diveo
shall not be required to pay any additional charges relating
to that portion of an upgrade or new software release that (A)
constitutes an update, (B) reflects only an immaterial
enhancement or improvement in current functionality and not
new functionality or materially increased functional capacity
or (C) is provided by Lucent to another customer as part of
the provision of software maintenance services under similar
terms and conditions. To the extent the upgrade or new
software release includes new functionality or materially
increased functional capacity and Diveo desires to take
advantage of same, Diveo shall pay a fair and competitive
price established at the time the upgrade or new software
release is implemented by Diveo or on Diveo's behalf and the
resulting incremental price shall be incorporated in Schedule
C.
(h) During the Warranty Period and any Extended Warranty Periods,
Lucent shall provide access to technical resources to resolve
any problem with Products (other than Third Party Products)
that Diveo cannot resolve through lower level support,
including help desk support for problems that cannot be
remotely diagnosed and cured. If on-site support reveals that
the problem originated with Diveo or a third-party, Lucent may
charge Diveo reasonable time and material rates for the
on-site support.
(i) Subject to Section 19.9 of the Agreement, in the event that
any Product fails to comply with in this Section 13.6, Diveo
will notify Lucent, specifying the nature of the failure in
reasonable detail. Lucent shall correct the failure at no
additional charge to Diveo so that the Product complies with
this Section 13.6. The Parties agree to follow the procedures
established in Schedule H with respect to any warranty claims
made by Diveo under this Section 13.6.
13.7. Discontinued Lucent Products
(a) Lucent shall notify Diveo at least one (1) year before Lucent
discontinues accepting Purchase Orders from Diveo for a Lucent
Product. Where Lucent generally offers an equivalent Lucent
Product (based upon form, fit and function) this notification
period may vary but shall in no event be less than six (6)
months.
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<PAGE>
(b) Lucent shall, in addition to its obligations under this
Agreement (including with respect to the Product warranties
set forth in this Agreement), make available ongoing Warranty
Period and Extended Warranty Period support during Extended
Warranty Periods upon the terms and conditions of this
Agreement for a period of five (5) years after the earlier of
(i) termination in whole or expiration of the Agreement, or
(ii) such Product's discontinued availability effective date.
13.8. Compliance.
Lucent represents and warrants that all Products delivered hereunder
operate in conformance with all applicable domestic and
international laws and regulations, including, safety and
environmental laws and regulations (collectively, "Laws") in effect
as of the date of Delivery. Upon Diveo's request, Lucent will issue
to Diveo written statements of compliance that Products provided to
Diveo comply with the foregoing representation, warranty and
covenant. Lucent agrees to provide any required changes to the
Lucent Products as a result of changes in the Laws in the event (i)
of a manufacturer recall, (ii) the applicable Laws require the
manufacturer to make such changes, (iii) such changes are otherwise
provided under the Warranty Period or Extended Warranty Period, or
(iv) Lucent provides such changes to any other Lucent customer in
the Territory.
13.9. Integration.
Lucent warrants that for a period of twelve (12) months following
the Acceptance date of any Lucent Product purchased hereunder, such
Lucent Product, when installed and used in accordance with any
portion of the Network Architecture designed and engineered by
Lucent, will interface and interoperate in an integrated way with
the other Products recommended in writing by Lucent for inclusion in
such portion of the Network Architecture designed and engineered by
Lucent. If a Lucent Product fails to so interface and interoperate
during such twelve-month period, Lucent shall initiate corrective
actions after receipt of notice of the defect or failure and shall
promptly cure such defect at Lucent's sole cost and expense. The
Parties agree to follow the procedures established in Schedule H
with respect to any warranty claims made by Diveo under this Section
13.9.
This warranty shall not apply to the extent that the applicable
Lucent Product's failure to operate results from:
(a) the Lucent Products having been installed by a party other
than Lucent not in accordance with the Network Architecture
designed by Lucent, or Documentation and other advice and
training provided by Lucent;
(b) a failure or defect in Third Party Products to operate
interconnected to the Lucent Products or from such Third Party
Product's failure to operate in accordance with its
specifications;
(c) any changes made to the applicable portion of the Network
Architecture without Lucent's written recommendation or
approval;
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<PAGE>
(d) a defect in the applicable Lucent Product that is otherwise
covered by the warranties contained in Section 13.6 and
Schedule H;
(e) Diveo's failure to load any software updates or upgrades made
available by Lucent for the correction of any identified
performance problem;
(f) Diveo's failure to maintain the Lucent Product and the
applicable portion of the Network in accordance with Lucent's
written instructions;
(g) Any damage to the Lucent Product or to the other Products in
the applicable portion of the Network caused by external
forces outside of Lucent's control; or
(h) Any other event of force majeure as defined in this Agreement
13.10. Documentation.
Lucent covenants that all Documentation provided by Lucent will (a)
accurately reflect the operations and capabilities of any
corresponding Products, (b) be accurate, complete and written in a
manner understood by Diveo, (c) be updated from time to time to
reflect the changes to the Products to the extent that Lucent
generally provides such updates to its customers (including pursuant
to warranty or extended warranty services), and (d) be provided in
the English language and any other languages in which the
Documentation is or becomes available. If translation of the
documents into another language is required, expenses related to the
translation service are to be paid by Diveo.
13.11. Viruses.
Lucent covenants that it shall exercise reasonable care in
recommending Third Party Products that are free of Viruses and that
there are no Viruses coded or introduced into (a) any Lucent Product
or (b) other Product that is not a Third Party Product. Lucent
agrees that, in the event a Virus is found to have been introduced
into any such Lucent Product or other Product that is not a Third
Party Product either (i) prior to Delivery of such Lucent Product or
Product to Diveo, or (ii) from any modification, upgrade,
enhancement or new release to such Lucent Product or Product
provided by Lucent, Lucent shall use all commercially reasonable
efforts, at no additional charge, to assist Diveo in reducing the
effects of the Virus and, if the Virus causes a loss of operational
efficiency or loss of data, to assist Diveo to the same extent to
mitigate such losses.
13.12. Disabling Code.
Lucent covenants that it shall not without the prior written consent
of Diveo, Lucent shall not insert into any Product any code which
would have the effect of disabling or otherwise shutting down all or
any portion of a Product ("Disabling Code"). With respect to any
Disabling Code that may be part of any Product, Lucent shall not
invoke such Disabling Code at any time, including upon expiration or
termination of this Agreement (in whole or in part) for any reason,
without Diveo's prior written consent.
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<PAGE>
13.13. Year 2000.
Lucent represents, warrants and covenants:
(a) that it will exercise reasonable care in recommending Third
Party Products that are Year 2000 Compliant;
(b) that, during the longer of (i) the Warranty Periods and
Extended Warranty Periods and (ii) December 31, 2001, Lucent
Products, and other Products other than Third Party Products,
shall be Year 2000 Compliant; and
(c) to the extent that Lucent provides testing and validation
Services with respect to a Diveo Network (which Services may
be performed in Lucent's sole discretion) and certifies that
such Diveo Network is Year 2000 Compliant, that such Diveo
Network is Year 2000 Compliant.
At Diveo's reasonable request, Lucent agrees to cooperate and assist
Diveo and its designated third party contractors in connection with
Diveo's other Year 2000 compliance efforts.
13.14. Disclaimer
(a) The foregoing representations warranties, and covenants will
not extend to defective conditions or non-conformities to the
extent resulting from the following, if not consistent with
the applicable Specifications and Documentation: Diveo
modification, misuse, neglect, accident, abuse, improper
wiring, repairing, splicing, alteration, installation, storage
or maintenance.
(b) THE FOREGOING REPRESENTATIONS AND WARRANTIES ARE EXCLUSIVE AND
IN LIEU OF ALL OTHER EXPRESS AND IMPLIED WARRANTIES, INCLUDING
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. DIVEO'S SOLE AND EXCLUSIVE REMEDY FOR A BREACH OF THE
PRODUCT WARRANTY SET FORTH IN SECTION 13.7 HEREUNDER SHALL BE
LUCENT'S OBLIGATION TO REPAIR, REPLACE, CREDIT OR REFUND AS
PROVIDED HEREIN.
14. TERMINATION
14.1. Termination for Cause.
In the event that Lucent:
(a) commits a material breach of this Agreement, which breach is
not cured within thirty (30) calendar days after notice of
breach from Diveo to Lucent,
(b) commits a material breach of this Agreement which is not
capable of being cured within thirty (30) calendar days and
fails to (i) proceed promptly and diligently to correct the
breach, (ii) develop within thirty (30) calendar days
following written notice of breach from Diveo a complete plan
for curing the
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Master Supply Agreement 34 Diveo / Lucent Confidential
<PAGE>
breach, and (iii) cure the breach within sixty (60) calendar
days of notice thereof, or
(c) commits numerous breaches of its duties or obligations which
collectively constitute a material breach of this Agreement,
Then Diveo may, by giving written notice to Lucent, terminate this
Agreement or any affected Purchase Orders, in whole or in part, for
cause as of a date specified in the notice of termination.
14.2. Termination by Lucent.
In the event that Diveo materially and repeatedly fails to pay
Lucent when due undisputed charges under this Agreement and Diveo
continues to materially and repeatedly not pay Lucent when due
undisputed charges following sixty (60) calendar days of written
notice from Lucent, Lucent may, by giving written notice to Diveo,
terminate this Agreement as of a date specified in such notice of
termination.
14.3. Termination Option for Lucent's Failure to Provide Financing.
In the event Diveo terminates the Credit Agreement in accordance
with the terms and conditions of such Credit Agreement due to a
material breach by Lucent , Diveo may upon notice to Lucent elect to
terminate this Agreement in whole or in part. Any such termination
shall be at no cost or liability to Diveo, excluding amounts due and
payable by Diveo as of the date of such termination.
14.4. Disengagement Assistance.
(a) Upon termination or expiration of this Agreement, Diveo may
extend all or any portion of the Agreement beyond the
effective date of termination one or more times as it elects,
at its sole discretion, provided that the total of all such
extensions shall not exceed six (6) months (unless a longer
time period is mutually agreed to by the Parties) following
the original effective date of termination or expiration (such
period the "Disengagement Period"). In the event Lucent
terminates this Agreement in accordance with Section 14.2,
Lucent may request Diveo to pay for estimated Services to be
provided during the month in advance (with unused time to be
credited to Diveo or refunded if no further payments are due
Lucent).
(b) Upon termination or expiration of this Agreement, Lucent
agrees to provide Diveo and its designated third party
providers all reasonable assistance as necessary to effect a
smooth transition to a new supplier.
15. LIABILITY
15.1. General Intent.
Subject to the specific provisions of this Article 15, it is the
intent of the Parties that each Party shall be liable to the other
Party for any actual damages incurred by the non-
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<PAGE>
breaching Party as a result of the breaching Party's failure to
perform its obligations in the manner required by this Agreement.
15.2. Liability Restrictions.
(a) IN NO EVENT, WHETHER IN CONTRACT OR IN TORT (INCLUDING BREACH
OF WARRANTY, NEGLIGENCE AND STRICT LIABILITY IN TORT), SHALL A
PARTY BE LIABLE FOR INDIRECT OR CONSEQUENTIAL, EXEMPLARY,
PUNITIVE OR SPECIAL DAMAGES, INCLUDING, WITHOUT LIMITATION,
LOST REVENUES, LOST PROFITS AND SIMILAR DAMAGES EVEN IF SUCH
PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES IN
ADVANCE.
(b) Subject to Subsections (c) and (d) of this Section, each
Party's total liability to the other, whether in contract or
in tort (including breach of warranty, negligence and strict
liability in tort) shall be limited to an amount equal to the
greater of (i) ten million U.S. Dollars (U.S. $10,000,000) and
(ii) twenty-five percent (25%) of the total amounts paid to
Lucent under this Agreement.
(c) The limitation set forth in Subsection (b) of this Section
shall not apply with respect to: (i) damages occasioned by
willful misconduct, including abandonment or wrongful
termination of this Agreement by Lucent, (ii) claims of breach
of confidentiality, (iii) claims subject to indemnification
pursuant to the Agreement, (v) failure to comply with
applicable laws and regulations, and (vii) any amounts paid by
Diveo that are refundable (either by credit or payment) by
Lucent pursuant to this Agreement.
(d) For the purposes of this Section 15.2, all amounts payable or
paid to third parties in connection with claims that are
eligible for indemnification pursuant to this Agreement shall
be deemed direct damages.
15.3. Force Majeure.
(a) No Party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to
the extent such default or delay is caused, directly or
indirectly, by fire, flood, lightning, earthquake, elements of
nature or acts of God, riots, civil disorders, rebellions or
revolutions in any country, with respect to Lucent, its sole
suppliers or its subcontractors, or any other cause beyond the
reasonable control of such Party; provided, however, that (i)
the non-performing Party is without fault in causing such
default or delay, and (ii) such default or delay could not
have been prevented by reasonable precautions and cannot
reasonably be circumvented by the non-performing Party through
the use of alternate sources, workaround plans or other means,
including to the extent contemplated by applicable disaster
recovery processes or procedures).
(b) In such event the non-performing Party shall be excused from
further performance or observance of the obligation(s) so
affected for as long as such circumstances prevail and such
Party continues to use commercially reasonable
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<PAGE>
efforts to recommence performance or observance whenever and
to whatever extent possible without delay. In addition, in
such event, Lucent shall give priority status to Diveo at
least as favorable as that given to other customers to
recommence performance or observance of its obligations. Any
Party so delayed in its performance shall immediately notify
the Party to whom performance is due by telephone (to be
confirmed in writing within two (2) business days of the
inception of such delay) and describe at a reasonable level of
detail the circumstances causing such delay.
(c) If any event under Subsection (a) of this Section above
substantially prevents, hinders, or delays Lucent's
performance for more than sixty (60) consecutive calendar
days, then at Diveo's option: (i) Diveo may terminate for
convenience at no charge to Diveo or modify any affected
portion of any Purchase Order, or terminate for convenience at
no charge to Diveo any affected portion of this Agreement, and
the charges payable hereunder shall be equitably adjusted to
reflect such termination; or (ii) Diveo may terminate this
Agreement without liability to Diveo or Lucent as of a date
specified by Diveo in a written notice of termination to
Lucent. Lucent shall not have the right to any additional
payments from Diveo for costs or expenses incurred by Lucent
as a result of any force majeure occurrence.
16. INDEMNIFICATION
16.1. Indemnities by Lucent.
Lucent agrees to defend Diveo and its Affiliates and their
respective officers, directors, employees, agents, successors, and
assigns, from any claim, action, or suit, and to indemnify Diveo and
its Affiliates and their respective officers, directors, employees,
agents, successors, and assigns against all liabilities assessed
against Diveo by final judgment or Lucent approved settlement
arising from, in connection with, or based on allegations of, any of
the following:
(a) Lucent's failure to observe or perform any duties or
obligations to third parties (e.g., duties or obligations to
subcontractors);
(b) Any claims of infringement of any patent, trade secret, or
copyright alleged to have occurred based upon the provision of
Lucent Products or performance of Services by Lucent, except
to the extent that such claims arise from (i) modification of
a Product or any component thereof by Diveo that is not
recommended or otherwise approved by Lucent, (ii) maintenance
of a Product by Diveo other than in accordance with the
Specifications and the provisions set forth in this Agreement
that is not recommended or otherwise approved in writing by
Lucent, (iii) use of a Product by Diveo in combination with
deliverables furnished by third parties that is not
recommended or otherwise approved in writing by Lucent, or (v)
arises solely from Lucent's incorporation of software or
equipment into a Product that is provided by directly by
Diveo;
(c) The death or bodily injury of any agent, employee, customer,
business invitee or any other person caused by the tortious
conduct of Lucent;
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(d) The damage, loss or destruction of any real or tangible
personal property caused by the tortious conduct of Lucent; or
(e) Any claim, demand, charge, action, cause of action, or other
proceeding asserted against Diveo but resulting from an act or
omission of Lucent in its capacity as an employer of a person.
16.2. Indemnities by Diveo.
Diveo agrees to defend Lucent and its Affiliates and their
respective officers, directors, employees, agents, successors, and
assigns, from any claim, action, or suit, and to indemnify Lucent
and its Affiliates and their respective officers, directors,
employees, agents, successors, and assigns against all liabilities
assessed against Lucent by final judgment or Diveo approved
settlement arising from, in connection with, or based on allegations
of, any of the following:
(a) Diveo's failure to observe or perform any duties or
obligations to third parties (e.g., duties or obligations to
subcontractors);
(b) Any claims of infringement of any patent, trade secret, or
copyright, alleged to have occurred based upon misuse of
Lucent Products by Diveo, including (i) modification of a
Product or any component thereof by Diveo that is not
recommended or otherwise approved in writing by Lucent, (ii)
maintenance of a Product performed by Diveo other than in
accordance with the Specifications and the provisions set
forth in this Agreement that is not recommended or otherwise
approved in writing by Lucent, (iii) use of a Product by Diveo
in combination with deliverables furnished by third parties
that is not recommended or otherwise approved in writing by
Lucent;
(c) The death or bodily injury of any agent, employee, customer,
business invitee or any other person caused by the tortious
conduct of Diveo;
(d) The damage, loss or destruction of any real or tangible
personal property caused by the tortious conduct of Diveo; or
(e) Any claim, demand, charge, action, cause of action, or other
proceeding asserted against Lucent but resulting from an act
or omission of Diveo in its capacity as an employer of a
person.
16.3. Infringement.
If any use by Diveo of any Product or other item used by Lucent to
provide the Services becomes, or in Lucent's reasonable opinion is
likely to become, the subject of an infringement or misappropriation
claim or proceeding and is enjoined or Diveo's use is otherwise
adversely impacted, in addition to indemnifying Diveo as provided in
Section 16.1 and to the other rights Diveo may have under this
Agreement, Lucent shall, promptly at Lucent's expense:
(a) Secure the right to continue using the Product or item, or
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<PAGE>
(b) If the action described in Subsection (a) cannot be
accomplished by Lucent, replace or modify the Product or item
to make it non-infringing, provided that any such replacement
or modification will not degrade the fit, form or function of
the affected Products or Services, or
(c) If the action described in Subsection (b) of this Section
cannot be accomplished by Lucent, and only in such event,
provide Diveo with a full refund for the affected Products and
Services.
16.4. Indemnification Procedures.
With respect to third-party claims, the following procedures shall
apply:
(a) Promptly after receipt of notice of the commencement or
threatened commencement of any civil, criminal,
administrative, or investigative action or proceeding
involving a claim in respect of which Indemnitee will seek
indemnification pursuant to this Article 16, Indemnitee will
notify Indemnitor of such claim in writing. No failure to so
notify Indemnitor will relieve Indemnitor of its obligations
under this Agreement except to the extent that it can
demonstrate damages attributable to such failure. Within
fifteen (15) calendar days following receipt of written notice
from Indemnitee relating to any claim, but no later than ten
(10) calendar days before the date on which any response to a
complaint or summons is due, Indemnitor will notify Indemnitee
in writing if Indemnitor elects to assume control of the
defense and settlement of that claim (a "Notice of Election").
(b) If Indemnitor delivers a Notice of Election relating to any
claim within the required notice period, Indemnitor shall be
entitled to have sole control over the defense and settlement
of such claim; provided that (i) Indemnitee shall be entitled
to participate in the defense of such claim and to employ
counsel at its own expense to assist in the handling of such
claim, and (ii) Indemnitor shall obtain the prior written
approval of Indemnitee before entering into any settlement of
such claim or ceasing to defend against such claim if such
settlement or ceasing to defend shall have a material impact
on the Indemnitee. After Indemnitor has delivered a Notice of
Election relating to any claim in accordance with the
preceding paragraph, Indemnitor shall not be liable to
Indemnitee for any legal expenses incurred by Indemnitee in
connection with the defense of that claim. In addition,
Indemnitor shall not be required to indemnify Indemnitee for
any amount paid or payable by the Indemnitee in the settlement
of any claim for which the Indemnitor has delivered a timely
Notice of Election if such amount was agreed to without the
written consent of the Indemnitor.
(c) If Indemnitor does not deliver a Notice of Election relating
to any claim within the required notice period, Indemnitee
shall have the right to defend the claim in such manner as it
may deem appropriate, at the cost and expense of Indemnitor.
Indemnitor shall promptly reimburse Indemnitee for all such
costs and expenses.
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<PAGE>
17. DISPUTE RESOLUTION
Any dispute between the Parties arising out of or relating to this
Agreement, including with respect to the interpretation of any provision
of this Agreement and with respect to the performance by Lucent or Diveo,
shall be resolved as provided in this Article 17.
17.1. Informal Dispute Resolution.
(a) Prior to the initiation of formal dispute resolution
procedures, the Parties shall first attempt to resolve their
dispute informally pursuant the escalation procedures set
forth in Schedule I. In connection with such escalation
process:
(i) The designated representatives shall meet as often as
the Parties reasonably deem necessary in order to gather
and furnish to the other all information with respect to
the matter in issue which the Parties believe to be
appropriate and germane in connection with its
resolution. The representatives shall discuss the
problem and attempt to resolve the dispute without the
necessity of any formal proceeding.
(ii) During the course of discussion, all reasonable requests
made by one Party to another for non-privileged
information, reasonably related to this Agreement, shall
be honored in order that each of the Parties may be
fully advised of the other's position.
(iii) The specific format for the discussions shall be left to
the discretion of the designated representatives.
(b) The Parties agree that disputes, controversies or claims
between them shall not be subject to the provisions of this
Section where:
(i) A Party makes a good faith determination that a breach
of the terms of this Agreement by the other Party is
such that a temporary restraining order or other
injunctive relief is the only appropriate and adequate
remedy; or
(ii) Institution of formal proceedings earlier than as set
forth in Section 17.2(a) is necessary to avoid the
expiration of any applicable limitations period or to
preserve a superior position with respect to other
creditors.
(c) If a Party files a pleading with a court seeking immediate
injunctive relief and this pleading is challenged by the other
Party and the injunctive relief sought is not awarded in
substantial part, the Party filing the pleading seeking
immediate injunctive relief shall pay all of the costs and
attorneys' fees of the Party successfully challenging the
pleading.
17.2. Litigation.
(a) Formal proceedings for the resolution of a dispute may be
commenced after the earlier of:
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<PAGE>
(i) The designated representatives described in Section 17.1
conclude in good faith that amicable resolution through
continued negotiation of the matter does not appear
likely; or
(ii) Thirty (30) calendar days after the initial written
request to appoint a designated representative pursuant
to Subsection 17.1(a) above (this period shall be deemed
to run notwithstanding any claim that the process
described in this Section 17.1 was not followed or
completed).
(b) The Parties consent to the jurisdiction of the courts of the
State of Florida (and to venue in Dade County), and to
jurisdiction and venue in the United States District Court for
the Southern District of Florida for all litigation that may
be brought with respect to the terms of, and the transactions
and relationships contemplated by, this Agreement. The Parties
further consent to the jurisdiction of any state court located
within a district that encompasses assets of a Party against
which a judgment has been rendered for the enforcement of such
judgment or award against the assets of such Party.
17.3. Continued Performance.
Each Party agrees to continue performing its obligations under this
Agreement while any dispute is being resolved except to the extent
the issue in dispute precludes performance.
17.4. Governing Law.
This Agreement and performance under it shall be governed by and
construed in accordance with the laws of the State of New York
without regard to its choice of law principles.
18. INSURANCE REQUIREMENTS
During the Term, Lucent shall have and maintain in force the following
insurance coverages:
(a) Worker's Compensation and Employer's Liability as prescribed
by the law of the State or Nation in which the work is
performed. Lucent reserves the right to self-insure where
allowed by law.
(b) General Liability, including Products and Completed Operations
Liability, with a combined single limit for bodily injury and
property damage of at least US$ 1,000,000 for each occurrence.
(c) Automobile Liability if the use of motor vehicles is required
with a combined single limit of liability of at least US$
1,000,000 for each occurrence for vehicles operated in the
United States of America. For vehicles operated outside of the
United States of America, the limits of liability will be in
accordance with local legal requirements and sufficient to
meet normal and customary claims.
The foregoing insurance coverages shall be primary and non-contributing
with respect to any other insurance or self insurance that may be
maintained by Diveo. Lucent shall cause its insurers to issue certificates
of insurance evidencing that the coverages and policy endorsements
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required under this Agreement are maintained in force and that not less
than thirty (30) calendar days written notice shall be given to Diveo
prior to any modification, cancellation or non-renewal of the policies.
The minimum limits of coverage specified herein are not intended, and
shall not be construed, to limit any liability or indemnity of Lucent
under this Agreement.
19. GENERAL
19.1. Binding Nature and Assignment.
(a) This Agreement shall accrue to the benefit of and be binding
upon the Parties hereto and any purchaser or any successor
entity into which either Party has been merged or consolidated
or to which either Party has sold or transferred all or
substantially all of its assets.
(b) Neither Party may, or shall have the power to, assign this
Agreement or delegate such Party's obligations hereunder
without the prior written consent of the other, which consent
shall not be unreasonably withheld, except that either Party
may assign its rights and obligations under this Agreement
without the approval of the other Party to
(i) an entity which acquires all or substantially all of the
assets of the Party,
(ii) to any Affiliate, or
(iii) to a successor in a merger or acquisition of the Party;
provided, however, that in the event that the financing
provided by Lucent under the Credit Agreement is terminated as
a result of such assignment, then Lucent's consent to such
assignment shall be required if the entity has credit
worthiness less than that of Diveo.
19.2. Entire Agreement.
This Agreement, including any attached Schedules, constitutes the
entire agreement between the Parties with respect to the subject
matter in this Agreement, and supersedes all prior agreements,
whether written or oral, with respect to the subject matter
contained in this Agreement.
19.3. Notices.
All notices, requests, demands, and determinations under this
Agreement (other than routine operational communications), shall be
in writing and shall be deemed duly given (i) when delivered by
hand, (ii) one (1) business day after being given to an express,
overnight courier with a reliable system for tracking delivery,
(iii) when sent by confirmed facsimile with a copy delivered by
another means specified in this Section, or (iv) four (4) business
days after the day of mailing, when mailed by United States mail,
registered or certified mail, return receipt requested, postage
prepaid, and addressed as follows:
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<PAGE>
<TABLE>
<S> <C>
If to Diveo: If to Lucent:
Diveo, Inc. Lucent Technologies World Services Inc.
3201 New Mexico Avenue, NW 2333 Ponce de Leon Blvd.
Suite 320 Coral Gables, FL 33134
Washington, D.C. 20016 Attn: Managing Director, Business Development
Attn: Contract Administration Facsimile: (305) 569-4044
Facsimile: (202) 274-0050
With a copy to:
With a copy to: Lucent Technologies World Services Inc.
Diveo, Inc. 2333 Ponce de Leon Blvd.
3201 New Mexico Avenue, NW Coral Gables, FL 33134
Suite 320 Attn: Corporate Counsel's Office
Washington, D.C. 20016 Facsimile: (305) 569-3633
Attn: General Counsel's Office
Facsimile: (202) 274-0050
</TABLE>
A Party may from time to time change its address or designee for
notification purposes by giving the other prior written notice of
the new address or designee and the date upon which it will become
effective.
19.4. Counterparts.
This Agreement may be executed in several counterparts, all of which
taken together shall constitute one single agreement between the
Parties hereto.
19.5. Relationship of Parties.
Lucent, in furnishing Products and Services hereunder, is acting as
an independent contractor, and Lucent personnel (including its
subcontractors) shall not be considered or represented as employees
or agents of Diveo. Lucent is not otherwise an agent of Diveo and
has no authority to represent Diveo as to any matters, except as
expressly authorized in this Agreement. Lucent is solely responsible
for: (a) performing its responsibilities under this Agreement, (b)
management and control of its personnel; (c) the payment of all
compensation owed to its personnel, including payment of
employment-related taxes, benefits, and worker's compensation
insurance; (d) the filing of all required employment returns and
reports; and (e) the withholding and payment of all applicable
federal, state, and local taxes and other wage or employment
assessments, including but not limited to income tax, social
security tax, and unemployment insurance premiums for its personnel.
19.6. Severability.
In the event that any provision of this Agreement conflicts with the
law under which this Agreement is to be construed or if any such
provision is held invalid by an arbitrator or a court with
jurisdiction over the Parties, such provision shall be deemed to be
restated to reflect as nearly as possible the original intentions of
the Parties in accordance with applicable law. The remainder of this
Agreement shall remain in full force and effect.
19.7. Consents and Approval.
Except where expressly provided as being in the sole discretion of a
Party, where agreement, approval, acceptance, consent, or similar
action by either Party is required
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under this Agreement, such action shall not be unreasonably delayed
or withheld. An approval or consent given by a Party under this
Agreement shall not relieve the other Party from responsibility for
complying with the requirements of this Agreement, nor shall it be
construed as a waiver of any rights under this Agreement, except as
and to the extent otherwise expressly provided in such approval or
consent.
19.8. Waiver of Default.
No waiver or discharge hereof shall be valid unless in writing and
signed by an authorized representative of the Party against which
such amendment, waiver, or discharge is sought to be enforced. A
delay or omission by either Party hereto to exercise any right or
power under this Agreement shall not be construed to be a waiver
thereof. A waiver by either of the Parties hereto of any of the
covenants to be performed by the other or any breach thereof shall
not be construed to be a waiver of any succeeding breach thereof or
of any other covenant herein contained.
19.9. Cumulative Remedies.
Except as otherwise expressly provided herein, all remedies provided
for in this Agreement shall be cumulative and in addition to and not
in lieu of any other remedies available to either Party at law, in
equity or otherwise.
19.10. Survival.
Any provision of this Agreement which contemplates performance or
observance subsequent to any termination or expiration of this
Agreement (in whole or in part) shall survive any termination or
expiration of this Agreement (in whole or in part, as applicable)
and continue in full force and effect. Without limiting the
generality of the foregoing, Diveo shall have the right to extend
any Warranty Period or Extended Warranty Periods in accordance with
the terms of this Agreement and purchase Products and Services
pursuant to Section 2.2, and each Party's obligations with respect
to such Products and Services shall survive expiration or
termination of this Agreement (in whole or in part, as applicable)
and continue in full force and effect.
19.11. Public Disclosures.
All media releases, public announcements, and public disclosures
relating to this Agreement or the subject matter of this Agreement,
including promotional or marketing material, but not including
announcements intended solely for internal distribution or
disclosures to the extent required to meet legal or regulatory
requirements beyond the reasonable control of the disclosing Party,
shall be coordinated with and shall be subject to approval by the
non-disclosing Party prior to release. In the event Diveo is going
to file this Agreement as part of public securities filing, Diveo
will notify Lucent to enable Lucent to provide prompt input to limit
the extent of the disclosure; provided, however, Diveo shall not be
required to delay any required filings and Diveo shall ultimately
determine what will be disclosed.
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<PAGE>
19.12. Service Marks.
Each Party agree that it shall not, without the other Party's
written consent, use the name, service marks or trademarks of the
other Party or its Affiliates.
19.13. Third Party Beneficiaries.
Except as otherwise provided in this Agreement, this Agreement shall
not be deemed to create any rights in third parties, including
suppliers and customers of a Party, or to create any obligations of
a Party to any such third parties.
19.14. Amendment.
This Agreement shall not be modified, amended or in any way altered
except by an instrument in writing signed by both Parties.
19.15. Interpretation
(a) Terms other than those defined in this Agreement shall be
given their plain English meaning, and those terms, acronyms
and phrases known in the telecommunications and information
technology services industries shall be interpreted in
accordance with their generally known meanings. Unless the
context otherwise requires, words importing the singular
include the plural and vice-versa. Terms defined in the Credit
Agreement shall not be superceded by the same terms defined in
this Agreement.
(b) References to "Article", "Section", "Subsection" and
"Schedule" mean references to an article, section, subsection
or schedule of this Agreement, as appropriate, unless
otherwise specifically stated.
(c) The article and section headings in this Agreement are
intended to be for reference purposes only and shall in no way
be construed to modify or restrict any of the terms or
provisions of this Agreement.
(d) The words "include," "includes", and "including", when
following a general statement or term, are not to be construed
as limiting the general statement or term to any specific item
or matter set forth or to similar items or matters, but rather
as permitting the general statement or term to refer also to
all other items or matters that could reasonably fall within
its broadest scope.
(e) All dollar amounts set forth herein are in United States
dollars.
(f) Unless otherwise specified as "business days", reference to
"days" in this Agreement shall refer to calendar days.
19.16. Incorporation by Reference and Order of Precedence.
(a) All Schedules attached hereto are hereby incorporated by
reference into this Agreement. Subject to Section 19.14, any
amendments to this Agreement (including with respect to
Schedules), and any additional Schedules that are
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<PAGE>
agreed upon by the Parties subsequent to the Effective Date,
shall likewise be incorporated by reference into this
Agreement.
(b) Any conflict among or between the documents making up this
Agreement will be resolved in accordance with the following
order of precedence (in descending order of precedence):
(i) This Agreement;
(ii) The Schedules;
(iii) The Exhibits to the Schedules; and
(iv) Purchase Orders.
19.17. Right of Access
Diveo shall provide Lucent or its representatives access to its
facilities reasonably required in connection with Lucent's
performance of its obligations under this Agreement. No charge shall
be made for such access.
19.18. Export Control
The Parties acknowledge that any Products provided under this
Agreement are subject to U.S. export laws and regulations, and any
use or transfer of such Products must be authorized under those
regulations. Each Party agrees that it will not ship, Deliver, use,
distribute, transfer, or transmit the Products (even if incorporated
into other Products) in violation of such laws and regulations. If
requested by a Party, the other Party shall sign written assurances
and other export-related documents as may be required by the
requesting Party to comply with such laws and regulations.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by the
undersigned officers, thereunto, duly authorized, as of the date first written
above.
DIVEO, INC. LUCENT TECHNOLOGIES WORLD SERVICES, INC.
By: By:
--------------------------- ---------------------------
Name: Name:
--------------------------- ---------------------------
Title: Title:
--------------------------- ---------------------------
Date: Date:
--------------------------- ---------------------------
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<PAGE>
GLOSSARY OF DEFINED TERMS
Set forth below is a listing of the defined terms used in the Agreement. Unless
otherwise specifically referencing a Schedule to the Agreement, Section
references set forth below refer to sections in the terms and conditions portion
of the Agreement.
(a) "Acceptance" has the meaning set forth in Section 6.3.
(b) "Acceptance Criteria" mean the criteria used to determine whether a
Product or combination of Products installed, recommended or
implemented by Lucent is ready for Acceptance. The Acceptance
Criteria require, unless otherwise mutually agreed in writing, that
the Product or combination of Products:
(i) Meets or exceeds the Specifications applicable to such
Product(s);
(ii) Integrates in accordance with the approved Diveo Network
design, architecture and technology as required pursuant to an
applicable, mutually approved City Plan;
(iii) Complies with Applicable Standards and Documentation;
(iv) Complies with the Diveo requirements set forth in Schedule L,
where applicable;
(v) Complies with all additional mutually agreed-upon testing
criteria and plans as may be developed and agreed upon by the
Parties in accordance with the terms of this Agreement; and
(vi) Interoperates with the Diveo Network as set forth in the
product technical specifications or other engineering or
design documents prepared by Lucent.
(vii) For Product(s) that Diveo has not also ordered installation or
implementation Services to be provided by Lucent ("furnish
only" Products), the sole Acceptance Criteria shall be (A) the
verification of the corresponding inventory against the
Purchase Order and (B) the criteria specified in (i), (iii),
(iv) and (v), as applicable, such verification to occur within
five (5) business days from delivery of the Product to the
inside of the designated site or destination specified in the
Purchase Order.
(c) "Acceptance Test Period" for a Product or Products shall mean the
applicable period specified in the Purchase Order or Schedule J, as
applicable. For Purchase Orders with installation, implementation
and/or engineering Service the Acceptance Test Period shall mean the
period of time until actual Acceptance. In the event an Acceptance
Test Period for a particular Product is not specified in Schedule J
and is not otherwise mutually agreed upon, the Acceptance Test
Period shall be: (i) twenty (20) days from Lucent Certification, if
installed or implemented with Acceptance testing by Lucent, or (ii)
thirty (30) days from (A) Lucent's completion of the installation or
implementation Services without Acceptance testing or (B) the
delivery of the Product at the designated site or destination
specified in the Purchase Order, if not installed or implemented by
Lucent. The aforesaid 20-day and 30-day Acceptance Test Periods
shall be in addition to (and not included in) the lead times or
execution times specified in Schedule J, such that the credits
described in Section 3.3 (c)
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shall not begin to accrue until after all of the following time
periods shall have elapsed: (I) the applicable lead time or
execution time, (II) the 20-day or 30-day Acceptance Test Period, as
applicable, and (III) the five-day grace period specified in Section
3.3(c).
(d) "Acceptance Test Plan" refers to the Acceptance testing plan
utilized to test the Product. The process for Acceptance Test Plans
is attached as Schedule F, and includes generic forms.
(e) "Affiliate" means, with respect to any entity, any other entity
Influencing, Influenced by or under common Influence with such
entity.
(f) "Agreement" has the meaning set forth in the preamble to this
Agreement.
(g) "Applicable Standards" means (i) all industry standards (whether
domestic or international) applicable to the Product, all as may be
amended from time to time, and (ii) all domestic and international
federal, state and local laws, regulations, ordinances, codes and
requirements applicable to the Product, all as may be amended from
time to time.
(h) "City Plan" means a plan that addresses the timing, network
topology, functionality and scope of implementation (including
Milestones and the System Acceptance Test Plan) for a particular
part of the Diveo Network design.
(i) "Provisional Acceptance" has the meaning set forth in Section 6.1.
(j) "Confidential Information" has the meaning set forth in Section
12.1.
(k) "Commitment" has the meaning given in Section 10.4.
(l) "Contract Year" shall refer to each twelve month period of the Term
of this Agreement, with the initial Contract Year commencing on the
Effective Date.
(m) "Credit Agreement" shall refer to that certain Credit Agreement,
dated as of November 22, 1999 between Diveo and Lucent.
(n) "Customer Co-location" means the existence of Diveo customer
equipment and associated software and peripherals interconnected
with a Diveo network and located in Diveo's premises (whether owned,
leased or licensed by Diveo).
(o) "Customer Virtual Colocation" means the existence of Diveo customer
equipment and associated software and peripherals interconnected
with a Diveo network and not located in Diveo's premises (whether
owned, leased or licensed by Diveo).
(p) "Delivery" means:
(i) with respect to a Product or Products only Purchase Orders,
delivery and Acceptance of such Product or Products under the
Purchase Order; and
(ii) with respect to Purchase Orders that include Services, (A)
where the Service is related to the installation of a Product,
completion of the Service and Acceptance of the Product, (B)
where the Service is not related to the installation of a
Product,
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reasonable completion of the Service, and (C) where the
Service is for civils, upon mutual agreement, but in no event
longer than market practice where the civils are being
performed
(q) "Delivery Pricing Adjustment" has the meaning set forth in Section
3.3(c).
(r) "Demarcation Point" means the physical and logical interface between
the Products that Diveo operates in providing its services and the
telecommunications equipment that (i) in the case of a tributary,
Diveo's customer utilizes to connect to such Products and (ii) in
the case of a service gateway, the other service provider utilizes
to connect to such Products.
(s) "Developed Deliverable" has the meaning set forth in Section 8.2.
(t) "Disabling Code" has the meaning set forth in Section 13.12.
(u) "Disclosing Party" has the meaning set forth in Section 12.1.
(v) "Disengagement Period" has the meaning set forth in Section 14.4(a).
(w) "Diveo" or "Buyer" has the meaning set forth in the preamble to this
Agreement.
(x) "Diveo Network" means the physical, transport and application
network layers of the communication infrastructure used by Diveo
(including its Affiliates) to connect to its customers and central
offices in a variety of combinations up to Demarcation Points. It is
anticipated that the Diveo Network will include domestic intra-city
networks, inter-city networks, international networks and
international intra-city networks.
(y) "Documentation" has the meaning set forth in Section 8.1(f).
(z) "Effective Date" has the meaning set forth in the preamble to this
Agreement.
(aa) "Equipment" means the equipment, hardware, firmware, cabling and
embedded Software components that may be purchased, or with respect
to embedded Software, licensed by Diveo from or through Lucent under
this Agreement. As of the Effective Date, the categories of
Equipment include the categories identified as such in Schedule A.
(bb) "Extended Term" has the meaning set forth in Section 2.2.
(cc) "Extended Warranty Period" means Diveo's extension of the Warranty
Period for a Product one or more times in its sole discretion upon
payment of the maintenance fees set forth in Schedule C.
(dd) "Incremental DDP Costs" has the meaning set forth in Section 10.1.
(ee) "Influence" and its derivatives means (i) legal, beneficial, or
equitable ownership, directly or indirectly, of more than an
Interest of outstanding capital stock (or other ownership interest,
if not a corporation) of an entity ordinarily having voting rights
or (ii) with respect to entities incorporated or principally
operating in the United States, management or operational control
over such entity.
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(ff) "Initial Term" has the meaning set forth in Section 2.1.
(gg) "Interest" means fifty percent (50%) or more, or the maximum
percentage interest permitted by law if less than fifty percent
(50%).
(hh) "Key Lucent Positions" has the meaning set forth in Section 5.2(a).
(ii) "Licenses" has the meaning set forth in Section 8.1(a).
(jj) "Lucent" or "Seller" has the meaning set forth in the preamble to
this Agreement. With respect to the obligation to fulfill Purchase
Orders, "Lucent" shall also include Lucent's distributors; provided,
however, Lucent shall remain fully responsible for the performance
of such distributors.
(kk) "Lucent Certification" shall mean Lucent's written certification to
Diveo that (i) it has fully and successfully tested the Product in
accordance with the developed test plan (individually and as
integrated into the Diveo Network), (ii) the Product has met the
Acceptance Criteria to Lucent's satisfaction and (iii) the Product
is available for Diveo's testing in accordance with the applicable
test plan.
(ll) "Lucent Product" means any product, equipment or software created,
manufactured and/or developed by Lucent or its Affiliates or third
party products, equipment or software branded or logoed by Lucent or
its Affiliates, and shall include those products, equipment and
software identified in this Agreement as Lucent Products and
otherwise made commercially available by Lucent or its Affiliates.
(mm) "Milestone" has the meaning set forth in Section 5.3(a).
(nn) "Milestone Date" has the meaning set forth in Section 5.3(a).
(oo) "Network Architecture" means the overall design and architecture
specification for the Diveo Network, including sizing and
engineering requirements, from which the Network Technology is
developed.
(pp) "Network Element" means any product or transport service necessary
for the proper operation of the Network, which will be set forth in
the Network Technology.
(qq) "Network Technology" means the deliverable developed from the
Network Architecture by Lucent for review and approval by Diveo, all
as set forth in Schedule A, that identifies the Product and
transport specifications for implementation as part of the City
Plan.
(rr) "Non-conformity" means the failure of a Product to comply with the
Acceptance Criteria and such other criteria as are set forth in this
Agreement.
(ss) "Notice of Election" has the meaning set forth in Section 16.4(a).
(tt) "Out-of-Pocket Expenses" means reasonable and actual out-of-pocket
expenses incurred by a Party, but not including that Party's
overhead costs (or allocations thereof), administrative expenses or
other mark-ups.
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(uu) "Party" means either Diveo or Lucent, as appropriate, and "Parties"
means Diveo and Lucent.
(vv) "Product" means Lucent Products and Third Party Products.
(ww) "Provisional Acceptance" has the meaning set forth in Section 6.1.
(xx) "Purchase Order" has the meaning specified in Section 3.1(a).
(yy) "Receiving Party" has the meaning set forth in Section 12.1.
(zz) "Service" means Third Party Services and the services provided by
Lucent pursuant to this Agreement and (i) described in any Purchase
Order, or (ii) not specifically described in a Purchase Order, but
implied by or required for the proper performance and provision of
services included in a Purchase Order. For purposes of this
Agreement, "Service" shall also include those services that result
in a deliverable (e.g., documentation, designs, engineering
reports). As of the Effective Date, the Services that Diveo may
purchase from Lucent include those services identified as such in
Schedule A. Lucent shall also provide those training services
described in Schedule G.
(aaa) "Service Level" has the meaning given in Section 7.1.
(bbb) "Software" means software, in object code form, including applicable
documentation, that may be licensed by Diveo from Lucent under this
Agreement or that is developed by Lucent as a Product pursuant to
this Agreement.
(ccc) "Source Code" means both machine-readable and human-readable copies
of Software consisting of instructions to be executed upon a
computer in the language used by its programmers (i.e., prior to
compilation or assembly) in a form in which the program logic of the
Software is deducible by a human being, fully commented, and
including all related flow diagrams and all other documentation and
manuals which would allow Diveo to properly effect modifications and
support for Software Products provided under this Agreement.
(ddd) "Specifications" means Diveo Network design standards provided to
Lucent in writing and accepted by Lucent and Lucent's or the
relevant Product manufacturers' published specifications for
particular Products furnished hereunder.
(eee) "Technical Materials Trigger Event" has the meaning given in Section
8.4.
(fff) "Term" has the meaning set forth in Section 2.2.
(ggg) "Territory" shall mean those countries listed in Schedule D, as such
list may be added to from time to time in accordance with Section
1.2(b) of the Agreement.
(hhh) "Third Party Content" means Third Party Products and Third Party
Services.
(iii) "Third Party Product" means any product ordered hereunder that is
not a Lucent Product.
(jjj) "Third Party Service" means any services ordered hereunder that is
not a Lucent Service.
- --------------------------------------------------------------------------------
Master Supply Agreement Diveo / Lucent Confidential
Glossary - 5
<PAGE>
(kkk) "Virus" means: (i) program code, programming instruction or set of
instructions intentionally constructed with the ability to damage,
interfere with or otherwise adversely affect computer programs, data
files or operations; or (ii) other code typically designated to be a
virus.
(lll) "Warranty Period" means, for each Product or Service, the applicable
period set forth in Schedule H measured from the date of Acceptance.
(mmm) "Year 2000 Compliant" means the ability of a Product provided or
developed by Lucent pursuant to this Agreement to (i) correctly
process, provide, interpret, manipulate and receive date data within
and between the twentieth and twenty-first centuries, without
causing logical or mathematical inconsistencies, processing errors,
loss of functionality or performance, or other failures, and (ii)
interoperate with other technical systems (including but not limited
to hardware and software) having the characteristics described in
(i) and with date data of the twentieth and twenty-first centuries.
With respect to any data that is generated or provided in
conjunction with the Products, such data shall contain such
information or be so formatted as to permit hardware or software
with the characteristics described in (i) of the foregoing sentence
to correctly process, provide, interpret, manipulate and receive
such data within and between the twentieth and twenty-first
centuries, without causing logical or mathematical inconsistencies,
processing errors, loss of functionality or performance, or other
failures with respect to such Products.
- --------------------------------------------------------------------------------
Master Supply Agreement Diveo / Lucent Confidential
Glossary - 6
<PAGE>
Exhibit 10.5
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement (this "Agreement") is entered into as of
---------
February 25, 2000, among Pedro Ernesto Lissandrello ("Lissandrello"), Roberto
------------
Anibal Ortega ("Ortega"), and Jorge Luis Fernandez ("Fernandez") (each, a
------ ---------
"Seller", and collectively, "Sellers"), INEA Internet S.A., a corporation
- ------- -------
incorporated under the laws of the Republic of Argentina (the "Company"), Diveo
-------
Argentina S.A., a corporation organized under the laws of the Republic of
Argentina ("Buyer") and Diginet Americas, Inc., a Delaware corporation
-----
("Diginet").
-------
WHEREAS, Sellers are collectively the owners of 100% of the issued and
outstanding ordinary shares, par value One Argentine Peso per share (the
"Ordinary Shares"), of the Company;
- ----------------
WHEREAS, the Company provides dedicated and dial-up Internet services,
hosting, design and other services in Buenos Aires Province, Argentina;
WHEREAS, Sellers desire to sell, and Buyer desires to purchase, all of
Sellers' Ordinary Shares for the consideration and upon the terms and conditions
hereinafter set forth; and
WHEREAS, Diginet indirectly owns 100% of Buyer and deems it to be in
its best interests that the transactions contemplated by this Agreement be
consummated.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" -- (a) with respect to a natural person, any member of
---------
such person's family; (b) with respect to an entity, any officer, director,
stockholder, partner or investor of or in such entity or of or in any Affiliate
of such entity; and (c) with respect to a person or entity, any person or entity
which directly or indirectly, through one or more intermediaries, Controls, is
Controlled by, or is under common Control with such person or entity.
"Agreement" -- any written or oral concurrence of understanding and
---------
intention between two or more Persons with respect to their relative rights
and/or
<PAGE>
obligations or with respect to a thing done or to be done (whether or not
conditional or executory), including, without limitation, notes, bonds,
mortgages, indentures, contracts, leases, licenses, permits, franchises,
easements, rights of way, or other instruments or obligations.
"ARIN" -- the non-profit organization established for the purpose of
----
administration and registration of Internet Protocol (IP) numbers for the
following geographical areas: North America, South America, the Caribbean and
sub-Saharan Africa.
"Assets" -- assets of every kind and everything that is or may be
------
available for the payment of liabilities (whether tangible or intangible),
including, without limitation, real and personal property.
"Business Day" -- any day other than a Saturday or Sunday or other day
------------
on which national banks in Washington, D.C. or Buenos Aires, Argentina are
required or permitted to be closed.
"Buyer" -- as defined in the Recitals to this Agreement.
-----
"Buyer Closing Documents" -- as defined in Section 5.3.
-----------------------
"Buyer Organizational Documents" -- as defined in Section 5.2.
------------------------------
"Buyer Damages" -- as defined in Section 12.2(a).
-------------
"Buyer Indemnified Person" -- as defined in Section 12.2.
------------------------
"Cash Payment Amount" -- as defined in Section 2.2(a).
-------------------
"Claims" -- all demands, claims, actions or causes of action,
------
assessments, losses, damages, liabilities, costs and expenses, including,
without limitation, interest, penalties and reasonable attorneys' fees and
disbursements actually incurred. In addition, without limiting the foregoing,
Claims shall include all lawsuits identified in the Disclosure Schedules, and
all assessments, losses, settlements, fees, cost or other charges relating
thereto, whether or not disclosed in the Disclosure Schedules.
"Closing" -- as defined in Section 2.3.
-------
"Closing Date" -- the date and time as of which the Closing actually
------------
takes place.
"Company" -- as defined in the Recitals of this Agreement.
-------
"Company Closing Documents" -- as defined in Section 3.3(a).
-------------------------
2
<PAGE>
"Company Organizational Documents" -- as defined in Section 3.2.
--------------------------------
"Consent" -- any approval, consent, ratification, waiver, filing,
-------
notification or other permit or authorization (including any Governmental
Authorization).
"Control" -- possession, directly or indirectly, of power to direct or
-------
cause the direction of management or policies (whether through ownership of
voting securities, by Agreement or otherwise).
"Covenant Not to Compete" -- as defined in Section 7.9.
-----------------------
"December 31, 1999 Net Book Value" -- as defined in Section 2.5(a).
--------------------------------
"Deductible" -- as defined in Section 12.5.
----------
"Deferred Cash Payment Amounts" -- as defined in Section 2.2(d).
-----------------------------
"Diginet" -- as defined in the Recitals to this Agreement.
-------
"Diginet Closing Documents" -- as defined in Section 6.3.
-------------------------
"Diginet Organizational Documents" -- as defined in Section 6.2.
--------------------------------
"Diginet Stock" -- as defined in Section 2.2.
-------------
"Employment Agreements" -- as defined in Section 10.5.
---------------------
"Encumbrance" -- any charge, claim, community property interest,
-----------
condition, equitable interest, lien, option, mortgage, hypothecation, pledge,
security interest, right of first refusal, or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
"Environment" -- soil, land surface or subsurface strata, surface
-----------
waters (including navigable waters, ocean waters, streams, ponds, drainage
basins, and wetlands), groundwaters, drinking water supply, stream sediments,
ambient air (including indoor air), plant and animal life, and any other
environmental medium or natural resource.
"Escrow Agent" -- as defined in Section 2.4(c).
------------
"Escrow Agreement" -- as defined in Section 2.4(c).
----------------
"Escrowed Cash" -- as defined in Section 2.2(e).
-------------
"Escrowed Stock" -- as defined in Section 2.2(c).
--------------
3
<PAGE>
"Estimated Closing Balance Sheet" -- as defined in Section 2.5(a).
-------------------------------
"Estimated Closing Net Book Value" -- as defined in Section 2.5(a).
--------------------------------
"Estimated Purchase Price Adjustment" -- as defined in Section 2.5(a).
-----------------------------------
"FCPA" -- as defined in Section 3.13(c).
----
"Final Closing Balance Sheet" -- as defined in Section 2.5(b).
---------------------------
"Final Closing Net Book Value" -- as defined in Section 2.5(b).
----------------------------
"Final Purchase Price Adjustment" -- as defined in Section 2.5(b).
-------------------------------
"GAAP" -- generally accepted Argentine accounting principles.
----
"Governmental Authorization" -- any approval, consent, license,
--------------------------
permit, waiver, or other authorization issued, granted, given, or otherwise made
available by or under the authority of any Governmental Body.
"Governmental Body" -- any:
-----------------
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity and
any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority or
power of any nature.
"Key Customer Contracts" -- as defined in Section 10.5.
----------------------
"Key Customers" - B.A. Services, S.A. or another wholly-owned
-------------
subsidiary of AES, S.A. and Comesa, S.A.
"Indemnity Claim" -- as defined in Section 12.4(a).
---------------
"Independent Third Party" -- as defined in Section 2.5(c).
-----------------------
"INEA Stockholders Agreement" -- as defined in Section 10.7.
---------------------------
4
<PAGE>
"INEA S.R.L." -- a corporation organized under the laws of the
-----------
Republic of Argentina and the Company's predecessor in interest.
"Intellectual Property" -- all (a) trademarks, service marks, trade
---------------------
dress, logos, trade names, and corporate names and registrations and
applications for registration thereof, (b) copyrights and registrations and
applications for registration thereof, (c) Software, (d) IP addresses (e) trade
secrets and confidential business information (including formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial, marketing, and
business data, pricing and cost information, business and marketing plans, and
customer and supplier lists and information, (f) other proprietary rights, and
(g) copies and tangible embodiments thereof (in whatever form or medium).
"Interim Balance Sheet" -- as defined in Section 3.5.
---------------------
"Interim Balance Sheet Date" -- as defined in Section 3.5.
--------------------------
"Interim Financial Statements" -- as defined in Section 3.5.
----------------------------
"Knowledge" -- an individual will be deemed to have "Knowledge" of a
---------
particular fact or other matter if:
(a) such individual is actually aware of such fact or other matter;
or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact or
other matter.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor, or trustee of
such Person (or in any similar capacity) has, or at any time had, Knowledge of
such fact or other matter.
"Law" -- all provisions of all (a) constitutions, treaties, statutes,
---
laws (including the common law), rules, regulations, ordinances, codes or orders
of any Governmental Body, (b) any consent of, with or to any Governmental Body
and (c) orders, decisions, injunctions, judgments, awards and decrees of, or
Agreements with, any Governmental Body.
5
<PAGE>
"Licenses" - The Value Added Service License granted to the Company by
--------
the Secretary of Communications of Argentina on August 14, 1998 pursuant to
Resolution 1783.
"Material Adverse Effect" -- with respect to a Person, a material
-----------------------
adverse effect in the business, operations, Assets, profits, prospects or
condition (financial or otherwise) of such Person.
"Net Book Value" -- the excess of the book value of assets over the
--------------
book value of liabilities, each as determined in accordance with GAAP.
"1998 Balance Sheet" -- as defined in Section 3.5.
------------------
"Order" -- any award, decision, injunction, judgment, order, ruling,
-----
unit, subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business" -- an action taken by a Person will be
---------------------------
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of such
Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
"Ordinary Shares" -- as defined in the Recitals of this Agreement.
---------------
"Organizational Documents" -- (a) the articles or certificate of
------------------------
incorporation and the bylaws of a corporation; (b) the partnership agreement and
any statement of partnership of a general partnership; (c) the limited
partnership agreement and the certificate of limited partnership of a limited
partnership; (d) any charter or similar document adopted or filed in connection
with the creation, formation, or organization of a Person; and (e) any amendment
to any of the foregoing.
"Person" -- any individual, corporation (including any non-profit
------
corporation), general or limited partnership, limited liability company, joint
6
<PAGE>
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Body.
"Plan" -- as defined in Section 3.12.
----
"POP" -- as defined in Section 3.24.
---
"Proceeding" -- any action, arbitration, audit, hearing,
----------
investigation, litigation, claim or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
"Promissory Note" -- as defined in Section 2.2(a).
---------------
"Purchase Price" -- as defined in Section 2.2.
--------------
"Representative" -- with respect to a particular Person, any director,
--------------
officer, employee, agent, consultant, advisor, or other representative of such
Person, including legal counsel, accountants, appraisers and financial advisors.
"Required Tax Payments" -- as defined in Section 7.9.
---------------------
"Schedule 3.16 Contracts" -- as defined in Section 3.16(a).
-----------------------
"Secretary of Communications" -- means the Secretary of Communications
---------------------------
of the Republic of Argentina.
"Securities Act" -- the Securities Act of 1933 or any successor law,
--------------
and regulations and rules issued pursuant to that Act or any successor law.
"Seller Closing Documents" -- as defined in Section 4.1.
------------------------
"Seller Damages" -- as defined in Section 12.3.
--------------
"Seller Indemnified Person" -- as defined in Section 12.3.
-------------------------
"Sellers" -- as defined in the first paragraph of this Agreement.
-------
"Software" -- computer software, including, but not limited to, all
--------
databases, source codes, object codes, objects, comments, screens, user
interfaces, report formats, templates, menus, button and icons, and all files,
data, materials, manuals, design notes and other items and documentation related
thereto or associated therewith.
"Subscriber" -- any customers of the Company who (a) are currently
----------
connected to and receiving Internet related services from the Company's Systems;
(b) are being charged or have pre-paid the Company's standard rates (which rates
7
<PAGE>
are set forth on Schedule 3.25) pursuant to the Company's standard form
-------------
contracts previously provided to Buyer; (c) have paid such stated rates in full
for at least one full month; (d) are not two or more months delinquent in the
payment of any invoice from the Company; (e) have not, in the preceding two
months, been given a waiver or forgiveness of service charges; (f) have not
received any inducement to become connected to the Company's Systems or to
receive or pay for services (other than pursuant to the Company's customary
marketing practices); and (g) have not notified the Company of their intention
to cancel service.
"Survival Period" -- as defined in Section 12.1.
---------------
"Systems" -- means the infrastructure used to provide Internet access,
-------
transit, web hosting and related services, including network components,
communications facilities, servers, services and service platforms (including
for e-mail, news, DNS, web, authentication and other services), equipment,
operating software, applications software, middleware, firewalls, power plants,
data processing platforms, MIS systems, office automation systems and internal
LAN network management systems.
"Tax" -- any tax (including any income tax, capital gains tax, value-
---
added tax, sales tax, property tax, gift tax, or estate tax), levy, assessment,
tariff, duty (including any customs duty), deficiency, or other fee, and any
related charge or amount (including any fine, penalty, interest, or addition to
tax), imposed, assessed, or collected by or under the authority of any
Governmental Body or payable pursuant to any tax-sharing agreement or any other
Agreement relating to the sharing or payment of any such tax, levy, assessment,
tariff, duty, deficiency, or fee.
"Tax Return" -- any return (including any information return), report,
----------
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment of
any Tax or in connection with the administration, implementation, or enforcement
of or compliance with any Law relating to any Tax.
2. SALE AND PURCHASE OF SHARES; CLOSING
2.1. Sale and Purchase of Shares
On the basis of the representations, warranties, covenants and
agreements contained herein, and subject to the terms and conditions hereof,
each Seller severally agrees to sell to Buyer, and Buyer agrees to purchase from
each Seller, the number of shares of issued and outstanding Ordinary Shares set
forth opposite the name of such Seller on Exhibit A (which, collectively,
---------
8
<PAGE>
constitute all of the outstanding shares of capital stock of the Company), for
the consideration specified in Section 2.2.
2.2. Purchase Price
The aggregate purchase price (the "Purchase Price") for the Ordinary
--------------
Shares and the Covenant not to Compete will be Eight Million Three Thousand U.S.
Dollars (US $8,300,000), as adjusted pursuant to Section 2.5. The Purchase
Price will be paid by Buyer as follows:
(a) At the Closing, Buyer shall deliver to each Seller in immediately
available funds the amount set forth opposite the name of such Seller on Exhibit
-------
A (the "Cash Payment Amount"), which amounts total Two Million Seven Hundred
- -- -------------------
Fifty Thousand One U.S. Dollars (US $2,750,001); provided, however, if a
-------- -------
Purchase Price adjustment is required under Section 2.5(a), the Cash Payment
Amounts shall be increased or decreased as applicable, by the amount of the
Estimated Purchase Price Adjustment, with each Cash Payment Amount increased or
decreased in accordance with the percentages set forth on Exhibit A.
---------
(b) At the Closing, Buyer shall deliver to each Seller a promissory
note in the form of Exhibit B (the "Promissory Note"), for the principal amount
--------- ---------------
set forth opposite the name of such Seller on Exhibit A, which amounts total Two
---------
Million Seven Hundred Ninety-Nine Thousand Nine Hundred Ninety-Nine U.S. Dollars
(US $2,799,999). A portion of each Promissory Note as set forth opposite the
name of each Seller on Exhibit A, which amounts total One Million Eight Hundred
---------
Thousand U.S. Dollars (US $1,800,000) shall be forfeited by each Seller, and
Buyer shall have no obligation to make any payments thereunder, if either of the
Key Customer Agreements has been terminated on or prior to the six month
anniversary of the Closing Date or if on such date a Key Customer shall be in
arrears in payment of any amounts, in more than 30 days, due under such Key
Customer's Key Customer Agreement.
(c) At the Closing, Buyer shall issue to each Seller such number of
shares of common stock, par value U.S. $.0001 per share, of Diginet (the
"Diginet Stock"), set forth opposite the name of such Seller on Exhibit A, of
- -------------- ---------
which the number of shares set forth on Exhibit A plus such additional number of
---------
shares, if any, required under Section 2.6 to be deposited in escrow (the
"Escrowed Stock") shall be deposited by Buyer with the Escrow Agent. For
- ---------------
purposes of this Agreement, each share of Diginet Stock shall be deemed to have
a value of U.S. $1.81 and the aggregate value of the shares of Diginet Stock to
be delivered hereunder shall be deemed to have an aggregate value of Two Million
U.S. Dollars ($2,000,000).
9
<PAGE>
(d) The remaining Seven Hundred Fifty Thousand U.S. Dollars (U.S.
$750,000) of the Purchase Price (the "Escrowed Cash") shall be deposited in
-------------
immediately available funds by Buyer with the Escrow Agent.
(e) Any Final Purchase Price Adjustment shall be paid as provided in
Section 2.5(c).
The Purchase Price will be allocated in accordance with Schedule 2.2. Buyer and
------------
Diginet hereby and jointly and severally agree to indemnify and hold harmless
Sellers from and against any and all costs, expenses, loses, intenrest charges,
penalties, damages or ather liabilities or obligations, including reasonables
fees, incurred by Sellers, direct or indirectly, by reason of, resulting from or
relating of any claims brought in connection with the allocation of the purchase
price set forth in this Section 2.2, shall constitute seller damages and be
subject to indemnification in accordance with art. 12 of this agreement.
2.3. Closing
The closing of the transactions contemplated hereby (the "Closing")
-------
will take place at the offices of Cibils, Castro, Cranwell, Boneo Villegas,
Buenos Aires, Argentina, at 10:00 a.m. (local time) on the date that is three
(3) Business Days following the date on which all conditions set forth in
Sections 10.4 and 11.3 have been satisfied.
2.4. Closing
At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Ordinary Shares duly endorsed
for transfer to Buyer or accompanied by appropriate stock
powers;
(ii) the certificates described in Sections 10.2 and 10.3;
(iii) the Required Buyer Consents duly executed by all parties
thereto;
(iv) the Employment Agreements executed by Lissandrello, Rafael
Ibanez and Flavio Villanustre;
(v) the INEA Stockholders Agreement executed by Sellers;
(vi) the legal opinions described in Section 10.8;
10
<PAGE>
(vii) the resignations described in Section 10.11; and
(viii) the corporate minute books, stock transfer records and
corporate seal of the Company.
(b) Buyer will deliver to Sellers:
(i) the Cash Payment Amounts, the Promissory Notes and
certificates for the shares of Diginet Stock required
under Section 2.2(c);
(ii) the certificates described in Sections 11.1 and 11.2;
(iii) the Required Seller Consents duly executed by all parties
thereto;
(iv) the Employment Agreements executed by Buyer or the Company;
(v) the INEA Stockholders Agreement executed by Diginet;
(vi) the Guarantees executed by Diginet; and
(vii) the legal opinions described in Section 11.8.
(c) Buyer and Sellers will enter into an escrow agreement in the form
of Exhibit C (the "Escrow Agreement") with First Union National Bank or another
--------- ----------------
mutually acceptable Person (the "Escrow Agent") and Buyer shall deliver the
------------
Escrowed Stock and the Escrowed Cash to the Escrow Agent.
11
<PAGE>
2.5. Purchase Price Adjustments
(a) No later than five days prior to the Closing Date, the Company
will prepare and deliver to Buyer an estimated balance sheet of the Company as
of the Closing Date (the "Estimated Closing Balance Sheet"). The Estimated
-------------------------------
Closing Balance Sheet shall be prepared in accordance with GAAP applied on a
basis consistent with the preparation of the Interim Balance Sheet. If the Net
Book Value of the Company as set forth on the Estimated Closing Balance Sheet
(the "Estimated Closing Net Book Value") exceeds the Net Book Value of the
--------------------------------
Company as of December 31, 1999 (the "December 31, 1999 Net Book Value"), the
--------------------------------
Purchase Price shall be increased by such excess amount. If the Estimated
Closing Net Book Value is less than the December 31, 1999 Net Book Value, the
Purchase Price shall be decreased by such deficit amount. (Any increase or
decrease pursuant to this Section 2.5(a) is referred to herein as the "Estimated
---------
Purchase Price Adjustment.")
- -------------------------
(b) Within 45 days after the Closing Date, the Company shall prepare
and deliver to Sellers a final balance sheet of the Company as of the Closing
Date (the "Final Closing Balance Sheet"). The Final Closing Balance Sheet shall
---------------------------
be prepared in accordance with GAAP applied on a basis consistent with the
preparation of the December 31, 1999 Balance Sheet. If the Net Book Value of
the Company as set forth on the Final Closing Balance Sheet (the "Final Closing
-------------
Net Book Value") exceeds the Estimated Closing Net Book Value, the Purchase
- --------------
Price shall be increased by such excess amount. If the Final Closing Net Book
Value is less than the Estimated Closing Net Book Value, the Purchase Price
shall be decreased by such deficit amount. (Any increase or decrease pursuant
to this Section 2.5(b) is referred to herein as the "Final Purchase Price
--------------------
Adjustment.")
- ----------
(c) Buyer and Sellers (by themselves or through their respective
Representatives) will use their reasonable best efforts to engage in good-faith
negotiations to resolve any disputes between them with respect to the Estimated
Closing Balance Sheet or the Final Closing Balance Sheet promptly after delivery
by the Company of the Final Closing Balance Sheet to Sellers. If a final
resolution is not reached within ten Business Days following such delivery, the
parties shall submit their dispute in writing, together with reasonable
supporting documentation, to a "Big Five" accounting firm (other than Buyer's,
the Company's, Diginet's or any Seller's auditors) as Buyer and Sellers may
agree upon (the "Independent Third Party") for resolution. The Independent
-----------------------
Third Party, acting as experts and not as arbitrators, upon a review of the
Estimated Closing Balance Sheet or the Final Closing Balance Sheet, as the case
may be, and in consideration of the materials submitted by the parties and any
other information subsequently obtained from them, shall resolve any such
disputes and revise the Estimated Closing Balance Sheet or the Final Closing
Balance Sheet, as the case may be, determine the Final Purchase Price
Adjustment, if any, and communicate the foregoing to Buyer and Sellers in
writing, not later than 45 days following the submission of such dispute to the
Independent Third Party (unless Buyer and Seller
12
<PAGE>
agree, upon request of the Independent Third Party, to provide the Independent
Third Party with additional time to make its determination, which agreement
shall not be unreasonably withheld). Buyer and Sellers will each bear 50% of the
fees of the Independent Third Party for such determination.
(d) Within five days after final determination of the Final Purchase
Price Adjustment, (i) if such adjustment is an increase, Buyer shall pay Sellers
in U.S. Dollars in immediately available funds the amount of such increase,
which shall be allocated among the Sellers in accordance with the percentages
set forth on Exhibit A and (ii) if such adjustment is a decrease, an amount of
---------
the Escrowed Stock and the Escrowed Cash equal to the lesser of the amount of
such decrease, or all the Escrowed Stock and the Escrowed Cash, if less, shall
be released from escrow and paid to Buyer and Sellers shall pay any additional
shortfall to Buyer in U.S. Dollars in immediately available funds in accordance
with the percentages set forth on Exhibit A.
---------
2.6. Additional Escrow Requirements
Promptly following the execution of this Agreement, Buyer's outside
accounting firm, Ernst & Young, shall conduct a due diligence investigation of
the book, records, financial statements and Tax Returns of INEA S.R.L., in
accordance with Schedule 2.6 hereof, for the purpose of evaluating what
outstanding or potential liabilities, including without limitation contingent
liabilities, INEA S.R.L. has for Taxes. The Company and Sellers will cooperate
with Ernst & Young in such investigation and shall provide all information
reasonably requested by Ernst & Young with respect thereto. Buyer shall cause
Ernst & Young to complete such due diligence investigation and deliver its
report thereof to Buyer no later than twenty (20) days from the execution of
this Agreement. In the event Ernst & Young has determined, as described in such
report, that such outstanding or potential liabilities exceed Ten Thousand U.S.
Dollars (US $10,000), (i) the portion of the Purchase Price to be placed in
escrow shall be increased by an amount equal to such excess, which shall consist
of Diginet Stock based upon a value of $1.81 per share (and the aggregate number
of shares of Diginet Stock to be delivered to Sellers at the Closing shall be
reduced accordingly), (ii) the Escrow Period (as defined in the Escrow
Agreement) shall be extended, only for this Additional Escrow, from the six
month anniversary of the Closing Date to the first anniversary of the Closing
Date and (iii) the Escrow Agreement shall be revised to take into account the
foregoing; provided, that, in no event shall the Escrow Fund (as defined in the
-------- ----
Escrow Agreement) exceed One Million Two Hundred Fifty Thousand U.S. Dollars (US
$1,250,0000) on the Closing Date.
13
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS REGARDING
THE COMPANY
The Company and the Sellers jointly and severally represent and
warrant to Buyer and Diginet as to the Company as follows:
3.1. Organization and Good Standing
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the Republic of Argentina. The Company is
duly qualified to conduct business as a foreign corporation and is in good
standing in the states, provinces, countries, and territories listed on Schedule
--------
3.1. The Company is not qualified to conduct business in any other
- ---
jurisdiction, and neither the nature of the business conducted by the Company
nor the character of the Assets owned, leased, or otherwise held by it makes any
such qualification necessary in any jurisdiction wherein failure to qualify
would have a Material Adverse Effect upon the business of the Company as
currently conducted.
(b) Except as set forth in Schedule 3.1, the Company has never
------------
conducted any business under or otherwise used, for any purpose or in any
jurisdiction, any fictitious name, assumed name, trade name or other name than
the name "INEA Internet S.A.".
(c) There is included in Schedule 3.1 a list of all subsidiaries of
------------
the Company, including the name and capitalization of such entity and the
ownership interest of the Company in such entity. Except as set forth in
Schedule 3.1, the Company does not own, directly or indirectly, capital stock or
- ------------
any equity interest of any other corporation or other entity and is not a
partner in any partnership or similar entity, a member of any limited liability
company or similar entity, or a participant in any joint venture.
3.2. Certificate or Articles of Incorporation
The Company furnished or has caused to be furnished to Buyer a true
and complete copy of its Organizational Documents, as currently in effect,
certified as of a recent date by the Governmental Body with which such
Organizational Documents are filed, or if no such filings are made, certified by
its corporate secretary (collectively the "Company Organizational Documents").
----------------------------------
Such certified copies are attached as Schedule 3.2.
------------
3.3. Authority; Enforceability; No Conflict
(a) The Company has the necessary corporate power and authority to
own, operate and lease its Assets, to carry on its business as currently
conducted, to enter into this Agreement and each of the other agreements,
certificates or other
14
<PAGE>
instruments required to be delivered by the Company at or prior to Closing (the
"Company Closing Documents"), to perform its obligations hereunder and
- --------------------------
thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by the Company of this Agreement and
each of the Company Closing Documents and the consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no other corporate proceedings
on the part of the Company or its shareholders are necessary to authorize the
Company to execute and deliver this Agreement or any of the Company Closing
Documents or to consummate the transactions contemplated hereby and thereby.
This Agreement has been duly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity. Each of the Company Closing
Documents, when executed and delivered by the Company, shall have been duly
executed and delivered by the Company and shall constitute a legal, valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of general applicability
relating to or affecting creditors' rights generally and by the application of
general principles of equity.
(b) The execution and delivery of this Agreement by the Company does
not, and the execution and delivery by the Company of each of the Company
Closing Documents and the performance by the Company of its obligations under
this Agreement and each of the Company Closing Documents will not, with or
without the giving of notice or the lapse of time or both, (i) conflict with or
violate the Company Organizational Documents, (ii) subject to obtaining the
approvals and compliance with the requirements set forth in Schedule 3.3(b),
---------------
conflict with or violate any Law or Order applicable to the Company or by which
any of its Assets is bound or affected, or (iii) except as set forth in Schedule
--------
3.3(b), result in any breach of or constitute a default under, or give to others
- ------
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of an Encumbrance on any of the Assets of the Company pursuant
to, any Agreement to which the Company is a party or by which the Company or any
of its Assets is bound or affected.
(c) The execution and delivery of this Agreement by the Company does
not, and the execution and delivery of each of the Company Closing Documents and
the performance of this Agreement and each of the Company Closing Documents by
the Company will not, require any Consent of any Person, including without
limitation, ARIN, except as set forth in Schedule 3.3(c).
---------------
15
<PAGE>
3.4. Capitalization; Ownership of Ordinary Shares
The authorized equity securities of the Company consist of 12,000
ordinary shares, par value One Argentine Peso per share, of which 12,000
ordinary shares are duly authorized and validly issued and outstanding, fully
paid and nonassessable and constitute the Ordinary Shares. No ordinary shares
of capital stock of the Company have been reserved for any purpose. There are
no outstanding securities convertible into or exchangeable for ordinary shares
and no outstanding options, rights (preemptive or otherwise), or warrants to
purchase or to subscribe for any ordinary shares or other securities of the
Company. There are no outstanding agreements affecting or relating to the
voting, issuance, purchase (including, without limitation, rights of first
refusal), redemption, repurchase, or transfer of the Ordinary Shares, or any
other securities of the Company, except as contemplated hereunder.
3.5. Financial Statements
The Company has furnished to Buyer, and there are included in Schedule
--------
3.5 hereto, (a) the audited balance sheet of the Company as of the end of the
- ---
fiscal year ended December 31, 1998 (the "1998 Balance Sheet") and the audited
------------------
statements of income, stockholders' equity, and statements of cash flows for the
twelve month period then ended, accompanied by the related report of Juan Carlos
Mogavero and (b) the unaudited balance sheet of the Company (the "Interim
-------
Balance Sheet"), as of December 31, 1999 (the "Interim Balance Sheet Date") and
- ------------- --------------------------
the related unaudited statements of income, stockholders' equity and cash flows
(together with the Interim Balance Sheet, the "Interim Financial Statements")
----------------------------
for the twelve month period ended as of the Interim Balance Sheet Date. All of
the financial statements, including without limitation the notes thereto,
referred to in this Section 3.5 or furnished to Buyer after the date hereof (a)
are in accordance with the books and records of the Company, (b) present fairly
the financial position of the Company as of the respective dates and the results
of operations and statement of cash flows for the respective periods indicated
and have been prepared in accordance with GAAP applied on a basis consistent
with prior accounting periods; provided, however, that in the case of the
-------- -------
Interim Financial Statements, such statements are subject to normal year-end
audit adjustments, which individually or in the aggregate will not be material.
Schedule 3.5 sets forth all changes in accounting methods (for financial
- ------------
accounting purposes) made, agreed to, requested or required with respect to the
Company since the date of its incorporation.
3.6. Books and Records
The books of account, minute books, share record books, and other
records of the Company, all of which have been made available to Buyer, are
16
<PAGE>
complete and correct. The minute books of the Company contain accurate and
complete records of all meetings held of, and corporate action taken by, the
shareholders, the Boards of Directors, and committees of the Boards of Directors
of the Company, and no meeting of any such stockholders, Board of Directors, or
committee has been held for which minutes have not been prepared and are not
contained in such minute books.
3.7. No Undisclosed Liabilities
Except as reflected in the Interim Financial Statements or as
described in Schedule 3.7, the Company has no liabilities (whether contingent or
------------
absolute, matured or unmatured, known or unknown, accrued or otherwise) other
than liabilities incurred in the Ordinary Course of Business.
3.8. Title to Properties
Schedule 3.8 contains a complete and accurate list of all real
------------
property owned, leased or used by the Company. Except as set forth on Schedule
--------
3.8, (a) the Company has good, valid and marketable title to all of its Assets,
- ---
including without limitation all of the Assets reflected in the 1998 Balance
Sheet and the Interim Balance Sheet, and all of the Assets purchased or
otherwise acquired by the Company since the Interim Balance Sheet Date (except
for Assets reflected in such balance sheets or acquired since the Interim
Balance Sheet Date which have been sold or otherwise disposed of in the Ordinary
Course of Business) free and clear of all Encumbrances and (b) in the case of
any Assets consisting of real property, such Assets are not subject to any
rights of way, building use restrictions, exceptions, variances, reservations,
or limitations of any nature.
3.9. Accounts Receivable; Product and Services Warranties
(a) The accounts receivable of the Company shown on the Interim
Balance Sheet, or thereafter acquired by the Company, arose from bona fide
transactions in the Ordinary Course of Business and have been collected or are
collectible in amounts not less than the amounts thereof carried on the books of
the Company, except to the extent of the allowance for doubtful accounts shown
on such Interim Balance Sheet.
(b) The amount of the warranty reserve included on the Interim Balance
Sheet was prepared in accordance with GAAP applied on a basis consistent with
prior accounting periods. There are no warranties with respect to the products
or services sold by the Company except as set forth in Schedule 3.9.
------------
17
<PAGE>
3.10. Taxes
(a) The Company has filed (on a timely basis) with the appropriate
Governmental Bodies all Tax Returns that are or were required to be filed by or
with respect to it in connection with or affecting the Company, its Assets or
its operations. All of such Tax Returns are complete in all respects. The
Company (a) has paid the Taxes shown to be due on such Tax Returns or otherwise
assessed, levied and due and payable by the Company, including related penalties
and/or interest due or (b) has established adequate reserves therefor (in
conformity with GAAP applied on a basis consistent with prior accounting
periods).
(b) There is no Proceeding pending or, to the Knowledge of the Company
or any Seller, threatened, in respect of any Taxes for which the Company is or
may become liable, nor has any deficiency or claim for any such Taxes been
proposed, asserted or, to the Knowledge of the Company or any Seller,
threatened. The Company has not consented to any waivers or extensions of any
statute of limitations with respect to any taxable year of the Company. There
is no Agreement, waiver or consent providing for an extension of time with
respect to the assessment or collection of any Taxes against the Company, and no
power of attorney granted by the Company with respect to any tax matters is
currently in force.
(c) The Company has furnished to Buyer true and complete copies of all
the Company Tax Returns for all periods since the Company's inception and all
written communications relating to any such Company Tax Returns or to any
deficiency or claim proposed and/or asserted, irrespective of the outcome of
such matter, but only to the extent such items relate to tax years (i) which are
subject to an audit, investigation, examination or other proceeding, or (ii)
with respect to which the statute of limitations has not expired.
3.11. No Material Adverse Change; Conduct of Business
Except as set forth in Schedule 3.11, since the Interim Balance Sheet
-------------
Date, the Company has conducted its business only in the Ordinary Course of
Business and the Company has not:
(a) suffered a Material Adverse Effect;
(b) changed the Company's authorized or issued capital stock, granted
any stock option or right to purchase shares of capital stock of the Company,
issued any security convertible into such capital stock, granted any
registration rights, or entered into agreements with respect to the purchase,
redemption, retirement, or other acquisition by the Company of any shares of any
such capital stock, or declared or paid any dividend or other distribution or
payment in respect of shares of capital stock;
18
<PAGE>
(c) amended the Company Organizational Documents;
(d) paid or increased any bonuses, salaries, or other compensation to
any stockholder, director, officer, or (except in the Ordinary Course of
Business) employee, or entered into any employment, severance, or similar
Agreement with any director, officer, or employee;
(e) adopted or increased the payments to or benefits under, any profit
sharing, bonus, deferred compensation, savings, insurance, pension, retirement,
or other employee benefit plan for or with any employees of the Company;
(f) suffered any damage to or destruction or loss of any Asset of the
Company, whether or not covered by insurance, which has or could have a Material
Adverse Effect on the Company;
(g) entered into, terminated, or received notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, interconnection, collocation, peering, or similar agreement, or (ii) any
Agreement or transaction involving a total remaining commitment by or to the
Company of at least US $10,000;
(h) sold (other than sales of inventory in the Ordinary Course of
Business), leased, or otherwise disposed of any Asset of the Company, or granted
or imposed any Encumbrance on any material Asset of the Company, including
without limitation the sale, lease, other disposition or imposition of any
Encumbrance on, of any of the Intellectual Property;
(i) cancelled or waived any claims or rights with a value to the
Company in excess of U.S.$10,000;
(j) agreed, whether orally or in writing, to do any of the actions
described in foregoing clauses (b) - (i).
3.12. Employee Benefits
(a) Except as set forth in Schedule 3.12, the Company does not make
-------------
any contributions to, and has not been obligated by Law or Agreement to
establish, maintain, sponsor, or make any contributions to (i) any employee
pension or welfare benefit plan; (ii) any formal or informal severance plan or
arrangement; or (iii) any other deferred compensation, bonus, stock option,
stock purchase, revenue sharing, retirement insurance, or other employee benefit
plan, agreement, fund, or arrangement, whether or not set forth in writing,
providing benefits of economic value to any employee, former employee, or
present or former beneficiary, dependent, or assignee other than regular salary,
wages, or commissions paid substantially concurrently with the performance of
the services for which they are
19
<PAGE>
paid (individually or together referred to as "Plan" or "Plans").
---- -----
Except for the Company's obligation to contribute to certain national pension,
health and unemployment insurance schemes set out in Schedule 3.12, there is
-------------
no accrued pension or similar retirement benefit for or due to any employee
required to be paid by the Company upon retirement or termination of any such
employee.
(b) The Company has delivered to Buyer a complete and correct copy of
each instrument constituting each Plan or a part of each Plan, as applicable,
including without limitation, any informal policy statements or guidelines
setting forth provisions of the Plan. The Company has not promised or
negotiated any benefit or benefit changes which are not reflected in such
instruments.
(c) Except for those listed on Schedule 3.12, the Company is not
-------------
obligated to make any contributions or payments in respect of any Plan prior to
the Closing Date; and there is no amount of contribution or payments which have
accrued under the Plans.
(d) The Company has maintained each Plan according to and in
compliance with applicable Law. There are no pending or, to the best of the
Company's and the Sellers' Knowledge, threatened, Proceedings by present or
former employees of the Company, Plan participants, beneficiaries or spouses of
any of the above, or any other Person involving any Plan or any rights or
benefits thereunder.
3.13. Compliance With Laws; Governmental Authorizations
(a) Except as set forth in Schedule 3.13, the Company has complied
-------------
with and is in compliance with all Laws applicable to it or any of its Assets or
operations, including, without limitation, all applicable Laws relating to the
regulation and protection of the Environment and all applicable Laws relating to
the Company's employees, and there does not exist any basis for any claim of
default under, or violation of, any such Law.
(b) Schedule 3.13 contains a complete and accurate list of each
-------------
Governmental Authorization that is held by the Company or that otherwise relates
to the business of, or to any of the Assets owned or used by, the Company. The
Company has delivered to Buyer accurate and complete copies of all Governmental
Authorizations identified in Schedule 3.13, including all renewals thereof and
-------------
all amendments thereto. Each Governmental Authorization listed or required to
be listed in Schedule 3.13 of the Disclosure Schedules is valid and in full
force and effect. The Governmental Authorizations listed in Schedule 3.13
-------------
collectively constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its business in the manner it
currently conducts and operates such business and to permit the Company to own
and use the Assets in the manner in which it currently owns and uses such
Assets.
20
<PAGE>
(c) Each of the Company and Sellers has not been, or received any
notice that it is, in violation of or in default under, any Law or Order
applicable to the Company or its Assets. Without limiting the generality of the
previous sentence, each of the Sellers and Company is familiar with the terms of
the U.S. Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), and has
----
received and reviewed a copy of a summary of the FCPA, which is attached to this
Agreement as Exhibit D. None of Sellers is currently a government
---------
representative, employee or officer of a political party. Each of Sellers and
the Company will comply with all applicable Laws, including but not limited to
the FCPA. None of Sellers or the Company has knowledge of any act that has been
taken or contemplated by the Company or Sellers that would violate the FCPA
without regard to applicability of the FCPA to Sellers or the Company.
3.14. Licenses
Sellers have delivered to Buyer true and complete copies of the
Licenses, each of which is valid, binding and in full force and effect. The
Company has complied in all material respects with all of the requirements with
respect to the Licenses. The Company is not, or has not received any notice
that it is in default (or with the giving of notice or lapse of time or both,
would be in default) under any such License. Sellers have commenced all
necessary undertakings to receive the regulatory approval of the Secretary of
Communications with respect to the Licenses for a change of control of the
Company from the Sellers to Buyer on or before the Closing Date.
3.15. Litigation; Disputes
(a) Except as set forth in Schedule 3.15, there are no Proceedings
-------------
pending, or to the best of the Company or any Seller's Knowledge, threatened,
against the Company or its business or Assets, or the transactions contemplated
by this Agreement, at law or in equity, or before or by any Governmental Body or
arbitrator, and neither the Company nor any officer or director thereof, nor any
Seller, has directly or indirectly received any formal or informal written
notice of any complaint, order, directive, citation, notice of responsibility,
notice of potential responsibility, or information request from any Governmental
Body or any other Person or knows any fact(s) which might form the basis for any
such actions or notices. The Company is not in default with respect to any
Order of any Governmental Body or arbitrator.
(b) Except as set forth in Schedule 3.15, the Company is not currently
-------------
involved in, nor has been threatened with, any dispute with, any of its current
or former employees, agents, brokers, distributors, vendors, subscribers,
customers, business consultants, representatives or independent contractors.
21
<PAGE>
3.16. Contracts; No Defaults
(a) Schedule 3.16 contains a complete and correct list of all
-------------
Agreements to which the Company is a party or by which it or any of its Assets
is bound, (i) the terms of which involve payments, receipts or potential
liabilities by or of the Company of more than U.S. $10,000, or the Argentine
Peso equivalent thereof, in a given year or per year, (ii) which are Agreements
relating to the borrowing of money or evidencing credit or relating to the
purchase or sale of shares or other securities, employment agreements,
collective bargaining agreements, consulting agreements, license agreements,
interconnection agreements, distribution agreements, reseller agreements,
Agreements with any Governmental Body, Agreements with any director, officer or
employee of the Company or any relative of any such director, officer or
employee or any entity in which such director, officer or employee or relative
holds more than five percent (5%) of the outstanding equity interest, or
Agreements not made in the Ordinary Course of Business or (iii) which are
Subscriber contracts or peering, transit or other agreement with any Internet
service provider, online company or similar entity, regardless of the amount of
payments, receipts or potential liabilities (the "Schedule 3.16 Contracts").
-----------------------
(b) The Company has furnished Buyer complete and correct copies of all
Schedule 3.16 Contracts, together with all amendments and side letters thereto.
The Schedule 3.16 Contracts are (i) valid, binding and in full force and effect,
(ii) are enforceable by the Company in accordance with their terms and (iii) the
Company is not, and no other party is, in default thereunder. The Company has
not given to or received from any other Person, at any time since January 1,
1999, any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Schedule 3.16 Contract.
(c) No Agreement to which the Company is a party or by which it or any
of its Assets is bound purports to limit the Company's freedom to compete in any
line of business or with any Person. Schedule 3.16 also includes a complete and
-------------
correct lists of all powers of attorney given by or on behalf of the Company,
including without limitation, powers of attorney give by or on behalf of any
officer or director of the Company in respect of his duties as such.
(d) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate, any material amounts paid or payable to the
Company under current or completed Schedule 3.16 Contracts and no party thereto
has made written demand for such renegotiation.
22
<PAGE>
3.17. Key Customers
Nothing has come to the attention of Sellers and Sellers have no
reason to believe (after reasonable inquiry) that the Key Customers shall not be
customers of the Company at least through the six month anniversary of the
Closing Date.
3.18. Insurance
(a) Schedule 3.18 lists and briefly describes all policies of title,
-------------
property, fire, hazard, casualty, liability, life, worker's compensation and
other forms of insurance of any kind owned or held by the Company. All such
policies: (i) are with insurance companies reasonably believed by the Company to
be financially sound and reputable; (ii) are in full force and effect and will
continue in full force and effect following the consummation of the transactions
contemplated under this Agreement; (iii) are sufficient for compliance by the
Company with all requirements of Law and of all Agreements to which the Company
is a party; (iv) are valid and outstanding policies enforceable against the
insurer; (v) taken together, provide adequate insurance coverage for the Assets
and the operations of the Company for all risks normally insured against by a
Person carrying on the same business or businesses as the Company; and (vi)
provide that they will remain in full force and effect through the respective
dates set forth in Schedule 3.18.
-------------
(b) The Company has not has received (i) any refusal of insurance
coverage or any notice that a defense under any insurance coverage will be
afforded with reservation of rights or (ii) any notice of cancellation or any
other indication that any insurance policy is no longer in full force or effect
or will not be renewed or that the issuer of any policy is not willing or able
to perform its obligations thereunder.
(c) The Company has paid all premiums due, and has otherwise performed
all of its obligations, under each policy to which the Company is a party or
that provides coverage to the Company.
(d) The Company has given notice to the insurer of all claims that may
be insured thereby.
3.19. Employees
(a) Schedule 3.19 contains a complete and accurate list of the
-------------
following information for each employee and director of the Company, including
each employee on leave of absence or layoff status: name; job title; current
compensation paid or payable and any change in compensation since January 1,
1999; vacation accrued; and service credited for purposes of vesting and
eligibility to participate, if any, under any Plan.
23
<PAGE>
(b) Except as set forth in Schedule 3.19, no employee or director of
-------------
the Company is a party to, or is otherwise bound by, any Agreement, including
any confidentiality, noncompetition, or proprietary rights agreement, between
such employee or director and any other Person that in any way adversely affects
or will affect (i) the performance of his duties as an employee or director of
the Company, or (ii) the ability of the Company to conduct its business.
3.20. Labor Relations
Except as set forth in Schedule 3.20, there are no strikes, work
-------------
stoppages, grievance proceedings, union organization efforts or other
controversies pending, threatened or reasonably anticipated between the Company
and (a) any of its current or former employees or (b) any union or other
collective bargaining unit representing such employees. Except as set forth in
Schedule 3.20, there are no employment agreements between the Company and its
- -------------
employees not terminable at will. The consummation of the transactions
contemplated hereby will not cause Buyer or the Company to incur or suffer any
liability relating to, or obligation to pay, severance, termination or other
payments to any Person.
3.21. Intellectual Property
(a) Schedule 3.21 is a list and brief description of all Intellectual
-------------
Property owned or utilized by the Company. The Company has furnished Buyer with
copies of all license agreements to which the Company is a party, either as
licensor or licensee, with respect to any Intellectual Property. Except as set
forth in Schedule 3.21, the Company has good and sole title to, or the exclusive
-------------
right to use, all the Intellectual Property and all inventions, processes,
designs, formulae, trade secrets and know-how necessary for the conduct of the
Company's business as presently conducted or currently proposed to be conducted
and the Company is not infringing on any Intellectual Property right of others,
and neither the Company nor the Sellers have Knowledge of any infringement by
others of any such rights owned by the Company.
(b) All licenses set forth on Schedule 3.21 are valid and binding
-------------
obligations of the Company, and to the Knowledge of the Company and the Sellers,
of the other parties thereto, and enforceable against the Company, and to the
Knowledge of the Company and the Sellers, the other parties thereto in
accordance with their respective terms. The Company owns and possesses all
right, title and interest in and to, or has the right to use pursuant to a valid
license, all Intellectual Property necessary for the operation of the business
of the Company as presently conducted.
(c) To the Knowledge of the Company and the Sellers, the Company and
the Sellers have taken all reasonably necessary measures to protect and maintain
the rights of the Company in its Intellectual Property. Each piece of
24
<PAGE>
Intellectual Property used by the Company is used with the authorization of
every other claimant thereto and the execution, delivery and performance of this
Agreement will not impair such use.
(d) The Company has also delivered to Buyer correct and complete
samples or copies of all trademarks, service marks, trade names, copyrights,
patents, registrations and, as relate to the foregoing, applications, licenses,
agreements, and permissions (as amended to date) held by the Company and all
other documents and instruments related to its Intellectual Property, and has
made available to Buyer correct and complete copies of all other written
documentation evidencing ownership and prosecution (if applicable) of each such
item. With respect to each item of Intellectual Property used in, or otherwise
necessary for the conduct of, the business of the Company as heretofore
conducted: (i) the identified owner possesses all right, title, and interest in
and to the item; (ii) the item is not subject to any outstanding judgment,
order, decree, stipulation, injunction, or charge; (iii) no charge, complaint,
action, suit, proceeding, hearing, investigation, claim, or demand is pending
or, to the Knowledge of any of the Sellers or officers (and employees with
responsibility for Intellectual Property matters) of the Company, is threatened
which challenges the legality, validity, enforceability, use, or ownership of
the item; and (iv) the Company has not agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other conflict with
respect to the item.
3.22. Year 2000 Compliance
(a) Each System owned or used by the Company comprised of software,
hardware or databases, the operational failure of which would be reasonably
likely to result in a Material Adverse Effect on the Company is able to
accurately process date data, including, but not limited to, calculating,
comparing and sequencing from, into and between the twentieth century (through
year 1999), the year 2000 and the twenty-first century, including leap year
calculations (having such ability being referred to herein as "Year 2000
---------
Compliant"). The Company has no reason to believe that it will incur material
- ---------
expenses arising from or relating to the failure of any of their Systems to be
Year 2000 Compliant.
(b) To the Knowledge of the Company and the Sellers, all vendors of
products to the Company, the operational failure of which due to a failure to be
Year 2000 Compliant would be reasonably likely to result in a Material Adverse
Effect on the Company, and such respective products. To the Knowledge of the
Company and the Sellers, each such vendor will continue to furnish its products
to the Company without interruption or material delay.
25
<PAGE>
3.23. Company Brokers or Finders
The Company has not entered into any Agreement obligating it to pay
any brokerage commissions, finders fees or similar compensation in connection
with the transactions contemplated by this Agreement.
3.24. Systems
Except as set forth on Schedule 3.24 and with such other exceptions as
-------------
will not, individually or in the aggregate, have a Material Adverse Effect on
the Company, (i) all of the Systems services and platform servers are running,
or peaking, at no higher than 80% of capacity, (ii) Only Systems' services in
Quilmes and Rivadavia are replicated in a redundant manner across available
platform servers, (iii) all remote physical points of presence ("POPs") are
----
secure, conform to equipment manufacturers' recommended environmental
parameters, and contain an uninterrupted power supply with a battery back-up of
at least 30 minutes, (iv) the configuration diagrams provided to Buyer
reasonably represent the redundant network facilities between major backbone
locations, and between remote physical POPs and major network concentration
points, (vi) the existing power plant at the Company's main location is equipped
with an uninterrupted power supply with a battery back-up of at least 60
minutes, (vii) all deployed dial-in modem, modem shelf and corresponding
technology conform to applicable industry standards necessary to support
Subscriber traffic at a rate of 56 Kbps or above, (viii) all Systems owned,
leased by, or licensed to or by the Company are Year 2000 Compliant, (ix) the
Company does not utilizes a DHCP, or other dynamic, IP address allocation scheme
that conforms to industry standards, and (x) the Company has access to the
quantity of IP addresses sufficient to support the Company's Subscriber base as
currently existing.
3.25. Subscribers
Schedule 3.25 sets forth (a) the number or Subscribers served by the
-------------
Company by type of business (i.e., segregated by the following categories, if
applicable to the Company: (i) dial-up, (ii) dedicated access, (iii) web
hosting, and (iv) other equipment sales and leasing and professional services
businesses) as of December 31, 1999 and the Company's standard rates for such
Subscribers for each type of business; (b) for the year commencing January 1,
1999, the Company's monthly churn rate (consisting of (i) cancellations of
month-to-month service and/or long-term subscription or service contracts prior
to expiration (ii) terminations of any such contracts, and (iii) non-renewal of
any such contracts upon expiration) by business type during each full calendar
month prior to the date hereof; and (c) as of December 31, 1999, detail as to
the amount of prepaid subscription or service contracts and the amount of
unearned revenue for all Subscriber contracts with a remaining term of (i) less
than or equal to 90 days, (ii) greater than 90 days and less than or equal to
26
<PAGE>
one year, (iii) greater than one year and less than or equal to two years, (iv)
greater than two years and less than or equal to three years and (v) greater
than three years. In the event the Closing does not take place, Buyer agrees to
return the original, and all copies, of this Schedule 3.25 and shall refrain
-------------
from using any information contained in this Schedule 3.25 for a period of three
-------------
years after termination of this Agreement.
3.26. Disclosure
No representation or warranty by the Company, or by the Sellers with
respect to the Company, in this Agreement, the Exhibits or the Disclosure
Schedules contains any untrue or misleading statement or omits any material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
4. REPRESENTATIONS AND WARRANTIES OF EACH SELLER
Each Seller represents and warrants to Buyer and Diginet as to himself
as follows:
4.1. Authority; Enforceability; No Conflict.
(a) Such Seller has the legal capacity to enter into this Agreement
and each of the other agreements, certificates or other instruments required to
be delivered by such Seller at or prior to Closing (the "Seller Closing
--------------
Documents"), to perform his obligations hereunder and thereunder and to
- ---------
consummate the transaction contemplated hereby and thereby. This Agreement has
been duly and validly executed and delivered by such Seller and constitutes a
valid and binding agreement of such Seller, enforceable against such Seller in
accordance with its terms, except as such enforcement may be limited by
bankruptcy, conservatorship, receivership, insolvency, moratorium or similar
laws affecting creditors' rights generally or the rights of creditors of
individuals or by general principles of equity. Each of the Seller Closing
Documents, when executed and delivered by such Seller, shall have been duly and
validly executed and delivered by such Seller and shall constitute a valid and
binding agreement of such Seller, enforceable against such Seller in accordance
with its terms except as such enforcement may be limited by bankruptcy,
conservatorship, receivership, insolvency, moratorium or similar laws affecting
creditors' rights generally or the rights of creditors of individuals or by
general principles of equity.
(b) The execution and delivery of this Agreement by such Seller, does
not, and the execution and delivery by such Seller of each of the Seller Closing
Documents and the performance by such Seller of his obligations under this
Agreement and each of the Seller Closing Documents will not, with or without the
27
<PAGE>
giving of notice or lapse of time or both, (i) subject to obtaining the
approvals and compliance with the requirements set forth in Schedule 4.1(b),
---------------
conflict with or violate any Law or Order applicable to such Seller or by which
any of his Assets is bound or affected, or (ii) except as set forth in Schedule
--------
4.1(b), result in any breach of or constitute a default under, or give to others
- ------
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of an Encumbrance on any of the Assets of such Seller pursuant
to, any Agreement to which such Seller is a party or by which such Seller or any
of his Assets is bound or affected.
(c) The execution and delivery of this Agreement by such Seller does
not, and the execution and delivery of each of the Seller Closing Documents and
the performance of this Agreement and each of the Seller Closing Documents by
such Seller will not, require any Consent of any Person except as set forth in
Schedule 4.1(c).
- ---------------
4.2. Title to Shares
Such Seller owns good and marketable, legal and beneficial title in
and to the number of Ordinary Shares set forth opposite his name in Exhibit A
---------
free of any and all Encumbrances.
4.3. Insolvency
There are no attachments, executions or assignments for the benefit of
creditors, or voluntary or involuntary proceedings in bankruptcy, or under any
other debtor relief laws, pending or, to the Knowledge of such Seller,
threatened, against such Seller.
4.4. Litigation
There is no action, order, writ, injunction, judgment or decree
pending or outstanding or, to such Seller's Knowledge, threatened, against such
Seller with respect to or against or potentially affecting such Seller's
interest in his ordinary shares or any of the transactions contemplated hereby.
4.5. Principal Residence
Such Seller's principal residence is in the Republic of Argentina.
4.6. Investment Representations
(a) Such Seller acknowledges that (i) the Diginet Stock and the
Promissory Note to be acquired by him hereunder will not be registered under the
28
<PAGE>
Securities Act upon the issuance thereof, (ii) such Diginet Stock and Promissory
Note is being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon such Seller's
representations, warranties, acknowledgments and understandings set forth in
this Section 4.6 and (iii) Buyer is relying upon the truth and accuracy of such
representations, warranties, acknowledgments and understandings of such Seller.
(b) Such Seller will acquire the Diginet Stock and Promissory Note to
be acquired by him hereunder for such Seller's own account for investment only
and not with the current intention of making a public distribution thereof.
(c) Such Seller is capable of evaluating the merits and risks of the
investing in the Diginet Stock and Promissory Note to be acquired by him
hereunder and has the capacity to protect its own interests. Such Seller is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act. Such Seller is an "accredited investor" by virtue of
(i) having a personal net worth, or joint net worth with such Seller's spouse,
in excess of US $1 million, (ii) having had an individual annual income above
US$ 200,000 in each of 1998 and 1999 and reasonably expecting to have an
individual annual income in excess of US$ 200,000 for 2000 and 2001, or (iii)
having had a joint annual income with such Seller's spouse in excess of US$
300,000 in each of 1998 and 1999 and reasonably expecting to have a joint annual
income with such Seller's spouse in excess of US$ 300,000 for 2000 and 2001.
(d) Such Seller acknowledges that the Diginet Stock and Promissory
Note to be acquired by him hereunder may not be sold, transferred or otherwise
disposed of unless such Diginet Stock or Promissory Note is subsequently
registered under the Securities Act or an exemption from such registration is
available. Such Seller understands that Buyer has no current intention of
registering such Diginet Stock. Such Seller also understands that there is no
assurance that any exemption from registration under the Securities Act will be
available and that, even if available, such exemption may not allow such Seller
to transfer all or any portion of such Diginet Stock and Promissory Note under
the circumstances, in the amounts or at the times such Seller might propose.
(e) Such Seller understands that no public market now exists for the
Diginet Stock or Promissory Note to be acquired by him hereunder and that Buyer
is uncertain whether a public market will ever exist for such Diginet Stock or
Promissory Note.
(f) Such Seller is aware of the provisions of Rule 144, which permit
limited resale of "restricted securities" (as such term is defined in Rule 144),
subject to the satisfaction of certain conditions, including, among other
things: (i) the condition that there be available certain current public
information about the issuer of such securities; (ii) the condition that the
sale of securities be effected not less
29
<PAGE>
than one year after a party has purchased and paid for the securities to be
sold; (iii) the condition that the sale of securities be effected through an
unsolicited "brokers' transaction" or in transactions directly with a "market
maker" (as such terms are defined in Rule 144); and (iv) the condition that the
number of securities being sold during any three-month period not exceed
specified limitations.
(g) Such Seller did not receive any information regarding the offer,
purchase and sale of the Diginet Stock or Promissory Note to be acquired by him
hereunder through any general solicitation or general advertising within the
meaning of Rule 502(c) under the Securities Act.
(h) Without in any way limiting the effect of the representations and
warranties of Buyer set forth in Section 5 hereof, such Seller has had an
opportunity to discuss in detail Diginet's and Buyer's business, management and
financial affairs with Diginet's and Buyer's officers and management employees
and has carefully reviewed the representations made herein and all documents and
records of Diginet and Buyer which Diginet or Buyer has provided in response to
such Seller's requests.
(i) (A) Such Seller hereby certifies that he is not a "U.S. person"
as that term is defined in Rule 902(k) of Regulation S under the Securities Act
("Regulation S") and is not acquiring the Diginet Stock for the account or
------------
benefit of a "U.S. person;" (B) such Seller acknowledges that the issuance of
the Diginet Stock constitutes an "offshore transaction" as that term is defined
in Rule 902(h) of Regulation S; (C) such Seller agrees to resell the Diginet
Stock only in accordance with the provisions of Regulation S, pursuant to a
registration statement under the Securities Act or pursuant to an available
exemption from registration; (D) such Seller agrees not to engage in hedging
transactions with regard to the Diginet Stock unless in compliance with the
Securities Act; (E) such Seller is aware that the stock certificates to be
issued to such Seller shall contain a legend to the effect of subsections (C)
and (D) above; and (F) such Seller is aware that Diginet shall refuse to
register any transfer of the Diginet Stock not made in accordance with the
provisions of subsections (C) and (D) above, provided, however, that if
Argentine Law prevents Diginet from refusing to register securities transfers,
other reasonable procedures shall be implemented to prevent any transfer of
Diginet Stock not made in accordance with the provisions of subsections (C) and
(D) above.
4.7. Seller Broker or Finders
Such Seller has not entered into any Agreement obligating him to pay
any brokerage commissions, finders fees or similar compensation in connection
with the transactions contemplated by this Agreement.
30
<PAGE>
4.8. Disclosure
No representation or warranty by each Seller in this Agreement, and no
statement by any Seller in any Exhibit or the Disclosure Schedules, contains any
untrue or misleading statement or omits any material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to each Seller as follows:
5.1. Organization and Good Standing
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the Republic of Argentina. Buyer is not qualified to
conduct business in any other jurisdiction, and neither the nature of the
business conducted by Buyer nor the character of the Assets owned, leased, or
otherwise held by it makes any such qualification necessary in any jurisdiction
wherein failure to qualify would have a Material Adverse Effect upon the
business of Buyer as currently conducted.
5.2. Certificate or Articles of Incorporation
Buyer furnished or has caused to be furnished to the Company a true
and complete copy of its Organizational Documents, as currently in effect,
certified as of a recent date by the Governmental Body with which such
Organizational Documents are filed, or if no such filings are made, certified by
its corporate secretary (collectively the "Buyer Organizational Documents").
--------------------------------
Such certified copies are attached as Schedule 5.2.
------------
5.3. Authority; Enforceability; No Conflict
(a) Buyer has the necessary corporate power and authority to own,
operate and lease its Assets, to carry on its business as currently conducted,
to enter into this Agreement and each of the other agreements, certificates or
other instruments required to be delivered by Buyer at or prior to Closing (the
"Buyer Closing Documents"), to perform its obligations hereunder and thereunder
-----------------------
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery by Buyer of this Agreement and each of the Buyer Closing
Documents and the consummation by Buyer of the transactions contemplated hereby
and thereby have been duly and validly authorized by all necessary corporate
action, and no other corporate proceedings on the part of Buyer or its
shareholders are necessary to authorize Buyer to execute and deliver this
Agreement or any of the Buyer
31
<PAGE>
Closing Documents or to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by Buyer and
constitutes a legal, valid and binding obligation of Buyer, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity. Each of the Buyer Closing
Documents, when executed and delivered by Buyer, shall have been duly executed
and delivered by Buyer and shall constitute a legal, valid and binding
obligation of Buyer, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
(b) The execution and delivery of this Agreement by Buyer does not,
and the execution and delivery by Buyer of each of the Buyer Closing Documents
and the performance by Buyer of its obligations under this Agreement and each of
the Buyer Closing Documents will not, with or without the giving of notice or
the lapse of time or both, (i) conflict with or violate the Buyer Organizational
Documents, (ii) subject to obtaining the approvals and compliance with the
requirements set forth in Schedule 5.3(b), conflict with or violate any Law or
---------------
Order applicable to Buyer or by which any of its Assets is bound or affected, or
(iii) except as set forth in Schedule 5.3(b), result in any breach of or
---------------
constitute a default under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the Assets of Buyer pursuant to, any Agreement to which
Buyer is a party or by which Buyer or any of its Assets is bound or affected.
(c) The execution and delivery of this Agreement by Buyer does not,
and the execution and delivery of each of the Buyer Closing Documents and the
performance of this Agreement and each of the Buyer Closing Documents by Buyer
will not, require any Consent of any Person except as set forth in Schedule
--------
5.3(c).
- ------
5.4. Brokers or Finders
Except as set forth on Schedule 5.4, there are no Claims for, and
Buyer has not entered into any arrangement or agreement obligating it to pay
any, brokerage commissions, finders fees or similar compensation in connection
with the transactions contemplated by this Agreement.
5.5. Disclosure
No representation or warranty by Buyer in this Agreement, and no
statement by Buyer in any Exhibit or the Disclosure Schedules, contains any
untrue or misleading statement or omits any material fact necessary to make the
32
<PAGE>
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
6. REPRESENTATIONS AND WARRANTIES OF DIGINET
Diginet represents and warrants to each Seller as follows:
6.1. Organization and Good Standing
Diginet is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Diginet is duly qualified to
conduct business as a foreign corporation and is in good standing in the states,
provinces, countries, and territories listed on Schedule 6.1. Diginet is not
------------
qualified to conduct business in any other jurisdiction, and neither the nature
of the business conducted by Diginet nor the character of the Assets owned,
leased, or otherwise held by it makes any such qualification necessary in any
jurisdiction wherein failure to qualify would have a Material Adverse Effect
upon the business of Diginet as currently conducted.
6.2. Certificate or Articles of Incorporation
Diginet furnished or has caused to be furnished to the Company a true
and complete copy of its Organizational Documents, as currently in effect,
certified as of a recent date by the Governmental Body with which such
Organizational Documents are filed, or if no such filings are made, certified by
its corporate secretary (collectively the "Diginet Organizational Documents").
----------------------------------
Such certified copies are attached as Schedule 6.2.
------------
6.3. Authority; Enforceability; No Conflict
(a) Diginet has the necessary corporate power and authority to own,
operate and lease its Assets, to carry on its business as currently conducted,
to enter into this Agreement and each of the other agreements, certificates or
other instruments required to be delivered by Diginet at or prior to Closing
(the "Diginet Closing Documents"), to perform its obligations hereunder and
-------------------------
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by Diginet of this Agreement and each of the Diginet
Closing Documents and the consummation by Diginet of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
Diginet or its shareholders are necessary to authorize Diginet to execute and
deliver this Agreement or any of the Diginet Closing Documents or to consummate
the transactions contemplated hereby and thereby. This Agreement has been duly
executed and delivered by Diginet and constitutes a legal, valid and binding
obligation of Diginet, enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity. Each of the Diginet Closing Documents, when executed and
delivered by Diginet, shall have been duly executed and delivered by Diginet and
shall constitute a legal, valid and binding obligation of Diginet, enforceable
33
<PAGE>
in accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
(b) The execution and delivery of this Agreement by Diginet does not,
and the execution and delivery by Diginet of each of the Diginet Closing
Documents and the performance by Diginet of its obligations under this Agreement
and each of the Diginet Closing Documents will not, with or without the giving
of notice or the lapse of time or both, (i) conflict with or violate the Diginet
Organizational Documents, (ii) subject to obtaining the approvals and compliance
with the requirements set forth in Schedule 6.3(b), conflict with or violate any
---------------
Law or Order applicable to Diginet or by which any of its Assets is bound or
affected, or (iii) except as set forth in Schedule 6.3(b), result in any breach
---------------
of or constitute a default under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of an
Encumbrance on any of the Assets of Diginet pursuant to, any Agreement to which
Diginet is a party or by which Diginet or any of its Assets is bound or
affected.
(c) The execution and delivery of this Agreement by Diginet does not,
and the execution and delivery of each of the Diginet Closing Documents and the
performance of this Agreement and each of the Diginet Closing Documents by
Diginet will not, require any Consent of any Person except as set forth in
Schedule 6.3(c).
- ---------------
6.4. Capitalization
The authorized capital stock of Diginet consists of: (a) four hundred
million (400,000,000) shares of common stock, par value $.0001 per share
("Diginet Common Stock"), of which twenty million seven hundred thirty-six
thousand one hundred forty-seven (20,736,147) shares are issued and outstanding;
(b) sixty million (60,000,000) shares of non-voting common stock, par value
$.0001 per share, of which no shares are issued and outstanding; (c) one hundred
one million seven hundred fifty thousand (101,750,000) shares of Class A
preferred stock, par value $.0001 per share, of which: (i) sixty-nine million
two hundred fifty thousand (69,250,000) shares are shares of Series A-1 Voting
Preferred Stock, of which thirty- four million one hundred fifty-seven thousand
seven hundred eighty-three (34,157,783) shares are issued and outstanding; (ii)
nineteen million two hundred fifty thousand (19,250,000) shares are shares of
Series A-1 Non-Voting Preferred
34
<PAGE>
Stock, of which twelve million nine hundred sixty-six thousand thirty seven
(12,966,037) shares are issued and outstanding; and (iii) thirteen million two
hundred fifty thousand (13,250,000) shares are shares of Series A-2 Preferred
Stock, of which nine million four hundred twenty thousand seven hundred thirty
four (9,420,734) shares are issued and outstanding; and (d) two hundred one
million two hundred thousand (201,200,000) shares of Class B preferred stock,
par value $.0001 per share, of which: (i) one hundred ten million (110,000,000)
shares are shares of Series B-1 Voting Preferred Stock, of which one hundred
seven million three hundred ninety-one thousand two hundred sixty-seven
(107,391,267) shares are issued and outstanding; (ii) forty-two million seven
hundred thousand (42,700,000) shares are shares of Series B-1 Non-Voting
Preferred Stock, of which thirty-two million seventeen thousand three hundred
forty-four (32,017,344) shares are issued and outstanding; and (iii) forty-eight
million five hundred thousand (48,500,000) shares are shares of Series B-2
Preferred Stock, of which forty-six million four hundred nineteen thousand eight
hundred sixty (46,419,860) shares are issued and outstanding. All of the issued
and outstanding shares of capital stock of Diginet have been duly authorized,
are validly issued, fully paid and nonassessable. In addition, (A) twenty one
million nine hundred sixty-four thousand four hundred thirty-seven (21,964,437)
shares are reserved for issuance pursuant to outstanding options to purchase
shares of Diginet Common Stock granted to employees and certain other Persons;
(B) two million three hundred three thousand three hundred thirty-eight
(2,303,338) shares of Series A-2 Preferred Stock are reserved for issuance upon
the exercise of warrants issued by Diginet pursuant to warrant purchase
agreements with shareholders; (C) four million thirty four thousand four hundred
eighty-nine (4,034,489) shares of Series B-1 Voting Preferred Stock are reserved
for issuance upon the exercise of warrants issued by Diginet pursuant to that
certain Stock Purchase and Warrant Agreement, dated as of April 16, 1999. No
shares of Diginet capital stock are held in the treasury of Diginet. Except as
set forth in this Section 6.4, no shares of capital stock are reserved for any
purpose and there are no options, warrants or other rights or Agreements of any
character relating to the issued or unissued capital stock of Diginet or
obligating Diginet to issue or sell any shares of capital stock of, or other
equity interests in, Diginet, including any securities directly or indirectly
convertible into or exercisable or exchangeable for any capital stock or other
equity securities of Diginet. Except as set forth in Schedule 6.4, there are no
------------
outstanding obligations of Diginet to repurchase, redeem or otherwise acquire
any shares of its capital stock or make any investment (in the form of a loan,
capital contribution or otherwise) in any other Person. The Diginet Stock,
when issued, will be duly authorized, validly issued, fully paid and
non-assessable.
6.5. Brokers or Finders
Except as set forth on Schedule 6.5, there are no Claims for, and
Diginet has not entered into any arrangement or agreement obligating it to pay
35
<PAGE>
any, brokerage commissions, finders fees or similar compensation in connection
with the transactions contemplated by this Agreement.
6.6. Disclosure
No representation or warranty by Diginet in this Agreement, and no
statement by Diginet in any Exhibit or the Disclosure Schedules, contains any
untrue or misleading statement or omits any material fact necessary to make the
statements herein or therein, in light of the circumstances in which they were
made, not misleading.
7. COVENANTS OF COMPANY AND THE SELLERS
Each Seller, jointly and severally, covenants and agrees:
7.1. Access and Investigation
Between the date of this Agreement and the Closing Date, the Company
will, and will cause the Company's Representatives to, and Sellers will, and
will cause the Company and the Company's Representatives to, (i) afford Buyer
and its Representatives and prospective lenders and their Representatives
(collectively, "Buyer's Advisors") full and complete access to the Company's
----------------
Assets, personnel, properties, contracts, books and records, and other documents
and data, (ii) furnish Buyer and Buyer's Advisors with copies of all such
contracts, books and records, and other existing documents and data as Buyer may
reasonably request, and (iii) furnish Buyer and Buyer's Advisors with such
additional financial, operating, and other data and information with respect to
Sellers or the Company as Buyer may reasonably request.
7.2. Operation of the Business of the Company
Between the date of this Agreement and the Closing Date, except (i) as
consented to by Buyer in writing or (ii) as contemplated by this Agreement, the
Company will, and will cause the Company's Representatives to, and Sellers will
cause the Company to:
(a) maintain itself at all times as a corporation duly organized and
validly existing under the laws of the Republic of Argentina;
(b) subject to the restrictions set forth in this Agreement, carry on
its business and operations in the Ordinary Course of Business as heretofore
conducted;
36
<PAGE>
(c) not engage in any activity or transaction or make any commitment
to purchase or spend, other than in the Ordinary Course of Business as
heretofore conducted, or repay any indebtedness (including, but not limited to,
operating or capital lease obligations) except in accordance with the scheduled
payment terms thereof or as required under Section 7.6, or enter into any new
indebtedness for borrowed money or the deferred purchase of assets or services
or any operating or capital lease arrangements;
(d) not declare, authorize or pay any distribution or dividend to its
shareholders and not grant, issue, redeem, purchase, or otherwise acquire, or
agree to grant, issue, redeem, purchase, or otherwise acquire, any shares of its
stock or other securities (including, without limitation, stock options);
(e) not pay or obligate itself to pay any compensation, commission, or
bonus to any director or employee as such, except for the regular compensation
and commissions payable to such director or employee at the rate in effect on
the date of this Agreement or otherwise in the Ordinary Course of Business, and
not hire any employee or independent contractor;
(f) continue to carry all of its existing insurance;
(g) use its best efforts to preserve the business organization of the
Company intact, keep available to Buyer the services of the Company's employees
and independent contractors and preserve for the Buyer the Company's
relationships with suppliers, licensees, distributors, and customers and others
having business relationships with the Company;
(h) not, and not obligate itself to, sell or otherwise dispose of or
pledge or otherwise encumber any of its Assets;
(i) maintain its facilities, machinery, and equipment in good
operating condition and repair, subject only to ordinary wear and tear;
(j) not enter into any agreement or understanding with any employee,
director, or shareholder of the Company or any Affiliate of any of the foregoing
where the value of any such items taken together would, in the aggregate, exceed
the Argentine Peso equivalent of U.S. $5,000 as of the date of the execution of
this Agreement;
(k) not take any action that may reasonably be expected to violate any
Law;
(l) not commit any act or omit to do any act, or not engage in any
activity or transaction or incur any obligation ( by conduct or otherwise), that
(individually or in the aggregate) reasonably could be expected to have a
Material Adverse Effect on the Company;
37
<PAGE>
(m) not take any action after the date hereof which would cause any
representation, warranty or covenant contained in this Agreement to be or become
incorrect or incapable of being performed; and
(n) without limiting the foregoing, to consult with the Buyer
regarding all significant developments, transactions, and proposals relating to
its business prior to taking any action with respect thereto.
7.3. Required Consents and Approvals
As promptly as practicable after the date of this Agreement, the
Company will and the Sellers will, and will cause the Company to, make all
filings required by applicable Laws to be made by any of them in order to
consummate the transactions contemplated hereby. Between the date of this
Agreement and the Closing Date, Sellers will, and will cause the Company to, (a)
cooperate with Buyer with respect to all filings that Buyer elects to make or is
required by applicable Laws to make in connection with the transactions
contemplated by this Agreement, and (b) cooperate with Buyer in obtaining all
Required Seller Consents.
7.4. Notification
Between the date of this Agreement and the Closing Date, the Company
and each Seller will promptly notify Buyer in writing if the Company or such
Seller becomes aware of any fact or condition that causes or constitutes a
breach of any of the Company or any Seller's' representations and warranties
contained herein, or if the Company or such Seller becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. During the same period, the Company and each Seller will promptly
notify Buyer of the occurrence of any breach of any covenant of the Company or
any Sellers in this Agreement or of the occurrence of any event that may make
the satisfaction of the conditions in Section 9 impossible or unlikely.
7.5. Liability for Taxes
Each Seller shall be responsible for all securities transaction Taxes
arising out of or in connection with the transactions contemplated hereby.
7.6. Payment of Indebtedness
The Company will, and each Seller will cause the Company to, (a) pay
in full prior to the Closing Date all indebtedness of the Company other than
trade payables incurred in the Ordinary Course of Business. Each Seller shall
38
<PAGE>
pay, and shall cause any of his Affiliates to pay, in full prior to the Closing
Date, all indebtedness owed by him or any such Affiliate to the Company.
7.7. No Inconsistent Negotiations
The Company shall not (and shall not permit or authorize any Person
acting on its behalf to) and Seller shall not, (and shall not permit or
authorize the Company or any director, officer, employee or other agent of a
Seller or the Company, to), directly or indirectly, solicit, initiate, or
encourage any inquiries or proposals from, discuss or negotiate with, provide
any non-public information to, or consider the merits of any unsolicited
inquiries or proposals from, any Person (other than Buyer) relating to any
transaction involving the sale of the business or Assets (other than in the
Ordinary Course of Business) of the Company, or any of the capital stock of the
Company, or any merger, consolidation, business combination, or similar
transaction involving the Company. The Company and each Seller shall promptly
inform Buyer about any such inquiry or proposal received by it or him.
7.8. Litigation Assistance
In order to assist Buyer and the Company in its resolution of all
actions, claims, demands, suits, proceedings, arbitrations, grievances,
citations, summons, subpoenas, inquiries, or investigations of any nature,
whether made or initiated before or after the Closing Date, with respect to any
fact, circumstance, situation condition, occurrence or event in connection with
the Company's business or Assets (the "Claims"), after the Closing Date, each
Seller shall cooperate and provide such assistance as reasonably requested by
the Company. Such cooperation shall include, but not be limited to, making
himself reasonably available in order to investigate, defend and resolve the
Claims, dealing the Persons making such Claims and working with the applicable
insurance carrier.
7.9. Non-Competition
In partial consideration of the payment of the Purchase Price, each
Seller agrees that, from and after the Closing Date and until the third
anniversary thereof, he will not, whether personally, through a third party,
or as a stockholder or consultant to another entity, participate in, provide
services to, or enter into any other arrangements with, any Person that
provides services that are in competition with the current business of the
Company or Buyer (the "Covenant Not to Compete").
-----------------------
39
<PAGE>
8. COVENANTS OF BUYER PRIOR TO CLOSING DATE
8.1. Required Consents and Approvals
As promptly as practicable after the date of this Agreement, Buyer
will make all filings required by applicable Laws to be made by the Buyer in
order to consummate the transactions contemplated by this Agreement. Between
the date of this Agreement and the Closing Date, Buyer will (a) cooperate with
the Company and the Sellers with respect to all filings that the Company and the
Sellers elect to make or are required by applicable Laws to make in connection
with the transactions contemplated by this Agreement, and (b) cooperate with the
Company and the Sellers in obtaining all Required Buyer Consents.
9. COVENANTS OF ALL PARTIES PRIOR TO CLOSING DATE
9.1. Further Action
Each of the parties hereto shall use all reasonable efforts to take,
or cause to be taken, all appropriate action, do or cause to be done all things
necessary, proper or advisable under applicable Laws, and execute and deliver
such documents and other papers, as may be required to carry out the provisions
of this Agreement and consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, delivering, or
causing to be delivered, the certificates, opinions and other documents to be
delivered to each other party as a condition to such other party's obligations
under Articles 10 and 11 of this Agreement.
9.2. Publicity
Neither the Company nor the Sellers, on the one hand, nor Buyer, on
the other hand, shall announce or disclose publicly the terms or provisions
hereof or the transactions contemplated hereby without the prior written
approval of the other, except as such disclosure may be required by applicable
Law (subject to giving the parties notice as promptly as possible of the
intention to make such disclosure and providing the parties an opportunity to
review the wording of such disclosure) and except that this provision shall not
prohibit any party from disclosing such terms or provisions to its attorneys,
accountants, lenders, bankers, financial advisors or any other advisor or
consultant provided any such Person to whom such terms or provisions are
disclosed agrees to keep such information confidential.
40
<PAGE>
10. CONDITIONS PRECEDENT TO BUYER'S and diginet's OBLIGATION TO CLOSE
Buyer's and Diginet's obligation to purchase the Ordinary Shares and
to take the other actions required to be taken by Buyer and Diginet at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer or Diginet, in
whole or in part):
10.1. Satisfaction with Due Diligence
Buyer shall not have given notice to Sellers of its desire to
terminate this Agreement pursuant to Section 13.1(b).
10.2. Representations and Warranties
The representations and warranties made by the Company and each Seller
in this Agreement and the statements contained in the Disclosure Schedules and
Exhibits attached hereto or in any document furnished by the Company and the
Sellers pursuant to this Agreement shall be true and complete when made, and on
and as of the Closing Date as though such representations and warranties were
made on and as of such date, except for any changes expressly permitted by this
Agreement. Buyer shall have received a certificate of each Seller and of the
Chief Executive Officer of the Company, dated the Closing Date, to that effect.
10.3. Company's and Sellers' Performance
The Company and each Seller shall have performed or complied with all
covenants, acts and obligations required by this Agreement, which are to be
performed or to be complied with by it or him at or prior to the Closing Date,
including without limitation the covenants set forth in Section 7.6. Buyer
shall have received a certificate of each Seller and of the Chief Executive
Officer of the Company, dated the Closing Date, to that effect.
10.4. Consents
Buyer shall have obtained each of the Consents identified in Schedule
--------
10.4 (the "Required Buyer Consents") must have been obtained and must be in full
- ---- -----------------------
force and effect.
10.5. Key Customer Contracts
The Company shall have entered into binding service contracts with
each of the Key Customers (the "Key Customer Contracts"), in each case with a
----------------------
term of at least two years in the form of Exhibit J attached hereto.
---------
41
<PAGE>
10.6. Employment Agreements
Lissandrello shall have executed and delivered to Buyer an employment
or consulting agreement in the form of Exhibit E-1, Rafael Ibanez shall have
-----------
executed and delivered to Buyer an employment or consulting agreement in the
form of Exhibit E-2 and Flavio Villanustre shall have executed and delivered to
-----------
Buyer an employment or consulting agreement in the form of Exhibit E-3
-----------
(collectively, the "Employment Agreements").
---------------------
10.7. INEA Stockholders Agreement
Each Seller shall have executed and delivered to Buyer the INEA
Stockholders Agreement in the form of Exhibit F (the "INEA Stockholders
--------- -----------------
Agreement").
- ---------
10.8. Assignment of Intellectual Property Rights
Flavio Villanustre and the Company shall have entered into an
agreement, in form and substance satisfactory to the Company, pursuant to which
(i) he is obligated to disclose and transfer to the Company without the receipt
of any additional value (other than normal salary or fees for consulting
services) all inventions, developments and discoveries, including without
limitation any Software, which, during the period of employment with or
performance of services for the Company, he makes or made or conceives or
conceived prior to or after the date of the execution of the agreement, either
solely or jointly with others, that relate to any subject matter with which his
work for the Company may be concerned, or relate to or are connected with the
Company's business, products or projects, or involve the use of the time,
materials or facilities of the Company and (ii) he is obligated to maintain the
confidentiality of all proprietary information of the Company regardless of when
such information is or was disclosed to him.
10.9. Escrow Agreement
Each of the Sellers and the Escrow Agent shall have executed and
delivered to Buyer the Escrow Agreement.
10.10. Legal Opinions
The Sellers shall have delivered to Buyer and Diginet the opinions of
Vitale, Manoff, Feilbogen, counsel to the Company and Sellers, in the form of
Exhibit G.
- ---------
42
<PAGE>
10.11. No Proceedings
No Proceedings shall have been commenced against Buyer, Diginet, the
Company or any Seller (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the transactions contemplated hereby or
(b) that, in the good faith judgment of Buyer, may have the effect of
preventing, delaying, making illegal, or otherwise interfering materially with
any of the transactions contemplated hereby and no Order of any Governmental
Body or arbitrator shall be in effect which enjoins, restrains or prohibits the
consummation of the transactions contemplated hereby.
10.12. No Material Adverse Change
No event, occurrence, fact, condition, change, development or effect
shall have occurred, existed or come to exist since the date of this Agreement
that, individually or in the aggregate, has constituted or resulted in, would
reasonably be likely to result in, a Company Material Adverse Effect on the
Company.
10.13. Resignations of Directors and Executive Officers
Buyer shall have received the written resignations of all of the
members of the Board of Directors and all of the executive officers of Company
(each effective as of the Closing).
11. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE
Sellers' obligation to sell the Ordinary Shares and to take the other
actions required to be taken by Sellers at the Closing is subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Sellers, in whole or in part):
11.1. Representations and Warranties
The representations and warranties made by Buyer and Diginet in this
Agreement and the statements contained in the Disclosure Schedules and Exhibits
attached hereto or in any document furnished by Buyer and Diginet pursuant to
this Agreement shall be true and complete when made, and on and as of the
Closing Date as though such representations and warranties were made on and as
of such date, except for any changes expressly permitted by this Agreement.
Sellers shall have received a certificate of the Chief Executive Officers of
each of Buyer and Diginet, dated the Closing Date, to that effect.
43
<PAGE>
11.2. Buyer's and Diginet's Performance
Buyer and Diginet shall have performed or complied with all covenants,
acts and obligations and conditions required by this Agreement, which are to be
performed or complied with by it at or prior to the Closing Date. Sellers shall
have received a certificate of the Chief Executive Officer of each of Buyer and
Diginet, dated the Closing Date, to that effect.
11.3. Consents
Each of the Consents identified in Schedule 11.3 (the "Required
------------- --------
Seller Consents") must have been obtained and must be in full force and effect.
- ---------------
11.4. Employment Agreement
Buyer shall have authorized the execution and delivered by the Company
to Lissandrello of his Employment Agreement.
11.5. INEA Stockholders Agreement
Diginet shall have executed and delivered to the Sellers the INEA
Stockholders Agreement.
11.6. Promissory Notes
Buyer shall have executed and delivered to Sellers the Promissory
Notes.
11.7. Guarantees
Diginet shall have executed and delivered to each Seller a Guarantee
in the form of Exhibit H (a "Guarantee").
--------- ---------
11.8. Legal Opinions
Buyer and Diginet shall have delivered to Sellers the opinion of
Cibils, Castro Cranwell & Boneo Villegas, counsel to Buyer, in the form of
Exhibit I-1, and the opinion of Hogan & Hartson, L.L.P., counsel to Buyer and
- -----------
Diginet, in the form of Exhibit I-2.
-----------
11.9. No Proceedings
No Proceeding shall have been commenced against Buyer, Diginet, the
Company or any Seller (a) involving any challenge to, or seeking damages or
44
<PAGE>
other relief in connection with, any of the transactions contemplated hereby or
(b) that, in the good faith judgment of Sellers, would likely have the effect of
preventing, delaying, making illegal, or otherwise interfering materially with
any of the transactions contemplated hereby and no Order of any Governmental
Body or arbitrator shall be in effect which enjoins, restrains or prohibits the
consummation of the transactions contemplated hereby.
12. INDEMNIFICATION; REMEDIES
12.1. Reliance on and Survival of Representations and Warranties
(a) Notwithstanding any investigation by Buyer or Diginet, or any
information obtained pursuant thereto, Buyer and Diginet shall be entitled to
rely upon the representations and warranties of the Company and Sellers
contained in this Agreement or any other agreement, document, certificate,
exhibit, or other instrument delivered pursuant hereto, and upon their
respective representations at Closing as to compliance with or performance of
any covenants made by it herein or therein and as to satisfaction of any
conditions precedent to the obligations of Buyer or Diginet.
(b) All representations and warranties contained in this Agreement
and any certificate or document delivered pursuant to this Agreement shall
survive the Closing for a period of two (2) years following the Closing Date.
Notwithstanding the foregoing, (i) the representations and warranties set
forth in Sections 3.10, 3.12, 3.13, 3.14, 3.21, and 4.6 shall survive the
Closing for a period of ending one (1) year following the expiration of the
statute of limitations (including extensions) applicable to any indemnified
liability with respect thereto, or in the case of the representations and
warranties set forth in Section 3.10, the final determination of (and the
expiration of time to appeal) any audit, examination, investigation or
other proceeding relating to Taxes covered by, or any claim under, Section
3.10, if later, and (ii) the representations and warranties set forth in
Section 4.2 shall survive the Closing indefinitely. The applicable period
of survival of each representation and warranty contained in this Agreement
is referred to herein as the "Survival Period." Any claim or cause of
---------------
action based upon or arising out of a breach of a representation or
warranty made hereunder must be made within the Survival Period applicable
thereto or the party against which such claim is made shall have no
liability with respect thereto. Nothing combined in this Section, however,
shall affect the obligations of any party to perform the agreements and
covenants to be performed on its part hereunder or in connection herewith
either before or after the Closing Date.
12.2. Sellers Indemnification Obligations
(a) Subject to the provisions of this Section 12, Sellers hereby
jointly and severally agree to indemnify and hold harmless Buyer, Diginet, the
Company and their Affiliates, Representatives and stockholders (collectively,
45
<PAGE>
the "Buyer Indemnified Persons") from and against any and all costs, expenses,
-------------------------
losses, interest charges, penalties, damages or other liabilities or
obligations, including reasonable attorneys' fees (collectively, "Buyer
-----
Damages") incurred by any Buyer Indemnified Person, directly or indirectly,
- -------
by reason of, resulting from or relating to (i) any breach of any
representation or warranty, or breach or violation of any of the covenants
or agreements of the Company or any Seller in this Agreement or any Company
Closing Document or any Seller Closing Document or (ii) any Tax liability
of INEA S.R.L.
(b) Sellers hereby irrevocably waive any and all right to recourse
against the Company with respect to any indemnification obligations of Sellers
under this Section 12, including, without limitation and right to contribution
from, subrogation to or recovery against the Company with respect to any
such obligations.
12.3. Buyer and Diginet Indemnification Obligations
Subject to the conditions and provisions of this Section 12, Buyer and
Diginet hereby joint and severally agree to indemnify, defend and hold harmless
Sellers and their respective Representatives (collectively, the "Seller
------
Indemnified Persons") from and against any and all costs, expenses, losses,
- -------------------
interest charges, penalties, damages or other liabilities or obligations,
including reasonable attorneys fees (collectively, "Seller Damages") incurred by
--------------
any Seller Indemnified Person, directly or indirectly, by reason of or resulting
from any breach of any representation or warranty, or breach or violation of any
covenants or agreements of Buyer or Diginet in this Agreement, any Buyer Closing
Document or any Diginet Closing Document.
12.4. Conditions of Indemnification
The obligations and liabilities of Sellers, Buyer and Diginet under
this Section 11 shall be subject to the following terms and conditions:
(a) The indemnified party shall give prompt written notice to the
indemnifying party of any Proceeding or other event which may give rise to
liability of the indemnifying party pursuant to this Section 12 (an "Indemnity
---------
Claim"); provided, however, that failure to give such notice shall not relieve
- -----
the indemnifying party of its obligations hereunder unless the indemnifying
party shall have suffered actual material damage as a result of such failure.
(b) With respect to Indemnity Claims involving matters asserted by
third parties, the indemnified party may engage representatives of its own
choosing with respect to any such Indemnity Claim, such representation
(including the compromise or settlement of any such Indemnity Claim) to be
undertaken on behalf of and for the account and risk of the indemnifying party.
In the event the indemnified party elects not to undertake such defense by its
own Representatives, the indemnified party shall give prompt written notice of
46
<PAGE>
such election to the indemnifying party, and the indemnifying party will
undertake the defense (including the compromise or settlement) thereof by
Representatives designated by it whom the indemnified party determines in
writing to be satisfactory for such purposes. The consent of the indemnified
party to the indemnifying party's choice of counsel or other representative
shall not be unreasonably withheld. No party shall compromise or settle an
Indemnity Claim without the written consent of the other relevant party, which
consent shall not be unreasonably withheld, conditioned or delayed.
(c) With respect to an Indemnity Claim not involving a third
party, if the indemnifying party objects to such Indemnity Claim the
indemnifying party shall give the indemnified party written notice thereof
within fifteen (15) days following his or its receipt of notice of an
Indemnity Claim pursuant to Section 12.4(a) stating the basis for such
indemnifying party's objection. Failure to give such notice shall constitute
acceptance by the indemnifying party of such Indemnity Claim. In the event
the indemnified party and the indemnifying party are unable to resolve their
dispute within thirty (30) days following the receipt by the indemnified
party's notice of the indemnifying party's objection to such Indemnity Claim,
the parties shall submit their dispute to binding arbitration (i) to be held
in New York, New York pursuant to the Commercial Arbitration Rules of the
International Chamber of Commerce by three arbitrators appointed in
accordance with such rules, if the value of the disputed Indemnity Claim is
greater than or equal to U.S. $200,000 or (ii) to the Arbitration Tribunal
of the Mercantile Exchange for the City of Buenos Aires pursuant to the
rules of such tribunal by a three person panel appointed in accordance with
such rules, if the value of such disputed Indemnity Claim is less than U.S.
$200,000. English shall be the language of any arbitration which takes
place in New York and Spanish shall be the language of any arbitration
which takes place in Buenos Aires. Costs of the arbitration shall be
shared equally by the parties and each party shall pay its own attorneys'
fees and other expenses, except that the arbitrators may impose all or part
of the defending party's costs, fees and expenses against the party
bringing a claim if the arbitrators determine that there was no reasonable
basis for pursuing such a claim. All testimony shall be transcribed, and
any award shall be accompanied by written findings of fact and a written
statement of reasons for the decision.
12.5. Limitations on Liability
(a) No amount shall be payable in indemnification by any
indemnifying party under this Section 12 unless the aggregate Buyer Damages
suffered by the Buyer Indemnified Persons or the Aggregate Seller Damages
suffered by the Seller Indemnified Persons, as applicable, in respect of which
such indemnifying party would be liable under this Section 12 exceed Fifty
Thousand Dollars ($50,000) (the "Deductible"); provided however that, the
---------- -------- -------
Deductible shall not apply to (i) any claim based upon any
misrepresentation or breach of a representation or warranty which was
actually known to be untrue by the indemnifying party when made or asserted,
(ii) any claim for indemnity with respect to Taxes or (iii) any claim for
47
<PAGE>
indemnity under Section 4.7 or Section 5.4. In the event Aggregate Buyer
Damages or Aggregate Seller Damages, as applicable, exceed the Deductible,
the indemnified party shall be entitled to seek indemnification for all
Buyer Damages or Seller Damages, as applicable, in excess thereof.
(b) Except with respect to Indemnity Claims arising out of any
breach of any representation and warranty set forth in Section 3.10, 3.12,
3.13, 3.21 or 4.2, the aggregate indemnification payable in each case by
Sellers, on the one hand, and by Buyer and Diginet, on the other hand, shall
not exceed the Purchase Price.
12.6. Escrow; Right of Set-off
Upon notice to Sellers specifying in reasonable detail the basis for
such set-off, Buyer may set off any amount to which it may be entitled under
this Section 12 against amounts otherwise payable under the Promissory Notes or
may give notice of a claim for such amount under the Escrow Agreement. The
exercise of such right of set-off by Buyer in good faith, whether or not
ultimately determined to be justified, will not constitute an event of default
under the Promissory Notes or any instrument securing a Promissory Note.
Neither the exercise of nor the failure to exercise such right of set-off or to
give a notice of a claim under the Escrow Agreement will constitute an election
of remedies or limit Buyer in any manner in the enforcement of any other
remedies that may be available to it.
12.7. Exclusive Remedy
The parties acknowledge that, except in the case of fraud, their sole
remedy after the Closing for any breach of any representation or warranty
contained in this Agreement shall be the indemnification provisions set forth in
this Section 12. Notwithstanding the foregoing, nothing herein shall be
construed or interpreted as limiting or impairing the rights or remedies that
any party hereto may have at equity, including, but not limited to, specific
performance and injunctive relief, where available.
13. TERMINATION
13.1. Termination Events
This Agreement may be terminated:
(a) by mutual consent of Buyer and Sellers;
(b) by Buyer, upon written notice to Sellers at any time prior to
the Closing, if Buyer, in its reasonable discretion, is not satisfied with the
results of its due diligence investigation of Sellers, the Company or of INEA
S.R.L. (as described in Section 2.6).
48
<PAGE>
(c) by Buyer, upon written notice, to Sellers, if there has been a
breach by the Company or any Seller of any of its or his respective
representations, warranties, covenants or agreements contained herein, or any
such representation or warranty shall have become untrue, in any such case such
that any of the conditions set forth in Article 10 will not be satisfied,
and such breach or condition has not been cured within ten days following
receipt by the breaching party of written notice of such breach;
(d) by Sellers upon written notice to Buyer if there has been a
breach by Buyer or Diginet of any of its respective representations,
warranties, covenants or agreements contained herein, or any such representation
or warranty shall have become untrue, in any such case such that any of the
conditions set forth in Article 11 will not be satisfied, and such breach or
condition has not been cured within ten days following receipt by the breaching
party of written notice of such breach.
(e) by either Buyer or Sellers if the Closing has not occurred
(other than through the failure of any party seeking to terminate this Agreement
to comply fully with its obligations under this Agreement) on or before April
30, 2000, or such later date as the parties may agree upon.
13.2. Effect of Termination
If this Agreement is terminated pursuant to Section 13.1, this
Agreement shall forthwith become wholly void and of no effect, and the parties
shall be released from all future obligations hereunder; provided, however, that
the obligations in Sections 14.1 and 14.2 shall not be extinguished but shall
survive such termination; provided further, however, that if this Agreement is
-------- -------
terminated by a party because of the breach of this Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired. In
the event of any termination of this Agreement, Buyer shall notify the Secretary
of Communications of Argentina thereof and take such other actions reasonably
required to withdraw any pending application with such Secretary for consent to
a change of control of the Licenses as a result of the transactions contemplated
by this Agreement.
14. GENERAL PROVISIONS
14.1. Expenses
Except as otherwise expressly provided in this Agreement, each party
to this Agreement will bear its respective expenses incurred in connection with
the preparation, execution, and performance of this Agreement and the
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<PAGE>
transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Sellers will cause the Company not to incur any out-
of-pocket expenses in connection with this Agreement. In the event of
termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a breach of
this Agreement by another party.
14.2. Confidentiality
Between the date of this Agreement and the Closing Date, Buyer,
Diginet, the Company and Sellers will maintain in confidence, and will cause the
directors, officers, employees, agents, and advisors of Buyer and the Company to
maintain in confidence, and not use to the detriment of another party or the
Company any written, oral, or other information obtained in confidence from
another party or the Company in connection with this Agreement or the
transactions contemplated hereby, unless (a) such information is already known
to such party or to others not bound by a duty of confidentiality or such
information becomes publicly available through no fault of such party, (b) the
use of such information is necessary or appropriate in making any filing or
obtaining any consent or approval required for the consummation of the
transactions by this Agreement, or (c) the furnishing or use of such information
is required by legal proceedings. If the transactions contemplated by this
Agreement are not consummated, each party will return or destroy as much of such
written information as the other party may reasonably request.
14.3. Notices
All notices, demands, requests, or other communications which may be
or are required to be given, served, or sent by any party to any other party
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given when (a) delivered by hand (with written confirmation of receipt),
(b) sent by facsimile transmission (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received or refused by the addressee, if sent by a nationally or
internationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and facsimile numbers set forth below (or
to such other addresses and facsimile numbers as a party may designate by notice
to the other parties):
(i) if to Buyer or Diginet and, after the Closing, to the Company:
Diginet Americas, Inc.
3201 New Mexico Avenue, N.W.
Suite 320
Washington, D.C. 20016
United States of America
Attention: David Rutchik, EVP, Corporate Development
& General Counsel
Facsimile: (202) 237-9830
50
<PAGE>
with a copy (which shall not constitute notice) to:
Hogan & Hartson L.L.P.
Columbia Square
555 Thirteenth Street, N. W.
Washington, D.C. 20008
United States of America
Attention: Lorraine Sostowski
Facsimile: (202) 637-5910
(ii) if to Sellers:
(a) Lissandrello:
Pedro Ernesto Lissandrello
Yapeyu 937
Buenos Aires
Republic of Argentina
Facsimile: 43427544
(b) Ortega:
Roberto Anibal Ortega
Calle 31 na 3939
Berazategui (RNP)
Buenos Aires
Republic of Argentina
Facsimile: 43427544
(c) Fernandez:
Jorge Luis Fernandez
Calle Ismael Moreno 630 de Sarandi
Partido de Avellaneda
Buenos Aires
Republic of Argentina
Facsimile: 43427544
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<PAGE>
(iii) if to the Company:
INEA INTERNET S.A.
Rivadavia 755, Piso 1
Departamento A
Capital Federal
Buenos Aires, Argentina
Attention: President
Facsimile:_________________
with a copy, in the case of each Seller and, prior to the Closing, the
Company (which shall not constitute notice) to:
Vitale, Manoff, Fleibogen
Viamonte 1145, 10 "A" floor
Buenos Aires
Argentina
Attention: Saul Feilbogen
Facsimile: 43716349
Each party may designate by notice in writing a new address to which
any notice, demand, request or communication may thereafter be so given, served
or sent. Each notice, demand, request, or communication which shall be hand
delivered, sent or mailed, in the manner described above, shall be deemed
sufficiently given, served, sent, received or delivered for all purposes at such
time as it is delivered to the addressee (with the return receipt or the
delivery receipt being deemed conclusive, but not exclusive, evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
14.4. Jurisdiction; Service of Process
(a) By execution and delivery of this Agreement each of the Company,
each Seller, Buyer and Diginet hereby accepts and consents to the jurisdiction
of the courts of the United States of America and of the State of New York, for
itself and in respect of its property, and waives in respect of both itself and
its property any defense it may have as to or based on sovereign immunity,
jurisdiction, improper venue or inconvenient forum. Each of the Company, each
Seller, Buyer and Diginet hereby irrevocably consents to the service of any
process or other papers by the use of any of the methods and to the addresses
set for the giving of notices pursuant to this Agreement or as provided in
Section 14.3. Nothing herein shall affect the right of any of the Company, each
Seller, Buyer and Diginet to serve such process or papers in any other manner
permitted by law.
(b) The Company and each Seller hereby irrevocably designates CSC
Corporation (the "Process Agent"), with offices at the date of this Agreement at
-------------
80 State Street, Albany, New York 12207-2543, as its designee, appointee and
52
<PAGE>
agent to receive for and on its behalf, service of process in such jurisdiction
in any legal action or proceedings with respect to this Agreement, and such
service shall be deemed complete upon delivery thereof to the Process Agent,
provided that in the case of any such service upon the Process Agent, the party
effecting such service shall also deliver a copy thereof to each party in the
manner provided in Section 14.3. The Company and each Seller shall take all
such action as may be necessary to continue said appointment in full force and
effect or to appoint another agent, who will thereafter be referred to herein as
the "Process Agent," so that such party will at all times have an agent for
-------------
service of process for the above purposes in New York, New York. In the event
of the transfer of all or substantially all of the assets and business of the
Process Agent to any other Person by consolidation, merger, sale of assets or
otherwise, such other Person shall be substituted hereunder for the Process
Agent with the same effect as if named herein in place of CSC Corporation or
appointed in place of such other agent that may have been appointed. Nothing
herein shall affect the right of any party to serve process in any other manner
permitted by applicable law. Each party expressly acknowledges that the
foregoing waiver is intended to be irrevocable under the laws of the State of
New York and of the United States of America. The Process Agent must notify to
each of the Seller to the following adreess: Viamonte street 1145, 10 "A" floor,
Buenos Aires, Argentina, (1053)
14.5. Further Assurances
The parties agree (a) to furnish upon request to each other such
further information, (b) to execute and deliver to each other such other
documents, and (c) to do such other acts and things, all as the other party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the documents referred to in this Agreement.
14.6. Waiver
The rights and remedies of the parties to this Agreement are
cumulative and not alternative. Neither the failure nor any delay by any party
in exercising any right, power, or privilege under this Agreement or the Company
Closing Documents, the Seller Closing Documents, the Buyer Closing Documents or
the Diginet Closing Documents, as applicable, will operate as a waiver of such
right, power, or privilege, and no single or partial exercise of any such right,
power, or privilege will preclude any other or further exercise of such right,
power, or privilege or the exercise of any other right, power, or privilege. No
single or partial exercise of any such right, power or privilege shall preclude
the further exercise of such right, power or privilege, or the exercise of any
other right, power or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right arising out of this Agreement or the Company Closing
Documents, the Seller Closing Documents, the Buyer Closing Documents or the
Diginet Closing Documents, as
53
<PAGE>
applicable, can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party;
(b) no waiver that may be given by a party will be applicable except in the
specific instance for which it is given; and (c) no notice to or demand on one
party will be deemed to be a waiver of any obligation of such party or of the
right of the party giving such notice or demand to take further action without
notice or demand as provided in this Agreement or the Company Closing Documents,
the Seller Closing Documents, the Buyer Closing Documents or the Diginet Closing
Documents, as applicable.
14.7. Entire Agreement and Modification
This Agreement, including the Schedules and Exhibits hereto and
Company Closing Documents, the Seller Closing Documents, the Buyer Closing
Documents or the Diginet Closing Documents, as applicable, supersedes all prior
agreements between the parties with respect to its subject matter (including the
Letter of Intent between Buyer and Sellers dated January 3, 2000) and
constitutes the entire agreement among the parties with respect to its subject
matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment.
14.8. Binding Effect
Subject to any provisions hereof restricting assignment, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, heirs, executors, administrators, legal
representatives and permitted assigns.
14.9. Assignment
No party may assign its rights or obligations hereunder without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld, conditioned, or delayed, except that (a) Diginet may
assign all of its rights and obligations hereunder in connection with a merger,
consolidation, or sale of all or substantially all of its Assets, (b) Buyer may
assign all of its rights and obligations hereunder to an Affiliate and (c)
Diginet and Buyer may assign all or any portion of its rights hereunder as
security for a loan.
14.10. Limitation on Benefits
The covenants, undertakings and agreements set forth in this
Agreement shall be solely for the benefit of, and shall be enforceable only by,
the parties hereto and their respective successors, heirs, executors,
administrators, legal representatives and permitted assigns, except that the
54
<PAGE>
agreements set forth in Section 12 also shall be for the benefit of, and
enforceable by, Buyer Indemnified Persons, Seller Indemnified Persons and their
respective successors, heirs, executors, administrators, legal representatives
or permitted assigns.
14.11. Severability
If any provision of this Agreement or any other Agreement or document
given pursuant or in connection with this Agreement shall be invalid or
unenforceable in any respect, such part shall be ineffective to the extent of
such invalidity or unenforceability only, without in any way affecting the
remaining parts of such provision or the remaining provisions of this Agreement.
14.12. Section Headings Construction; Gender
The headings of sections and subsections in this Agreement are
provided for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof. The parties
hereto acknowledge that all parties participated equally in the drafting and
negotiation of this Agreement and were represented by counsel of their own
choosing in connection therewith. Consequently, this Agreement shall be
construed without referencing to any rule of law which provides that ambiguities
in a contract are to be resolved against the drafter thereof. The use of the
neuter gender herein shall be deemed to include the masculine and the feminine
gender, if the context so requires.
14.13. Governing Law
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR
RULES OF CONFLICT OF LAWS TO THE EXTENT SUCH PRINCIPLES OR RULES WOULD REQUIRE
OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION.
14.14. Execution in Counterparts
This Agreement may be executed in one or more counterparts, each of
which may be executed by less than all the parties, each of which will be deemed
to be an original copy of this Agreement and all of which, when taken together,
will be deemed to constitute one and the same agreement.
55
<PAGE>
14.15. Specific Performance
In addition to any other remedies which any party may have at law or
in equity, each Seller, on the one hand, and Buyer and Diginet, on the other
hand, hereby acknowledges that the Ordinary Shares and, the Company, on the one
hand, and the Diginet Stock, on the other hand, are unique, and that the harm to
each Seller or Buyer and Diginet resulting from breaches by any party of its or
his respective obligations cannot be adequately compensated by damages.
Accordingly, each Seller, on the one hand, and Buyer and Diginet, on the other
hand, agree that each Seller and Buyer and Diginet shall have the right to have
all obligations, undertakings, agreements, covenants, and other provisions of
this Agreement specifically performed by the other parties, as the case may be,
and that each Seller or Buyer and Diginet, as the case may be, shall have the
right to obtain an order or decree of such specific performance in any of the
courts of the United States of America or the Republic of Argentina.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, or have caused this Agreement to be fully executed on their behalf,
as of the date first set forth above.
SELLERS: BUYER:
___________________________ DIVEO ARGENTINA S.A..
Pedro Ernesto Lissandrello.
By:___________________________
Name: Jaime Cibils
Robirosa
____________________________ Title: Chief Executive Officer
Roberto Anibal Ortega
_____________________________ DIGINET:
Jorge Luis Fernandez
DIGINET AMERICAS, INC.
COMPANY: By:
Name: David R.
Schmieg
INEA INTERNET S.A. Title: Chief Executive Officer
By: _________________________
Name: Pedro Lisandrello
Title: Chief Executive Officer
57
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
Forfeitable Number of Number of
Number of Cash Promissory Portion of Shares of Shares of
Ordinary Payment Note Promissory Diginet Escrowed Percentage
Name Shares Amount Amount Note Stock Stock Interest
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Lissandrello 4,000 $916,667 $933,333 $600,000 368,324 18,417 33-1/3%
Ortega 4,000 $916,667 $933,333 $600,000 368,324 18,417 33-1/3%
Fernandez 4,000 $916,667 $933,333 $600,000 368,324 18,417 33-1/3%
</TABLE>
58
<PAGE>
EXHIBIT D
---------
This outline briefly summarizes the relevant scope of the United States
("U.S.") Foreign Corrupt Practices Act ("FCPA") of 1977, as amended in 1988, and
related regulations; it is for informational purposes only and is not intended
as legal guidance.
1. General
-------
The FCPA consists basically of a prohibition against U.S. persons
engaging in bribery of foreign officials either directly or indirectly (through
the nationals or entities of other countries). It is a violation of the FCPA if
a U.S. company or individual corruptly and knowingly takes steps to offer, pay,
give or transfer anything of value to a foreign official, political party,
official of a foreign political party or candidate for foreign political office,
in order to influence any action in the person's official capacity, or to induce
the official to use his influence or to violate his lawful duty, so that the
U.S. firm or individual may obtain or retain business. This same prohibition
applies to the use of any intermediary who offers or pays such amounts to any of
the foregoing people. Further, one cannot avoid "knowledge" (and application of
the statue) by deliberately disregarding facts. Finally, even if a "sensitive"
or "facilitating" payment does not violate the FCPA, it still may result in
violation of other U.S. federal or state laws or laws of foreign countries in
which the company is operating, such as currency restrictions.
2. Exceptions and Exclusions.
-------------------------
(a) "Grease" payments.
----------------
It is not prohibited under the FCPA to make any "facilitating" or
"expediting" payment, the purpose of which is simply to expedite or to secure
the performance of a "routine governmental action". Therefore, a so-called
"grease" payment may be made to a foreign official of any status, but only if it
is for "routine governmental action", defined to mean that which is "ordinarily
and commonly performed without the exercise of discretion." This grease payment
exclusion does not exempt payments for governmental actions that are for the
functional equivalent of the award or retention of business.
(b) Legality under local written law.
--------------------------------
It is a defense under the FCPA to make payments which are "lawful
under the written laws and regulations" of the local country.
(c) Reasonable and bona fide expenditures.
-------------------------------------
It is also a defense under the FCPA to make payments that are directly
related to the promotion, demonstration, etc. of products or services, or the
59
<PAGE>
execution of an existing contract with a foreign government (such as for travel
and lodging expenses).
3. Penalties.
---------
The maximum fine for a U.S. corporation is two million dollars and one
hundred thousand dollars for individuals found to have violated the statute. If
criminal charges are pursued, the possibility for imprisonment is for a period
up to five years. Additionally, a civil penalty of ten thousand dollars per
violation may be imposed on corporations and individuals by the Department of
Justice. Further, an individual corporate employee may be convicted even if the
U.S. corporation has not been found to have violated the FCPA. Finally, a
violation of the antibribery provisions of the FCPA may result in a U.S.
government-wide suspension or debarment from participation in American funded
programs.
60
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Schedule 2.2
------------
Allocation of Purchase Price
The Purchase Price shall be allocated as follows: (i) Three Million U.S. Dollars
(US $3,000,000) to the Covenant Not to Compete and (ii) the balance to the
Ordinary Shares.
61
<PAGE>
Schedule 3.1
------------
Organization and Good Standing
1. Jurisdictions Outside Argentina Where the Company is Qualified to Do
Business.
2. Other Names Under Which the Company Has Conducted Business.
3. Subsidiaries and Other Entities in which the Company Holds an Equity
Interest.
62
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Schedule 3.2
------------
Certified Copies of Company
Organizational Documents
63
<PAGE>
Schedule 3.3(b)
---------------
Required Approvals under Applicable Law;
Agreements Violated by this Agreement
64
<PAGE>
Schedule 3.3(c)
---------------
Required Consents
65
<PAGE>
Schedule 3.5
------------
Financial Statements
66
<PAGE>
Schedule 3.7
------------
Undisclosed Liabilities
67
<PAGE>
Schedule 3.8
------------
Real Property; Title Exceptions
68
<PAGE>
Schedule 3.9
------------
Product or Service Warranties
69
<PAGE>
Schedule 3.11
-------------
Changes in the Company's Business
70
<PAGE>
Schedule 3.12
-------------
Employee Benefits
71
<PAGE>
Schedule 3.13
-------------
Non-Compliance with Laws; Governmental Authorizations
72
<PAGE>
Schedule 3.15
-------------
Litigation and Other Disputes
73
<PAGE>
Schedule 3.16
-------------
List of Contracts
74
<PAGE>
Schedule 3.18
-------------
Insurance
75
<PAGE>
Schedule 3.19
-------------
Employees
76
<PAGE>
Schedule 3.20
-------------
Labor Relations
77
<PAGE>
Schedule 3.21
-------------
Intellectual Property
78
<PAGE>
Schedule 3.24
-------------
Systems
79
<PAGE>
Schedule 3.25
-------------
Subscribers
80
<PAGE>
Schedule 4.1(b)
---------------
Approvals Needed by Sellers;
Agreements Breached by Sellers
Entering into this Agreement
81
<PAGE>
Schedule 4.1(c)
---------------
Consents to be Obtained by Sellers
82
<PAGE>
Schedule 5.2
------------
Certified Copies of Buyer Organization Documents
See attached.
83
<PAGE>
Schedule 5.3(b)
---------------
Approvals Required by Buyer; Agreements
Violated by Buyer Entering Into This Agreement
1. See Schedule 6.3(b).
84
<PAGE>
Schedule 5.3(c)
---------------
Consents Required by Buyer
1. See Schedule 6.3(b).
85
<PAGE>
Schedule 5.4
------------
Buyer's Obligations For Broker's Fees
None
86
<PAGE>
Schedule 6.1
------------
Jurisdictions in which Diginet
is Qualified to Do Business
1. District of Columbia
2. New York
3. Missouri
87
<PAGE>
Schedule 6.2
------------
Diginet Organizational Documents
See attached.
88
<PAGE>
Schedule 6.3(b)
---------------
Approvals Required by Diginet;
Agreements Violated by Diginet
Entering into this Agreement
1. Approval of the transactions contemplated by this Agreement by a
supermajority of the preferred stockholders of Diginet is required under the
Amended and Restated Stockholders' Agreement, dated as of April 16, 1999,
among Diginet and certain of its stockholders.
89
<PAGE>
Schedule 6.3(c)
---------------
Consents Required by Diginet
1. See Schedule 6.3(b).
90
<PAGE>
Schedule 6.4
------------
Obligations of Diginet to Repurchase,
Redeem or Otherwise Acquire
Shares of Its Capital Stock or
Make any Investment in
any Other Person
1. Pursuant to the Amended and Restated Stockholders' Agreement, dated as of
April 16, 1999, among Diginet and certain of its shareholders, those
shareholders have a right to require Diginet to repurchase their shares of
Diginet stock at any time or from time to time during the period commencing on
April 16, 2006 and ending on April 16, 2010 at a price equal to fair market
value as determined in accordance with the agreement. This right will terminate
upon the completion of the initial public offering of Diginet's common stock
(provided that certain tests regarding the size of the offering and the per
share price of the stock sold in the offering are met).
2. Diginet anticipates issuing approximately 900,000 shares of common stock to
three of its executives within the next sixty (60) days and, in connection
therewith, granting these executives the right, during the period commencing on
the first anniversary of the issuance of such shares and ending upon the
completion of the initial public offering of Diginet's common stock, to sell
these shares back to Diginet for a price equal to their fair market value.
91
<PAGE>
Schedule 10.4
-------------
Required Buyer Consents
1. Consent For Transfer of Commercial Establishment
(Fondo do Commercio)
2. Consent of CNC to transfer control of Licenses
3. Consent of the Spouses of Sellers to the Transactions Contemplated Hereby,
in form and substance satisfactory to counsel for Buyer
92
<PAGE>
Schedule 11.3
-------------
Required Seller Consents
93
<PAGE>
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
1. DEFINITIONS.......................................................... 1
2. SALE AND PURCHASE OF SHARES; CLOSING................................. 8
2.1. Sale and Purchase of Shares.................................... 8
2.2. Purchase Price................................................. 9
2.3. Closing........................................................ 10
2.4. Closing........................................................ 10
2.5. Purchase Price Adjustments..................................... 11
2.6. Additional Escrow Requirements................................. 11
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SELLERS REGARDING THE COMPANY......................................... 11
3.1. Organization and Good Standing................................. 11
3.2. Certificate or Articles of Incorporation....................... 11
3.3. Authority; Enforceability; No Conflict......................... 11
3.4. Capitalization; Ownership of Ordinary Shares................... 11
3.5. Financial Statements........................................... 11
3.6. Books and Records.............................................. 11
3.7. No Undisclosed Liabilities..................................... 11
3.8. Title to Properties............................................ 11
3.9. Accounts Receivable; Product and Services Warranties........... 11
3.10. Taxes.......................................................... 11
3.11. No Material Adverse Change; Conduct of Business................ 11
3.12. Employee Benefits.............................................. 11
3.13. Compliance With Laws; Governmental Authorizations.............. 11
3.14. Licenses....................................................... 11
3.15. Litigation; Disputes........................................... 11
3.16. Contracts; No Defaults......................................... 11
3.17. Key Customers.................................................. 11
3.18. Insurance...................................................... 11
3.19. Employees...................................................... 11
3.20. Labor Relations................................................ 11
3.21. Intellectual Property.......................................... 11
3.22. Year 2000 Compliance........................................... 11
3.23. Company Brokers or Finders..................................... 11
3.24. Systems........................................................ 11
3.25. Subscribers.................................................... 11
3.26. Disclosure..................................................... 11
4. REPRESENTATIONS AND WARRANTIES OF EACH SELLER......................... 11
4.1. Authority; Enforceability; No Conflict.......................... 11
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.2. Title to Shares................................................. 11
4.3. Insolvency...................................................... 11
4.4. Litigation...................................................... 11
4.5. Principal Residence............................................. 11
4.6. Investment Representations...................................... 11
4.7. Seller Broker or Finders........................................ 11
4.8. Disclosure...................................................... 11
5. REPRESENTATIONS AND WARRANTIES OF BUYER............................... 11
5.1. Organization and Good Standing.................................. 11
5.2. Certificate or Articles of Incorporation........................ 11
5.3. Authority; Enforceability; No Conflict.......................... 11
5.4. Brokers or Finders.............................................. 11
5.5. Disclosure...................................................... 11
6. REPRESENTATIONS AND WARRANTIES OF DIGINET............................. 11
6.1. Organization and Good Standing.................................. 11
6.2. Certificate or Articles of Incorporation........................ 11
6.3. Authority; Enforceability; No Conflict.......................... 11
6.4. Capitalization.................................................. 11
6.5. Brokers or Finders.............................................. 11
6.6. Disclosure...................................................... 11
7. COVENANTS OF COMPANY AND THE SELLERS 11
7.1. Access and Investigation........................................ 11
7.2. Operation of the Business of the Company........................ 11
7.3. Required Consents and Approvals................................. 11
7.4. Notification.................................................... 11
7.5. Liability for Taxes............................................. 11
7.6. Payment of Indebtedness......................................... 11
7.7. No Inconsistent Negotiations.................................... 11
7.8. Litigation Assistance........................................... 11
7.9. Non-Competition................................................. 11
8. COVENANTS OF BUYER PRIOR TO CLOSING DATE.............................. 11
8.1. Required Consents and Approvals................................. 11
9. COVENANTS OF ALL PARTIES PRIOR TO CLOSING DATE........................ 11
9.1. Further Action.................................................. 11
9.2. Publicity....................................................... 11
10. CONDITIONS PRECEDENT TO BUYER'S AND DIGINET'S
OBLIGATION TO CLOSE............................................. 11
10.1. Satisfaction with Due Diligence................................. 11
10.2. Representations and Warranties.................................. 11
10.3. Company's and Sellers' Performance.............................. 11
10.4. Consents........................................................ 11
10.5. Key Customer Contracts.......................................... 11
10.6. Employment Agreements........................................... 11
10.7. INEA Stockholders Agreement..................................... 11
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
10.8. Assignment of Intellectual Property Rights...................... 11
10.9. Escrow Agreement................................................ 11
10.10. Legal Opinions.................................................. 11
10.11. No Proceedings.................................................. 11
10.12. No Material Adverse Change...................................... 11
10.13. Resignations of Directors and Executive Officers................ 11
11. CONDITIONS PRECEDENT TO SELLERS' OBLIGATION TO CLOSE................ 11
11.1. Representations and Warranties.................................. 11
11.2. Buyer's and Diginet's Performance............................... 11
11.3. Consents........................................................ 11
11.4. Employment Agreement............................................ 11
11.5. INEA Stockholders Agreement..................................... 11
11.6. Promissory Notes................................................ 11
11.7. Guarantees...................................................... 11
11.8. Legal Opinions.................................................. 11
11.9. No Proceedings.................................................. 11
12. INDEMNIFICATION; REMEDIES........................................... 11
12.1. Reliance on and Survival of Representations and Warranties...... 11
12.2. Sellers Indemnification Obligations............................. 11
12.3. Buyer and Diginet Indemnification Obligations................... 11
12.4. Conditions of Indemnification................................... 11
12.5. Limitations on Liability........................................ 11
12.6. Escrow; Right of Set-off........................................ 11
12.7. Exclusive Remedy................................................ 11
13. TERMINATION......................................................... 11
13.1. Termination Events.............................................. 11
13.2. Effect of Termination........................................... 11
14. GENERAL PROVISIONS.................................................. 11
14.1. Expenses........................................................ 11
14.2. Confidentiality................................................. 11
14.3. Notices......................................................... 11
14.4. Jurisdiction; Service of Process................................ 11
14.5. Further Assurances.............................................. 11
14.6. Waiver.......................................................... 11
14.7. Entire Agreement and Modification............................... 11
14.8. Binding Effect.................................................. 11
14.9. Assignment...................................................... 11
14.10. Limitation on Benefits.......................................... 11
14.11. Severability.................................................... 11
14.12. Section Headings Construction; Gender........................... 11
14.13. Governing Law................................................... 11
14.14. Execution in Counterparts....................................... 11
14.15. Specific Performance............................................ 11
</TABLE>
iii
<PAGE>
Exhibit 10.6
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
---------------------------------------------------------
This Second Amended and Restated Registration Rights Agreement (the
"Agreement") is made and entered into as of March 29, 2000 by and among DIVEO
BROADBAND NETWORKS, INC., a Delaware corporation (the "Company"), and those
persons listed on Schedule 1 hereto.
WHEREAS, the Company has entered into a Registration Rights Agreement,
dated as of June 24, 1998, which was amended and restated on April 16, 1999 and
subsequently amended on July 2, 1999 (as so amended the "Original Registration
Rights Agreement"), with the holders named therein (the "Existing Investors");
WHEREAS, the Company concurrently with the execution of this Agreement is
entering into a Preferred Stock Purchase Agreement, dated as of the date hereof
(the "Purchase Agreement"), with the parties named as Investors therein (the
"Investors") pursuant to which the Company will issue and sell to the Investors
and the Investors will purchase from the Company shares of (i) series C-1 voting
preferred stock of the Class C Preferred Stock, par value $.0001 per share (the
"Series C-1 Voting Preferred Stock") and (ii) series C-1 non voting preferred
stock of the Class C Preferred Stock, par value $.0001 per share (the "Series C-
1 Non Voting Preferred Stock" and together with the Series C-1 Voting Preferred
Stock, the "Series C-1 Preferred Stock");
WHEREAS, in connection with the purchase and sale of the Series C-1
Preferred Stock, the Board of Directors and the shareholders of the Company have
duly authorized and approved the Third Restated and Amended Certificate of
Incorporation of the Company (the "Third Restated Certificate of
Incorporation");
WHEREAS, the due execution and delivery of an amendment of the Original
Registration Rights Agreement among the Company and the other parties hereto is
a condition to the execution and delivery of the Purchase Agreement;
WHEREAS, pursuant to Section 11(e) of the Original Registration Rights
Agreement, the holders of not less than 85% of the Registrable Securities (as
defined in the Original Registration Rights Agreement) may amend the Original
Registration Rights Agreement on behalf of all of the parties thereto; and
WHEREAS, holders of not less than 85% of the Registrable Securities and the
other parties hereto desire to amend and restate the Original Registration
Rights Agreement in its entirety and to replace the same with this Agreement;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and the parties hereto
agree that the Original Registration Rights Agreement is hereby amended and
restated in its entirety to provide as follows:
Unless otherwise defined herein, capitalized terms so used herein and not
defined shall have the same meaning as provided in the Purchase Agreement.
<PAGE>
The parties hereby agree as follows:
1. Certain Definitions.
-------------------
As used in this Agreement, the following terms shall have the following
respective meanings:
"Business Day" means any day, other than a Saturday, Sunday or legal holiday,
on which banks in the State of New York are open for business.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock, par value $.0001 per share, of the
Company, as constituted on the date hereof, any shares of the Company's capital
stock into which such Common Stock shall be changed or any shares of the
Company's capital stock resulting from any reclassification or recapitalization
with respect to such Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute thereto, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"Founder Holders" means David Schmieg, Robert Goad, Scott Puritz, Jonathan
Gunter, Diginet Development, L.L.C., Gunter, L.P., and the Gunter Roth Trusts.
"Founder Stock" means (i) the Common Stock held by the Founder Holders and
(ii) the Common Stock issued or issuable pursuant to the exercise of the Goad
Option (as described in the Preferred Stock and Warrant Purchase Agreement,
dated as of April 16, 1999, between the Company and certain investors).
"Gunter Roth Trusts" means each of BT Alex. Brown c/f Diana Rose Gunter Roth
CNV DTD 4/21/98, BT Alex. Brown c/f Janet Anne Gunter Roth CNV DTD 5/1/98, BT
Alex. Brown c/f Jonathan Forrest Gunter Roth CNV DTD 4/21/98, BT Alex. Brown c/f
Timothy Owen Gunter Roth CNV DTD 4/28/98, BT Alex. Brown c/f Scott D. Puritz
Roth CNV DTD 4/24/98, and BT Alex. Brown c/f Susan Neal Puritz Roth CNV DTD
4/24/98, which trusts currently own Series A Preferred Stock.
"Holders" means the Persons listed on Schedule 1 hereto and any other Person
holding Registrable Securities to whom these registration rights have been
assigned pursuant to Section 11(f) of this Agreement.
"Initiating Holders" means at any time any Holder or Holders who in the
aggregate hold not less than six percent (6%) of the number of Registrable
Securities (excluding the Founder Stock) at such time.
"Majority Holders" means at any time the holders of a majority of the number
of outstanding Registrable Securities (excluding the Founder Stock) at such
time.
"Majority Initiating Holders" means the holders of a majority of the
Registrable Securities covered by a Requested Registration initiated by the
Initiating Holders.
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<PAGE>
"Non Voting Common Stock" means the Company's Non Voting Common Stock, par
value $.0001 per share, as constituted on the date hereof, any shares of the
Company's capital stock into which such Non Voting Common shall be changed or
any shares of the Company's capital stock resulting from any reclassification or
recapitalization with respect to such Non Voting Common Stock.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, joint venture, unincorporated organization and any
government, governmental department or agency or political subdivision thereof.
"Purchase Agreement" has the meaning assigned to such term in the recitals
hereto.
The terms "register", "registered" or "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" means (i) the Common Stock issued or issuable
pursuant to the conversion or exchange of the Series A-1 Preferred Stock, Series
A-2 Preferred Stock (including, without limitation, Series A-2 Preferred Stock
issued or issuable upon the exercise of the Series A-2 Warrants), Series B-1
Preferred Stock (including, without limitation, Series B-1 Preferred Stock
issued or issuable upon the exercise of Series B-1 Warrants), Series B-2
Preferred Stock, Series C-1 Preferred Stock or Non Voting Common Stock; (ii) any
Common Stock or other securities issued or issuable pursuant to the conversion
of, or with respect to, the Series A-1 Preferred Stock, Series A-2 Preferred
Stock (including, without limitation, Series A-2 Preferred Stock issued or
issuable upon the exercise of the Series A-2 Warrants), Series B-1 Preferred
Stock (including, without limitation, Series B-1 Preferred Stock issued or
issuable upon the exercise of Series B-1 Warrants), Series B-2 Preferred Stock,
Series C-1 Preferred Stock or Non Voting Common Stock held by any Holder, upon
any stock split, stock dividend, recapitalization or similar event; (iii)
Founder Stock; (iv) shares of Common Stock issued upon exercise of preemptive
rights under the Stockholders' Agreement; and (v) securities issued in
replacement of or exchange for any of the securities issued in clauses (i)
through (iv) above, including upon any recapitalization or reclassification of
such securities.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing, listing and National Association of Securities
Dealers, Inc. fees, all fees and expenses of complying with securities or "blue
sky" laws, all word processing, duplicating and printing expenses, all messenger
and delivery expenses, any transfer taxes, the fees and expenses of the
Company's legal counsel and independent public accountants, including the
expenses of any special audits or "cold comfort" letters required by or incident
to such performance and compliance, fees and disbursements of one counsel chosen
by the Majority Initiating Holders, any fees and disbursements of underwriters
customarily paid by issuers or sellers of securities and other Persons retained
by the Company; provided, however, that Registration Expenses shall not include
-------- -------
underwriting discounts and commissions.
"Requested Registration" has the meaning set forth in Section 2(a) hereof.
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"Rights Holder" has the meaning set forth in Section 3(a)(iv) hereof.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute thereto, and the rules and regulations of the Commission
promulgated thereunder, all as the same shall be in effect at the time.
"Series A-1 Preferred Stock" means, collectively, the Company's Series A-1
Voting Preferred Stock of the Class A Preferred Stock, $.0001 par value per
share, and Series A-1 Non Voting Preferred Stock of the Class A Preferred Stock,
par value $.0001 per share, as constituted on the date hereof.
"Series A-2 Preferred Stock" means the Company's Series A-2 Preferred Stock
of the Class A Preferred Stock, par value $.0001 per share, as constituted on
the date hereof.
"Series A-2 Warrants" means warrants to purchase up to 2,303,338 shares of
Series A-2 Preferred Stock issued by the Company.
"Series B-1 Preferred Stock" means, collectively, the Company's Series B-1
Voting Preferred Stock of the Class B Preferred Stock, par value $.0001 per
share, and Series B-1 Non Voting Preferred Stock of the Class B Preferred Stock,
par value $.0001 per share, as constituted on the date hereof.
"Series B-1 Warrants" means warrants to purchase shares of Series B-1
Preferred Stock issued by the Company.
"Series B-2 Preferred Stock" means the Company's Series B-2 Preferred Stock of
the Class B Preferred Stock, par value $.0001 per share, as constituted on the
date hereof.
"Series C-1 Non Voting Preferred Stock" means the Company's Series C-1 Non
Voting Preferred Stock of the Class C Preferred Stock, par value $.0001 per
share, as constituted on the date hereof.
"Series C-1 Preferred Stock" means, collectively, the Company's Series C-1
Voting Preferred Stock of the Class C Preferred Stock, $.0001 par value per
share, and Series C-1 Non Voting Preferred Stock of the Class C Preferred Stock,
par value $.0001 per share, as constituted on the date hereof.
"Series C-1 Voting Preferred Stock" means the Company's Series C-1 Voting
Preferred Stock of the Class C Preferred Stock, par value $.0001 per share, as
constituted on the date hereof.
"Short-Form Registration Statement" has the meaning set forth in Section 2(a)
hereof.
"Underwriter's Maximum Number" has the meaning set forth in Section 2(f)
hereof.
2. Registration.
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<PAGE>
(a) Requested Registration. At any time after the earlier to occur of (i)
----------------------
April 16, 2003, and (ii) the Company's initial public offering of equity
securities (such an offering, an "Initial Public Offering"), upon written
request by the Initiating Holders to the Company that the Company effect a
registration under the Securities Act (a "Requested Registration"), the Company
shall use its diligent efforts to file a registration statement on Form S-1 or
any similar long-form registration statement (each, a "Long-Form Registration
Statement") (x) with respect to the first such Long-Form Registration Statement
within ninety (90) days after receipt of such request by such Initiating Holders
and (y) with respect to each successive Long-Form Registration Statement, within
sixty (60) days after receipt of such request by such Initiating Holders, in
each case in order to effect the registration under the Securities Act of the
Registrable Securities (other than Founder Stock) that the Company has been so
requested to register or to file a registration statement on Commission Form S-2
or Form S-3 or any successor or similar short-form registration statement (each,
a "Short-Form Registration Statement") within forty-five (45) days after receipt
of such request if the Company is qualified to file a Short-Form Registration
Statement; provided, however, that the Company shall not be obligated to file a
-------- -------
Requested Registration on a Short-Form Registration Statement (a "Short-Form
Registration") pursuant to this Section 2(a) unless the anticipated gross
aggregate offering price of the Registrable Securities to be sold pursuant
thereto is at least two million dollars ($2,000,000) in the aggregate; provided,
--------
further, however, that in the event the Company has not completed an Initial
- ------- -------
Public Offering, the Company shall not be obligated to file a Requested
Registration on a Long-Form Registration Statement (a "Long-Form Registration")
pursuant to this Section 2(a) unless at least eighty million dollars
($80,000,000) in aggregate principal amount of the Registrable Securities (as
measured by the aggregate gross offering price thereof as reflected in the
registration statement with respect thereto), after giving effect to such
registration, would be registered under the Securities Act; provided, further,
-------- -------
however, that if the Company has previously completed an Initial Public Offering
- -------
the Company shall not be obligated to file a Long-Form Registration unless the
anticipated aggregate gross offering price with respect thereto would equal or
exceed thirty million dollars ($30,000,000). The Company must file an unlimited
number of Short-Form Registrations pursuant to this Section 2(a) subject to the
requirement that any such Short-Form Registration meets the two million dollar
($2,000,000) aggregate offering threshold referenced above and otherwise
satisfies the conditions or requirements applicable thereto. In no event shall
the Company be obligated hereunder to file more than six (6) Long-Form
Registrations in the aggregate or more than two (2) Long-Form Registrations
requested by any Investor and the affiliates thereof. Subject to Section 2(f),
the Company may include in such Requested Registration other securities of the
Company for sale, for the Company's account or for the account of any other
person, if and to the extent that the managing underwriter determines that the
inclusion of such additional shares will not interfere with the orderly sale of
the Registrable Securities subject to such Requested Registration at a price
range acceptable to the Majority Initiating Holders. Upon filing of a Long-Form
Registration Statement or a Short-Form Registration Statement, as the case may
be, the Company shall thereafter use its diligent efforts to cause such
registration statement to be declared effective under the Securities Act as
promptly as possible.
(b) Incidental Registration. If the Company for itself or any of its security
-----------------------
holders shall at any time or times after the date hereof determine to register
under the Securities Act any shares of its capital stock or other securities
(other than (i) the registration of an offer, sale or other disposition of
securities solely to employees of, or other persons providing services to, the
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<PAGE>
Company or any subsidiary pursuant to an employee or similar benefit plan or
(ii) relating to a merger, acquisition or other transaction of the type
described in Rule 145 under the Securities Act or a comparable or successor
rule, registered on Form S-4 or similar or successor forms), on each such
occasion the Company will notify each Holder of such determination at least ten
(10) days after receipt of any Requested Registration or, in the case that the
Company determines to register for its own account any shares of its capital
stock, at least thirty (30) days prior to the filing of the registration
statement applicable thereto, and upon the request of any Holder given in
writing within twenty (20) days after the receipt of such notice, subject to
Section 2(f), the Company will use its diligent efforts as soon as practicable
thereafter to cause any of the Registrable Securities specified by any such
Holder to be included in such registration statement to the extent such
registration is permissible under the Securities Act and subject to the
conditions of the Securities Act (an "Incidental Registration").
(c) Registration Statement Form. The Company shall, if permitted by law,
---------------------------
effect any registration requested under this Section 2 by the filing of a Short-
Form Registration Statement and shall use its diligent efforts to take any
action reasonably necessary to maintain its eligibility to utilize a Short-Form
Registration Statement to permit resales as requested by the Holders with
respect to "Transactions Involving Secondary Offerings" as described in General
Instruction I.B.3 of Commission Form S-3.
(d) Expenses. The Company shall pay all Registration Expenses incurred in
--------
connection with any Incidental Registration and any Requested Registration.
(e) Effective Registration Statement. A Requested Registration or an
--------------------------------
Incidental Registration pursuant to Section 2(a) or Section 2(b), respectively,
shall not be deemed to have been effected unless the registration statement
filed with respect thereto in accordance with the Securities Act has been
declared effective by the Commission. Notwithstanding the foregoing, a
registration statement will not be deemed to have become effective if (i) after
it has become effective with the Commission, such registration is interfered
with by any stop order, injunction or other order or requirement of the
Commission or other governmental agency or any court proceeding for any reason
other than a misrepresentation or omission by any Holder, or (ii) the conditions
to closing specified in the purchase agreement or underwriting agreement entered
into in connection with such registration are not satisfied, other than solely
by reason of some act or omission by any Holder.
(f) Priority in Registration. If a Requested Registration or an Incidental
-------------------------
Registration is made in connection with an underwritten offering, and the
managing underwriters give written advice to the Initiating Holders or the
Company, as the case may be, that, in their opinion, market conditions dictate
that no more than a specified maximum number of securities (the "Underwriter's
Maximum Number") could successfully be included in such registration, then the
Company and the Holders shall participate in such offering in the following
order of priority: (A) in the case of a Requested Registration, (i) there shall
be included in such registration that number of Registrable Securities issued
upon conversion of shares of Series A-1 Preferred Stock, Series A-2 Preferred
Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock (including
Registrable Securities issuable upon conversion of (x) the Series A-2 Preferred
Stock issuable upon conversion of the Series A-2 Warrants and (y) the Series B-1
Preferred Stock issuable upon conversion of the Series B-1 Warrants) and Series
C-1 Preferred Stock that the holders thereof
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<PAGE>
shall have requested to be included in such offering either as an Initiating
Holder or as to an Incidental Registrant and that does not exceed the
Underwriter's Maximum Number; (ii) the Company shall be entitled to include in
such registration that number of securities that it proposes to offer and sell
for its own account to the full extent of the remaining portion of the
Underwriter's Maximum Number; and (iii) to the extent not inconsistent with any
registration rights hereafter granted by the Company to holders of Company
securities, the Founder Holders shall be entitled to include in such
registration that number of shares of Registrable Securities that the Founder
Holders shall have requested to be included in such registration to the full
extent of the remaining portion of the Underwriter's Maximum Number; and (B) in
the case of an Incidental Registration triggered by a proposed registration for
the account of the Company (i) the Company shall be entitled to include in such
registration that number of securities that the Company proposes to offer and
sell for its own account in such registration and that does not exceed the
Underwriter's Maximum Number; (ii) the Company will be obligated and required to
include in such registration that number of shares of Registrable Securities
issued upon the conversion of shares of Series A-1 Preferred Stock, Series A-2
Preferred Stock, Series B-1 Preferred Stock, Series B-2 Preferred Stock
(including Registrable Securities issuable upon conversion of (x) the Series A-2
Preferred Stock issuable upon conversion of the Series A-2 Warrants and (y) the
Series B-1 Preferred Stock issuable upon conversion of the Series B-1 Warrants)
and Series C-1 Preferred Stock that the holders thereof shall have requested to
be included in such offering as an Incidental Registration to the full extent of
the remaining portion of the Underwriter's Maximum Number; and (iii) to the
extent not inconsistent with any registration rights hereafter granted by the
Company to holders of the Company's securities, the Company will be obligated
and required to include in such registration that number of shares of Founder
Stock requested to be included in such offering by the Founder Holders along
with other securities of the Company that shall have been requested by other
Persons having registration rights pursuant to one or more other registration
rights agreements with the Company. If the number of shares of Registrable
Securities requested to be included in an underwritten offering exceeds the then
remaining portion of the Underwriter's Maximum Number as provided in clauses (A)
and (B) of this Section 2(f), as the case may be, then the Holders whose
aggregate request so exceeds the then remaining portion of the Underwriter's
Maximum Number and who are then entitled to include shares up to such
Underwriter's Maximum Number in accordance with the priority established in
clauses (A) and (B) of this Section 2(f) may include shares of Registrable
Securities in such underwritten offering pro rata in accordance with the
--- ----
relative number of shares originally requested to be included in such offering
by such Holders in the writing delivered in accordance with Section 2(a) or
Section 2(b), as the case may be.
(g) Notwithstanding anything in this Section 2 to the contrary, the Company
shall have the right to delay any registration of Registrable Securities
requested pursuant to Section 2(a) for up to ninety (90) days if such
registration would, in the good faith judgment of the Company's Board of
Directors, substantially interfere with any material transaction being
considered at the time of receipt of the request from the Holders.
(h) Notwithstanding anything in this Agreement to the contrary, the Company
shall not be obligated to take any action to effect registration, qualification
or compliance with respect to its Registrable Securities:
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<PAGE>
(i) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process unless the Company
is already subject to service in such jurisdiction and except as required by the
Securities Act;
(ii) that would require it to qualify generally to do business in any
jurisdiction which it is not already so qualified;
(iii) that would subject it to taxation in a jurisdiction in which it is
not already subject generally to taxation; or
(iv) during the period ending on the 180th day immediately following the
effective date of, any registration statement pertaining to securities of the
Company, provided that the Company is actively employing in good faith
--------
reasonable efforts to cause such registration statement to become effective.
3. Registration Procedures.
-----------------------
(a) If and whenever the Company is required to use its diligent efforts to
effect the registration of any Registrable Securities under the Securities Act
as provided in Section 2, the Company, as expeditiously as possible and subject
to the terms and conditions of Section 2, will:
(i) prepare and file with the Commission the requisite registration
statement to effect such registration and use its diligent efforts to cause such
registration to become and remain effective; provided that before filing a
--------
registration statement or prospectus or any amendments or supplements thereto,
the Company shall furnish copies of all such documents proposed to be filed to
counsel selected by the holders of Registrable Securities covered by such
registration statement;
(ii) permit any Holder who, in the reasonable judgment of such Holder,
might be deemed to be an underwriter or a controlling person of the Company to
participate in the preparation of such registration statement;
(iii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement until the
earlier of such time as all of such securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof set forth in such registration statement or the expiration of 180 days
after such registration statement becomes effective;
(iv) furnish to any Holder of Registrable Securities to be sold under
such registration statement (a "Rights Holder") such number of conformed copies
of such registration statement and of each such amendment and supplement thereto
(in each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such other documents, as the purchaser or any Rights Holder may reasonably
request;
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<PAGE>
(v) use its diligent efforts to register or qualify all Registrable
Securities covered by such registration statement under such state securities or
"blue sky" laws of such jurisdictions within the United States as any Rights
Holder or managing underwriter shall reasonably request, to keep such
registration or qualification in effect for so long as such registration
statement remains in effect, and take any other action that may be reasonably
necessary or advisable to enable the Rights Holder to consummate the disposition
thereof in such jurisdictions;
(vi) use its diligent efforts to cause all Registrable Securities
covered by such registration statement to be registered with or approved by such
other United States state governmental agencies or authorities as may be
necessary to enable the Rights Holder to consummate the intended disposition of
such Registrable Securities;
(vii) in the event of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, use its diligent efforts promptly to
obtain the withdrawal of such order;
(viii) use its diligent efforts to furnish to the Rights Holders (1) an
opinion, dated the closing date of the sale of Registrable Securities pursuant
to the registration statement, of counsel to the Company for the purposes of
such registration, addressed to the underwriters, if any, and to the Holders
making such request, to the effect that (i) it has been advised by the
Commission that the registration statement has been declared effective by the
Commission under the Securities Act, (ii) to the diligent knowledge of such
counsel, no stop order suspending the effectiveness thereof has been issued and
no proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act; (iii) the registration statement, the
related prospectus and each amendment or supplement thereto, comply as to form
in all material respects with the requirements of the Securities Act and the
applicable rules and regulations of the Commission thereunder (except that such
counsel need express no opinion as to financial statements and schedules and
statistical data contained therein); (iv) no facts have come to the attention
of such counsel to cause such counsel to believe that the registration
statement (except for financial statements and schedules and statistical data)
or the prospectus, or any amendment or supplement thereto, at the time the
registration statement and the prospectus included therein became effective,
contained any untrue statement of a material fact or omitted a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; (v) the
descriptions in the registration statement or the prospectus, or any amendment
or supplement thereto, of all legal and governmental matters and contracts and
other legal documents or instruments provided to such counsel fairly present the
information called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein; and (vi) such
counsel is not aware of any legal or governmental proceedings, pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its subsidiaries is subject
that are required to be described in the registration statement or prospectus,
or any amendment or supplement thereto, and are not so described or of any
contracts or documents or instruments that are required to be described in the
registration statement or prospectus, or any amendment or supplement thereto, or
to be filed as exhibits to the registration statement that are not described and
filed as required (such opinion of counsel shall
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<PAGE>
additionally cover such legal matters with respect to the registration in
respect of which such opinion is being given as the Rights Holders may
reasonably request and may contain such qualifications and limitations as are
customarily included in opinions of such sort); and (2) a letter, dated the
effective date of the registration statement, from the independent certified
public accountants of the Company, addressed to the underwriters, if any, and to
the Rights Holders making such request, stating that they are independent
certified public accountants within the meaning of the Securities Act and that
in the opinion of such accountants, the financial statements and other financial
data of the Company included in the registration statement or the prospectus, or
any amendment or supplement thereto, comply as to form in all material respects
with the applicable accounting requirements of the Securities Act (such letter
from the independent certified public accountants shall additionally cover such
other financial matters (including information as to the period ending not more
than five business days prior to the date of such letter) with respect to the
registration in respect of which such letter is being given as the Holders may
reasonably request);
(ix) promptly notify the Rights Holders at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of its
becoming aware of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of
material fact or omits any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, and, at the request of the Holders,
promptly prepare and furnish to the Holders a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances under which they were made;
(x) otherwise use its diligent efforts to comply with all applicable
rules and regulations of the Commission;
(xi) make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months, but not more than eighteen months, beginning with the first full
calendar month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(xii) not file any amendment or supplement to such registration
statement or prospectus to which any Holder shall have reasonably objected in
writing on the grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(xiii) provide a transfer agent, registrar and a CUSIP number for all
Registrable Securities covered by such registration statement as soon as
practicable after the effective date of such registration statement;
(xiv) use its diligent efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of the
Registrable Securities are then listed,
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<PAGE>
or if not so listed, use its diligent efforts to cause such Registrable
Securities to be listed on the Nasdaq National Market or any national exchange;
and
(xv) enter into such customary agreements (including underwriting
agreements in customary form) in form and substance reasonably acceptable to the
Company and take all such actions as the Majority Initiating Holders or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares).
(b) The Company may require each Rights Holder to furnish the Company with
such information and undertakings regarding such Holder and the distribution of
such securities that is typically required to be provided by selling
stockholders as the Company may from time to time reasonably request in writing.
(c) Each Holder, by execution of this Agreement, agrees that (i) upon receipt
of any notice from the Company, or upon such Holder's otherwise becoming aware,
of the occurrence of any event of the kind described in subdivision (a)(ix) of
this Section 3, such Holder shall forthwith discontinue its disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until the receipt by such Holder of the copies of the
supplemented or amended prospectus contemplated by subdivision (a)(ix) of this
Section 3 and, if so directed by the Company, shall deliver to the Company all
copies of the prospectus relating to such Registrable Securities, other than
permanent file copies, then in possession of the Holders and (ii) it shall
immediately notify the Company, at any time when a prospectus relating to the
registration of such Registrable Securities is required to be delivered under
the Securities Act, of the occurrence of any event as a result of which
information previously furnished by such Holder to the Company for inclusion in
such prospectus contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made. In the event the Company or any such Holder shall give any such
notice, the period referred to in subdivision (a)(iii) of this Section 3 shall
be extended by a number of days equal to the number of days during the period
from and including the giving of notice pursuant to subdivision (a)(ix) of this
Section 3 to and including the date when such Holder shall have received the
copies of the supplemented or amended prospectus contemplated by subdivision
(a)(ix) of this Section 3.
4. Underwritten Offerings.
----------------------
(a) Underwritten Offering. In connection with any underwritten offering
---------------------
pursuant to a Requested Registration, the Company shall enter into an
underwriting agreement with the underwriters for such offering in form and
substance reasonably satisfactory to the Majority Initiating Holders and such
underwriters in their reasonable judgment, such agreement to contain such
representations and warranties by the Company and such other terms as are
customarily contained in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 8. Each Holder
participating in such underwritten registration shall be a party to such
underwriting agreement and may, at such Holder's option, require that any or all
of the representations and warranties by, and the other agreements on the part
of, the Company to and for the benefit of such underwriters shall also be made
to and for the benefit of each such Holder and that any or all of the conditions
precedent to the obligations of such
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<PAGE>
underwriters under such underwriting agreement be conditions precedent to the
obligations of such Holder. No Holder participating in any such underwritten
registration shall be required to make any representations or warranties to or
agreements with the Company or the underwriters other than representations,
warranties or agreements regarding such Holder and its intended method of
distribution and any other representation required by law.
(b) Selection of Underwriters. If a Requested Registration involves an
-------------------------
underwritten offering, then the Company shall select the underwriter from among
underwriting firms of national reputation, subject to the consent of the
Majority Initiating Holders, which consent shall not be unreasonably withheld.
(c) Holdback Agreements. (i) Each Holder agrees, if so requested by the
-------------------
managing underwriter in each underwritten registration of the Company's capital
stock or other securities described in Section 2(a) and Section 2(b), to sign an
agreement not to effect (except as part of such underwritten registration in
accordance with the provisions hereof) any sale, distribution, short sale, loan,
grant of options for the purchase of, or otherwise dispose of, any Registrable
Securities for such period as such underwriter requests, such period in no event
to commence earlier than seven (7) days prior to, or to end more than (i) 180
days after an Initial Public Offering or (ii) 90 days after the effective date
of any other registration, provided that each Holder is treated on an equal
basis in being required to comply with such underwriter's request.
(ii) The Company agrees, if so requested by the managing underwriter in
each underwritten registration of the Company's capital stock or other
securities described in Section 2(a), to sign an agreement not to effect (except
as part of such underwritten registration in accordance with the provisions
hereof) any sale, distribution, short sale, loan, grant of options for the
purchase of, or otherwise dispose of, any Registrable Securities for such period
as such underwriter requests, such period in no event to commence earlier than
seven (7) days prior to, or to end more than 180 days after, the effective date
of such Requested Registration.
5. Preparation, Reasonable Investigation.
-------------------------------------
In connection with the preparation and filing of each registration statement
under the Securities Act, the Company will give the Holders of Registrable
Securities to be sold under such registration statement, the underwriters, if
any, and their respective counsel and accountants, advance draft copies of such
registration statement and each prospectus included therein or filed with the
Commission at least 5 business days prior to the filing thereof with the
Commission, and any amendments and supplements thereto promptly as they become
available, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have certified its financial statements
as shall be necessary, in the reasonable opinion of such Holders and such
underwriters' respective counsel, to conduct a reasonable investigation within
the meaning of the Securities Act.
6. Controlling Stockholders Rights.
-------------------------------
If any registration statement prepared in connection with a Requested
Registration or an Incidental Registration refers to any holder by name or
otherwise as the holder of any securities
-12-
<PAGE>
of the Company and if, in such holder's sole and exclusive judgment, such holder
is or might be deemed to be a controlling person of the Company, such holder
shall have the right to require (i) the insertion therein of language, in form
and substance satisfactory to such holder and presented to the Company in
writing and reasonably acceptable to the Company, to the effect that the holding
by such holder of such securities is not to be construed as a recommendation by
such holder of the investment quality of the Company's securities covered
thereby and that such holding does not imply that such holder will assist in
meeting any financial requirements of the Company, or (ii) in the event that
such reference to such holder by name or otherwise is not required by the
Securities Act or any similar Federal statute then in force, the deletion of the
reference to such holder to the extent not required thereby.
7. Withdrawal of Requested Registration.
------------------------------------
A Requested Registration may only be withdrawn upon the request of the
Majority Initiating Holders with respect to such Requested Registration.
8. Indemnification and Contribution.
--------------------------------
(a) Indemnification by the Company. In the event of any registration under
------------------------------
the Securities Act pursuant to Section 2 of any Registrable Securities, the
Company shall indemnify and hold harmless each Holder of Registrable Securities
to be sold pursuant to such registration statement, its directors, officers and
each Person, if any, who controls any Holder within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, each other
Person who participates as an underwriter or a Qualified Independent
Underwriter, if any, in the offering or sale of such securities (if so required
by such underwriter as a condition to including the Registrable Securities of
the Holders in such registration), and each Person, if any, who controls any
such underwriter or Qualified Independent Underwriter, within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
(collectively, the "Indemnified Parties"), from and against any losses, claims,
damages or liabilities, joint or several, arising out of, based upon or caused
by any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, or any preliminary prospectus, final
prospectus or summary prospectus contained therein or any document incorporated
therein by reference, or any amendment or supplement thereto, or arising out of,
based upon or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein in light of the circumstances in which they were made not misleading or
arise out of any violation by the Company of any rule or regulation promulgated
under the Securities Act or state securities law applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, except (i) with respect to a Holder insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to such Holder furnished to the Company in writing by such Holder specifically
for use therein or (ii) with respect to an Underwriter insofar as such losses,
claims, damages or liabilities are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to such underwriter or Qualified Independent Underwriter furnished to the
Company in writing by such underwriter or Qualified Independent Underwriter
specifically for use therein, and the Company will reimburse the Indemnified
Parties for any legal or any other expenses reasonably
-13-
<PAGE>
incurred by them in connection with investigating or defending any such loss,
claim, liability, action or proceeding; provided, that the foregoing indemnity
--------
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any underwriter from whom the person asserting any such losses,
claims, damages or liabilities purchased Registrable Securities or any person
controlling such underwriter, if a copy of the Final Prospectus (as then amended
or supplemented if the Company shall have furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such underwriter
to such person, if required by law so to have been delivered, at or prior to the
written confirmation of the sale of the Registrable Securities to such person.
(b) Indemnification by the Holders. The Company may require, as a condition
------------------------------
to including any Registrable Securities of any person or entity in any
registration statement filed pursuant to Section 2, that the Company shall have
received an undertaking reasonably satisfactory to it from such person or entity
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 8) the Company, each director of the
Company, each officer who has signed the registration statement and each other
Person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement or any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
if, and only if, such statement or alleged statement or omission or alleged
omission was made in reliance upon and in conformity with information furnished
in writing to the Company by such person or entity specifically for use therein.
The obligation of any Holder hereunder is a separate obligation of each Holder
and is not a joint obligation with any other holder of Registrable Securities
and shall be limited to an amount equal to the net proceeds received by such
Holder from the sale of Registrable Securities in the offering covered by such
registration, unless such liability arises out of or is based upon such Holder's
willful misconduct.
(c) Indemnification Procedures. Promptly after receipt by an Indemnified
--------------------------
Party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 8, such
Indemnified Party shall, if a claim in respect thereof is to be made against a
party required to provide indemnification (an "Indemnifying Party"), give
written notice to the latter of the commencement of such action; provided,
--------
however, that the failure of any Indemnified Party to give notice as provided
- -------
herein shall not relieve the Indemnifying Party of its obligation under the
preceding subdivisions of this Section 8, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice. In
case any such action is brought against an Indemnified Party, the Indemnifying
Party shall be entitled to participate in and to assume the defense thereof,
jointly with any other Indemnifying Party similarly notified to the extent that
it may wish, with counsel reasonably satisfactory to such Indemnified Party, and
after notice from the Indemnifying Party to such Indemnified Party of its
election so to assume the defense thereof, the Indemnifying Party shall not be
liable to such Indemnified Party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. In any such proceeding, any Indemnified Party
shall have the right to retain its own counsel, but the fees and expenses of
such counsel shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such proceeding
(including any impleaded parties)
-14-
<PAGE>
include both the Indemnifying Party and the Indemnified Party and representation
of both parties by the same counsel would be, in the reasonable judgment of the
Indemnified Party, inappropriate due to actual differing interests between them.
It is understood that the Indemnifying Party shall not, in respect of the legal
expenses of any Indemnified Party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and expenses of
more than one separate firm (in addition to any local counsel) for all
underwriters and all persons, if any, who control any underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the Exchange
Act, (ii) the fees and expenses of more than one separate firm (in addition to
any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and each Person, if any, who controls the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm (in addition to any local counsel) for any Holders and all
Persons, if any, who control any Holder within the meaning of either such
Section. The Indemnifying Party shall not be liable for any settlement of any
proceeding effected without its written consent, which consent will not be
unreasonably withheld, but if settled with such consent or if there be a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify the
Indemnified Party from and against any loss or liability by reason of such
settlement or judgment. No Indemnifying Party shall, without the consent of the
Indemnified Party, effect the settlement or compromise of, or consent to entry
of any judgment or enter into any settlement with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (A) includes an unconditional release of the Indemnified Party from all
liability arising out of such action or claim and (B) does not include a
statement as to or an admission of fault, culpability or a failure to act, by or
on behalf of any Indemnified Party.
(d) Other Indemnification. Indemnification similar to that specified in the
---------------------
preceding subdivisions of this Section 8 (with appropriate modifications) shall
be given by the Company and each Holder of Registrable Securities included in
any registration statement with respect to any required registration or other
qualification of securities under any Federal or state law or regulation of any
governmental authority, other than the Securities Act.
(e) Indemnification Payment. The indemnification required by this Section 8
-----------------------
shall be made by periodic payments of the amount thereof during the course of
the investigation or defense, as and when bills are received or expense, loss,
damage or liability is incurred.
(f) Survival of Obligations. The obligations of the Company and of the
-----------------------
Holders under this Section 8 shall survive the completion of any offering of
Registrable Securities in accordance with this Agreement and will remain in full
force and effect regardless of any investigation made by or on behalf of the
indemnified party or any officer, director or controlling Person of such
indemnified party.
(g) Contribution. If the indemnification provided for in this Section 8 is
------------
unavailable or insufficient to hold harmless an Indemnified Party, then each
Indemnifying Party shall contribute to the amount paid or payable to such
Indemnified Party as a result of the losses, claims, damages or liabilities
referred to in this Section 8 an amount or additional amount, as the case may
be, in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party
-15-
<PAGE>
or Indemnifying Parties on the one hand and the Indemnified Party on the other
in connection with the statements or omissions which resulted in such losses,
claims, demands or liabilities as well as any other relevant equitable
considerations. With respect to contribution required pursuant to this Section
8(g), the relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or Indemnifying Parties on the one hand or
the Indemnified Party on the other, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid to an Indemnified Party as a result of
the losses, claims, damages or liabilities referred to in the first sentence of
this Section 8(g) shall be deemed to include any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any action or claim which is the subject of this Section 8.
Notwithstanding the provisions of this Section 8(g), an indemnified holder of
Registrable Securities shall not be required to contribute any amount in excess
of the amount by which the net proceeds to such holder of Registrable Securities
from the sale thereof exceed the amount of damages which such indemnified holder
has otherwise been required to pay pursuant to Section 8(a) or Section 8(b), as
applicable, by reason of any untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation within the
meaning of Section 11(f) of the Securities Act shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under Section 8(a) or Section 8(b), an
indemnifying party shall indemnify an indemnified party to the full extent
provided in Section 8(a) or Section 8(b), as applicable, without regard to the
equitable considerations provided for in the immediately preceding paragraph.
9. Covenants Relating to Rule 144.
------------------------------
With a view to making available the benefits of certain rules and regulations
of the Commission which may at any time permit the sale of securities of the
Company to the public without registration after such time as a public market
exists for the Common Stock of the Company, the Company agrees:
(a) to make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) to use its diligent efforts to then file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act at any time after it has become subject to
such reporting requirements; and
(c) so long as a Holder owns any Registrable Securities, to furnish to the
Holder forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public) and of the
Securities Act and the Exchange Act (at any time after it has become subject to
such
-16-
<PAGE>
reporting requirements) or that it qualifies as a registrant whose securities
may be resold pursuant to a Short-Form Registration Statement (at any time after
it so qualifies), (ii) a copy of the most recent annual or quarterly report of
the Company filed with the Commission and (iii) such other reports and documents
of the Company as a Holder may reasonably request in availing itself of any rule
or regulation of the Commission allowing a Holder to sell any such securities
without registration.
10. Other Registration Rights.
-------------------------
The Company represents and warrants that it has not granted any registration
rights to any Person. The Company shall not grant to any Person any registration
rights more favorable than or inconsistent with any of those contained herein,
so long as any of the registration rights under this Agreement remain in effect.
11. Miscellaneous.
-------------
(a) Specific Performance. The parties hereto acknowledge that there may be no
--------------------
adequate remedy at law if any party fails to perform any of its obligations
hereunder and that each party may be irreparably harmed by any such failure, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to compel specific
performance of the obligations of any other party under this Agreement in
accordance with the terms and conditions of this Agreement.
(b) Notices. All demands, requests, notices and other communications required
-------
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally or sent by United States
first class mail (registered, return receipt requested) properly addressed and
postage prepaid:
(i) If to the Company, to:
Chief Financial Officer
Diveo Broadband Networks, Inc.
3201 New Mexico Avenue, N.W. - Suite 350
Washington, DC 20016
Telecopy: (202) 966-0014
with a copy to:
Lorraine Sostowski, Esq.
Hogan & Hartson, L.L.P.
Columbia Square
555 Thirteenth St., N.W.
Washington, D.C. 20004
Telecopy: (202) 637-5910
-17-
<PAGE>
(ii) if to the Holders, to their addresses set forth on Schedule 1 hereto,
with a copy, in the case of Holders of Series A-1 Preferred Stock, to:
Leonard Q. Slap, Esq.
Edwards & Angell, LLP
101 Federal Street
Boston, MA 02110
Telecopy: (617) 439-4170
with a copy, in the case of Holders of Series B-2 Preferred Stock, to:
F. William Reindel, Esq.
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telecopy: (212) 859-8586
with a copy, in the case of Holders of Series C-1 Preferred Stock, to:
.
Such names, addresses and telecopy numbers may be changed by such notice.
Except as otherwise provided herein, all such demands, requests, notices and
other communications shall be deemed to have been received on the date of
personal delivery thereof or on the third business day after the mailing
thereof.
(c) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO ANY
CONFLICTS OR CHOICE OF LAWS PROVISIONS THAT WOULD CAUSE THE APPLICATION OF THE
DOMESTIC SUBSTANTIVE LAWS OF ANY OTHER JURISDICTION).
(d) Headings. The descriptive headings of the several sections and paragraphs
--------
of this Agreement are inserted for convenience only and do not constitute a part
of this Agreement and shall not affect in any way the meaning or interpretation
of this Agreement.
(e) Entire Agreement; Amendments. This Agreement and the other writings
----------------------------
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire understanding of the parties with respect to its subject matter.
This Agreement terminates, restates and supersedes all prior agreements and
understandings between the parties with respect to its subject matter, including
the Original Registration Rights Agreement. This Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively) only by a
written instrument duly executed by the Company and the Holders of not less than
85% of the Registrable Securities. Each Holder of any Registrable Securities at
the time or thereafter outstanding shall be bound by an amendment
-18-
<PAGE>
or waiver authorized by this Section 11(e), whether or not any such Registrable
Securities shall have been marked to indicate such consent.
(f) Assignability. This Agreement and all of the provisions hereof will be
-------------
assigned, without the consent of the Company, by any Holder to, and shall inure
to the benefit of, any purchaser, transferee or assignee of any Registrable
Security, unless the Holder specifies otherwise in connection with particular
transfers of Registrable Securities. However, the Company shall not be required
to recognize any such purchaser, transferee or assignee as a Holder under this
Agreement unless and until either (i) such person becomes the holder of record
of Registrable Securities or (ii) the Company receives written notice of such
purchase, transfer or assignment.
(g) Counterparts. This Agreement may be executed in two or more counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(h) Adjustments Affecting Registrable Securities. Unless failure to do so
--------------------------------------------
would have a material adverse effect on the Company or its subsidiaries, the
Company will not take any action, or permit any change to occur, with respect to
its securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially and
adversely affect the marketability of such Registrable Securities in any such
registration (including, without limitation, effecting a stock split or a
combination of shares).
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CORPORATION:
DIVEO BROADBAND NETWORKS, INC.
By:______________________________
Name:
Title:
NEW INVESTORS:
NEWBRIDGE DIGINET INVESTORS, L.P.
By: Newbridge Diginet GP, L.P.
By: Newbridge Diginet GenPar, LLC
By:___________________________________
Name:
Title:
KEVIN SOMERVILLE
________________________________________
<PAGE>
EXISTING HOLDERS OF 85% OR MORE OF THE REGISTRABLE
SECURITIES:
GS CAPITAL PARTNERS III, L.P.
By: GS Advisors, L.P., general partner of
GS Capital Partners III, L.P.
By: GS Advisors, Inc., general partner of
GS Advisors, L.P.
By:__________________________________________
Name:
Title:
GS CAPITAL PARTNERS III OFFSHORE, L.P.
By: GS Advisors III (Cayman), L.P., its general
partner
By: GS Advisors III, L.L.C., its general partner
By:__________________________________________
Name:
Title:
GOLDMAN, SACHS & CO. VERWALTUNGS GmbH
By:__________________________________________
Name:
Title:
and
By:__________________________________________
Name:
Title:
<PAGE>
STONE STREET FUND 1999, L.P.
By: Stone Street 1999 Corp.,
its general partner
By:_______________________________________
Name:
Title:
BOOTH AMERICAN COMPANY
By:_______________________________________
Name:
Title:
COLUMBIA MANAGEMENT, INC.
By:_______________________________________
Name:
Title:
ALTA COMMUNICATIONS VII, L.P.
By: Alta Communications VII Managers L.L.C,
its Manager
By:_______________________________________
Name:
Title:
ALTA COMMUNICATIONS VI, LP
By: Alta Communications VI Management Partners,
L.P., its general partner
By:_______________________________________
Name:
Title:
<PAGE>
ALTA COMM S BY S, LLC
By:_______________________________________
Name:
Title:
NORWEST EQUITY CAPITAL, L.L.C.
By:_______________________________________
Name:
Title:
ONELIBERTY FUND IV, L.P.
By: OneLiberty Partners IV, L.L.C.,
its general partner
By:_______________________________________
Name:
Title:
ONELIBERTY ADVISORS FUND IV, L.P.
By: OneLiberty Partners IV, L.L.C.,
its general partner
By:_______________________________________
Name:
Title:
NAZCA LIMITED PARTNERSHIP
By:_______________________________________
Name:
Title:
<PAGE>
SOMERVILLE AND COMPANY
By:_______________________________________
Name:
Title:
NORWEST BANK COLORADO, N.A.,
TRUSTEE OF THE SOMERVILLE & CO.
PROFIT SHARING PLAN, FBO
KEVIN SOMERVILLE
By:_______________________________________
Name:
Title:
DAVID SOLOMON
________________________________________
JOSHUA L. STEINER
________________________________________
MARK TEITELBAUM
_________________________________________
GREGORY T. KRUGLAK
________________________________________
<PAGE>
HOOPER FARM PARTNERSHIP
By:_______________________________________
Name:
Title:
JEFFREY S. SILVERMAN
________________________________________
NEAL ARONSON
________________________________________
PHILLIP S. AND MARY J. NEAL, JTWROS
By:_______________________________________
Name:
Title:
KETTLE PARTNERS, LP
By:_______________________________________
Name:
Title:
ELLIOT J. MILLENSON
________________________________________
JAMES W. WOHLGEMUTH
<PAGE>
________________________________________
EMERMAN CAPITAL, LLC
By:_______________________________________
Name:
Title:
GREGORY T. KRUGLAK REVOCABLE TRUST, UA DTD 6/27/90
By:_______________________________________
Name:
Title:
IVAN KRUGLAK
________________________________________
FRANCAREP
By:_______________________________________
Name:
Title:
<PAGE>
DIGINET DEVELOPMENT, L.L.C.
By:________________________________________
Name:
Title:
SCOTT PURITZ
___________________________________________
DIGITAL VENTURES, LTD.
By:
Name:___________________________________
Title:
BT ALEX. BROWN C/F SCOTT D. PURITZ
ROTH CNV DTD 4/24/98
By:________________________________________
Name:
Title:
BT ALEX. BROWN C/F SUSAN NEAL PURITZ
Roth CNV DTD 4/24/98
By:________________________________________
Name:
Title:
<PAGE>
JONATHAN F. GUNTER REVOCABLE TRUST
By:_______________________________________
Name:
Title:
JAKER INC.
By:_______________________________________
Name:
Title:
GUNTER. L.P.
By:_______________________________________
Name:
Title:
BT ALEX. BROWN C/F JONATHAN FORREST
GUNTER ROTH CNV DTD 4/21/98
By:_______________________________________
Name:
Title:
BT ALEX. BROWN C/F DIANA ROSE GUNTER
ROTH CNV DTD 4/24/98
By:_______________________________________
Name:
Title:
<PAGE>
BT ALEX. BROWN C/F JANET ANNE GUNTER
ROTH CNV DTD 5/1/98
By:_______________________________________
Name:
Title:
BT ALEX. BROWN C/F TIMOTHY OWEN
GUNTER ROTH CNV DTD 4/28/98
By:_______________________________________
Name:
Title:
<PAGE>
MERITAGE PRIVATE EQUITY FUND, L.P.
By:_______________________________________
Name:
Title:
MERITAGE PRIVATE EQUITY PARALLEL FUND, L.P.
By:_______________________________________
Name:
Title:
MERITAGE ENTREPRENEURS FUND, L.P.
By:_______________________________________
Name:
Title:
<PAGE>
SCHEDULE I
----------
List of Holders
---------------
Name and Address of Holder
- --------------------------------------------------------
STOCKHOLDERS THAT ARE NOT EXISTING
INVESTORS:
Newbridge Diginet Investors, L.P.
1133 Connecticut Avenue, N.W.
Suite 700
Washington, D.C. 20036
Fax: (202) 496-0051
(202) 454-1101
Attn: Richard P. Schifter
Kenneth R. Brotman
with a copy to:
Newbridge Latin America, L.P.
Newbridge Andean Partners L.P.
201 Main Street, Suite 2420
Fort Worth, TX 76102
Fax: (817) 871-4010
Attn: Rick Ekleberry
- -and-
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006-1470
Kevin Somerville
727 East 16/th/ Avenue
Denver CO 80203-2003
EXISTING INVESTORS THAT ARE NOT FOUNDING INVESTORS:
GS Capital Partners III, L.P.
85 Broad Street
New York, NY 10004
Fax: (212) 902-3000
Attn.: Muneer Satter
I-1
<PAGE>
GS Capital Partners III, L.P.
85 Broad Street
New York, NY 10004
Fax: (212) 902-3000
Attn.: Ben Adler
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Fax: (212) 859-8587
Attn.: F. William Reindel
GS Capital Partners III Offshore, L.P.
85 Broad Street
New York, NY 10004
Fax: (212) 902-3000
Goldman, Sachs & Co. Verwaltungs GmbH
85 Broad Street
New York, NY 10004
Fax: (212) 902-3000
Stone Street Fund 1999, L.P
85 Broad Street
New York, NY 10004
Fax: (212) 902-3000
Booth American Company
Suite 1230
333 West Fort Street
Detroit, Michigan 48226
Tel: (313) 202-3360
Fax: (313) 202-3390
Attn: Ralph H. Booth
Columbia Management, Inc.
845 West 116th Street
Carmel, Indiana 46032
Tel: (317) 844-1323
Fax: (317) 575-9817
Attn: Robert Goad
I-2
<PAGE>
Alta Communications VII, L.P.
One Embarcadero Center, Ste. 4050
San Francisco, CA 94111
Bus.: (415) 782-4045
Fax: (415) 362-6178
Attn.: Robert F. Benbow
Alta Communications VI, L.P.
One Embarcadero Center, Ste. 4050
San Francisco, CA 94111
Bus.: (415) 782-4045
Fax: (415) 362-6178
Attn.: Robert F. Benbow
Alta Comm S by S, LLC
One Embarcadero Center, Ste. 4050
San Francisco, CA 94111
Bus.: (415) 782-4045
Fax: (415) 362-6178
Attn.: Robert F. Benbow
Norwest Equity Capital, L.L.C.
Attn: Blair P. Whitaker
245 Litton Avenue
Suite 250
Palo Alto, CA 94301
650-321-8000 Ext. 231
OneLiberty Fund IV, L.P.
c/o OneLiberty Ventures, Inc
150 Cambridge Park Drive, 10th Floor
Cambridge, MA 02140
Bus.: (617) 423-2300
Tel.: (617) 338-4362
Attention: Edwin M. Kania
OneLiberty Advisors Fund IV, L.P.
c/o OneLiberty Ventures, Inc
150 Cambridge Park Drive, 10th Floor
Cambridge, MA 02140
Bus.: (617) 423-2300
Tel.: (617) 338-4362
Attention: Edwin M. Kania
I-3
<PAGE>
NAZCA Limited Partnership
c/o Rothschild Trust Cayman Limited
Anchorage Centre, Second Floor
P. O. Box 30715 SMB
Harbour Drive
George Town, Grand Cayman
British West Indies
Attn: William Messer, Esq.
Tel.: (345) 949-3022
Fax: (345) 949-3177
with a copy to:
Rodman L. Drake
c/o Rothschild North America, Inc.
1251 Avenue of the Americas
Suite 940
New York, NY 10020
Tel.: (212) 403-3564
Fax: (212) 403-5431
Somerville and Company
Attn: Kevin Somerville
727 East 16th Avenue
Denver, CO 80203
Tel.: (303) 830-0598 Ext. 108
Norwest Bank Colorado, N.A.,
Trustee of the Somerville & Co.
Profit Sharing Plan, FBO Kevin Somerville
Norwest Investment Management Trust
1740 Broadway
Denver, CO 80274-8697
Tel: (303) 801-8811
Fax.: (303) 863-6372
Attn.: Karin Tomlinson
David Solomon
Solomon Advisors, LLC
201 Summit View Dr.
Suite 150
Brentwood, TN 37027
Tel.: (615) 661-7877
Fax: (615) 373-3177
I-4
<PAGE>
Meritage Private Equity Fund, L.P.
1600 Wynkoop Street
Suite 300
Denver, Colorado 80202
Tel.: (303) 352-2040
Attn: John Garrett
Meritage Private Equity Parallel Fund, L.P.
1600 Wynkoop Street
Suite 300
Denver, Colorado 80202
Tel.: (303) 352-2040
Attn: John Garrett
Meritage Private Equity Entreprenuers Fund, L.P.
1600 Wynkoop Street
Suite 300
Denver, Colorado 80202
Tel.: (303) 352-2040
Attn: John Garrett
Joshua L. Steiner
c/o Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, NY 10020
Tel.: (212) 632-6598
Fax: (212) 632-6054
Mark Teitelbaum
c/o Insignia/ESG, Inc. Real Estate
601 13/th/ Street, N.W.
Suite 800 North
Washington, DC 20005
Tel.: (202) 508-3525
Fax: (202) 783-1723
Gregory T. Kruglak
c/o IPEM Associates
215 Midvale Street
Falls Church, VA 22046
Tel.: (703) 538-6916
Fax: (703) 538-4671
I-5
<PAGE>
Hooper Farm Partnership
c/o Lazard Freres & Co. LLC
Attn: Jonathan Foster
30 Rockefeller Plaza
New York, NY 10020
Tel.: (212) 632-6117
Jeffrey S. Silverman
c/o LTS Capital Partners, LLC
777 Third Avenue
30th Floor
New York, NY 10017-1401
Tel.: (212) 446-0229
Neal Aronson
c/o U.S. Franchise Systems, Inc.
13 Corporate Square
Suite 250
Atlanta, GA 30329
Tel.: (404) 235-7444
Phillip S. and Mary J. Neal, JTWROS
1133 Asquith Drive
Arnold, MD 21012
Tel.: (410) 647-9245
Kettle Partners, L.P.
Attn: David R. Semmel
350 West Hubbard
Suite 350
Chicago, IL 60610
Tel.: (312) 527-2510
Elliot J. Millenson
15 Ashington Club Road
Far Hills, NJ 07931
Tel.: (908) 719-9709
James W. Wohlgemuth
3830 Livingston Street, N.W.
Washington, DC 20015
Tel.: (202) 626-7078
Emerman Capital, LLC
c/o Ulysses Sherman
408 N.W. 12th Avenue
Suite 207
Portland, OR 97209
Tel.: (503) 525-5868
I-6
<PAGE>
Gregory T. Kruglak Revocable Trust U/A DTD 6/27/90
c/o IPEM Associates
Attn: Gregory T. Kruglak
847 Whann Avenue
McLean, VA 22101
Tel.: (703) 847-5187
Ivan Kruglak
c/o Coherent Communications
28245 Avenue Crooker
Suite 200
Valencia, CA 91355
Tel.: (805) 295-0300
FRANCAREP
Attn: Georges Babinet
50, avenue des Champs-Elysees
75008
Paris, France
Tel: 33-1-53-77-65-10
Fax: 33-1-45-63-85-28
with a copy to:
Rodman L. Drake
c/o Rothschild North America, Inc.
Suite 940
1251 Avenue of the Americas
New York, NY 10020
Tel.: (212) 403-3564
Fax: (212) 403-5431
EXISTING INVESTORS THAT ARE FOUNDING INVESTORS:
Diginet Development, L.L.C.
3201 New Mexico Avenue
Suite 320
Washington, DC 20016
Tel.: (202)-274-0040
Fax: (202)-274-0058
Attn.: Scott Puritz
I-7
<PAGE>
Scott Puritz
c/o Diginet Americas, Inc.
3201 New Mexico Avenue
Suite 320
Washington, DC 20016
Tel.: (202) 274-0040
Fax: (202) 274-0058
Diginet Ventures, Ltd.
3201 New Mexico Avenue
Suite 320
Washington, DC 20016
Tel.: (202)-274-0040
Fax: (202)-274-0058
Attn.: Scott Puritz
BT Alex. Brown c/f Scott D. Puritz Roth CNV DTD
4/24/98
c/o BT Alex. Brown & Sons, Inc.
1440 New York Ave., NW
Suite 500
Washington, DC 20005
Tel.: (202) 626-7078
Fax: (202) 626-7056
Attn.: James W. Wohlgemuth
BT Alex. Brown c/f Susan Neal
Puritz Roth CNV DTD 4/24/98
c/o BT Alex. Brown & Sons, Inc.
1440 New York Ave., NW
Suite 500
Washington, DC 20005
Tel.: (202) 626-7078
Fax: (202) 626-7056
Attn.: James W. Wohlgemuth
I-8
<PAGE>
Jonathan F. Gunter Revocable Trust
225 S. Meramac #823
St. Louis, MO 63105
Tel.: (314) 862-8255
Fax: (314) 862-0549
Attn.: Jonathan Gunter
Jaker Inc.
225 S. Meramac #823
St. Louis, MO 63105
Tel.: (314) 862-8255
Fax: (314) 862-0549
Attn.: Jonathan Gunter
Gunter, L.P.
225 S. Meramac #823
St. Louis, MO 63105
Tel.: (314) 862-8255
Fax (314) 862-0549
BT Alex. Brown c/f Jonathan Forrest Gunter Roth
CNV DTD 4/21/98
c/o BT Alex. Brown & Sons, Inc.
1440 New York Ave., NW
Suite 500
Washington, DC 20005
Tel.: (202) 626-7078
Fax: (202) 626-7056
Attn.: James W. Wohlgemuth
BT Alex. Brown c/f Diana Rose Gunter Roth CNV DTD
4/21/98
c/o BT Alex. Brown & Sons, Inc.
1440 New York Ave., NW
Suite 500
Washington, DC 20005
Tel.: (202) 626-7078
Fax: (202) 626-7056
Attn.: James W. Wohlgemuth
I-9
<PAGE>
BT Alex. Brown c/f Janet Ann Gunter Roth CNV DTD
5/1/98
c/o BT Alex. Brown & Sons, Inc.
1440 New York Ave., NW
Suite 500
Washington, DC 20005
Tel.: (202) 626-7078
Fax: (202) 626-7056
Attn.: James W. Wohlgemuth
BT Alex. Brown c/f Timothy Owen Gunter Roth CNV
DTD 4/28/98
c/o BT Alex. Brown & Sons, Inc.
1440 New York Ave., NW
Suite 500
Washington, DC 20005
Tel.: (202) 626-7078
Fax: (202) 626-7056
Attn.: James W. Wohlgemuth
I-10
<PAGE>
Exhibit 10.9
EMPLOYMENT AGREEMENT
---------------------
THIS EMPLOYMENT AGREEMENT, dated as of April 16, 1999 (this
"Agreement"), by and between Diginet Americas, Inc., a Delaware corporation (the
---------
"Company"), and David Schmieg (the "Employee").
------- ------------- --------
WHEREAS, the Employee represents that he possesses skills, experience
and knowledge that are of value to the Company; and
WHEREAS, the Company desires to enlist the services and employment of
the Employee on behalf of the Company and the Employee is willing to render such
services on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment Term. Except for earlier termination as provided for in
---------------
Section 7 hereof, the Company hereby agrees to employ the Employee, and the
Employee hereby agrees to be employed by the Company, subject to the terms and
provisions of this Agreement, for the period commencing on the "Effective Date"
--------------
(as defined in Section 21 below) and ending on the third anniversary of such
date (the "Initial Term"), provided, however, that upon the expiration of the
------------ -------- -------
Initial Term, the term of employment shall be automatically extended for a
period of two years, unless either the Company or the Employee shall have given
written notice to the other at least ninety (90) days prior the expiration of
the Initial Term that the term of employment shall not be so extended (the
Initial Period and any subsequent period of extension of employment, the
"Employment Term").
---------------
2. Duties. During the Employment Term the Employee shall serve as
------
President and Chief Executive Officer of the Company, and (for so long as the
Company is not subject to the reporting requirements of Sections 13(a) and 15(d)
of the Securities Exchange Act of 1934) the Employee shall serve as a member of
the Board of Directors of the Company (the "Board"). The Employee shall perform
-----
such senior executive duties, services and responsibilities on behalf of the
Company and its subsidiaries as may be determined from time to time by the
Board. In performing such duties hereunder, the Employee will report directly to
the Board.
The Employee shall devote his full business time, attention and skill to
the performance of such duties, services and responsibilities, and will use his
best efforts to promote the interests of the Company. The Employee will not,
without the approval of the Board (a) engage in any corporate, civic or
charitable activity which would interfere with the performance of his duties as
an employee of the Company, is in violation of written Company policies, is in
violation of applicable law, or would create a conflict of
<PAGE>
interest with respect to the Employee's obligation as an employee of the
Company, or (b) deliver lectures, fulfill speaking engagements or teach at
educational institutions.
3. Compensation. In full consideration of the performance by the
------------
Employee of the Employee's obligations during the Employment Term (including any
services as an officer, director, employee or member of any committee of any
subsidiary or affiliate of the Company, or otherwise on behalf of the Company),
the Employee shall receive a base salary (the "Base Salary") at an annual rate
-----------
of $400,000 per year, payable semimonthly. During the Employment Term, the
Employee will be eligible to receive annual increases in the Base Salary as
determined in the sole discretion of the Board. The Employee shall be solely
responsible for taxes imposed on the Employee by reason of any compensation and
benefits provided under this Agreement and all such compensation and benefits
shall be subject to applicable withholding taxes.
4. Disability. If the Employee is unable, as reasonably determined by
----------
the Board, to perform his duties, services and responsibilities hereunder by
reason of a physical or mental infirmity for a total of ninety (90) calendar
days in any twelve-month period during the Employment Term ("Disability"), the
----------
Company shall not be obligated to pay the Employee any Base Salary for any
period of absence in excess of such ninety (90) calendar days and, in any case,
shall be entitled to terminate the Employee's employment hereunder in accordance
with Section 7.
5. Incentive Plans/Benefits. In addition to the payments of the Base
------------------------
Salary described above, during the Employment Term the Employee shall be: (i)
eligible to receive a performance based annual bonus equal to 100% of the
Employee's Base Salary upon attainment of 100% target performance, (ii) entitled
to reimbursement for reasonable membership dues in professional organizations,
and (iii) entitled to participate in employee benefit plans, policies, programs
and arrangements, as may be amended from time to time, that are provided
generally to senior executives of the Company to the extent the Employee meets
the eligibility requirements for any such plan, policy, program or arrangement.
6. Vacations. During the Employment Term the Employee shall be
---------
entitled to the number of paid vacation days in each calendar year determined by
the Company in accordance with the Company's policies in effect from time to
time.
7. Termination. The Employee's employment with the Company and the
-----------
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events (the date of
termination, the "Termination Date"):
----------------
(a) The death of the Employee ("Death").
-----
(b) The mutual agreement between the Company and the Employee that the
employment of the Employee with the Company shall be terminated.
- 2 -
<PAGE>
(c) The termination of employment by the Company for Cause upon written
notice (the "Cause Notice") to the Employee specifying the conduct constituting
Cause. Termination of employment for "Cause" shall mean termination based on:
-----
(i) the conviction of the Employee of any crime involving the property or
business of the Company, (ii) the Employee's repeated, reckless misconduct
injurious to the Company and failure to cure such action within ten (10) days
after written demand for substantial improvement in performance with reasonable
detail delivered to the Employee by the Board, or (iii) the Employee's material
breach of this Agreement. For all purposes of the Employee's employment by the
Company, if the Employee's employment is terminated for Cause, the effective
date of such termination shall be the date of delivery of the Cause Notice.
(d) The termination of employment by the Company for Disability.
(e) The termination of employment by the Company other than for Cause,
Disability or Death.
(f) The termination of employment by the Employee for Good Reason. "Good
----
Reason" shall mean: (i) any reduction in Base Salary, (ii) any material
- ------
diminution in the Employee's position, duties or responsibilities, or (iii) any
relocation of the corporate headquarters of Diginet Americas, Inc. to a location
that is more than one hundred (100) miles from the present location of such
corporate headquarters.
In the event of termination of the Employee's employment, for whatever
reason (other than Death), the Employee agrees to cooperate with the Company,
its subsidiaries and affiliates and to be reasonably available to the Company,
its subsidiaries and affiliates with respect to continuing and/or future matters
arising out of the Employee's employment hereunder or any other relationship
with the Company, its subsidiaries or affiliates, whether such matters are
business-related, legal or otherwise.
8. Termination Payments.
--------------------
(a) If the Employee's employment with the Company terminates, the
Company will pay the Employee (i) any accrued and unpaid Base Salary as of the
Termination Date and (ii) an amount equal to such reasonable and necessary
business expenses incurred by the Employee in connection with the Employee's
employment on behalf of the Company on or prior to the Termination Date but not
previously paid to the Employee (the "Accrued Compensation").
--------------------
(b) If the Employee's employment with the Company terminates pursuant to
Subsection (e) or (f) of Section 7 hereof, for a period of one year following
- 3 -
<PAGE>
the Termination Date, but only for so long as the Employee is in compliance with
Section 10 hereof, the Company shall continue to pay the Employee the Base
Salary in accordance with the normal payroll practices of the Company with
respect to such Base Salary, and shall continue to provide the Employee with
medical coverage substantially comparable to that provided generally to senior
officers of the Company.
(c) If the Employee's employment with the Company terminates
pursuant to Subsections (a) or (d) of Section 7 hereof, for a period of six
months following the Termination Date, but only for so long as the Employee is
in compliance with Section 10 hereof, the Company shall continue to pay the
Employee the Base Salary in accordance with the normal payroll practices of the
Company with respect to such Base Salary, and shall continue to provide the
Employee with medical coverage substantially comparable to that provided
generally to senior officers of the Company.
(d) Vesting of Options. In the event the Employee's employment
------------------
terminates pursuant to Subsections (a), (d), (e) or (f) of Section 7 hereof, (i)
the portion of any options to acquire shares of the Company's common stock (the
"Common Stock") held by the Employee which are scheduled to become vested and
exercisable within six months of the Termination Date shall become vested and
exercisable on the Termination Date, (ii) any unvested shares of Common Stock
acquired by the Employee, pursuant to the exercise of options, which are
scheduled to vest within six months of the Termination Date shall vest on the
Termination Date shall vest on the Termination Date, and (iii) any vested
options held by the Employee on the Termination Date shall remain exercisable
for a period of one year thereafter. Nothing herein shall be construed to limit
the vesting of all such options upon a Change of Control Transaction as provided
in the Diginet Americas, Inc. 1996 Stock Option Plan.
(e) All options to acquire shares of Common Stock granted to the
Employee on March 10, 1999 (the "Grant Date") shall be subject to all of the
terms of the Company's standard early exercise stock option agreement as in
effect on the Grant Date. Notwithstanding the foregoing sentence, such options
and any restricted shares of Common Stock acquired upon early exercise of such
options shall vest and no longer be forfeitable according to the following
schedule: 10% of the shares of Common Stock shall be vested on the Grant Date,
15% of the shares of Common Stock shall vest on March 10, 2000, and 1/48 of the
shares of Common Stock shall vest on the 10th of each month thereafter, in each
case, if the Employee is employed by the Company on such date.
9. Call Rights.
-----------
(a) Subject to Subsection (b) of this Section 9, in the event that
the Employee's employment terminates pursuant to Subsection (c) of Section 7
hereof, the Company shall have a call right, enabling the Company (or its
designee) to require the Employee (or his successor or representative, as the
case may be) to sell to the Company (or its designee) all shares Common Stock
held by the Employee at a per
4
<PAGE>
share purchase price equal to the lesser of the amount paid by the Employee for
each share or the Fair Market Value of each such share as of the date of
exercise of such call right. The call right shall be exercisable by the Company
for twelve months after the later of (i) the Employee's termination of
employment and (ii) the exercise of the option.
(b) The Company's call right as provided herein shall expire at the
time of a Qualified IPO (as defined in the Stockholder Agreement, dated
April 16, 1999, by and among Diginet Americas, Inc., GS Capital Partners III,
L.P., and certain other stockholders).
(c) For purposes of this Section 9, the term "Fair Market Value" of a
-----------------
share of Common stock on any date means the value of such share of Common Stock
as determined in good faith by the Board.
10. Employee Covenants.
------------------
(a) Unauthorized Disclosure. The Employee agrees and understands that
-----------------------
in the Employee's position with the Company, the Employee will be exposed to and
will receive information relating to the confidential affairs of the Company,
its subsidiaries and affiliates, including but not limited to technical
information, intellectual property, business and marketing plans, strategies,
customer information, other information concerning the products, promotions,
development, financing, expansion plans, business policies and practices of the
Company, its subsidiaries and affiliates, and other forms of information
considered by the Company to be confidential and in the nature of trade secrets
("Confidential Information"). The Employee agrees that during the Employment
------------------------
Term and thereafter, the Employee will not disclose such Confidential
Information, either directly or indirectly, to any third person or entity
without the prior written consent of the Company. This confidentiality covenant
has no temporal, geographical or territorial restriction. Upon termination of
the Employment Term, the Employee will promptly supply to the Company all
property, keys, notes, memoranda, writings, lists, files, reports, customer
lists, correspondence, tapes, disks, cards, surveys, maps, logs, machines,
technical data or any other tangible product or document which has been produced
by, received by or otherwise submitted to the Employee during or prior to the
Employment Term. Any material breach of the terms of this paragraph shall be
considered Cause.
(b) Non-competition. By and in consideration of the Company's entering
---------------
into this Agreement and the payments to be made and benefits to be provided by
the Company hereunder, and further in consideration of the Employee's exposure
to the proprietary information of the Company, its subsidiaries and affiliates,
and further in consideration of the investments in the Company made by the
"Investors" (as defined in the Preferred Stock and Warrant Purchase Agreement,
---------
dated April 16, 1999, by and among Diginet Americas, Inc., GS Capital Partners
III, L.P., and certain other investors (the "Purchase Agreement")), the
Employee agrees that the Employee will not, during the
- 5 -
<PAGE>
Employment Term, and thereafter during the "Non-competition Term" (as defined
--------------------
below), directly or indirectly, own, manage, operate, join, control, be employed
by, or participate in the ownership, management, operation or control of, or be
connected in any manner with, including but not limited to holding any position
as a shareholder, director, officer, consultant, independent contractor,
employee, partner, or investor in, any "Restricted Enterprise" (as defined
---------------------
below); provided that in no event shall ownership of less than 1% of the
--------
outstanding equity securities of any issuer whose securities are registered
under the Securities and Exchange Act of 1934, as amended, standing alone, be
prohibited by this Subsection (b) of this Section 10. For purposes of this
paragraph, the term "Restricted Enterprise" shall mean any person, corporation,
---------------------
partnership or other entity that is engaged, directly or indirectly, in
providing local data and/or voice telecommunications services in Latin America.
Following termination of the Employment Term, upon request of the Company, the
Employee shall notify the Company of the Employee's then current employment
status. For purposes of this Agreement, the "Non-competition Term" shall mean
--------------------
the period beginning on the Termination Date and ending on the second
anniversary of such date. Any material breach of the terms of this paragraph
shall be considered Cause.
(c) Non-solicitation. During the Non-competition Term, the Employee
----------------
shall not, and shall not cause any other person to, interfere with or harm, or
attempt to interfere with or harm, the relationship of the Company, any of its
subsidiaries or affiliates with, or endeavor to entice away from the Company,
any of its subsidiaries or affiliates, or hire, any person who at any time
during the Employment Term was an employee or customer of the Company, any of
its subsidiaries or affiliates, or otherwise had a material business
relationship with the Company, any of its subsidiaries or affiliates.
(d) Remedies. The Employee agrees that any breach of the terms of this
--------
Section 10 would result in irreparable injury and damage to the Company, its
subsidiaries and/or its affiliates for which the Company, its subsidiaries
and/or its affiliates would have no adequate remedy at law; the Employee
therefore also agrees that in the event of said breach or any threat of breach,
the Company, its subsidiaries and/or its affiliates, as applicable, shall be
entitled to an immediate injunction and restraining order to prevent such breach
and/or threatened breach and/or continued breach by the Employee and/or any and
all persons and/or entities acting for and/or with the Employee, without having
to prove damages, in addition to any other remedies to which the Company, its
subsidiaries and/or its affiliates may be entitled at law or in equity. The
terms of this paragraph shall not prevent the Company, its subsidiaries and/or
its affiliates from pursuing any other available remedies for any breach or
threatened breach hereof, including but not limited to the recover of damages
from the Employee. The Employee and the Company further agree that the
provisions of the covenants contained in this Section 10 are reasonable and
necessary to protect the businesses of the Company, its subsidiaries and
affiliates because of the Employee's access to Confidential Information and his
material participation in the operation of such businesses. Should a court,
arbitrator or other similar authority
- 6 -
<PAGE>
determine, however, that any provision of the covenants contained in this
Section 10 are not reasonable or valid, either in period of time, geographical
area, or otherwise, the parties hereto agree that such covenants should be
interpreted and enforced to the maximum extent to which such court or arbitrator
deems reasonable or valid.
The existence of any claim or cause of action by the Employee against
the Company and/or its subsidiaries and/or its affiliates, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company or the covenants contained in this Section 10.
11. Non-Waiver of Rights. The failure to enforce at any time the
--------------------
provisions of this Agreement or to require at any time performance by any other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of any party to enforce each and every provision
in accordance with its terms.
12. Notices. Every notice relating to this Agreement shall be in
-------
writing and shall be given by personal delivery or by registered or certified
mail, postage prepaid, return receipt requested.
13. Binding Effect/Assignment. This Agreement shall inure to the
-------------------------
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitations, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
14. Entire Agreement. This Agreement and the Option Agreement,
----------------
dated April 16, 1999, between the Employee and the Company, sets forth the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, written or oral, between them as to
such subject matter, including the Employment Agreement between the Employee and
the Company executed by the Employee on January 30, 1999, which shall be null
and void. This Agreement may not be amended, nor may any provision hereof be
modified or waived, except by an instrument in writing duly signed by the party
to be charges.
15. Severability. If any provision of this Agreement, or any
------------
application thereof to any circumstances, is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
16. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
reference to the principles of conflict of laws.
- 7 -
<PAGE>
17. Arbitration. The Employee agrees that, at the Company's election
-----------
(which election may be made on the Company's sole and absolute discretion at any
time prior to the commencement of a judicial proceeding by the Company or, in
the event instituted by the Employee, at any time prior to the last day to
answer and/or respond to a summons and/or complaint made by the Employee), any
dispute of any kind, nature or description between the parties hereto in respect
of, relating to, or arising out of this agreement, the Employee's employment by
the Company, and/or the termination thereof, shall be submitted to binding
arbitration in the District of Columbia before the American Arbitration
Association.
18. Modifications and Waivers. No provision of this Agreement may be
-------------------------
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by any party hereto of any breach by any other party
hereto of any provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions at the time or at
any prior or subsequent time.
19. Headings. The headings contained herein are solely for the
--------
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instruments.
21. Effective Date. This Agreement shall become effective only upon
--------------
the date of the First Closing, as defined in the Purchase Agreement (the
"Effective Date"). If the First Closing Agreement does not occur, this
--------------
Agreement shall be null and void.
- 8 -
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
by authority of its Board of Directors, and the Employee has hereunto set his
hand, on the day and year first above written.
Company:
-------
Diginet Americas, Inc.
By: /s/ Laurence A. Hinz
----------------------------------
Name:
Title
Employee:
--------
/s/ David Schmieg
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David Schmieg
- 9 -
<PAGE>
Exhibit 10.10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of
March 20, 2000 (the "Effective Date"), by and between Diginet Americas, Inc., a
Delaware corporation (the "Company"), and Leon Garza (the "Employee").
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WHEREAS, the Employee represents that he possesses skills, experience and
knowledge that are of value to the Company; and
WHEREAS, the Company desires to enlist the services and employment of the
Employee on behalf of the Company and the Employee is willing to render such
services on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Employment Term. Except for earlier termination as provided for in
---------------
Section 7 hereof, the Company hereby agrees to employ the Employee, and the
Employee hereby agrees to be employed by the Company, subject to the terms and
provisions of this Agreement, for the period commencing on the "Effective Date"
--------------
(as defined in Section 21 below) and ending on the third anniversary of such
date (the "Initial Term"), provided, however, that upon expiration of the
------------ -------- -------
Initial Term, the term of employment shall be automatically extended for a
period of two years, unless either the Company or the Employee shall have given
written notice to the other at least ninety (90) days prior to the expiration of
the Initial Term that the term of employment shall not be so extended (the
Initial Term ) and any subsequent period of extension of employment, the
"Employment Term").
- ----------------
2. Duties. During the Employment Term the Employee shall serve as
------
President and Chief Operating Officer of the Company. The Employee shall
perform such senior executive duties, services and responsibilities on behalf of
the Company and its subsidiaries as determined by the Chairman and Chief
Executive Officer (the "CEO"). In performing such duties hereunder, the
Employee will report directly to the Chairman and CEO.
The Employee shall devote his full business time, attention and skill
to the performance of such duties, services and responsibilities, and will use
his commercially reasonable efforts to promote the interests of the Company. The
Employee will not, without the approval of the Board of Directors of the Company
(the "Board") (a) engage in any corporate, civic or charitable activity which
would interfere with the performance of his duties as an employee of the
Company, is in violation of reasonable written Company policies, is in violation
of applicable law, or would create a conflict of interest with respect to the
Employee's obligations as an employee of the Company, or (b) deliver lectures,
fulfill speaking engagements or teach at educational institutions for
compensation.
1
<PAGE>
3. Compensation. In full consideration of the performance by the Employee
------------
of the Employee's obligations during the Employment Term (including any services
as an officer, director, employee or member of any committee of any subsidiary
or Affiliate of the Company, or otherwise on behalf of the Company), the
Employee shall receive a base salary (the "Base Salary") at an annual rate of
-----------
$250,000 per year, payable semimonthly. During the Employment Term, the
Employee will be eligible to receive annual increases in the Base Salary as
determined in the sole discretion of the Chairman and CEO and the Board. The
Employee shall be solely responsible for taxes imposed on the Employee by reason
of any compensation and benefits provided under this Agreement and all such
compensation and benefits shall be subject to applicable withholding taxes.
For purposes hereof, "Affiliate" shall mean, with respect to the Company,
any entity at a time Controlling, Controlled by or under common Control with
Company. "Control" and its derivatives shall mean: (i) with regard to any
entity, the legal, beneficial, or equitable ownership, directly or indirectly,
of fifty percent (50%) or more of the capital stock (or other ownership
interest), if not a corporation) of such entity ordinarily having voting rights
or (ii) with regard to any entity, the management control over such entity.
4. Disability. If the Employee is unable, as reasonably determined by the
----------
Board, to perform his duties, services and responsibilities hereunder by reason
of a physical or mental infirmity for a total of ninety (90) calendar days in
any twelve-month period during the Employment Term ("Disability"), the Company
----------
shall not be obligated to pay the Employee any Base Salary for any period of
absence in excess of such ninety (90) calendar days and, in any case, shall be
entitled to terminate the Employee's employment hereunder in accordance with
Section 7.
5. Incentive Plans/Benefits. In addition to the payments of the Base
------------------------
Salary described above, during the Employment Term the Employee shall be: (i)
eligible to receive a performance based annual bonus equal to 65% of the
Employee's Base Salary upon attainment of 100% target performance, (ii) entitled
to participate in employee benefit plans, policies, programs and arrangements,
as may be amended from time to time, that are provided generally to senior
executives of the Company to the extent of the Employee meets the eligibility
requirements for any such plan, policy, program or arrangement.
6. Vacations. During the Employment Term the Employee shall be entitled
---------
to the number of paid vacation days in each calendar year determined by the
Company in accordance with the Company's policies in effect from time to time.
This is four weeks at time of hire.
7. Termination. The Employee's employment with the Company and the
-----------
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events (the date of
termination, the "Termination Date"):
----------------
2
<PAGE>
(a) The death of the Employee ("Death").
-----
(b) The mutual agreement between the Company and the Employee
that the employment of the Employee with the Company shall be terminated.
(c) The termination of employment by the Company for Cause upon
written notice (the "Cause Notice") to the Employee specifying the conduct
constituting Cause. Termination of employment for "Cause" shall mean
-----
termination based on: (i) the conviction of the Employee of any crime involving
the property or business of the Company or; (ii) the Employee's repeated,
reckless misconduct injurious to the Company and failure to cure such action
within ten (10) days after written demand for substantial improvement in
performance with reasonable detail delivered to the Employee by the Board. For
all purposes of the Employee's employment by the Company, if the Employee's
employment is terminated for Cause, the effective date of such termination shall
be the date of delivery of the Cause Notice.
(d) The termination of employment by the Company for Disability.
(e) The termination of employment by the Company other than for
Cause, Disability or Death.
(f) The termination of employment by the Employee for Good Reason.
"Good Reason" shall mean: (i) any reduction in Base Salary, (ii) any material
- ------------
diminution in the Employee's position, duties or responsibilities, (iii) a
change of control of the Company (as defined below), (iv) any relocation of the
employee's workplace to a location that is more than one hundred (100) miles
from the present location of such headquarters.
(g) Termination by the Employee for other than Good Reason.
In the event of the termination of the Employee's employment, for whatever
reason (other than Death), the Employee agrees to cooperate upon reasonable
request with the Company, its subsidiaries and Affiliates and to be reasonably
available to the Company, its subsidiaries and Affiliates as a matter of
professional courtesy, with respect to continuing and/or future matters arising
out of the Employee's employment hereunder with the Company, its subsidiaries or
Affiliates, whether such matters are business-related, legal or otherwise.
8. Termination Payments.
--------------------
(a) If the Employee's employment with the Company terminates, the
Company will pay the Employee (i) any accrued and unpaid Base Salary as of the
Termination Date and (ii) an amount equal to such reasonable and necessary
business expenses incurred by the Employee in connection with the Employee's
employment on behalf of the Company on or prior to the Termination Date but not
previously paid to the Employee (the "Accrued Compensation").
--------------------
3
<PAGE>
(b) If the Employee's employment with the Company terminates
pursuant to Subsection (e) or (f) of Section 7 hereof and prior to one year
employment, for a period of six months following the Termination Date, but only
for so long as the Employee is in compliance with Section 10 hereof, the Company
shall continue to pay the Employee the Base Salary in accordance with the normal
payroll practices of the Company with respect to such Base Salary, and shall
continue to provide the Employee with medical coverage and related benefits
substantially comparable to that provided generally to senior officers of the
Company. If the Employee's employment with the Company terminates as described
above but after one year's employment, the period of salary and benefits
described will be for one year.
(c) If the Employee's employment with the Company terminates
pursuant to Subsections (a) or (d) of Section 7 hereof, for a period of six
months following the Termination Date, but only for so long as the Employee is
in compliance with Section 10 hereof, the Company shall continue to pay the
Employee the Base Salary in accordance with the normal payroll practices of the
Company with respect to such Base Salary, and shall continue to provide the
Employee with medical coverage and related benefits substantially comparable to
that provided generally to senior officers of the Company.
(d) Vesting of Options. In the event the Employee's employment
------------------
terminates pursuant to Subsections (a), (d), (e) or (f) of Section 7 hereof, (i)
the portion of any options to acquire shares of the Company's common stock (the
"Common Stock") held by the Employee which are scheduled to become vested and
exercisable within six months of the Termination Date shall become vested and
exercisable within three months of less than one year employment and on the
Termination Date, (ii), any unvested shares of Common Stock acquired by the
Employee, pursuant to the exercise of options, which are scheduled to vest
within three months or six months of the Termination date based on less than or
more than one year shall vest on the Termination Date, and (iii) any vested
options held by the Employee on the Termination Date shall remain exercisable
for a period of one year thereafter. Nothing herein shall be construed to limit
the vesting of all such options upon a Change of Control Transaction as provided
in the Diginet Americas, Inc. 1996 Stock Option Plan.
(e) All options to acquire shares of Common Stock granted to the
Employee on March 20, 2000 (the "Grant Date") shall be subject to all of the
----------
terms of the Company's standard early exercise stock option agreement as in
effect on the Grant Date. Notwithstanding the foregoing sentence or anything to
the contrary in any stock option agreement or plan, such options and any
restricted shares of Common Stock acquired upon early exercise of such options
shall vest and no longer be forfeitable according to the following schedule:
25% of the shares of Common Stock shall be vested on the first anniversary of
the Grant Date, and 1/48 of the shares of Common Stock shall vest on the 5th of
each month and thereafter following March 20, 2001, in each case, if the
Employee is employed by the Company on such date.
4
<PAGE>
9. Change of Control.
-----------------
(a) Notwithstanding the provisions of any agreement or
plan pursuant to which the Employee shall have been granted options to purchase
shares of the Company's capital stock ("Options") upon a Change in Control of
-------
the Company or a public announcement of an agreement or arrangement which will
result in a Change in Control through a strategic sale, all such Options granted
to the Employee shall become fully vested and in the event that the Employee's
employment is terminated for any reason all such Options shall not expire prior
to the 181st day after the date of such termination.
(b) For purposes of this Agreement, a Change of
Control shall be deemed to have occurred if: (a) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company (not including any securities acquired directly from the Company)
representing more than 30% of the combined voting power of the Company's then
outstanding securities; (b) during any period of two (2) consecutive years
during the term of this Agreement, individuals who at the beginning of such
period constitute the Board cease for any reason to constitute at least a
majority thereof, unless the election of each director who was not a director at
the beginning of such period has been approved in advance by directors
representing at least two-thirds of the directors then in office who were
directors at the beginning of the period; (c) the stockholders of the Company
approve a merger or consolidation of the Company with or into another
unaffiliated entity, or the merger of another unaffiliated entity into the
Company or any subsidiary thereof with the effect that immediately after such
transaction the stockholders of the Company immediately prior to such
transaction hold less than fifty percent (50%) of the total voting power of all
securities generally entitled to vote in the election of directors, managers or
trustees of the entity surviving such merger or consolidation; (d) the
stockholders of the Company approve a plan for the sale, lease or other transfer
of all or substantially all of the Company's assets to an unaffiliated person or
group (as such term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended); or (e) the adoption by the stockholders of the Company of
a plan relating to the liquidation or dissolution of the Company.
(c) Subject to Subsection (e) of this Section 9, in the event that the
Employee's employment terminates pursuant to Subsection (c) of Section 7 hereof,
the Company shall have a call right, enabling the Company (or its designee) to
require the Employee (or his successor or representative, as the case may be) to
sell to the Company (or its designee) all shares of Common Stock held by the
Employee at a per share purchase price equal to the lesser of the amount paid by
the Employee for each share or the Fair Market Value of each such share as of
the date of exercise of such call right. The call right shall be exercisable by
the Company for twelve months after the later of (i) the Employee's termination
of employment and (ii) the exercise of the Option.
5
<PAGE>
(d) The Company's call right as provided herein shall expire at the
time of an IPO.
(e) For purposes of this Section 9, the term "Fair Market Value" of a
-----------------
share of Common Stock on any date means the value of such share of Common Stock
as determined in good faith by the Board.
10. Employee Covenants.
------------------
(a) Unauthorized Disclosure. The Employee agrees and understands
-----------------------
that in the Employee's position with the Company, the Employee will be exposed
to and will receive information relating to the confidential affairs of the
Company, its subsidiaries and Affiliates, including but not limited to technical
information, intellectual property, business and marketing plans, strategies,
customer information, other information concerning the products, promotions,
development, financing, expansion plans, business policies and practices of the
Company, its subsidiaries and Affiliates, and other forms of information
reasonably considered by the Company to be confidential and in the nature of
trade secrets ("Confidential Information"). The Employee agrees that during the
------------------------
Employment Term and for a commercially reasonable period thereafter, the
Employee will not disclose such Confidential Information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. Upon termination of the employment Term, the Employee will supply
or make available to the Company in a timely manner all property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the Employee during or prior to the Employment Term.
Confidential Information shall not include information that: (i) is
previously know by Employee at the time of disclosure without obligation of
confidence, or without breach of this Agreement; (ii) is publicly disclosed
through no wrongful act of Employee; (iii) is received from a third party having
the right to lawfully possess and disclose same and without breach of this
Agreement; (iv) is independently developed by Employee without access or
reference to the Confidential Information, (v) is approved for release by
authorization of the Company; or (vi) is required to be disclosed by a court or
regulatory body of competent jurisdiction pursuant to applicable law or
regulation.
(b) Non-competition. By and in consideration of the Company's
---------------
entering into this Agreement and the payments to be made and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the Confidential Information of the Company, its
subsidiaries and Affiliates, the Employee agrees that the Employee will not,
during the Employment Term, and thereafter during the "Non-competition Term"
--------------------
(as defined below), directly or indirectly, own, manage, operate, join, control,
be employed by, or participate in the ownership, management, operation or
control of, or hold any position as an officer, consultant, independent
contractor, employee or partner in, any "Restricted Enterprise" (as defined
---------------------
below); provided that in no event shall ownership of less than 1% of the
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outstanding equity
6
<PAGE>
securities of any issuer whose securities are registered under the Securities
and Exchange Act of 1934, as amended, standing alone, be prohibited by this
Subsection (b) of this Section 10. For purposes of this paragraph, the term
"Restricted Enterprise" shall mean any person, corporation, partnership or other
---------------------
entity that is principally engaged in providing local data and/or voice
telecommunications services in Latin America. Following termination of the
Employment Term, upon request of the Company, the Employee shall notify the
Company of the Employee's then current employment status. For purposes of this
Agreement, the "Non-competition Term" shall mean the period beginning on the
--------------------
Termination Date and ending on the six month anniversary, if less than one year
employment, and on the first anniversary of such date if more than one year.
(c) Non-solicitation. During the Non-competition Term, the
----------------
Employee shall not, and shall not intentionally cause any other person to,
entice away from the Company, any of its subsidiaries or Affiliates, any person
who is an employee or customer of the Company, any of its subsidiaries or
Affiliates at the time of the Termination Date.
(d) Remedies. The Employee agrees that any breach of the terms of
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this Section 10 may result in irreparable injury and damage to the Company, its
subsidiaries and/or its Affiliates for which the Company, its subsidiaries
and/or its Affiliates may have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company, its subsidiaries and/or its Affiliates, as applicable, shall be
entitled to an immediate injunction and restraining order to prevent such breach
and/or threatened breach and/or continued breach by the Employee and/or any and
all persons and/or entities acting for and/or with the Employee, without having
to prove damages, in addition to any other remedies to which the Company, its
subsidiaries and/or its Affiliates may be entitled at law or in equity. The
terms of this paragraph shall not prevent the Company, its subsidiaries and/or
its Affiliates from pursuing any other available remedies for any breach or
threatened breach hereof, including but not limited to the recovery of damages
from the Employee. The Employee and the Company further agree that the
provisions of the covenants contained in this Section 10 are reasonable and
necessary to protect the businesses of the Company, its subsidiaries and
Affiliates because of the Employee's access to Confidential Information and his
material participation in the operation of such businesses. Should a court,
arbitrator or other similar authority determine, however, that any provision of
the covenants contained in this Section 10 are not reasonable or valid, either
in period of time, geographical area, or otherwise, the parties hereto agree
that such covenants should be interpreted and enforced to the maximum extent to
which such court or arbitrator deems reasonable or valid.
The existence of any claim or cause of action by the Employee against
the Company and/or its subsidiaries and/or its Affiliates, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants contained in this Section 10.
7
<PAGE>
11. Non-Waiver of Rights. The failure to enforce at any time the
--------------------
provisions of this Agreement or to require at any time performance by any other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of any party to enforce each and every provision
in accordance with its terms.
12. Notices. Every notice relating to this Agreement shall be in
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writing and shall be given by personal delivery or by registered or certified
mail, postage prepaid, return receipt requested.
13. Binding Effect/Assignment. This Agreement shall inure to the
-------------------------
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
14. Entire Agreement. This Agreement and the Option Agreement,
----------------
dated March 20, 2000, between the Employee and the Company, sets forth the
entire understanding of the parties hereto with respect to the subject matter
hereof and supersedes all prior agreements, written or oral, between them as to
such subject matter. This Agreement may not be amended, nor may any provision
hereof be modified or waived, except by an instrument in writing duly signed by
the party to be charged.
15. Severability. If any provision of this Agreement, or any application
------------
thereof to any circumstances is invalid, in whole or in part, such provision or
application shall to that extent be severable and shall not affect other
provisions or applications of this Agreement.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws of the State of New York, without reference to
the principles of conflict of laws.
17. Arbitration. The Employee agrees that, at the Company's election
-----------
(which election may be made on the Company's sole and absolute discretion at any
time prior to the commencement of a judicial proceeding by the Company or, in
the event instituted by the Employee, at any time prior to the last day to
answer and/or respond to a summons and/or complaint made by the Employee), any
dispute of any kind, nature or description between the parties hereto in respect
of arising out of this Agreement, the Employee's employment by the Company,
and/or the termination thereof, shall be submitted to binding arbitration in the
District of Columbia before the American Arbitration Association.
18. Modifications and Waivers. No provision of this Agreement may be
--------------------------
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by any party hereto of any breach by any other party
hereto of
8
<PAGE>
any provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions at the time or at any prior
or subsequent time.
19. Headings. The headings contained herein are solely for the
--------
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, on the day and year first above written.
Company:
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Diginet Americas, Inc.
By: /s/ David R. Schmieg
-----------------------------------
Name: David R. Schmieg
Title: Chairman and CEO
Employee:
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/s/ Leon Garza
---------------------------------------
Leon Garza
9
<PAGE>
[DIGINET LETTERHEAD APPEARS HERE] Exhibit 10.11
March 29, 1998
Mr. Laurence A. Hinz
1015 33rd Street, NW #706
Washington, D.C. 20007
Dear Larry,
I am pleased to present to you a formal offer to join the Diginet Americas, Inc.
("Diginet") team and, as a partner, play a pivotal role in building Diginet
into a great telecommunications company. I am confident that you will make a
significant contribution to Diginet's ambitious growth plans, flourish
professionally, and enjoy the endeavor on many levels. You clearly are a very
accomplished professional, and I truly believe that Diginet represents an
excellent platform for your considerable talents and natural abilities.
The position's formal title is Chief Financial Officer. You will report
directly to me, the Company's Chief Executive Officer, with dotted line
reporting to the Company's President and COO, Francisco Amaro. Your direct
responsibilities will include, but not be limited to, five broad areas:
. Capital Formation- Leading the capital formation effort, as the company
progresses through several rounds of private equity, vendor and/or
OPIC/IFC/Ex-Im Bank debt facilities, a possible strategic investment,
and onto the IPO and rounds of public high yield debt.
[Diginet Letterhead]
<PAGE>
2
. Board of Directors/Shareholder "Management"- I anticipate that the
Diginet Board of Directors will be very high powered and very involved
in Diginet's development. You will have primary responsibility for
interfacing with Investor and Outside Directors (including David
Solomon, the former CFO of Brooks Fiber), and facilitating efficient
Board dynamics. I suspect that you will find this Board-level exposure
professionally stimulating.
. Vendor Relations- Diginet will soon be negotiating a multi-country
strategic vendor contract, involving pricing, performance, and a long
term debt facility. You will be a key member of the team that negotiates
this critical transaction.
. M&A/Strategic Partnering- While there are no M&A or strategic partnering
activities planned in the near term, I envision a potential strategic
investment at the corporate level (candidates include ATT, Worldcom,
Sprint, Teleglobe, Intermedia, wireless CLECs), and strategic
investments at the country level to enhance Diginet's political/economic
clout. As such M&A/Strategic Partnering activity develops, you will be
intimately involved in this process.
. Classic Financial Management- Planning, budgeting, financial controls.
In addition to your central, line operating responsibilities, as a core member
of the management team, I anticipate that you actively will be involved in a
range of high-level decision making, including:
. Overall Corporate strategy and direction
. Key spectrum decisions throughout Latin America
. Establishing corporate culture and value-system
. Key sales and marketing decisions
. Establishment of in-country strategic/marketing alliances
<PAGE>
3
. Creating and deploying new products/service offerings that leverage
Diginet's transmission capabilities, lock-in customers, and provide
Diginet with enduring competitive advantages
I believe that Diginet represents an entrepreneurial opportunity, with many
unique advantages. We have put together a remuneration package that provides you
with venture upside and rewards, while offering you downside protection. The
offer includes "market" cash compensation, a signing bonus and an attractive
initial stock option package that rewards you for value-creation and also has
the potential to significantly enhance your net worth.
In addition, you will have all of the excitement, challenges, and satisfaction
of building a business from "the ground floor up", without corporate politics.
You will have an opportunity to build a team that you respect professionally,
and enjoy working with on a personal level. You will have an opportunity to
create with us a company, and a work environment, that reflects your values,
that is humane, meritocritous, and equitable. You also will be challenged
intellectually in determining how best to "export" new telecom/datacom/IT
technologies and product/services to the infrastructure-deprived environments of
Latin America.
The key terms of the revised Job Offer are outlined in Exhibit A. I appreciate
the importance of this career decision for you, and I would be pleased to
discuss the offer with you in depth.
Larry, we very much look forward to working with you, and to making Diginet an
overwhelming success. While we have known each other only a very short time, I
am confident that you will play a critical role in Diginet's success and that
you will find the experience exceptionally satisfying intellectually,
emotionally, and financially.
<PAGE>
4
Sincerely,
/s/ Scott Puritz
- ------------------------
Scott Puritz
Chairman and Chief Executive Officer
AGREED AND ACCEPTED
/s/ Laurence A. Hinz
- ------------------------
Laurence A. Hinz
3/31/98
- ------------------------
DATE
<PAGE>
5
Exhibit A
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Position: Chief Financial Officer
Reporting Relationship: Solid line to Chief Executive Officer (Puritz).
Dotted line to President/COO (Amaro).
Base Salary: $175,000, paid bi-monthly.
Signing Bonus: Cash Signing Bonus -- $50,000.
Equity Signing Bonus -- 50,000 stock options, fully
vested (see below).
Initial Stock Option
Grant: 250,000 stock options.
Annual Performance
Bonus: Determined by Board of Directors' Compensation
Committee.
Timing -- First annual review at 12/31/98. The
successful consummation of a strategic vendor deal,
prior to 12/31/98, will trigger a performance review
and potentially an early performance bonus.
Cash Component -- Up to 50% cash performance bonus, or
up to $80,000.
Equity Component -- It is anticipated that an
additional 5% of the stock of Diginet Americas, Inc.
will be allocated to a new management stock option
plan. This pool of new stock options will be used to
build and strengthen the corporate management team, and
to provide all executives with an
<PAGE>
6
opportunity to be benefit from shareholder value
creation. Accessing this stock option pool, you will
be eligible for additional stock options, above the
initial 250,000, as determined by Board of Directors'
Compensation Committee.
Diginet's venture capital investors will have a
dominant role on this committee. All of the potential
private equity firms that Diginet is considering for
its lead equity investor role have strong commitments
to providing management with significant equity
compensation, are skilled at crafting objective
performance benchmarks, and have demonstrable track
records at handsomely rewarding superior management
performance.
Vesting: 50,000 equity signing bonus fully-vested as of start
date. 200,000 additional stock options subject to
Diginet Americas' standard vesting schedule -- Four
year vesting schedule. First year cliff vesting,
monthly thereafter. Accelerated vesting ("full
vesting") in the event of change of control (i.e.,
strategic buyout).
Anticipated Strike
Price: $0.01 per share.
Benefits: Full Health Plan.
Participation in 401K plan (no Company matching).
Free parking.
Contract Term: 2 years. 2 year Extension Effective March 31, 2000
through March 30, 2002.
Start Date: 3/29/00(of renewal period)
/s/ David R. Schmieg, Chairman; CEO
/s/ Laurence A. Hinz
<PAGE>
Exhibit 10.12
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated as of
July 5, 1999 (the "Effective Date"), by and between Diginet Americas, Inc., a
Delaware corporation (the "Company"), and David Rutchik (the "Employee").
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WHEREAS, the Employee represents that he possesses skills, experience and
knowledge that are of value to the Company; and
WHEREAS, the Company desires to enlist the services and employment of the
Employee on behalf of the Company and the Employee is willing to render such
services on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Employment Term. Except for earlier termination as provided for in
---------------
Section 7 hereof, the Company hereby agrees to employ the Employee, and the
Employee hereby agrees to be employed by the Company, subject to the terms and
provisions of this Agreement, for the period commencing on the "Effective Date"
--------------
(as defined in Section 21 below) and ending on the third anniversary of such
date (the "Initial Term"), provided, however, that upon expiration of the
------------ -------- -------
Initial Term, the term of employment shall be automatically extended for a
period of two years, unless either the Company or the Employee shall have given
written notice to the other at least ninety (90) days prior to the expiration of
the Initial Term that the term of employment shall not be so extended (the
Initial Term ) and any subsequent period of extension of employment, the
"Employment Term").
- ----------------
2. Duties. During the Employment Term the Employee shall serve as
------
Executive Vice President Corporate Development, General Counsel and Secretary of
the Company. The Employee shall perform such senior executive duties,
services and responsibilities on behalf of the Company and its subsidiaries as
may be determined from time to time by the Chief Executive Officer (the "CEO").
In performing such duties hereunder, the Employee will report directly to the
CEO.
The Employee shall devote his full business time, attention and skill
to the performance of such duties, services and responsibilities, and will use
his commercially reasonable efforts to promote the interests of the Company. The
Employee will not, without the approval of the Board of Directors of the Company
(the "Board") (a) engage in any corporate, civic or charitable activity which
would interfere with the performance of his duties as an employee of the
Company, is in violation of reasonable written Company policies, is in violation
of applicable law, or would create a conflict of interest with respect to the
Employee's obligations as an employee of the Company, or (b) deliver lectures,
fulfill speaking engagements or teach at educational institutions for
compensation.
1
<PAGE>
3. Compensation. In full consideration of the performance by the Employee
------------
of the Employee's obligations during the Employment Term (including any services
as an officer, director, employee or member of any committee of any subsidiary
or Affiliate of the Company, or otherwise on behalf of the Company), the
Employee shall receive a base salary (the "Base Salary") at an annual rate of
-----------
$190,000 per year, payable semimonthly and an incentive bonus of $25,000 payable
in full upon the date that is thirty (30) days following the Effective Date.
During the Employment Term, the Employee will be eligible to receive annual
increases in the Base Salary as determined in the sole discretion of the CEO and
the Board. The Employee shall be solely responsible for taxes imposed on the
Employee by reason of any compensation and benefits provided under this
Agreement and all such compensation and benefits shall be subject to applicable
withholding taxes.
For purposes hereof, "Affiliate" shall mean, with respect to the Company,
any entity at a time Controlling, Controlled by or under common Control with
Company. "Control" and its derivatives shall mean: (i) with regard to any
entity, the legal, beneficial, or equitable ownership, directly or indirectly,
of fifty percent (50%) or more of the capital stock (or other ownership
interest), if not a corporation) of such entity ordinarily having voting rights
or (ii) with regard to any entity, the management control over such entity.
4. Disability. If the Employee is unable, as reasonably determined by the
----------
Board, to perform his duties, services and responsibilities hereunder by reason
of a physical or mental infirmity for a total of ninety (90) calendar days in
any twelve-month period during the Employment Term ("Disability"), the Company
----------
shall not be obligated to pay the Employee any Base Salary for any period of
absence in excess of such ninety (90) calendar days and, in any case, shall be
entitled to terminate the Employee's employment hereunder in accordance with
Section 7.
5. Incentive Plans/Benefits. In addition to the payments of the Base
------------------------
Salary and incentive bonus described above, during the Employment Term the
Employee shall be: (i) eligible to receive a performance based annual bonus
equal to 50% of the Employee's Base Salary upon attainment of 100% target
performance, (ii) entitled to reimbursement for reasonable membership dues in
professional organizations, and (iii) entitled to participate in employee
benefit plans, policies, programs and arrangements, as may be amended from time
to time, that are provided generally to senior executives of the Company to the
extent of the Employee meets the eligibility requirements for any such plan,
policy, program or arrangement.
6. Vacations. During the Employment Term the Employee shall be entitled
---------
to the number of paid vacation days in each calendar year determined by the
Company in accordance with the Company's policies in effect from time to time.
2
<PAGE>
7. Termination. The Employee's employment with the Company and the
-----------
Employment Term shall terminate upon the expiration of the Employment Term or
upon the earlier occurrence of any of the following events (the date of
termination, the "Termination Date"):
----------------
(a) The death of the Employee ("Death").
-----
(b) The mutual agreement between the Company and the Employee
that the employment of the Employee with the Company shall be terminated.
(c) The termination of employment by the Company for Cause upon
written notice (the "Cause Notice") to the Employee specifying the conduct
constituting Cause. Termination of employment for "Cause" shall mean
-----
termination based on: (i) the conviction of the Employee of any crime involving
the property or business of the Company or; (ii) the Employee's repeated,
reckless misconduct injurious to the Company and failure to cure such action
within ten (10) days after written demand for substantial improvement in
performance with reasonable detail delivered to the Employee by the Board. For
all purposes of the Employee's employment by the Company, if the Employee's
employment is terminated for Cause, the effective date of such termination shall
be the date of delivery of the Cause Notice.
(d) The termination of employment by the Company for Disability.
(e) The termination of employment by the Company other than for
Cause, Disability or Death.
(f) The termination of employment by the Employee for Good Reason.
"Good Reason" shall mean: (i) any reduction in Base Salary, (ii) any material
- ------------
diminution in the Employee's position, duties or responsibilities, (iii) a
change of control of the Company (as defined below), (iv) any relocation of the
corporate headquarters of Diginet Americas, Inc. to a location that is more
than one hundred (100) miles from the present location of such corporate
headquarters.
(g) Termination by the Employee for other than Good Reason.
In the event of the termination of the Employee's employment, for whatever
reason (other than Death), the Employee agrees to cooperate upon reasonable
request with the Company, its subsidiaries and Affiliates and to be reasonably
available to the Company, its subsidiaries and Affiliates as a matter of
professional courtesy, with respect to continuing and/or future matters arising
out of the Employee's employment hereunder with the Company, its subsidiaries or
Affiliates, whether such matters are business-related, legal or otherwise.
3
<PAGE>
8. Termination Payments.
--------------------
(a) If the Employee's employment with the Company terminates, the
Company will pay the Employee (i) any accrued and unpaid Base Salary as of the
Termination Date and (ii) an amount equal to such reasonable and necessary
business expenses incurred by the Employee in connection with the Employee's
employment on behalf of the Company on or prior to the Termination Date but not
previously paid to the Employee (the "Accrued Compensation").
--------------------
(b) If the Employee's employment with the Company terminates
pursuant to Subsection (e) or (f) of Section 7 hereof, for a period of one year
following the Termination Date, but only for so long as the Employee is in
compliance with Section 10 hereof, the Company shall continue to pay the
Employee the Base Salary in accordance with the normal payroll practices of the
Company with respect to such Base Salary, and shall continue to provide the
Employee with medical coverage and related benefits substantially comparable to
that provided generally to senior officers of the Company.
(c) If the Employee's employment with the Company terminates
pursuant to Subsections (a) or (d) of Section 7 hereof, for a period of six
months following the Termination Date, but only for so long as the Employee is
in compliance with Section 10 hereof, the Company shall continue to pay the
Employee the Base Salary in accordance with the normal payroll practices of the
Company with respect to such Base Salary, and shall continue to provide the
Employee with medical coverage and related benefits substantially comparable to
that provided generally to senior officers of the Company.
(d) Vesting of Options. In the event the Employee's employment
------------------
terminates pursuant to Subsections (a), (d), (e) or (f) of Section 7 hereof, (i)
the portion of any options to acquire shares of the Company's common stock (the
"Common Stock") held by the Employee which are scheduled to become vested and
exercisable within six months of the Termination Date shall become vested and
exercisable on the Termination Date, (ii), any unvested shares of Common Stock
acquired by the Employee, pursuant to the exercise of options, which are
scheduled to vest within six months of the Termination date shall vest on the
Termination Date, and (iii) any vested options held by the Employee on the
Termination Date shall remain exercisable for a period of one year thereafter.
Nothing herein shall be construed to limit the vesting of all such options upon
a Change of Control Transaction as provided in the Diginet Americas, Inc. 1996
Stock Option Plan.
(e) All options to acquire shares of Common Stock granted to the
Employee on July 5, 1999 (the "Grant Date") shall be subject to all of the terms
----------
of the Company's standard early exercise stock option agreement as in effect on
the Grant Date. Notwithstanding the foregoing sentence or anything to the
contrary in any stock option agreement or plan, such options and any restricted
shares of Common Stock acquired
4
<PAGE>
upon early exercise of such options shall vest and no longer be forfeitable
according to the following schedule: 25% of the shares of Common Stock shall be
vested on the Grant Date, and 1/48 of the shares of Common Stock shall vest on
the 5th of each month and thereafter following July 5, 2000, in each case, if
the Employee is employed by the Company on such date.
9. Change of Control.
-----------------
(a) Notwithstanding the provisions of any agreement or
plan pursuant to which the Employee shall have been granted options to purchase
shares of the Company's capital stock ("Options") upon an IPO (as defined below)
-------
or upon a Change in Control of the Company or a public announcement of an
agreement or arrangement which will result in a Change in Control, all such
Options granted to the Employee shall become fully vested and in the event that
the Employee's employment is terminated for any reason all such Options shall
not expire prior to the 181st day after the date of such termination.
(b) For purposes of this Agreement, a Change of Control shall be
deemed to have occurred if: (a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
(not including any securities acquired directly from the Company) representing
more than 30% of the combined voting power of the Company's then outstanding
securities; (b) during any period of two (2) consecutive years during the term
of this Agreement, individuals who at the beginning of such period constitute
the Board cease for any reason to constitute at least a majority thereof, unless
the election of each director who was not a director at the beginning of such
period has been approved in advance by directors representing at least two-
thirds of the directors then in office who were directors at the beginning of
the period; (c) the stockholders of the Company approve a merger or
consolidation of the Company with or into another unaffiliated entity, or the
merger of another unaffiliated entity into the Company or any subsidiary thereof
with the effect that immediately after such transaction the stockholders of the
Company immediately prior to such transaction hold less than fifty percent (50%)
of the total voting power of all securities generally entitled to vote in the
election of directors, managers or trustees of the entity surviving such merger
or consolidation; (d) the stockholders of the Company approve a plan for the
sale, lease or other transfer of all or substantially all of the Company's
assets to an unaffiliated person or group (as such term is used in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended); or (e) the
adoption by the stockholders of the Company of a plan relating to the
liquidation or dissolution of the Company.
(c) For the purposes of the Agreement, an IPO shall mean the first
registration under the Securities Act of 1933, as amended, of any shares of the
Company's capital stock.
5
<PAGE>
(d) Subject to Subsection (e) of this Section 9, in the event that the
Employee's employment terminates pursuant to Subsection (c) of Section 7 hereof,
the Company shall have a call right, enabling the Company (or its designee) to
require the Employee (or his successor or representative, as the case may be) to
sell to the Company (or its designee) all shares of Common Stock held by the
Employee at a per share purchase price equal to the lesser of the amount paid by
the Employee for each share or the Fair Market Value of each such share as of
the date of exercise of such call right. The call right shall be exercisable by
the Company for twelve months after the later of (i) the Employee's termination
of employment and (ii) the exercise of the Option.
(e) The Company's call right as provided herein shall expire at the
time of an IPO.
(f) For purposes of this Section 9, the term "Fair Market Value" of a
-----------------
share of Common Stock on any date means the value of such share of Common Stock
as determined in good faith by the Board.
10. Employee Covenants.
------------------
(a) Unauthorized Disclosure. The Employee agrees and understands
-----------------------
that in the Employee's position with the Company, the Employee will be exposed
to and will receive information relating to the confidential affairs of the
Company, its subsidiaries and Affiliates, including but not limited to technical
information, intellectual property, business and marketing plans, strategies,
customer information, other information concerning the products, promotions,
development, financing, expansion plans, business policies and practices of the
Company, its subsidiaries and Affiliates, and other forms of information
reasonably considered by the Company to be confidential and in the nature of
trade secrets ("Confidential Information"). The Employee agrees that during the
------------------------
Employment Term and for a commercially reasonable period thereafter, the
Employee will not disclose such Confidential Information, either directly or
indirectly, to any third person or entity without the prior written consent of
the Company. Upon termination of the employment Term, the Employee will supply
or make available to the Company in a timely manner all property, keys, notes,
memoranda, writings, lists, files, reports, customer lists, correspondence,
tapes, disks, cards, surveys, maps, logs, machines, technical data or any other
tangible product or document which has been produced by, received by or
otherwise submitted to the Employee during or prior to the Employment Term.
Confidential Information shall not include information that: (i) is
previously know by Employee at the time of disclosure without obligation of
confidence, or without breach of this Agreement; (ii) is publicly disclosed
through no wrongful act of Employee; (iii) is received from a third party having
the right to lawfully possess and disclose same and without breach of this
Agreement; (iv) is independently developed by Employee without access or
reference to the Confidential Information, (v) is approved for release by
authorization of the Company; or (vi) is required to be disclosed by a court or
regulatory body of competent jurisdiction pursuant to applicable law or
regulation.
6
<PAGE>
(b) Non-competition. By and in consideration of the Company's
------------------
entering into this Agreement and the payments to be made and benefits to be
provided by the Company hereunder, and further in consideration of the
Employee's exposure to the Confidential Information of the Company, its
subsidiaries and Affiliates, the Employee agrees that the Employee will not,
during the Employment Term, and thereafter during the "Non-competition Term"
--------------------
(as defined below), directly or indirectly, own, manage, operate, join, control,
be employed by, or participate in the ownership, management, operation or
control of, or hold any position as an officer, consultant, independent
contractor, employee or partner in, any "Restricted Enterprise" (as defined
---------------------
below); provided that in no event shall ownership of less than 1% of the
--------
outstanding equity securities of any issuer whose securities are registered
under the Securities and Exchange Act of 1934, as amended, standing alone, be
prohibited by this Subsection (b) of this Section 10. For purposes of this
paragraph, the term "Restricted Enterprise" shall mean any person, corporation,
---------------------
partnership or other entity that is principally engaged in providing local data
and/or voice telecommunications services in Latin America. Following
termination of the Employment Term, upon request of the Company, the Employee
shall notify the Company of the Employee's then current employment status. For
purposes of this Agreement, the "Non-competition Term" shall mean the period
--------------------
beginning on the Termination Date and ending on the first anniversary of such
date.
(c) Non-solicitation. During the Non-competition Term, the
----------------
Employee shall not, and shall not intentionally cause any other person to,
entice away from the Company, any of its subsidiaries or Affiliates, any person
who is an employee or customer of the Company, any of its subsidiaries or
Affiliates at the time of the Termination Date.
(d) Remedies. The Employee agrees that any breach of the terms of
--------
this Section 10 may result in irreparable injury and damage to the Company, its
subsidiaries and/or its Affiliates for which the Company, its subsidiaries
and/or its Affiliates may have no adequate remedy at law; the Employee therefore
also agrees that in the event of said breach or any threat of breach, the
Company, its subsidiaries and/or its Affiliates, as applicable, shall be
entitled to an immediate injunction and restraining order to prevent such breach
and/or threatened breach and/or continued breach by the Employee and/or any and
all persons and/or entities acting for and/or with the Employee, without having
to prove damages, in addition to any other remedies to which the Company, its
subsidiaries and/or its Affiliates may be entitled at law or in equity. The
terms of this paragraph shall not prevent the Company, its subsidiaries and/or
its Affiliates from pursuing any other available remedies for any breach or
threatened breach hereof, including but not limited to the recovery of damages
from the Employee. The Employee and the Company further agree that the
provisions of the covenants contained in this Section 10 are reasonable and
necessary to protect the businesses of the Company, its subsidiaries and
Affiliates because of the Employee's access to Confidential Information and his
material participation in the operation of such businesses. Should a court,
arbitrator or other similar authority determine, however, that any provision of
the covenants contained in this Section 10 are not reasonable or valid, either
in period of time, geographical area, or otherwise, the parties hereto agree
that such covenants should be interpreted and enforced to the maximum extent to
which such court or arbitrator deems reasonable or valid.
7
<PAGE>
The existence of any claim or cause of action by the Employee against
the Company and/or its subsidiaries and/or its Affiliates, whether predicated on
this Agreement or otherwise, shall not constitute a defense to the enforcement
by the Company of the covenants contained in this Section 10.
11. Non-Waiver of Rights. The failure to enforce at any time the
--------------------
provisions of this Agreement or to require at any time performance by any other
party of any of the provisions hereof shall in no way be construed to be a
waiver of such provisions or to affect either the validity of this Agreement or
any part hereof, or the right of any party to enforce each and every provision
in accordance with its terms.
12. Notices. Every notice relating to this Agreement shall be in
-------
writing and shall be given by personal delivery or by registered or certified
mail, postage prepaid, return receipt requested.
13. Binding Effect/Assignment. This Agreement shall inure to the
-------------------------
benefit of and be binding upon the parties hereto and their respective heirs,
executors, personal representatives, estates, successors (including, without
limitation, by way of merger) and assigns. Notwithstanding the provisions of
the immediately preceding sentence, the Employee shall not assign all or any
portion of this Agreement without the prior written consent of the Company.
14. Entire Agreement. This Agreement and the Option Agreement,
----------------
dated July 5, 1999, between the Employee and the Company, sets forth the entire
understanding of the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements, written or oral, between them as to such
subject matter. This Agreement may not be amended, nor may any provision hereof
be modified or waived, except by an instrument in writing duly signed by the
party to be charged.
15. Severability. If any provision of this Agreement, or any
------------
application thereof to any circumstances is invalid, in whole or in part, such
provision or application shall to that extent be severable and shall not affect
other provisions or applications of this Agreement.
16. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the internal laws of the State of New York, without
reference to the principles of conflict of laws.
17. Arbitration. The Employee agrees that, at the Company's election
-----------
(which election may be made on the Company's sole and absolute discretion at any
time prior to the commencement of a judicial proceeding by the Company or, in
the event instituted by the Employee, at any time prior to the last day to
answer and/or respond to a summons and/or complaint made by the Employee), any
dispute of any kind, nature or
8
<PAGE>
description between the parties hereto in respect of arising out of this
Agreement, the Employee's employment by the Company, and/or the termination
thereof, shall be submitted to binding arbitration in the District of Columbia
before the American Arbitration Association.
18. Modifications and Waivers. No provision of this Agreement may be
--------------------------
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by any party hereto of any breach by any other party
hereto of any provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions at the time or at
any prior or subsequent time.
19. Headings. The headings contained herein are solely for the
--------
purposes of reference, are not part of this Agreement and shall not in any way
affect the meaning or interpretation of this Agreement.
20. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by authority of its Board of Directors, and the Employee has hereunto
set his hand, on the day and year first above written.
Company:
--------
Diginet Americas, Inc.
By: /s/ Dave Schmieg
---------------------------------
Name: Dave Schmieg
Title: CEO
Employee:
--------
/s/ David Rutchik
------------------------------------
David Rutchik
9
<PAGE>
Exhibit 10.13
[DIGINET Letterhead appears here]
October 5, 1997
John B. Holmblad
11686 Fox Glen Drive
Oakton, Virginia 22124
Dear John,
I am please to present to you a formal job offer to join the Diginet Americas,
Inc. ("Diginet") team and play a pivotal role in building Diginet into a great
telecommunications company. I am confident that you will make a significant
contribution to Diginet's ambitious growth plans, flourish professionally, and
enjoy the endeavor on many levels.
The formal title that we propose for you is Chief Technical Officer and Senior
Vice President Operations. As we have discussed, this title does not adequately
describe the pivotal role that I envision you playing. You will be one of three
executives, including myself and the Chief Operating Officer, who will lead the
Company and be responsible for its growth and ultimate success. In this
capacity, I anticipate that you will be actively involved with:
. Board of Director-level decision making
. Overall Corporate strategy and direction
. Capital formation
. Strategic partnering, M&A
. Key spectrum decisions throughout Latin America
. Establishing corporate culture and value-system
[DIGINET Letterhead]
<PAGE>
2
. Key hiring decisions, including selection of key executive positions
in Latin America
. Key sales and marketing decisions
. Establishment of in-country strategic/marketing alliances
. Creating and deploying new product/service offerings that leverage
Diginet's transmission capabilities, lock-in customers, and provide
Diginet with enduring competitive advantages
I anticipate that we will work closely together through various rounds of
private equity and debt financings, and that you will be involved in all phases
of the IPO process, including selection of the lead underwriters, production of
the IPO prospectus, and participation in the marketing "road show". I suspect
that you will find this capital formation exposure quite enjoyable, and that the
experience will certainly enhance your career profile.
Your direct responsibilities will include, but not be limited to, everything
involved in designing, building, maintaining, and growing Diginet's "wireless
fiber" networks throughout the major urban markets of Latin America. I
anticipate that this will include negotiating with vendors, assembling
management teams at both the U.S. and Latin American levels, establishing
U.S.-levels of quality and customer service, negotiating with Latin regulatory
authorities, and intelligently leveraging Diginet's transmission capabilities
with value-added product/services.
I am very sensitive to the importance of the career decision that currently
confronts you, your role as sole family "bread winner", and to the risks that
one normally associates with early stage companies. As such, we have put
together a job offer that addresses many of these concerns, and, in my opinion,
provides you with venture upside and rewards, while offering you unique downside
protection. The offer includes "market" cash compensation, and a stock option
package currently valued at $700,000 today (as determined by Series A
Convertible Preferred investors), and hopefully worth multiples of this figure
in the not too distant future.
<PAGE>
3
I have complete confidence in our ability to furnish Diginet with the proper
levels of capital to effectively grow the Company into a world-class
telecommunications competitor. This is based upon my fund-raising track record
(over $50 million in 2.5 years for Radio Movil Diginet Americas, Inc.), the ease
with which we have established a $2 million Bridge Financing facility (and the
high quality of the Bridge Financing investors), and the tremendous response
that Diginet has received after being in the capital markets only a short period
of time (including having received a term sheet for a $15 million equity
investment). The level of our personal investment in Diginet (almost $2 million
to date) further highlights our level of confidence.
Nonetheless, I can fully appreciate your concerns regarding Diginet's short and
medium-term financial health. As such, I am prepared to completely eliminate
this risk factor, so that you can fully assess the Diginet opportunity, and how
it fits with your career goals and ambitions. As a backstop to Diginet's
corporate financial resources, I will personally guarantee your cash
compensation for the next 12 months. This is a highly unusual gesture, and one
that reflects both my level of confidence in Diginet's future, and my sense that
you are ideally suited to play a pivotal role in Diginet's growth.
As we have discussed, in my experience, participation in a successful emerging
growth company provides many unique and rewarding benefits - You will have an
opportunity to build a management team that you respect professionally, and
enjoy working with on a personal level. You will have an opportunity to utilize
your professional experiences to mentor the next generation of Latin American
telecom/datacom engineers and senior executives. You will have an opportunity to
create a company, and a work environment, that reflects your values, that is
humane and equitable, and brings "economic democracy" to Latin America. You will
be challenged intellectually in determining how best to "export" new
telecom/datacom/IT technologies and product/services to the
infrastructure-deprived environments of Latin America.
<PAGE>
4
You will be part of a team of people that will be dramatically improving Latin
American telecommunications infrastructure, thereby helping these counties and
their citizen. Finally, you will earn the satisfaction of being part of a team
that creates something tangible, unique and enduring.
The key terms of the Job Offer are outlined in Exhibit A. I would be pleased to
discuss these with you in depth, once you have had an opportunity to review this
letter.
John, we very much look forward to working with you, and to making Diginet an
overwhelming success. While we have known each other only a very short time, I
am confident that you will play a critical role in Diginet's success and that
you will find the experience exceptionally satisfying intellectually,
emotionally, and financially.
Sincerely,
/s/ Scott Puritz
- -----------------------
Scott Puritz
Chief Executive Officer
AGREED AND ACCEPTED
/s/ John B. Holmblad
- -----------------------
John B. Holmblad
October 5, 1997
- ---------------
DATE
<PAGE>
5
Exhibit A
-----------
Position: Executive Vice President & Chief Technology Officer
Base Salary: $190,000
Performance Bonus: Up to 50% base salary when salary exceeds $200,000
Up to 25% of Performance Bonus paid each quarter
through year 2000; annual beginning in 2001
Stock Options: Up to 700,000 total stock options.
500,000 stock options as part of Diginet's normal
vesting schedule (see below).
Signing bonus of 100,000 fully vested stock options.
------------
[Hand written notation] John currently has been granted 960,000 options.
-600,000 @ .01
- 25,000 @ .01
- 90,000 @ .10
- 75,000 @ .20
-170,000 @ .49
--------
960,000
Performance-based bonus of up to an additional 100,000
fully vested stock options, to be granted on a
------------
quarterly basis.
Vesting: Four year vesting schedule. First year cliff vesting,
monthly thereafter. Accelerated vesting ("full
vesting") in the event of change of control.
Anticipated Strike
Price: $0.01 per share.
<PAGE>
Benefits: Full Health Plan
Free parking
Participation in 401K plan, when established (no
Company matching)
Miscellaneous: Offer not binding until you execute Diginet's
standard Confidential Information/Non-
Competition/FCPA Compliance Agreement.
Salary Guarantee: First year salary to be guaranteed, on a
personal basis, by Scott Puritz.
Severence Payment: After one year employment, severence payment of
9 months base salary and standard pre-existing
benefits, one year accelerated vesting of
options and not less than 700,00 vested options
for involuntary termination.
Disability Insurance: Competitive disability coverage will be secured.
Vacation: Up to 4 weeks.
[Hand written notation]
Reporting Structure: John Holmbled will report to the President & COO
and will continue to be directly involved in all
senior management activities/meetings with the
CEO, COO and other EVP's as part of the CEO's
Executive Committee.
<PAGE>
Exhibit 21.1
List of Subsidiaries
Diveo, Inc.
Diginet Dominican Republic, Inc.
Diginet Panama, Inc.
Diveo de Panama S.A.
Diginet Paraguay, Inc.
Diveo de Paraguay S.A.
Diginet Venezuela, Inc.
Diveo Venezuela C.A.
Diginet Peru, Inc.
Diveo Telecomunicaciones del Peru S.A.
Tellink, S.A.
Diginet Ventures/Megalink, Inc.
Diginet Colombia, Inc.
Diveo de Colombia Ltda.
Diginet Mexico, Inc.
Diveo de Mexico S.A. de C.V.
Diveo Uruguay, Inc.
Diginet Uruguay S.A.
Diginet Chile, Inc.
Diveo de Chile S.A.
Diginet Ecuador, Inc.
Diveo de Ecuador S.A.
Diginet Argentina, Inc.
Diveo Argentina S.A.
Eritown S.A.
Diginet Brazil, Inc.
Comutacao Digital, Ltda.
Diveo do Brazil Telecomunicaciones Ltda.
EX21--1
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated March 8, 2000, except for Note 14, as to which the date
is April , 2000, in the Registration Statement (Form S-1) and related
Prospectus of Diveo Broadband Networks, Inc. for the registration of shares of
its common stock to be filed on or around March 31, 2000.
Ernst & Young LLP
McLean, VA
April ,2000
- --------------------------------------------------------------------------------
The foregoing consent is in the form that will be signed upon the completion of
the restatement of the capital accounts described in Note 14 to the consolidated
financial statements.
/s/ Ernst & Young LLP
McLean, VA
March 31, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 17,537
<SECURITIES> 64,751
<RECEIVABLES> 285
<ALLOWANCES> 23
<INVENTORY> 0
<CURRENT-ASSETS> 88,298
<PP&E> 36,311
<DEPRECIATION> 1,972
<TOTAL-ASSETS> 137,733
<CURRENT-LIABILITIES> 14,819
<BONDS> 0
0
143,249
<COMMON> 0
<OTHER-SE> (35,141)
<TOTAL-LIABILITY-AND-EQUITY> 137,733
<SALES> 1,143
<TOTAL-REVENUES> 1,143
<CGS> 3,276
<TOTAL-COSTS> 3,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551
<INCOME-PRETAX> (24,833)
<INCOME-TAX> 105
<INCOME-CONTINUING> (24,938)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (24,938)
<EPS-BASIC> (12.23)
<EPS-DILUTED> (0.94)
</TABLE>
