<PAGE>
As filed with the Securities and Exchange Commission on May 19, 2000
Registration Statement No. 333-35354
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
------------
NETtel Communications, Inc.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 4813 54-1877699
(State or Other
Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
1023 31st Street, N.W. James F. Kenefick
Washington, DC 20007 Chairman of the Board,
(202) 295-6600 Chief Executive Officer and President
(Address, including zip code, and NETtel Communications, Inc.
telephone number, including area code, 1023 31st Street, N.W.
of registrant's principal executive Washington, DC 20007
office) Telephone (202) 295-6600
Facsimile (202) 625-0078
(Name, address, including zip code,
and telephone number, including area
code,
of agent for service)
------------
Copies to:
Andrew M. Ray, Esq Scott Wornow, Esq.
Swidler Berlin Shereff Friedman, LLP Paul, Hastings, Janofsky & Walker LLP
3000 K Street, N.W., Suite 300 399 Park Avenue, 31st Floor
Washington, DC 20007 New York, NY 10022
Telephone (202) 424-7500 Telephone (212) 318-6000
------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
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, please 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, please 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>
Title of Securities Proposed Maximum Amount of
To be Registered Aggregate Offering Price(1) Registration Fee(2)
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock,
$.0001 par value............. $175,000,000 $46,200
- ------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act.
(2) Previously paid.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Securities and Exchange
Commission, acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The table below sets forth the expenses to be incurred by us in connection
with the issuance and distribution of the shares registered for offer and sale
hereby, other than underwriting discounts. All amounts shown represent
estimates except the Securities Act registration fee and the NASD filing fee.
<TABLE>
<S> <C>
Registration fee under the Securities Act of 1933................ $46,200
NASD filing fee.................................................. 18,000
Nasdaq National Market fee....................................... * (1)
Printing expenses................................................ * (1)
Registrar and Transfer Agent's fees and expenses................. * (1)
Accountants' fees and expenses................................... * (1)
Legal fees and expenses (not including Blue Sky)................. * (1)
Blue Sky fees and expenses....................................... * (1)
Federal taxes.................................................... * (1)
Miscellaneous.................................................... * (1)
-------
TOTAL........................................................... $ * (1)
=======
</TABLE>
---------------------
(1) To be completed by amendment.
Item 14. Indemnification of Directors and Officers.
Under Section 145 of the Delaware General Corporation Law, a corporation may
indemnify its directors, officers, employees and agents and its former
directors, officers, employees and agents and those who serve, at the
corporation's request, in such capacities with another enterprise, against
expenses (including attorney's fees), as well as judgments, fines and
settlements in nonderivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. The Delaware General
Corporation Law provides, however, that such person must have acted in good
faith and in a manner such person reasonably believed to be in (or not opposed
to) the best interests of the corporation and, in the case of a criminal
action, such person must have had no reasonable cause to believe his or her
conduct was unlawful. In addition, the Delaware General Corporation Law does
not permit indemnification in an action or suit by or in the right of the
corporation, where such person has been adjudged liable to the corporation,
unless, and only to the extent that, a court determines that such person fairly
and reasonably is entitled to indemnity for costs the court deems proper in
light of liability adjudication. Indemnity is mandatory to the extent a claim,
issue or matter has been successfully defended.
Our By-laws provide that, to the extent permitted by law, we shall fully
indemnify any person who is or was a party or is threatened to be made a party
or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a director or an officer of ours or is or was serving at our request
as a director, officer, employee of another corporation, partnership, joint
venture, trust or other enterprise, whether the basis of the proceeding is
alleged action in an official capacity as a director, officer, employee or
II-1
<PAGE>
agent or in any other capacity while serving as a director, officer, employee
or agent against all expense, liability and loss reasonably incurred by him or
her. However, if the indemnitee initiated the action, suit or proceeding, we
will only indemnify him or her if the action, suit or proceeding was
authorized by our board of directors.
Under our By-laws, we are also obligated to advance expenses to the
indemnitee incurred in his or her defense. If required by law, the indemnitee
must undertake to repay us if there is a final determination that he or she
was not entitled to indemnification. If we do not fully pay the indemnitee
within 60 days of receiving a written claim for indemnification, the
indemnitee has the right to sue us to recover the amount to of the claim. The
indemnification rights under our By-laws are not the indemnitee's exclusive
indemnification rights and we may indemnify the indemnitee pursuant to a
statute, our amended and restated certificate of incorporation, an agreement,
the vote of our stockholders or disinterested directors or otherwise. In
addition, we may purchase insurance to indemnify the indemnitees. Our By-laws
also permit us to indemnify and advance expenses associated with the
indemnification to any of our employees or agents.
Item 15. Recent Sales of Unregistered Securities.
The following paragraphs of this Item 15 describe all sales of securities
by us within the past three years which were not registered under the
Securities Act of 1933. Each issuance of securities described below was made
in reliance on the exemption from registration provided by Section 4(2) of the
Securities Act and/or Regulations D and Rule 701 promulgated thereunder as a
transaction by an issuer not involving any public offering. All recipients had
adequate access, through their relationship with us, to information about us.
Series A Redeemable Convertible Preferred Stock. On June 28, 1999, pursuant
to a private placement, we issued Series A Preferred Stock to Williams for a
total purchase price of $10,000,000, which were exchanged for Series B
Preferred Stock on July 23, 1999, upon the closing of the Series B offering.
Series B Redeemable Convertible Preferred Stock.
. On July 23, 1999, we issued pursuant to a private placement:
. 2,587.322 shares of Series B Preferred Stock to Nortel for a total
purchase price of $19,999,999.06.
. 1,940.491 shares of Series B Preferred Stock to Gold & Appel
Transfer, S.A. for a total purchase price of $14,999,995.43,
including the conversion of $8 million of debt.
. 1,293.661 shares of Series B Preferred Stock to Williams upon the
exchange of Williams' shares of Series A Preferred Stock.
. On August 2, 1999, pursuant to a private placement, we issued 646.830
shares of Series B Preferred Stock to Allied Capital Corporation for a
total purchase price of $4,999,995.90.
Series C Redeemable Convertible Preferred Stock.
. On April 20, 2000, we issued pursuant to a private placement:
. 567,537 shares of Series C Preferred Stock to Nortel for a total
purchase price of $5,000,001.
II-2
<PAGE>
. 340,523 shares of Series C Preferred Stock to Allied for a total
purchase price of $3,000,008.
. 90,806 shares of Series C Preferred Stock to Gold & Appel Transfer,
S.A. for a total purchase price of $800,000.
. 136,209 shares of Series C Preferred Stock to Foundation for the
International Non-Governmental Development of Space for a total
purchase price of $1,200,000.
. 227,015 shares of Series C Preferred Stock to Williams for a total
purchase price of $2,000,002 in the form of a credit against current
year payments on our Capacity Purchase Agreement.
Common Stock
. As of December 31, 1999, various employees have exercised incentive
stock options issued to them under our 1998 Stock Incentive Plan for a
total of 354,000 shares of common stock at a purchase price per share
ranging from $0.17 to $1.98, as provided under the incentive plan.
. On September 30, 1999, we issued 6,460 shares of our common stock to
Yukiko Sekine for a total purchase price of $49,935.80 pursuant to a
private placement.
. On September 2, 1999, we issued 12,936 shares of our common stock to
Joseph A. Lawrence for a total purchase price of $100,000 in connection
with his election to our board of directors.
. On September 25, 1999, we issued 12,936 shares of our common stock to
Lawrence J. Bouman for a total purchase price of $100,000 in connection
with his election to our board of directors.
. On August 8, 1999, we issued 26,000 shares of our common stock to Teresa
Wang for a total purchase price of $200,980 pursuant to a private
placement.
. On May 18, 1999, pursuant to a credit facility agreement, we issued
726,691 shares of our common stock to Gold & Appel Transfer, S.A. for
the conversion of $4,716,228 of debt.
. On April 7, 1999, pursuant to a credit facility agreement, we issued
592,900 shares of common stock to Gold & Appel Transfer, S.A. for the
conversion of $3,847,921 of debt.
. On June 16, 1998, we issued 770,000 shares to each of Atocha, L.P. and
Gold & Appel Transfer, S.A. for a purchase price of $5,000,000 from each
pursuant to a private placement.
. On February 24, 1998, we issued a total of 1,791,000 shares of common
stock to Atocha, L.P. and Gold & Appel Transfer, S.A. for a total
purchase price of $10,000,000 pursuant to a private placement.
Warrants. Please see "Description of Capital Stock -Warrants," which is
incorporated by reference herein from the prospectus included in Part I of
this registration statement.
Stock Options. Please see "Management--1998 Stock Incentive Plan," which is
incorporated by reference herein from the prospectus included in Part I of
this registration statement.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(A). Exhibits.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
------- -------------------
<C> <S>
1.1 Form of Underwriting Agreement *
3.1 Second Amended and Restated Certificate of Incorporation of NETtel
Communications, Inc.
3.2 Bylaws of NET-tel Holding Company
3.2.1 Form of Amended and Restated Bylaws of NETtel Communications, Inc.
4.1 Specimen Common Stock Certificate *
4.2 Stock Purchase Warrant, dated April 8, 1999, Certificate No. W-3
issued to Leasing Technologies International, Inc. by NETtel
Communications, Inc.
4.3 Stock Purchase Warrant, dated April 8, 1999, Certificate No. W-4
issued to Leasing Technologies International, Inc. by NETtel
Communications, Inc.
4.4 Stock Purchase Warrant, dated April 30, 1999, Certificate No. W-5
issued to Scott Loney by NETtel Communications, Inc.
4.5 Stock Purchase Warrant, dated April 30, 1999, Certificate No. W-6
issued to Tom Marino by NET-tel Communications, Inc.
4.6 Stock Purchase Warrant, dated August 2, 1999, issued to Allied Capital
Corporation
4.7 Common Stock Warrant Purchase Agreement, dated August 2, 1999, by and
among NETtel Communications, Inc., NET-tel Corporation and Allied
Capital Corporation
4.8 Registration Rights Agreement, dated July 23, 1999, by and among
NETtel Communications, Inc., James F. Kenefick, Williams
Communications, Inc., Gold & Appel Transfer, S.A., Allied Capital
Corporation, and Nortel Networks Inc.
4.8.1 First Amendment to Registration Rights Agreement, dated April 20,
2000, by and among NETtel Communications, Inc., Gold & Appel Transfer,
S.A., Williams Communications, Inc., Allied Capital Corporation and
Nortel Networks Inc.
4.9 Investor Rights Agreement, dated July 23, 1999, by and among NETtel
Communications, Inc., Gold & Appel Transfer S.A., Williams
Communications, Inc., Allied Capital Corporation, and Nortel
Networks Inc.
4.9.1 First Amendment to Investors Rights Agreement, dated April 20, 2000,
by and among NETtel Communications, Inc., Gold & Appel Transfer, S.A.,
Williams Communications, Inc., Allied Capital Corporation and Nortel
Networks Inc.
4.10 Form of NETtel Long-Term Incentive Plan
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP *
10.1 Employment Agreement, dated January 5, 1998, by and between David
Lynch and NET-tel, Inc.
10.2 Employment Agreement, dated January 26, 1998, by and between Ron Allen
and NET-tel, Inc.
10.3 Employment Agreement, dated January 26, 1998, by and between Ed
McNamara and NET-tel, Inc.
10.4 1998 Employee Stock Incentive Plan of NETtel Communications, Inc.,
adopted January 26, 1998, and amended January 26, 1998, September 30,
1998, March 15, 1999, November 10, 1999 and January 25, 2000
10.5 Branded Services Agreement, dated April 2, 1998, between Epoch
Networks, Inc. and NET-tel Corporation
10.5.1 First Amendment to Branded Services Agreement, dated July 16, 1998,
between Epoch Networks, Inc. and NET-tel Corporation
10.5.2 Second Amendment to Branded Services Agreement, dated September 28,
1998, between Epoch Networks, Inc. and NET-tel Corporation
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description
------- -------------------
<C> <S>
10.5.3 Third Amendment to Branded Services Agreement, dated February 22,
1999, between Epoch Networks, Inc. and NET-tel Corporation
10.5.4 Amendment to Branded Services Agreement, dated January 20, 2000,
between Epoch Networks, Inc. and NET-tel Corporation
10.6 1999 Employee Stock Purchase Plan of NET-tel Communications, Inc.,
effective April 7, 1999
10.7 Capacity Purchase Agreement, dated June 28, 1999, by and between
Williams Network and NET-tel Corporation ++
10.7.1 Amendment No. 1 to Capacity Purchase Agreement, dated as of June 28,
1999, by and between Williams Network and NET-tel Corporation
10.7.2 Amendment No. 2 to Capacity Purchase Agreement, dated as of April 20,
2000, by and between Williams Network and NET-tel Corporation
10.8 Credit Agreement, dated as of July 28, 1999, by and among NET-tel
Corporation, Nortel Networks Inc. and Allied Capital Corporation ++
10.8.1 First Amendment to Credit Agreement, dated as of July 28, 1999, by and
among NET-tel Corporation, NETtel Communications, Inc., Nortel
Networks Inc. and Allied Capital Corporation ++
10.8.2 Second Amendment to Credit Agreement, dated as of December 31, 1999,
by and among NET-tel Corporation, NETtel Communications, Inc., NET-tel
Corporation of Virginia, Nortel Networks Inc. and Allied Capital
Corporation ++
10.9 Guaranty Agreement, effective July 28, 1999, by NETtel Communications,
Inc. in favor of Nortel Networks Inc.
10.10 Pledge and Security Agreement, dated July 28, 1999, by and between
NETtel Communications, Inc. and Nortel Networks Inc.
10.11 Promissory Note, dated January 28, 2000, made by Laurence and Jeannine
Langston in favor of NET-tel Corporation in the original principal
amount of $200,000
10.12 Deed of Lease, dated February 2000, between West*Group Properties, LLC
and NET-tel Corporation
10.13 Employment Agreement, dated March 1, 2000, by and between NETtel
Communications, Inc. and Craig R. Bandes
10.14 Employment Agreement, dated April 1, 2000, by and between NETtel
Communications, Inc. and James F. Kenefick
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, independent auditors +
24.1 Power of Attorney +
27.1 Financial Data Schedule +
</TABLE>
- -----------------------
* To be filed by Amendment
+ Previously filed
++ Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.
(B). Financial Statement Schedules.
None
Item 17. Undertakings.
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
II-5
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 further 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 a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
District of Columbia, on May 18, 2000.
NETtel Communications, Inc.
/s/ James K. Dize
By:__________________________________
James K. Dize
General Counsel and Secretary
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed by the following persons in the
capacities indicated on May 18, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
* Chairman of the Board,
______________________________________ Chief Executive Officer
James F. Kenefick and President (Principal
Executive Officer)
* Chief Financial Officer
______________________________________
Wayne M. Rehberger
* Controller (Principal
______________________________________ Accounting Officer)
Thomas J. Aprahamian
* Director
______________________________________
Walter Anderson
* Director
______________________________________
Lawrence J. Bouman
* Director
______________________________________
Joseph A. Lawrence
</TABLE>
* James K. Dize, by signing his name hereto, signs this document on behalf of
each of the persons so indicated above pursuant to powers of attorney duly
executed by such persons and filed as Exhibit 24.1 to the Registration
Statement filed with the Securities and Exchange Commission on April 21,
2000.
II-7
<PAGE>
NET-TEL COMMUNICATIONS, INC. FORM S-1 REGISTRATION STATEMENT
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description Page
------- ------------------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement *
3.1 Second Amended and Restated Certificate of Incorporation of
NETtel Communications, Inc.
3.2 Bylaws of NET-tel Holding Company
3.2.1 Form of Amended and Restated Bylaws of NETtel Communications,
Inc.
4.1 Specimen Common Stock Certificate *
4.2 Stock Purchase Warrant, dated April 8, 1999, Certificate No. W-
3 issued to Leasing Technologies International, Inc. by NETtel
Communications, Inc.
4.3 Stock Purchase Warrant, dated April 8, 1999, Certificate No. W-
4 issued to Leasing Technologies International, Inc. by NETtel
Communications, Inc.
4.4 Stock Purchase Warrant, dated April 30, 1999, Certificate No.
W-5 issued to Scott Loney by NETtel Communications, Inc.
4.5 Stock Purchase Warrant, dated April 30, 1999, Certificate No.
W-6 issued to Tom Marino by NET-tel Communications, Inc.
4.6 Stock Purchase Warrant, dated August 2, 1999, issued to Allied
Capital Corporation
4.7 Common Stock Warrant Purchase Agreement, dated August 2, 1999,
by and among NETtel Communications, Inc., NET-tel Corporation
and Allied Capital Corporation
4.8 Registration Rights Agreement, dated July 23, 1999, by and
among NETtel Communications, Inc., James F. Kenefick, Williams
Communications, Inc., Gold & Appel Transfer, S.A., Allied
Capital Corporation, and Nortel Networks Inc.
4.8.1 First Amendment to Registration Rights Agreement, dated April
20, 2000, by and among NETtel Communications, Inc., Gold &
Appel Transfer, S.A., Williams Communications, Inc., Allied
Capital Corporation and Nortel Networks Inc.
4.9 Investor Rights Agreement, dated July 23, 1999, by and among
NETtel Communications, Inc., Gold & Appel Transfer S.A.,
Williams Communications, Inc., Allied Capital Corporation, and
Nortel Networks Inc.
4.9.1 First Amendment to Investors Rights Agreement, dated April 20,
2000, by and among NETtel Communications, Inc., Gold & Appel
Transfer, S.A., Williams Communications, Inc., Allied Capital
Corporation and Nortel Networks Inc.
4.10 Form of NETtel Long-Term Incentive Plan
5.1 Opinion of Swidler Berlin Shereff Friedman, LLP *
10.1 Employment Agreement, dated January 5, 1998, by and between
David Lynch and NET-tel, Inc.
10.2 Employment Agreement, dated January 26, 1998, by and between
Ron Allen and NET-tel, Inc.
10.3 Employment Agreement, dated January 26, 1998, by and between Ed
McNamara and NET-tel, Inc.
10.4 1998 Employee Stock Incentive Plan of NETtel Communications,
Inc., adopted January 26, 1998, and amended January 26, 1998,
September 30, 1998, March 15, 1999, November 10, 1999 and
January 25, 2000
10.5 Branded Services Agreement, dated April 2, 1998, between Epoch
Networks, Inc. and NETtel Corporation
10.5.1 First Amendment to Branded Services Agreement, dated July 16,
1998, between Epoch Networks, Inc. and NETtel Corporation
10.5.2 Second Amendment to Branded Services Agreement, dated September
28, 1998, between Epoch Networks, Inc. and NET-tel Corporation
10.5.3 Third Amendment to Branded Services Agreement, dated February
22, 1999, between Epoch Networks, Inc. and NET-tel Corporation
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Exhibit Description Page
------- ------------------- ----
<C> <S> <C>
10.5.4 Amendment to Branded Services Agreement, dated January 20,
2000, between Epoch Networks, Inc. and NET-tel Corporation
10.6 1999 Employee Stock Purchase Plan of NETtel Communications,
Inc., effective April 7, 1999
10.7 Capacity Purchase Agreement, dated June 28, 1999, by and
between Williams Network and NET-tel Corporation ++
10.7.1 Amendment No. 1 to Capacity Purchase Agreement, dated as of
June 28, 1999, by and between Williams Network and NET-tel
Corporation
10.7.2 Amendment No. 2 to Capacity Purchase Agreement, dated as of
April 20, 2000, by and between Williams Network and NET-tel
Corporation
10.8 Credit Agreement, dated as of July 28, 1999, by and among NET-
tel Corporation, Nortel Networks Inc. and Allied Capital
Corporation ++
10.8.1 First Amendment to Credit Agreement, dated as of July 28, 1999,
by and among NET-tel Corporation, NETtel Communications, Inc.,
Nortel Networks Inc. and Allied Capital Corporation ++
10.8.2 Second Amendment to Credit Agreement, dated as of December 31,
1999, by and among NET-tel Corporation, NETtel Communications,
Inc., NET-tel Corporation of Virginia, Nortel Networks Inc. and
Allied Capital Corporation ++
10.9 Guaranty Agreement, effective July 28, 1999, by NETtel
Communications, Inc. in favor of Nortel Networks Inc.
10.10 Pledge and Security Agreement, dated July 28, 1999, by and
between NETtel Communications, Inc. and Nortel Networks Inc.
10.11 Promissory Note, dated January 28, 2000, made by Laurence and
Jeannine Langston in favor of NET-tel Corporation in the
original principal amount of $200,000
10.12 Deed of Lease, dated February 2000, between West*Group
Properties, LLC and NETtel Corporation
10.13 Employment Agreement, dated March 1, 2000, by and between
NETtel Communications, Inc. and Craig R. Bandes
10.14 Employment Agreement, dated April 1, 2000, by and between
NETtel Communications, Inc. and James F. Kenefick
21.1 List of Subsidiaries
23.1 Consent of Ernst & Young LLP, independent auditors +
24.1 Power of Attorney +
27.1 Financial Data Schedule +
</TABLE>
- -----------------------
* To be filed by Amendment
+ Previously filed
++ Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and filed separately with the Securities and Exchange
Commission.
<PAGE>
Exhibit 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
NET-TEL COMMUNICATIONS, INC.
NET-tel Communications, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, hereby
certifies as follows:
1. The name of the corporation is NET-tel Communications, Inc. The
original Certificate of Incorporation for NET-tel Communications, Inc. (formerly
known as NET-tel Holding Company) was filed with the Secretary of State of the
State of Delaware on December 4, 1997.
2. Pursuant to Sections 242 and 245 of the General Corporation Law of the
State of Delaware (the "Corporation Law"), this Second Amended and Restated
Certificate of Incorporation (this "Restated Certificate") (it being understood
that any references to this Restated Certificate shall include any duly
authorized certificate of designation) amends and restates the existing
Certificate of Incorporation of the Corporation in its entirety.
______________________________________________________________________________
ARTICLE I
The name of the Corporation is NETtel Communications, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, City of Wilmington, County of New Castle, Delaware 19801.
The name of the Corporation's registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted by this Corporation
is to engage in any lawful act or activity for which a corporation may be
organized under the General Corporation Law of the State of Delaware.
ARTICLE IV
A. Classes of Stock. The Corporation is authorized to issue two classes
----------------
of capital stock to be designated respectively "Common Stock" and "Preferred
Stock." The Common Stock and the Preferred Stock are hereinafter collectively
referred to as "Capital Stock." The total number of
<PAGE>
shares of Common Stock the Corporation shall have authority to issue is
200,000,000 with par value of $.0001 per share. The total number of shares of
Preferred Stock the Corporation shall have authority to issue is 50,000,000 with
par value of $.0001 per share, of which no shares shall be designated as Series
A Preferred Stock, 11,200 shares shall be designated as Series B Preferred Stock
(the "Series B Stock"), and 11,350,738 shares shall be designated as Series C
Preferred Stock (the "Series C Stock").
The Board of Directors is expressly authorized to provide for the
classification and reclassification of any unissued shares of Preferred Stock
and the issuance thereof in one or more classes or series without the approval
of the stockholders.
B. Rights, Preferences, Privileges and Restrictions of Preferred Stock
-------------------------------------------------------------------
Generally. The Preferred Stock authorized hereby may be issued from time to time
- ----------
in one or more series ("Series"). Subject to compliance with applicable
protective voting rights which may have been or may be granted to the Preferred
Stock or any Series thereof in any certificates of designation or the
Corporation's certificate of incorporation as amended from time to time (the
"Certificate of Incorporation") (collectively, the "Protective Provisions"), but
notwithstanding any other rights of the Preferred Stock or any Series thereof,
the Board of Directors expressly is authorized to provide by resolution and by
filing a certificate of designation pursuant to the Corporation Law, for the
issuance from time to time of the shares of Preferred Stock in one or more
Series, to establish from time to time the number of shares to be included in
each such Series, and to fix the designation, powers, preferences and other
rights of the shares of each such Series and to fix the qualifications,
limitations and restrictions thereon, including, but without limiting the
generality of the foregoing, the following: (i) the number of shares
constituting that Series and the distinctive designation of that Series; (ii)
the dividend rate on the shares of that Series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of that Series; (iii)
whether that Series shall have voting rights, in addition to the voting rights
provided by law, and, if so, the terms of such voting rights; (iv) whether that
Series shall have conversion privileges and, if so, the terms and conditions of
such conversion, including provision for adjustment of the conversion rate in
such events as the Board of Directors shall determine; (v) whether or not the
shares of that Series shall be redeemable, and, if so, the terms and conditions
of such redemption, including the dates upon or after which they shall be
redeemable, and the amount per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates; (vi)
whether that Series shall have a sinking fund for the redemption or purchase of
shares of that Series, and, if so, the terms and amount of such sinking fund;
(vii) the rights of the shares of that Series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and the
relative rights of priority, if any, of payment of shares of that Series; and
(viii) any other relative powers, preferences and rights of that series, and
qualifications, limitations or restrictions on that Series. Subject to
compliance with the applicable Protective Provisions, privileges, preferences
and restrictions of any such additional Series of Preferred Stock may be
subordinated to, pari passu with (including, without limitation, with respect to
liquidation
2
<PAGE>
and acquisition preferences, redemption and/or approval of matters by vote or
written consent), or senior to any of those of any present or future Series of
Preferred Stock or class of Common Stock. Subject to compliance with applicable
Protective Provisions, the Board of Directors also is authorized to increase or
decrease the number of shares of any Series of Preferred Stock (other than the
Series B Stock or the Series C Stock), prior or subsequent to the issue of that
Series, but not below the number of shares of such Series then outstanding. In
case the number of shares of any Series of Preferred Stock shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such Series. In the event of any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holders of
Preferred Stock of each Series shall be entitled to receive only such amount or
amounts as shall have been fixed by the Certificate of Incorporation, any
applicable certificate of designations or by the resolution or resolutions of
the Board of Directors providing for the issuance of such Series.
C. Rights, Preferences, Privileges and Restrictions of Series B Stock.
-------------------------------------------------------------------
The definitions set forth in this Section IV.C. shall apply to this Section
IV.C. only.
1. Ranking. The Series B Stock shall rank, as to dividends and upon
-------
Liquidation (as defined in Section 3(a)), senior and prior to the Common Stock
and to all other classes or series of shares issued by the Corporation.
2. Dividends. The holders of Series B Stock shall have the right to
---------
the following dividends:
a. General. Dividends are payable on the Series B Stock, when, as and if
-------
declared by the Board of Directors.
b. Semi-Annual Series B Dividends. The holders of the Series B Stock
------------------------------
shall be entitled to receive, out of funds legally available therefor, cash
dividends on each share of Series B Stock (each a "Cash Dividend") payable semi-
annually on the first day of April and October (each a "Dividend Payment Date"),
when, as, and if declared by the Board of Directors, at the annual rate of eight
percent (8%) per annum (the "Dividend Rate") of the sum of (x) of the Series B
Stock Value (as defined below), subject to adjustment pursuant to Section 5(d)
for stock dividends, stock splits, combinations, recapitalizations or similar
events that affect such shares (collectively, "Adjustment") plus (y) all
accumulated and unpaid dividends thereon, until and including the date on which
the Series B Stock Value of such share of Series B Stock (plus all accumulated
and unpaid dividends) is paid in accordance with the terms hereof. Cash
Dividends shall be cumulative and shall accrue on a daily basis on each share,
and compound semi-annually, whether or not they have been earned or declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends, from and after the Dividend
Payment
3
<PAGE>
Date coincident with, or next preceding, the issuance of such share; provided,
--------
however, that dividends payable on the first Dividend Payment Date with respect
- -------
to such share shall so accrue from and after the Original Issue Date (as defined
below) of such share. The "Series B Stock Value" shall be equal to $7730,
subject to adjustment as provided herein. Notwithstanding any other provision of
this Section 2(b), in the sole discretion of the Board of Directors of the
Corporation, any dividends accruing on the Series B Stock may be paid in lieu of
Cash Dividends by the issuance of additional shares of Series B Stock (including
fractional shares) having an aggregate Series B Stock Value at the time of such
payment equal to the amount of the dividend to be paid) (a "Payment-in-Kind
Dividend" and, together with a Cash Dividend, a "Series B Dividend"); provided
that if the Corporation pays less than the total amount of dividends then
accrued on the Series B Stock in the form of additional shares of Series B
Stock, such payment in shares of Series B Stock shall be made pro rata among the
holders of Series B Stock based upon the aggregate accrued but unpaid dividends
on the shares of Series B Stock held by such holder. If and when any shares of
Series B Stock are issued under this Section 2 for the payment of accrued
dividends, such shares of Series B Stock shall be deemed to be validly issued
and outstanding and fully paid and nonassessable.
c. Restrictions on Dividends and Repurchases. So long as any shares of
-----------------------------------------
the Series B Stock are outstanding, unless the Corporation has complied with
Section 4(d), (a) no dividend shall be declared or paid and no other
distribution (whether in cash or other property, other than stock dividends
referred to in subsection (iii) of Section 5(e)) shall be set apart, declared or
made upon the Common Stock or any other class or series of stock ranking on
dividends or Liquidation junior to the Series B Stock (the "Junior Securities")
(other than a dividend or distribution paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock), and
(b) no shares of Junior Securities shall be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund or otherwise for the purchase or redemption of any shares of Junior
Securities) by the Corporation, except for repurchases of Employee Stock as
approved by a majority of the Board of Directors of the Corporation
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
a. General. In the event of any voluntary or involuntary liquidation,
-------
dissolution or winding up of the Corporation (a "Liquidation"), the holders of
shares of Series B Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders
within thirty (30) days of the close of such Liquidation, before any payment
shall be made to the holders of Junior Securities, an amount per share in cash
equal to the sum of (i) the Series B Stock Value (subject to Adjustment) and
(ii) all accumulated but unpaid dividends thereon (the "Series B Preferential
Amount") (collectively, the "Liquidation Payment"). If upon any such Liquidation
the assets of the Corporation available for distribution to its stockholders
shall be insufficient to pay the holders of shares of Series B Stock the full
amount to which they shall be entitled, the holders of shares of Series B Stock
and any class or series of stock ranking on
4
<PAGE>
Liquidation on a parity with the Series B Stock shall share ratably in the
distribution of the entire remaining assets and funds of the Corporation legally
available for distribution in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full.
b. Mergers, Reorganizations, Etc. At the option of the holders of 66
------------------------------
2/3% of the shares of Series B stock then outstanding, the merger,
reorganization or consolidation of the Corporation into or with another
corporation or other similar transaction or series of related transactions in
which more than 50% of the voting power of the Corporation is disposed of in
exchange for property, rights or securities distributed to holders thereof by
the acquiring person, firm or other entity, or the sale of all or substantially
all the assets of the Corporation (a "Sale"), shall be deemed to be a
Liquidation for purposes of this Section 3; provided, however, that
------------------
notwithstanding the above, a Sale to a Person (x) whose common stock is traded
on a national securities exchange or market and (y) whose market capitalization
is at least $400 million, as determined by the average closing price of such
Person's common stock for the 10 trading days prior to the date of the
definitive agreement of Sale (and without giving effect to such Sale), shall not
be deemed a Liquidation for purposes of this Section 3.
4. Voting. The holders of Series B Stock shall have the following voting
------
rights:
a. General. (a) Subject to the limitations set forth in Section 4(b),
-------
each holder of outstanding shares of Series B Stock shall be entitled to (i)
notice of any stockholders' meeting and (ii) the number of votes equal to the
number of whole shares of Common Stock into which the shares of Series B Stock
held, beneficially or of record, by such holder are convertible (as adjusted
from time to time pursuant to Section 5 hereof), at each meeting of stockholders
of the Corporation (and written actions of stockholders in lieu of meetings)
with respect to any and all matters presented to the stockholders of the
Corporation for their action or consideration. Except as provided by law, by the
provisions contained in this Section 4 or by the provisions establishing any
other series of Preferred Stock, holders of Series B Stock shall vote together
with the holders of Common Stock as a single class.
b. Limitation. Notwithstanding Section 4(a), no holder of Series B Stock
----------
holding voting securities of the Corporation acquired for an amount greater than
$15,000,000 shall have any right to vote or execute consents with respect to
shares of Series B Stock for the election of directors unless and until, with
respect to such shares, the earlier to occur of (i) the filing of all notices
and reports as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act (the "HSR Act") and the expiration or early termination of the
applicable waiting period under the HSR Act, or (ii) the delivery to the
Corporation by such holder of Series B Stock of a certificate stating that no
filing under the HSR Act is required in order for such holder of Series B Stock
to have the right to vote the shares of Series B Stock identified in such
certificate in the
5
<PAGE>
election of directors; provided further, following the earlier to occur of (i)
or (ii), such right of the holders of the Series B Stock to vote and execute
consents with respect to their shares of Series B Stock for the election of
directors shall automatically exist.
c. Amendment. Notwithstanding anything to the contrary that may be
---------
contained in Section 4(d) below, the affirmative vote of the holders of at least
66 2/3% of the shares of Series B Stock then outstanding, voting separately as a
class, shall be required to amend, alter, repeal, impair or change, in any
manner whatsoever, the rights, preferences, powers, privileges, restrictions,
qualifications or limitations of the Series B Stock.
d. Protective Provisions. So long as any shares of Series B Stock are
---------------------
outstanding, the Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of at least 66 2/3% of the then
outstanding shares of Series B Stock, given in writing or by vote at a meeting,
voting separately as a class, take any action with respect to any of the matters
set forth in the following Subsections 4(d)(i) through 4(d)(vi)):
i. Repurchase of Stock. Repurchase or redeem any Junior Securities,
-------------------
except for repurchases of Employee Stock as approved by a majority of the
Board of Directors of the Corporation.
ii. Create New Stock. Authorize, create or issue any new class or series
----------------
of equity or debt securities or any securities convertible into equity
securities of the Corporation having a preference over, or being on a
parity with, the Series B Stock with respect to voting, dividends or upon
Liquidation.
iii. Amend Charter or By-Laws. Amend, alter or repeal any provision of (A)
------------------------
the Certificate of Incorporation of the Corporation or (B) the By-Laws of
the Corporation which would adversely affect any right, preference,
privilege or voting power of the Series B Stock or the holders thereof.
iv. Declaration or Payment of Dividends. Declare or pay a dividend or
-----------------------------------
make any other distribution (whether in cash or other property, other than
stock dividends referred to in subsection (iii) of Subsection 5(e)) upon
any Junior Securities (as defined in Section 2(c) (other than a dividend or
distribution paid solely in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Common Stock).
v. Changes in Series B Stock. Increase or decrease the number of
--------------------------
authorized shares of Series B Stock or issue more than 6,469 shares of
Series B Stock (exclusive of any shares issued as Payment-in-Kind
Dividends), or sell any Series B Stock at a price per share that is less
than the Series B Stock Value.
6
<PAGE>
vi. Merger or Sale. Merge, consolidate or reorganize into or with another
---------------
corporation or other similar transaction or series or related transactions
in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of in exchange for property, rights or securities
distributed to the holders of such voting power by the acquiring person
(collectively "Consideration"), or sell all or substantially all of the
assets of the Corporation, unless the holders of the Corporation's Common
Stock are entitled to receive gross Consideration with a value of at least
$10.00 (as determined in good faith by the Corporation's Board of
Directors) per share of Common Stock (as adjusted in good faith by the
Corporation's Board of Directors to reflect any stock dividends, stock
splits or similar events).
5. Optional Conversion.
-------------------
The holders of the Series B Stock shall have conversion rights as follows
(the "Conversion Rights"):
a. Right to Convert. Each share of Series B Stock shall be convertible,
----------------
at the option of the holder thereof, at any time and from time to time, into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing the Series B Stock Value by the Conversion Price (as
defined below) in effect at the time of conversion. The conversion price at
which shares of Common Stock shall be deliverable upon conversion of Series B
Stock without the payment of additional consideration by the holder thereof (the
"Conversion Price") shall initially be equal to $7.73. Such initial Conversion
Price, and the rate at which shares of Series B Stock may be converted into
shares of Common Stock, shall be subject to adjustment as provided in this
Section 5.
b. Termination of Conversion Rights. In the event of a Redemption Notice
--------------------------------
(as defined in Section 7(b)) relating to shares of Series B Stock pursuant to
Section 7, the Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the second full day preceding the date
fixed for redemption, unless the Redemption Price (as defined below) is not paid
when due, in which case the Conversion Rights for such shares shall continue
until such price is paid in full. In the event of a Liquidation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on Liquidation to
the holders of Series B Stock.
c. Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series B Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay an
amount in cash equal to the then effective Conversion Price of such fractional
share (computed to the nearest one hundredth of a share).
d. Mechanics of Conversion.
-----------------------
7
<PAGE>
i. In order for a holder of Series B Stock to convert shares of
Series B Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Series B Stock at the office of
the transfer agent for the Series B Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent) together with
written notice that such holder elects to convert all or any number of the
shares of the Series B Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form reasonably satisfactory to the Corporation,
duly executed by the registered holder or his, her or its attorney duly
authorized in writing. The date of receipt of such certificates and notice by
the transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder of Series B Stock, or to his, her or its
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series B Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended (the "Securities Act"), the conversion may, at the option of
any holder tendering Series B Stock for conversion, be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Series B Stock shall not be deemed to have
converted such Series B Stock until immediately prior to the closing of such
underwritten offering of securities.
ii. The Corporation shall at all times when the Series B Stock shall
be outstanding, reserve and keep available out of its authorized but unissued
capital stock, for the purpose of effecting the conversion of the Series B
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
Series B Stock. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Series B Stock, the Corporation will take
any corporate action which is necessary for the Corporation to validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series B Stock, in addition to such other remedies as
shall be available to the holder of such Series B Stock, the Corporation will
take such corporate action which is necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
8
<PAGE>
iii. Upon any such conversion, no adjustment to the Conversion Price
shall be made for any accumulated and unpaid dividends on the Series B Stock
surrendered for conversion or the Common Stock delivered upon conversion.
iv. All shares of Series B Stock which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately cease and terminate on the
Conversion Date, except only the right of the holders thereof to receive (1)
shares of Common Stock in exchange therefor and (2) payment of any accumulated
and unpaid dividends thereon. Any shares of Series B Stock so converted shall be
retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Series B Stock accordingly.
e. Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
i. Special Definitions. For purposes of this Section 5, the
-------------------
following definitions shall apply:
(1) "Convertible Securities" shall mean any evidences of
indebtedness, shares of equity securities, options, warrants, or
other securities directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.
(2) "Employee Stock" shall mean Common Stock, and/or options,
warrants or other rights to purchase Common Stock, (a) issued or
granted to officers, directors, employees or agents of the
Corporation or any subsidiary of the Corporation pursuant to any
employee stock option plan or arrangement, employee stock
purchase plan or arrangement, or other equity incentive, bonus,
or similar plan or arrangement approved by the Board of
Directors, provided the total does not exceed twenty percent
(20%) of the shares of Common Stock then outstanding and/or
issuable upon conversion of the outstanding convertible
securities, options, warrants or other rights to acquire Common
Stock (the "Fully Diluted Common Stock"); (b) issued or granted
pursuant to written agreements with "branchises" or similar
agreements with "branchises" or similar agents of the Corporation
or any subsidiary, provided that any options, warrants or other
rights granted thereunder with respect to Common Stock shall be
exercisable at not less than fair market value (as determined by
the Board of Directors) as of the date of grant; and provided
--------
further, that the total shares of Common Stock issuable upon the
-------
exercise of all such options, warrants or other rights shall not
exceed five percent (5%) of the Fully Diluted Common Stock as of
any
9
<PAGE>
such grant date; or (c) approved by the holders of at least 66
2/3% of the shares of Series B Stock then outstanding, voting
separately as a class.
(3) "Excluded Stock" shall mean (i) Common Stock issuable upon
conversion of the Series B Stock, (ii) Employee Stock, or (iii)
warrants (or Common Stock issuable upon the exercise of such
warrants) to purchase up to 1.8% of the Corporation's fully-
diluted Common Stock, issued by the Corporation in connection
with the incurrence of subordinated third party debt.
(4) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding Employee Stock.
(5) "Original Issue Date" shall mean the date on which a share
of Series B Stock was first issued.
(6) "Person" means any individual, entity or group, including,
without limitation, any individual, corporation, limited
liability company, limited or general partnership, joint venture,
association, joint stock company, trust, unincorporated
organization or governmental authority.
ii. Adjustment for Combinations or Consolidation of Common Stock.
------------------------------------------------------------
If, at any time after the applicable Original Issue Date, the number of shares
of Common Stock outstanding are decreased by a combination of the outstanding
shares of Common Stock, then, following the record date fixed for such
combination (or the date of such combination, if no record date is fixed), the
Conversion Price shall be appropriately increased so that the number of shares
of Common Stock issuable on conversion of each share of Series B Stock shall be
decreased in proportion to such decrease in outstanding shares of Common Stock.
iii. Adjustment for Stock Dividends, Splits, Etc. If the Corporation
-------------------------------------------
shall at any time after the Original Issue Date fix a record date for the
subdivision, split-up or stock dividend of shares of Common Stock, then,
following the record date fixed for the determination of holders of shares of
Common Stock entitled to receive such subdivision, split-up or dividend (or the
date of such subdivision, split-up or dividend, if no record date is fixed), the
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of Series B Stock shall be
increased in proportion to such increase in outstanding shares of Common Stock;
provided, however, that the Conversion Price shall not be decreased at such time
- -------- -------
if the amount of such reduction would be an amount less than $.01, but any such
amount shall be carried forward and reduction with respect thereto made at the
time of and together with any
10
<PAGE>
subsequent reduction which, together with such amount and any other amount or
amounts so carried forward, shall aggregate $.01 or more.
iv. Adjustment for Merger or Reorganization, Etc. In case of any
--------------------------------------------
recapitalization, consolidation or merger of the Corporation with or into
another corporation or entity or the sale of all or substantially all of the
assets of the Corporation to another corporation or entity (other than a
subdivision or combination provided for elsewhere in this Section 5 or a Sale
which is treated as a Liquidation in accordance with Section 3), each share of
Series B Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series B Stock would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions in this
Section 5 set forth with respect to the rights and interest thereafter of the
holders of the Series B Stock, to the end that the provisions set forth in this
Section 5 (including provisions with respect to changes in and other adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series B Stock.
f. Issuances Below Conversion Price.
--------------------------------
i. Except as provided in Section 5(f)(ii) below, if the
----------------
Corporation shall, while there are any shares of Series B Stock outstanding,
issue or sell shares of Common Stock at a price per share or at a noncash price
per Share less than the Conversion Price in effect immediately prior to such
issuance or sale, then the Conversion Price shall be adjusted, effective as of
the date of the issuance of such shares of the Common Stock, to an amount
determined by multiplying the Conversion Price in effect immediately prior to
such issuance or sale by a fraction:
(1) the numerator of which shall be (A) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (B) the number of shares of Common Stock then
issuable upon conversion of the Shares at such Conversion Price, and all other
Convertible Securities outstanding immediately prior to the issuance of such
additional shares of Common Stock, whether or not then exercisable, plus (C) the
number of shares of Common Stock that the net aggregate consideration received
by the Corporation for the total number of such additional shares of Common
Stock so issued would purchase at such Conversion Price, and
(2) the denominator of which shall be (A) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (B) the number of shares of Common Stock then
issuable upon conversion of the Shares at such Conversion Price, and all
Convertible Securities outstanding immediately prior to the
11
<PAGE>
issuance of such additional shares of Common Stock, whether or not then
exercisable, plus (C) the number of such additional shares of Common Stock so
issued.
ii. The adjustments contemplated by paragraph (i) above shall
not apply to Excluded Stock.
iii. For purposes of paragraph (i) above, the issuance of any
Convertible Securities shall be deemed to be an issuance of shares of Common
Stock at the time of the issuance thereof if the Net Consideration Per Share (as
hereinafter defined) which may be received by the Corporation for the shares of
Common Stock issuable upon the exercise thereof is less than any Conversion
Price at the time of the issuance of such Convertible Securities. In no event
shall the Corporation issue or sell any Convertible Securities if the Net
Consideration Per Share therefor equals zero. Any obligation, agreement or
undertaking to issue such Convertible Securities at any time in the future shall
be deemed to be an issuance at the time of expiration or termination of all
material conditions to exercise thereof, entered into in good faith by the
Corporation, excluding the vesting provisions of employee stock options and
provided that payment of the exercise price or giving notice of conversion or
exercise shall not constitute a material condition for the purposes of this
sentence. Notwithstanding the foregoing, any adjustment made to any Conversion
Price pursuant to the provisions of this paragraph (iii) which relates to
Convertible Securities shall be disregarded when, as and if all of such
Convertible Securities expire or are canceled without being exercised, so that
such Conversion Price effective immediately upon such cancellation or expiration
shall be equal to such Conversion Price in effect at the time of the issuance of
the expired or canceled Convertible Securities after taking into account any
other adjustments that would have been made to such Conversion Price had the
expired or canceled Convertible Securities not been issued. No adjustment to any
Conversion Price shall be made pursuant to the provisions of this paragraph
(iii) either (1) upon the issuance of any shares of the Common Stock that are
issued pursuant to the exercise of any Convertible Securities if any adjustment
shall previously have been made upon the issuance of any such Convertible
Securities (or upon the issuance of any warrants, options or any rights
therefor) or, (2) upon the issuance of any warrants, options, subscription or
purchase rights or any other securities convertible into or exchangeable or
exercisable for shares of Common Stock (or upon the issuance of any warrants,
options or rights to purchase such securities) pursuant to any plan or
arrangement specified in paragraph (ii) above.
iv. For purposes of this Section 5(f), the "Net Consideration
------------
Per Share" means the amount which is equal to the sum of (1) the total amount of
consideration, if any, received by the Corporation for the issuance (and/or
extension of the term) of Convertible Securities, plus (2) the minimum amount of
consideration, if any, payable to the Corporation upon exercise or conversion
thereof, divided by the aggregate number of shares of the Common Stock that
would be issued if all such Convertible Securities were exercised, converted or
exchanged. For purposes of this paragraph (iv), if part or all of the
consideration received or to be received by the Corporation in connection with
the issuance of shares of Common Stock or the issuance of any of the securities
12
<PAGE>
described in this paragraph (iv) consists of property other than cash, the value
of such property shall be determined by or at the direction of the Board of
Directors, in good faith, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Corporation with respect
to receipt of such property.
g. No Impairment. The Corporation will not, by amendment of the
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series B Stock against impairment.
h. Certificate as to Adjustments. Upon the occurrence of each
-----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 5,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series B Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series B Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series B Stock.
i. Notice of Record Date. In the event:
---------------------
i. that the Corporation takes a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class of any other securities or property, or to receive
any other right;
ii. that the Corporation subdivides or combines its outstanding
shares of Common Stock;
iii. of any reclassification of the Common Stock of the
Corporation (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation with or into another corporation or
entity or entities, or of the sale of all or substantially all of the assets of
the Corporation; or
13
<PAGE>
iv. of a Liquidation:
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series B Stock, and shall cause to be mailed
to the holders of the Series B Stock at their last address as shown on the
records of the Corporation or such transfer agent, at least twenty (20) days
before the record date specified below, a notice stating:
(1) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of the applicable class of securities of record to be entitled
to such dividend, distribution, subdivision or combination are to be determined,
or
(2) the date on which such reclassification, consolidation,
merger, sale, dissolution or Liquidation is expected to become effective, and
the date as of which it is expected that holders of the applicable class of
securities of record shall be entitled to exchange their shares of the
applicable class of securities for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, dissolution or Liquidation.
6. Automatic Conversion. The holders of Series B Stock shall have
--------------------
the following conversion rights:
a. Qualified Offering. Upon the closing of a Qualified Offering (as
------------------
defined below), all of the then outstanding shares of Series B Stock shall
automatically be converted into shares of Common Stock at the Conversion Price
at the time in effect for such Series B Stock, and fifty percent (50%) of any
dividends accumulated but unpaid shall automatically be converted into shares of
Common Stock (using the Conversion Price as the basis of the conversion) and
fifty percent (50%) of any dividends accumulated but unpaid shall, at the
Company's election, be immediately payable in the form of Cash Dividends or
shall be automatically converted into shares of Common Stock (using the
Conversion Price as the basis of the conversion). A "Qualified Offering" means
an Underwritten Offering (as defined below) by the Corporation of authorized but
unissued shares of Common Stock (x) that results in net proceeds to the
Corporation (after deducting underwriting commissions and offering expenses) of
not less than $25,000,000 in net proceeds to the Corporation and (y) at a price
per share of not less than $10.00 (as adjusted in good faith by the
Corporation's Board of Directors to reflect any stock dividends, stock splits or
similar events). For purposes of this Certificate, "Underwritten Offering" means
a distribution of Common Stock in an underwritten public offering to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act.
b. Notices. The Corporation shall promptly send by prepaid overnight
-------
delivery service to each holder of Series B Stock at such holder's address
appearing on the Corporation's records a
14
<PAGE>
copy of (i) each registration statement filed by the Corporation under the
Securities Act and each amendment thereof and exhibit and schedule thereto, (ii)
each order of the Commission declaring any such registration statement to be
effective and (iii) each stop order (or similar order) of the Commission
suspending the effectiveness of any such registration statement.
c. No Further Action. In the case of an automatic conversion pursuant to
-----------------
this Section 6, the outstanding shares of Series B Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, that the Corporation shall not be
--------
obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Series B Stock are delivered either to the Corporation or any transfer agent
of the Corporation.
7. Mandatory Redemption at Option of Holders. The holders of Series
-----------------------------------------
B Stock shall have the following redemption rights:
a. Failure to Complete Qualified Offering, Liquidation or Sale. If, on
-----------------------------------------------------------
or before the seventh (7th) anniversary of the earliest Original Issue Date, the
Corporation has not completed any of (i) a Qualified Offering, (ii) a
Liquidation or (iii) a Sale, then, upon receipt by the Corporation (the
"Redemption Request Date") of a written request (the "Redemption Request") of
holders of not less than a majority of the then outstanding shares of Series B
Stock, the Corporation shall offer to redeem, such redemption to occur on the
date that is no later than thirty (30) days after the Redemption Request Date
(the "Redemption Date"), for cash, out of funds legally available therefor, all
of the then outstanding shares of Series B Stock at a price per share
(hereinafter referred to as the "Redemption Price") equal to the Series B
Preferential Amount (as defined in Section 3(a)).
b. Mechanics of Redemption.
-----------------------
i. Notice. Upon receipt of the Redemption Request, the Corporation
------
shall provide notice (the "Redemption Notice") of any redemption of Series B
Stock pursuant to this Section 8 specifying the time and place of redemption and
the Redemption Price or the Alternate Redemption Price (as the case may be), by
certified or registered mail, postage prepaid, to each holder of record of
Series B Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than thirty (30) days prior to the Redemption
Date. Upon mailing any such Redemption Notice, the Corporation will become
obligated to redeem on the Redemption Date all Series B Stock tendered for
redemption pursuant to the terms of this Section 7 (other than such shares of
Series B Stock as are duly converted pursuant to Section 5 of this Certificate
prior to the close of business on the fifth (5th) full day preceding the
Redemption Date). In case less than all shares of Series B Stock represented by
any certificate are redeemed in any redemption pursuant to this Section 7, a new
15
<PAGE>
certificate will be issued representing the unredeemed shares of Series B Stock
without cost to the holder thereof.
ii. Dividends. Unless there shall have been a default in the payment
---------
of the Redemption Price, no share of Series B Stock tendered for redemption
under this Section 7 is entitled to accrue any dividends after its Redemption
Date (provided, however, that any dividends accumulated but unpaid as of the
-------- -------
Redemption Date shall be immediately payable in cash), and on such Redemption
Date all rights of the holder of such share as a stockholder of the Corporation
by reason of the ownership of such share will cease, except the right to receive
the Redemption Price of such share, without interest, upon presentation and
surrender of the certificate representing such share and such share will not
from and after such Redemption Date be deemed to be outstanding.
iii. Cancellation of Stock. Any Senior Preferred Stock redeemed
---------------------
pursuant to this Section 7 will be canceled and will not under any circumstances
be reissued, sold or transferred, and the Corporation may from time to time take
such appropriate action as may be necessary to reduce the authorized class of
Series B Stock so redeemed accordingly.
8. Preemptive Rights.
-----------------
a. The Corporation shall not issue or sell any shares of Common Stock,
Preferred Stock or other securities convertible into or exchangeable for shares
of Common Stock (the "Newly Issued Securities"), other than (i) the Excluded
Stock or (ii) any such issuance or sale pursuant to a Qualified Offering, (for
purposes hereof, the "Preemptive Right Securities" shall mean the Newly Issued
Securities, but excluding all of the Securities set forth in the immediately
preceding clauses (i) and (ii) of this Paragraph 8(a)), unless prior to the
issuance or sale of such Preemptive Right Securities each holder of Series B
Stock shall have been given the opportunity (such opportunity being herein
referred to as the "Preemptive Right") to purchase (on the same terms as such
Preemptive Right Securities are proposed to be sold) the same proportion of such
Preemptive Right Securities being issued or offered for sale by the Corporation
as (x) the number of shares of Common Stock (calculated solely on account of
outstanding shares of Series B Stock on an as converted basis) held by such
holder on the day preceding the date of the Preemptive Notice (as defined
herein), as the case may be, bears to (y) the total number of shares of Common
Stock outstanding on that day (assuming the conversion into Common Stock of the
Series B Stock and the Series C Stock of the Corporation).
b. At least thirty (30) days prior to the issuance or sale by the
Corporation of any Preemptive Right Securities, the Corporation shall give
written notice thereof (the "Preemptive Notice") to each holder of Series B
Stock. The Preemptive Notice shall specify (i) the name and address of the bona
fide investor to whom the Corporation proposes to issue or sell Preemptive Right
Securities, (ii) the total amount of capital to be raised by the Corporation
pursuant to the issuance or sale of Preemptive Right Securities, (iii) the
number of Securities of such Preemptive Right
16
<PAGE>
Securities proposed to be issued or sold, (iv) the price and other terms of
their proposed issuance or sale, (v) the number of such Preemptive Right
Securities which such holder is entitled to purchase (determined as provided in
subsection (a) above), and (vi) the period during which such holder may elect to
purchase such Preemptive Right Securities, which period shall extend for at
least thirty (30) days following the receipt by such holder of the Preemptive
Notice (the "Preemptive Acceptance Period"). Each holder of Series B Stock who
desires to purchase Preemptive Right Securities shall notify the Corporation
within the Preemptive Acceptance Period of the number of Preemptive Right
Securities he wishes to purchase, as well as the number, if any, of additional
Preemptive Right Securities he would be willing to purchase in the event that
all of the Preemptive Right Securities subject to the Preemptive Right are not
subscribed for by the other holders of Series B Stock.
c. In the event a holder of Series B Stock declines to subscribe for all
or any part of its pro rata portion of any Preemptive Right Securities which are
subject to the Preemptive Right (the "Declining Preemptive Purchaser") during
the Preemptive Acceptance Period, then the other holders of Series B Stock shall
have the right to subscribe for all (or any declined part) of the Declining
Preemptive Purchaser's pro rata portion of such Preemptive Right Securities (to
be divided among the other holders of Series B Stock desiring to exercise such
right on a ratable basis (assuming the conversion of the Series B Stock into
Common Stock)).
d. Any such Preemptive Right Securities which none of the holders elect
to purchase in accordance with the provisions of this Section 8 may be sold by
the Corporation, within a period of three (3) months after the expiration of the
Preemptive Acceptance Period, to any other person or persons at not less than
the price and upon other terms and conditions not less favorable to the
Corporation than those set forth in the Preemptive Notice.
D. Rights, Preferences, Privileges and Restrictions of Series C Stock
------------------------------------------------------------------
The definitions set forth in this Section IV.D. shall apply to this Section
IV.D. only.
1. Ranking. The Series C Stock shall rank, as to dividends and upon
-------
Liquidation (as defined in Section 3(a)), senior and prior to the Common Stock
and to all other classes or series of shares issued by the Corporation;
provided, however, that the Series C Stock shall rank, as to dividends and upon
- -------- -------
Liquidation, pari passu with the Series B Stock.
2. Dividends. The holders of Series C Stock shall have the right to
---------
the following dividends:
a. General. Dividends are payable on the Series C Stock, when, as and if
-------
declared by the Board of Directors.
b. Semi-Annual Series C Dividends. The holders of the Series C Stock
------------------------------
shall be entitled to receive, out of funds legally available therefor, cash
dividends on each share of Series C Stock
17
<PAGE>
(each a "Cash Dividend") payable semi-annually on the first day of April and
October (each a "Dividend Payment Date"), when, as, and if declared by the Board
of Directors, at the annual rate of eight percent (8%) per annum (the "Dividend
Rate") of the sum of (x) of the Series C Stock Value (as defined below), subject
to adjustment pursuant to Section 5(d) for stock dividends, stock splits,
combinations, recapitalizations or similar events that affect such shares
(collectively, "Adjustment") plus (y) all accumulated and unpaid dividends
thereon, until and including the date on which the Series C Stock Value of such
share of Series C Stock (plus all accumulated and unpaid dividends) is paid in
accordance with the terms hereof. Cash Dividends shall be cumulative and shall
accrue on a daily basis on each share, and compound semi-annually, whether or
not they have been earned or declared and whether or not there are profits,
surplus or other funds of the Corporation legally available for the payment of
dividends, from and after the Dividend Payment Date coincident with, or next
preceding, the issuance of such share; provided, however, that dividends payable
-------- -------
on the first Dividend Payment Date with respect to such share shall so accrue
from and after the Original Issue Date (as defined below) of such share. The
"Series C Stock Value" shall be equal to $8.81, subject to adjustment as
provided herein. Notwithstanding any other provision of this Section 2(b), in
the sole discretion of the Board of Directors of the Corporation, any dividends
accruing on the Series C Stock may be paid in lieu of Cash Dividends by the
issuance of additional shares of Series C Stock (including fractional shares)
having an aggregate Series C Stock Value at the time of such payment equal to
the amount of the dividend to be paid) (a "Payment-in-Kind Dividend" and,
together with a Cash Dividend, a "Series C Dividend"); provided that if the
Corporation pays less than the total amount of dividends then accrued on the
Series C Stock in the form of additional shares of Series C Stock, such payment
in shares of Series C Stock shall be made pro rata among the holders of Series C
Stock based upon the aggregate accrued but unpaid dividends on the shares of
Series C Stock held by such holder. If and when any shares of Series C Stock are
issued under this Section 2 for the payment of accrued dividends, such shares of
Series C Stock shall be deemed to be validly issued and outstanding and fully
paid and nonassessable.
c. Restrictions on Dividends and Repurchases. So long as any shares of
-----------------------------------------
the Series C Stock are outstanding, unless the Corporation has complied with
Section 4(d), (a) no dividend shall be declared or paid and no other
distribution (whether in cash or other property, other than stock dividends
referred to in subsection (iii) of Section 5(e)) shall be set apart, declared or
made upon the Common Stock or any other class or series of stock ranking on
dividends or Liquidation junior to the Series C Stock (the "Junior Securities")
(other than a dividend or distribution paid solely in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Common Stock), and
(b) no shares of Junior Securities shall be redeemed, purchased or otherwise
acquired for any consideration (or any moneys be paid to or made available for a
sinking fund or otherwise for the purchase or redemption of any shares of Junior
Securities) by the Corporation, except for repurchases of Employee Stock as
approved by a majority of the Board of Directors of the Corporation.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
18
<PAGE>
a. General. In the event of any voluntary or involuntary liquidation,
-------
dissolution or winding up of the Corporation (a "Liquidation"), the holders of
shares of Series C Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its stockholders
within thirty (30) days of the close of such Liquidation, before any payment
shall be made to the holders of Junior Securities, an amount per share in cash
equal to the sum of (i) the Series C Stock Value (subject to Adjustment) and
(ii) all accumulated but unpaid dividends thereon (the "Series C Preferential
Amount") (collectively, the "Liquidation Payment"). If upon any such
Liquidation the assets of the Corporation available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Series C
Stock the full amount to which they shall be entitled, the holders of shares of
Series C Stock and any class or series of stock ranking on Liquidation on a
parity with the Series C Stock shall share ratably in the distribution of the
entire remaining assets and funds of the Corporation legally available for
distribution in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
b. Mergers, Reorganizations, Etc. At the option of the holders of 66
------------------------------
2/3% of the shares of Series C Stock then outstanding, the merger,
reorganization or consolidation of the Corporation into or with another
corporation or other similar transaction or series of related transactions in
which more than 50% of the voting power of the Corporation is disposed of in
exchange for property, rights or securities distributed to holders thereof by
the acquiring person, firm or other entity, or the sale of all or substantially
all the assets of the Corporation (a "Sale"), shall be deemed to be a
Liquidation for purposes of this Section 3; provided, however, that
------------------
notwithstanding the above, a Sale to a Person (x) whose common stock is traded
on a national securities exchange or market and (y) whose market capitalization
is at least $400 million, as determined by the average closing price of such
Person's common stock for the 10 trading days prior to the date of the
definitive agreement of Sale (and without giving effect to such Sale)
(hereinafter, a "Qualified Sale"), shall not be deemed a Liquidation for
purposes of this Section 3.
4. Voting. The holders of Series C Stock shall have the following
------
voting rights:
a. General. (a) Subject to the limitations set forth in Section 4(b),
-------
each holder of outstanding shares of Series C Stock shall be entitled to (i)
notice of any stockholders' meeting and (ii) the number of votes equal to the
number of whole shares of Common Stock into which the shares of Series C Stock
held, beneficially or of record, by such holder are convertible (as adjusted
from time to time pursuant to Section 5 hereof), at each meeting of stockholders
of the Corporation (and written actions of stockholders in lieu of meetings)
with respect to any and all matters presented to the stockholders of the
Corporation for their action or consideration. Except as provided by law, by
the provisions contained in this Section 4 or by the provisions establishing any
other series of Preferred Stock, holders of Series C Stock shall vote together
with the holders of Common Stock
19
<PAGE>
as a single class.
b. Limitation. Notwithstanding Section 4(a), no holder of Series C Stock
----------
holding voting securities of the Corporation acquired for an amount greater than
$15,000,000 shall have any right to vote or execute consents with respect to
shares of Series C Stock for the election of directors unless and until, with
respect to such shares, the earlier to occur of (i) the filing of all notices
and reports as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act (the "HSR Act") and the expiration or early termination of the
applicable waiting period under the HSR Act, or (ii) the delivery to the
Corporation by such holder of Series C Stock of a certificate stating that no
filing under the HSR Act is required in order for such holder of Series C Stock
to have the right to vote the shares of Series C Stock identified in such
certificate in the election of directors; provided further, following the
earlier to occur of (i) or (ii), such right of the holders of the Series C Stock
to vote and execute consents with respect to their shares of Series C Stock for
the election of directors shall automatically exist.
c. Amendment. Notwithstanding anything to the contrary that may be
---------
contained in Section 4(d) below, the affirmative vote of the holders of at least
66 2/3% of the shares of Series C Stock then outstanding, voting separately as a
class, shall be required to amend, alter, repeal, impair or change, in any
manner whatsoever, the rights, preferences, powers, privileges, restrictions,
qualifications or limitations of the Series C Stock.
d. Protective Provisions. So long as any shares of Series C Stock are
---------------------
outstanding, the Corporation shall not, without first obtaining the written
consent or affirmative vote of the holders of at least 66 2/3% of the then
outstanding shares of Series C Stock, given in writing or by vote at a meeting,
voting separately as a class, take any action with respect to any of the matters
set forth in the following Subsections 4(d)(i) through 4(d)(vi)):
i. Repurchase of Stock. Repurchase or redeem any Junior Securities,
-------------------
except for repurchases of Employee Stock as approved by a majority of the
Board of Directors of the Corporation.
ii. Create New Stock. Authorize, create or issue any new class or series
----------------
of equity or any securities convertible into equity securities of the
Corporation having a preference over the Series C Stock with respect to
voting, dividends or upon Liquidation.
iii. Amend Charter or By-Laws. Amend, alter or repeal any provision of (A)
------------------------
the Certificate of Incorporation of the Corporation or (B) the By-Laws of
the Corporation which would adversely affect any right, preference,
privilege or voting power of the Series C Stock or the holders thereof.
iv. Declaration or Payment of Dividends. Declare or pay a dividend or
-----------------------------------
make any other
20
<PAGE>
distribution (whether in cash or other property, other than stock dividends
referred to in subsection (iii) of Subsection 5(e)) upon any Junior
Securities (as defined in Section 2(c) (other than a dividend or
distribution paid solely in shares of, or options, warrants or rights to
subscribe for or purchase shares of, Common Stock).
v. Changes in Series C Stock. Increase or decrease the number of
--------------------------
authorized shares of Series C Stock or issue more than 5,675,369 shares of
Series C Stock (exclusive of any shares issued as Payment-in-Kind
Dividends), or sell any Series C Stock at a price per share that is less
than the Series C Stock Value.
vi. Merger or Sale. Merge, consolidate or reorganize into or with another
---------------
corporation or other similar transaction or series or related transactions
in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of in exchange for property, rights or securities
distributed to the holders of such voting power by the acquiring person
(collectively "Consideration"), or sell all or substantially all of the
assets of the Corporation, unless the holders of the Corporation's Common
Stock are entitled to receive gross Consideration with a value of at least
$10.00 (as determined in good faith by the Corporation's Board of
Directors) per share of Common Stock (as adjusted in good faith by the
Corporation's Board of Directors to reflect any stock dividends, stock
splits or similar events).
5. Optional Conversion.
-------------------
The holders of the Series C Stock shall have conversion rights as follows
(the "Conversion Rights"):
a. Right to Convert. Each share of Series C Stock shall be convertible,
----------------
at the option of the holder thereof, beginning on October 20, 2000 and at any
time thereafter, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing the Series C Stock Value by the
Conversion Price (as defined below) in effect at the time of conversion. The
conversion price at which shares of Common Stock shall be deliverable upon
conversion of Series C Stock without the payment of additional consideration by
the holder thereof (the "Conversion Price") shall initially be equal to $8.81;
provided, however, that if the Corporation closes a Qualified Offering (as
defined in Section 6(a) or a Qualified Sale (as defined in Section 3(b)), in
either case prior to October 20, 2000, the Conversion Price shall be increased
(if applicable, and in each case as adjusted) to (x) the lesser of $14.10, as
adjusted, or .75 multiplied by the price per share set forth on the cover of the
final prospectus for the Qualified Offering, in the case of a Qualified Offering
or (y) the lesser of $14.10, as adjusted, or the value of the consideration per
share of Common Stock received in the Qualified Sale (as determined in good
faith by the Corporation's Board of Directors). Such initial Conversion Price,
and the rate at which shares of Series C Stock may be converted into shares of
Common Stock, shall be subject to adjustment as provided in this Section 5.
21
<PAGE>
b. Termination of Conversion Rights. In the event of a Redemption Notice
--------------------------------
(as defined in Section 7(b)) relating to shares of Series C Stock pursuant to
Section 7, the Conversion Rights of the shares designated for redemption shall
terminate at the close of business on the second full day preceding the date
fixed for redemption, unless the Redemption Price (as defined below) is not paid
when due, in which case the Conversion Rights for such shares shall continue
until such price is paid in full. In the event of a Liquidation, the Conversion
Rights shall terminate at the close of business on the first full day preceding
the date fixed for the payment of any amounts distributable on Liquidation to
the holders of Series C Stock.
c. Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon conversion of the Series C Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay an
amount in cash equal to the then effective Conversion Price of such fractional
share (computed to the nearest one hundredth of a share).
d. Mechanics of Conversion.
-----------------------
i. In order for a holder of Series C Stock to convert shares of
Series C Stock into shares of Common Stock, such holder shall surrender the
certificate or certificates for such shares of Series C Stock at the office of
the transfer agent for the Series C Stock (or at the principal office of the
Corporation if the Corporation serves as its own transfer agent) together with
written notice that such holder elects to convert all or any number of the
shares of the Series C Stock represented by such certificate or certificates.
Such notice shall state such holder's name or the names of the nominees in which
such holder wishes the certificate or certificates for shares of Common Stock to
be issued. If required by the Corporation, certificates surrendered for
conversion shall be endorsed or accompanied by a written instrument or
instruments of transfer, in form reasonably satisfactory to the Corporation,
duly executed by the registered holder or his, her or its attorney duly
authorized in writing. The date of receipt of such certificates and notice by
the transfer agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be the conversion date ("Conversion Date"). The
Corporation shall, as soon as practicable after the Conversion Date, issue and
deliver at such office to such holder of Series C Stock, or to his, her or its
nominees, a certificate or certificates for the number of shares of Common Stock
to which such holder shall be entitled, together with cash in lieu of any
fraction of a share. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of the
shares of Series C Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock as of such date. If the conversion is in connection with an
underwritten offering of securities registered pursuant to the Securities Act of
1933, as amended (the "Securities Act"), the conversion may, at the option of
any holder tendering Series C Stock for conversion, be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion
22
<PAGE>
of the Series C Stock shall not be deemed to have converted such Series C Stock
until immediately prior to the closing of such underwritten offering of
securities.
ii. The Corporation shall at all times when the Series C Stock shall
be outstanding, reserve and keep available out of its authorized but unissued
capital stock, for the purpose of effecting the conversion of the Series C
Stock, such number of its duly authorized shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all outstanding shares of
Series C Stock. Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of Common
Stock issuable upon conversion of the Series C Stock, the Corporation will take
any corporate action which is necessary for the Corporation to validly and
legally issue fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then outstanding shares of Series C Stock, in addition to such other remedies as
shall be available to the holder of such Series C Stock, the Corporation will
take such corporate action which is necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purposes.
iii. Upon any such conversion, no adjustment to the Conversion Price
shall be made for any accumulated and unpaid dividends on the Series C Stock
surrendered for conversion or the Common Stock delivered upon conversion.
iv. All shares of Series C Stock which shall have been surrendered
for conversion as herein provided shall no longer be deemed to be outstanding
and all rights with respect to such shares, including the rights, if any, to
receive notices and to vote, shall immediately cease and terminate on the
Conversion Date, except only the right of the holders thereof to receive (1)
shares of Common Stock in exchange therefor and (2) payment of any accumulated
and unpaid dividends thereon. Any shares of Series C Stock so converted shall
be retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Series C Stock accordingly.
e. Adjustments to Conversion Price for Diluting Issues.
---------------------------------------------------
i. Special Definitions. For purposes of this Section 5, the
-------------------
following definitions shall apply:
(1) "Convertible Securities" shall mean any evidences of
indebtedness, shares of equity securities, options, warrants, or
other securities directly or indirectly convertible into or
exchangeable or exercisable for Common Stock.
(2) "Employee Stock" shall mean Common Stock, and/or options,
23
<PAGE>
warrants or other rights to purchase Common Stock, (a) issued or
granted to officers, directors, employees or agents of the
Corporation or any subsidiary of the Corporation pursuant to any
employee stock option plan or arrangement, employee stock
purchase plan or arrangement, or other equity incentive, bonus,
or similar plan or arrangement approved by the Board of
Directors, provided the total does not exceed twenty percent
(20%) of the shares of Common Stock then outstanding and/or
issuable upon conversion of the outstanding convertible
securities, options, warrants or other rights to acquire Common
Stock (the "Fully Diluted Common Stock"); (b) issued or granted
pursuant to written agreements with "branchises" or similar
agreements with "branchises" or similar agents of the Corporation
or any subsidiary, provided that any options, warrants or other
rights granted thereunder with respect to Common Stock shall be
exercisable at not less than fair market value (as determined in
good faith by the Board of Directors) as of the date of grant;
and provided further, that the total shares of Common Stock
----------------
issuable upon the exercise of all such options, warrants or other
rights shall not exceed five percent (5%) of the Fully Diluted
Common Stock as of any such grant date; or (c) approved by the
holders of at least 66 2/3% of the shares of Series C Stock then
outstanding, voting separately as a class.
(4) "Excluded Stock" shall mean (i) Common Stock issuable upon
conversion of the Series B Stock and/or the Series C Stock, (ii)
Employee Stock, or (iii) warrants (or Common Stock issuable upon
the exercise of such warrants) to purchase up to 1.8% of the
Corporation's fully-diluted Common Stock, issued by the
Corporation in connection with the incurrence of subordinated
third party debt.
(4) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities, excluding Employee Stock.
(5) "Original Issue Date" shall mean the date on which a share
of Series C Stock was first issued.
(6) "Person" means any individual, entity or group, including,
without limitation, any individual, corporation, limited
liability company, limited or general partnership, joint venture,
association, joint stock company, trust, unincorporated
organization or governmental authority.
ii. Adjustment for Combinations or Consolidation of Common Stock.
------------------------------------------------------------
If, at any time after the applicable Original Issue Date, the number of shares
of Common Stock outstanding
24
<PAGE>
are decreased by a combination of the outstanding shares of Common Stock, then,
following the record date fixed for such combination (or the date of such
combination, if no record date is fixed), the Conversion Price shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series C Stock shall be decreased in proportion to
such decrease in outstanding shares of Common Stock.
iii. Adjustment for Stock Dividends, Splits, Etc. If the Corporation
-------------------------------------------
shall at any time after the Original Issue Date fix a record date for the
subdivision, split-up or stock dividend of shares of Common Stock, then,
following the record date fixed for the determination of holders of shares of
Common Stock entitled to receive such subdivision, split-up or dividend (or the
date of such subdivision, split-up or dividend, if no record date is fixed), the
Conversion Price shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of each share of Series C Stock shall be
increased in proportion to such increase in outstanding shares of Common Stock;
provided, however, that the Conversion Price shall not be decreased at such time
- -------- -------
if the amount of such reduction would be an amount less than $.0001, but any
such amount shall be carried forward and reduction with respect thereto made at
the time of and together with any subsequent reduction which, together with such
amount and any other amount or amounts so carried forward, shall aggregate
$.0001 or more.
iv. Adjustment for Merger or Reorganization, Etc. In case of any
--------------------------------------------
recapitalization, consolidation or merger of the Corporation with or into
another corporation or entity or the sale of all or substantially all of the
assets of the Corporation to another corporation or entity (other than a
subdivision or combination provided for elsewhere in this Section 5 or a Sale
which is treated as a Liquidation in accordance with Section 3), each share of
Series C Stock shall thereafter be convertible into the kind and amount of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Series C Stock would have been entitled upon such consolidation, merger or sale;
and, in such case, appropriate adjustment (as determined in good faith by the
Board of Directors) shall be made in the application of the provisions in this
Section 5 set forth with respect to the rights and interest thereafter of the
holders of the Series C Stock, to the end that the provisions set forth in this
Section 5 (including provisions with respect to changes in and other adjustments
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be, in relation to any shares of stock or other property thereafter
deliverable upon the conversion of the Series C Stock.
f. Issuances Below Conversion Price.
--------------------------------
i. Except as provided in Section 5(f)(ii) below, if the
----------------
Corporation shall, while there are any shares of Series C Stock outstanding,
issue or sell shares of Common Stock at a price per share or at a noncash price
per share less than the Conversion Price in effect immediately prior to such
issuance or sale, then the Conversion Price shall be adjusted, effective as of
the date
25
<PAGE>
of the issuance of such shares of the Common Stock, to an amount determined by
multiplying the Conversion Price in effect immediately prior to such issuance or
sale by a fraction:
(1) the numerator of which shall be (A) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (B) the number of shares of Common Stock then
issuable upon conversion of the Shares at such Conversion Price, and all other
Convertible Securities outstanding immediately prior to the issuance of such
additional shares of Common Stock, whether or not then exercisable, plus (C) the
number of shares of Common Stock that the net aggregate consideration received
by the Corporation for the total number of such additional shares of Common
Stock so issued would purchase at such Conversion Price, and
(2) the denominator of which shall be (A) the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (B) the number of shares of Common Stock then
issuable upon conversion of the Shares at such Conversion Price, and all
Convertible Securities outstanding immediately prior to the issuance of such
additional shares of Common Stock, whether or not then exercisable, plus (C) the
number of such additional shares of Common Stock so issued.
ii. The adjustments contemplated by paragraph (i) above shall
not apply to Excluded Stock.
iii. For purposes of paragraph (i) above, the issuance of any
Convertible Securities shall be deemed to be an issuance of shares of Common
Stock at the time of the issuance thereof if the Net Consideration Per Share (as
hereinafter defined) which may be received by the Corporation for the shares of
Common Stock issuable upon the exercise thereof is less than any Conversion
Price at the time of the issuance of such Convertible Securities. In no event
shall the Corporation issue or sell any Convertible Securities if the Net
Consideration Per Share therefor equals zero. Any obligation, agreement or
undertaking to issue such Convertible Securities at any time in the future shall
be deemed to be an issuance at the time of expiration or termination of all
material conditions to exercise thereof, entered into in good faith by the
Corporation, excluding the vesting provisions of employee stock options and
provided that payment of the exercise price or giving notice of conversion or
exercise shall not constitute a material condition for the purposes of this
sentence. Notwithstanding the foregoing, any adjustment made to any Conversion
Price pursuant to the provisions of this paragraph (iii) which relates to
Convertible Securities shall be disregarded when, as and if all of such
Convertible Securities expire or are canceled without being exercised, so that
such Conversion Price effective immediately upon such cancellation or expiration
shall be equal to such Conversion Price in effect at the time of the issuance of
the expired or canceled Convertible Securities after taking into account any
other adjustments that would have been made to such Conversion Price had the
expired or canceled Convertible Securities not been issued. No adjustment to any
Conversion Price shall be made pursuant to the provisions of this
26
<PAGE>
paragraph (iii) either (1) upon the issuance of any shares of the Common Stock
that are issued pursuant to the exercise of any Convertible Securities if any
adjustment shall previously have been made upon the issuance of any such
Convertible Securities (or upon the issuance of any warrants, options or any
rights therefor) or, (2) upon the issuance of any warrants, options,
subscription or purchase rights or any other securities convertible into or
exchangeable or exercisable for shares of Common Stock (or upon the issuance of
any warrants, options or rights to purchase such securities) pursuant to any
plan or arrangement specified in paragraph (ii) above.
iv. For purposes of this Section 5(f), the "Net Consideration
------------
Per Share" means the amount which is equal to the sum of (1) the total amount of
consideration, if any, received by the Corporation for the issuance (and/or
extension of the term) of Convertible Securities, plus (2) the minimum amount of
consideration, if any, payable to the Corporation upon exercise or conversion
thereof, divided by the aggregate number of shares of the Common Stock that
would be issued if all such Convertible Securities were exercised, converted or
exchanged. For purposes of this paragraph (iv), if part or all of the
consideration received or to be received by the Corporation in connection with
the issuance of shares of Common Stock or the issuance of any of the securities
described in this paragraph (iv) consists of property other than cash, the value
of such property shall be determined by or at the direction of the Board of
Directors, in good faith, whereupon such value shall be given to such
consideration and shall be recorded on the books of the Corporation with respect
to receipt of such property.
g. No Impairment. The Corporation will not, by amendment of the
-------------
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Series C Stock against impairment.
h. Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price pursuant to this Section 5, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Series C Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series C Stock, furnish or cause to be furnished to such holder a similar
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect, and (iii) the number of shares of Common Stock
and the amount, if any, of other property which then would be received upon the
conversion of Series C Stock.
i. Notice of Record Date. In the event:
---------------------
27
<PAGE>
i. that the Corporation takes a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class of any other securities or property, or to receive
any other right;
ii. that the Corporation subdivides or combines its outstanding
shares of Common Stock;
iii. of any reclassification of the Common Stock of the Corporation
(other than a subdivision or combination of its outstanding shares of Common
Stock or a stock dividend or stock distribution thereon), or of any
consolidation or merger of the Corporation with or into another corporation or
entity or entities, or of the sale of all or substantially all of the assets of
the Corporation; or
iv. of a Liquidation:
then the Corporation shall cause to be filed at its principal office or at the
office of the transfer agent of the Series C Stock, and shall cause to be mailed
to the holders of the Series C Stock at their last address as shown on the
records of the Corporation or such transfer agent, at least twenty (20) days
before the record date specified below, a notice stating:
(1) the record date of such dividend, distribution, subdivision
or combination, or, if a record is not to be taken, the date as of which the
holders of the applicable class of securities of record to be entitled to such
dividend, distribution, subdivision or combination are to be determined, or
(2) the date on which such reclassification, consolidation,
merger, sale, dissolution or Liquidation is expected to become effective, and
the date as of which it is expected that holders of the applicable class of
securities of record shall be entitled to exchange their shares of the
applicable class of securities for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, dissolution or Liquidation.
6. Automatic Conversion. The holders of Series C Stock shall have
--------------------
the following conversion rights:
a. Qualified Offering or Qualified Sale. Upon the closing of a Qualified
------------------------------------
Offering (as defined below) or Qualified Sale (as defined in Section 3(b), all
of the then outstanding shares of Series C Stock shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such Series C Stock (after giving effect to any adjustment to such
28
<PAGE>
Conversion Price pursuant to Section 5(a)), and fifty percent (50%) of any
dividends accumulated but unpaid shall automatically be converted into shares of
Common Stock (using the Conversion Price as the basis of the conversion) and
fifty percent (50%) of any dividends accumulated but unpaid shall, at the
Corporation's election, be immediately payable in the form of Cash Dividends or
shall be automatically converted into shares of Common Stock (using the
Conversion Price as the basis of the conversion). A "Qualified Offering" means
an Underwritten Offering (as defined below) by the Corporation of authorized but
unissued shares of Common Stock (x) that results in net proceeds to the
Corporation (after deducting underwriting commissions and offering expenses) of
not less than $25,000,000 in net proceeds to the Corporation and (y) at a price
per share of not less than $10.00 (as adjusted in good faith by the
Corporation's Board of Directors to reflect any stock dividends, stock splits or
similar events). For purposes of this Certificate, "Underwritten Offering" means
a distribution of Common Stock in an underwritten public offering to the general
public pursuant to a registration statement filed with and declared effective by
the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act.
b. Notices. The Corporation shall promptly send by prepaid overnight
-------
delivery service to each holder of Series C Stock at such holder's address
appearing on the Corporation's records a copy of (i) each registration statement
filed by the Corporation under the Securities Act and each amendment thereof and
exhibit and schedule thereto, (ii) each order of the Commission declaring any
such registration statement to be effective and (iii) each stop order (or
similar order) of the Commission suspending the effectiveness of any such
registration statement.
c. No Further Action. In the case of an automatic conversion pursuant
-----------------
to this Section 6, the outstanding shares of Series C Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Corporation or its transfer agent; provided, that the Corporation shall not be
--------
obligated to issue to any holder certificates evidencing the shares of Common
Stock issuable upon such conversion unless certificates evidencing such shares
of Series C Stock are delivered either to the Corporation or any transfer agent
of the Corporation.
7. Mandatory Redemption at Option of Holders. The holders of Series
-----------------------------------------
C Stock shall have the following redemption rights:
a. Failure to Complete Qualified Offering, Liquidation or Sale. If, on
-----------------------------------------------------------
or before the seventh (7th) anniversary of the earliest Original Issue Date, the
Corporation has not completed any of (i) a Qualified Offering, (ii) a
Liquidation or (iii) a Sale, then, upon receipt by the Corporation (the
"Redemption Request Date") of a written request (the "Redemption Request") of
holders of not less than a majority of the then outstanding shares of Series C
Stock, the Corporation shall offer to redeem, such redemption to occur on the
date that is no later than thirty (30) days after the Redemption Request Date
(the "Redemption Date"), for cash, out of funds legally available therefor, all
of the then outstanding shares of Series C Stock at a price per share
(hereinafter referred
29
<PAGE>
to as the "Redemption Price") equal to the Series C Preferential Amount (as
defined in Section 3(a)).
b. Mechanics of Redemption.
-----------------------
i. Notice. Upon receipt of the Redemption Request, the Corporation
------
shall provide notice (the "Redemption Notice") of any redemption of Series C
Stock pursuant to this Section 8 specifying the time and place of redemption and
the Redemption Price or the Alternate Redemption Price (as the case may be), by
certified or registered mail, postage prepaid, to each holder of record of
Series C Stock at the address for such holder last shown on the records of the
transfer agent therefor (or the records of the Corporation, if it serves as its
own transfer agent), not less than thirty (30) days prior to the Redemption
Date. Upon mailing any such Redemption Notice, the Corporation will become
obligated to redeem on the Redemption Date all Series C Stock tendered for
redemption pursuant to the terms of this Section 7 (other than such shares of
Series C Stock as are duly converted pursuant to Section 5 of this Certificate
prior to the close of business on the fifth (5th) full day preceding the
Redemption Date). In case less than all shares of Series C Stock represented by
any certificate are redeemed in any redemption pursuant to this Section 7, a new
certificate will be issued representing the unredeemed shares of Series C Stock
without cost to the holder thereof.
ii. Dividends. Unless there shall have been a default in the payment
---------
of the Redemption Price, no share of Series C Stock tendered for redemption
under this Section 7 is entitled to accrue any dividends after its Redemption
Date (provided, however, that any dividends accumulated but unpaid as of the
-------- -------
Redemption Date shall be immediately payable in cash), and on such Redemption
Date all rights of the holder of such share as a stockholder of the Corporation
by reason of the ownership of such share will cease, except the right to receive
the Redemption Price of such share, without interest, upon presentation and
surrender of the certificate representing such share and such share will not
from and after such Redemption Date be deemed to be outstanding.
iii. Cancellation of Stock. Any Senior Preferred Stock redeemed
---------------------
pursuant to this Section 7 will be canceled and will not under any circumstances
be reissued, sold or transferred, and the Corporation may from time to time take
such appropriate action as may be necessary to reduce the authorized class of
Series C Stock so redeemed accordingly.
8. Preemptive Rights.
-----------------
a. The Corporation shall not issue or sell any shares of Common Stock,
Preferred Stock or other securities convertible into or exchangeable for shares
of Common Stock (the "Newly Issued Securities"), other than (i) the Excluded
Stock or (ii) any such issuance or sale pursuant to a Qualified Offering, (for
purposes hereof, the "Preemptive Right Securities" shall mean the Newly Issued
Securities, but excluding all of the Securities set forth in the immediately
preceding clauses
30
<PAGE>
(i) and (ii) of this Paragraph 8(a)), unless prior to the issuance or sale of
such Preemptive Right Securities each holder of Series C Stock shall have been
given the opportunity (such opportunity being herein referred to as the
"Preemptive Right") to purchase (on the same terms as such Preemptive Right
Securities are proposed to be sold) the same proportion of such Preemptive Right
Securities being issued or offered for sale by the Corporation as (x) the number
of shares of Common Stock (calculated solely on account of outstanding shares of
Series C Stock on an as converted basis) held by such holder on the day
preceding the date of the Preemptive Notice (as defined herein), as the case may
be, bears to (y) the total number of shares of Common Stock outstanding on that
day (assuming the conversion of the Series B Stock and the Series C Stock into
Common Stock).
b. At least thirty (30) days prior to the issuance or sale by the
Corporation of any Preemptive Right Securities, the Corporation shall give
written notice thereof (the "Preemptive Notice") to each holder of Series C
Stock. The Preemptive Notice shall specify (i) the name and address of the bona
fide investor to whom the Corporation proposes to issue or sell Preemptive Right
Securities, (ii) the total amount of capital to be raised by the Corporation
pursuant to the issuance or sale of Preemptive Right Securities, (iii) the
number of Securities of such Preemptive Right Securities proposed to be issued
or sold, (iv) the price and other terms of their proposed issuance or sale, (v)
the number of such Preemptive Right Securities which such holder is entitled to
purchase (determined as provided in subsection (a) above), and (vi) the period
during which such holder may elect to purchase such Preemptive Right Securities,
which period shall extend for at least thirty (30) days following the receipt by
such holder of the Preemptive Notice (the "Preemptive Acceptance Period"). Each
holder of Series C Stock who desires to purchase Preemptive Right Securities
shall notify the Corporation within the Preemptive Acceptance Period of the
number of Preemptive Right Securities he wishes to purchase, as well as the
number, if any, of additional Preemptive Right Securities he would be willing to
purchase in the event that all of the Preemptive Right Securities subject to the
Preemptive Right are not subscribed for by the other holders of Series C Stock.
c. In the event a holder of Series B Stock or Series C Stock declines to
subscribe for all or any part of its pro rata portion of any Preemptive Right
Securities which are subject to the Preemptive Right (the "Declining Preemptive
Purchaser") during the Preemptive Acceptance Period, then the other holders of
Series B Stock and Series C Stock shall have the right to subscribe for all (or
any declined part) of the Declining Preemptive Purchaser's pro rata portion of
such Preemptive Right Securities (to be divided among the other holders of
Series B Stock and Series C Stock desiring to exercise such right on a ratable
basis (assuming the conversion of the Series B Stock and Series C Stock into
Common Stock)).
d. Any such Preemptive Right Securities which none of the holders elect
to purchase in accordance with the provisions of this Section 8 may be sold by
the Corporation, within a period of three (3) months after the expiration of the
Preemptive Acceptance Period, to any other person or persons at not less than
the price and upon other terms and conditions not less favorable to the
Corporation than those set forth in the Preemptive Notice.
31
<PAGE>
D. Rights, Preferences, Privileges and Restrictions of Common Stock
----------------------------------------------------------------
1. Dividend Rights. As and when dividends are declared or paid on
---------------
the Common Stock, whether in cash, property or securities of the Corporation,
the holders of Common Stock shall be entitled to participate in such dividends
ratably on a per share basis. The rights of the holders of Common Stock to
receive dividends are subject to the provisions of the Preferred Stock.
2. Liquidation Rights. Subject to the provisions of the Preferred
------------------
Stock, the holders of the Common Stock shall be entitled to participate ratably
on a per share basis in all amounts available to be distributed to the holders
of the Common Stock in any liquidation or winding up of the Corporation.
3. Redemption. The Common Stock is not redeemable.
----------
4. Voting Rights. Except as otherwise required by applicable law and
-------------
the provisions of this Certificate of Incorporation, the holders of Common Stock
shall be entitled to one vote per share on all matters to be voted on by the
Corporation's stockholders; provided, however that at all elections of directors
of the Corporation, each holder of Common Stock shall be entitled to as many
votes as shall equal the number of votes which (except for such provision as to
cumulative voting) such holder would be entitled to cast for the election of
directors with respect to such holder's shares of Common Stock multiplied by the
number of directors to be elected by such holder, and such holder may cast all
of such votes for a single director or may distribute them among the number to
be voted for, or for any two or more of them as such holder may see fit.
ARTICLE V
The Corporation is to have perpetual existence.
ARTICLE Vl
In furtherance and not in limitation of the powers conferred by the
Corporation Law, the Board of Directors of the Corporation is expressly
authorized to make, alter, amend, change, add to or repeal the By-Laws of the
Corporation by the affirmative vote of a majority of the total numbers of
directors then in office. Any alteration or repeal of the By-Laws of the
Corporation by the stockholders of the Corporation shall require the affirmative
vote of at least a majority of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote on such alteration or
repeal, subject to Article XI hereof and Articles II and VIII of the
Corporation's By-Laws.
ARTICLE VII
32
<PAGE>
A. Stockholder Action. Election of directors need not be by written
------------------
ballot unless the By-Laws of the Corporation so provide. Subject to any rights
of holders of any series of Preferred Stock, from and after the date on which
the Common Stock is registered pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), (i) any action required or permitted to be
taken by the stockholders of the Corporation must be effected at an annual or
special meeting of stockholders of the Corporation and may not be effected in
lieu thereof by consent in writing by such stockholders, (ii) special meetings
of stockholders of the Corporation may be called only by either the Board of
Directors pursuant to a resolution adopted by the affirmative vote of the
majority of the total number of directors then in office or by the chief
executive officer of the Corporation and (iii) advance notice of stockholder
nominations of persons for election to the Board of Directors of the Corporation
and of business to be brought before any annual meeting of the stockholders by
the stockholders of the Corporation shall be given in the manner provided in the
By-Laws of the Corporation.
B. Number of Directors and Term of Office. Subject to any rights of
--------------------------------------
holders of any series of Preferred Stock to elect additional directors under
specified circumstances, the number of directors which shall constitute the
Board of Directors of the Corporation shall be fixed from time to time in the
manner set forth in the By-Laws of the Corporation. From and after the date on
which the Common Stock is registered pursuant to the Exchange Act, each director
shall be elected for a term of one (1) year and until his successor is elected
and qualified, except as otherwise provided herein or by required by law.
C. Removal and Resignation. From and after the date on which the Common
-----------------------
Stock is registered pursuant to the Exchange Act, no director may be removed
from office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors voting
together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled by the provisions of this Restated
Certificate to elect one or more directors, such director or directors so
elected may be removed without cause only by the vote of the holders of a
majority of the outstanding shares of that class or series entitled to vote.
Any director may resign at any time upon written notice to the Corporation.
D. Vacancies and Newly Created Directorships. Subject to any rights of
-----------------------------------------
holders of any series of Preferred Stock to fill such newly created
directorships or vacancies, any newly created directorships resulting from any
increase in the authorized number of directors and any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal from
office for cause shall, unless otherwise provided by law or by resolution
approved by the affirmative vote of a majority of the total number of directors
then in office, be filled only by resolution approved by the affirmative vote of
a majority of the total number of directors then in office. Any director so
chosen shall hold office for the balance of a term and until his successor shall
have been duly elected
33
<PAGE>
and qualified, unless he shall resign, die, become disqualified or be removed
for cause. Any decrease in the authorized number of directors shall not become
effective until the expiration of the term of the directors then in office
unless, at the time of the decrease, there shall be vacancies on the board which
are being eliminated by the decrease.
ARTICLE VIII
A. Dividends. The Board of Directors shall have authority from time to
---------
time to set apart out of any assets of the Corporation otherwise available from
dividends a reserve or reserves as working capital or for any other purpose or
purposes, and to abolish or add to any such reserve or reserves from time to
time as said Board may deem to be in the interest of the Corporation; and the
Board of Directors shall likewise have power to determine in its discretion,
except as herein otherwise provided, what part of the assets of the Corporation
available for dividends in excess of such reserve or reserves shall be declared
in dividends and paid to the stockholders of the Corporation.
B. Issuance of Stock. The shares of all classes of capital stock of the
-----------------
Corporation may be issued by the Corporation from time to time for such
consideration as from time to time may be fixed by the Board of Directors of the
Corporation, provided that shares of capital stock having a par value shall not
be issued for a consideration determined by the Board of Directors to be less
than such par value. The Board of Directors shall have authority, as provided by
law, to determine that only a part of the consideration which shall be received
by the Corporation for the shares of its capital stock which it shall issue from
time to time, shall be capital; provided, however, that, if all the shares
issued shall be shares having a par value, the amount of the part of such
consideration so determined to be capital shall be equal to the aggregate par
value of such shares. The excess, if any, at any time, of the total net assets
of the Corporation over the amount so determined to be capital, as aforesaid,
shall be surplus. All classes of capital stock of the Corporation shall be and
remain at all times nonassessable.
C. Options, etc. Subject to the Protective Provisions, the Board of
-------------
Directors is hereby expressly authorized in its discretion, in connection with
the issuance of any obligations or stock of the Corporation (but without
intending hereby to limit its general power so to do in other cases), to grant
rights or options to purchase capital stock of the Corporation of any class upon
such terms and during such period as the Board of Directors shall determine, and
to cause such rights to be evidenced by such warrants or other instruments as it
may deem advisable.
D. Inspection of Books and Records. The Board of Directors shall have
-------------------------------
power from time to time to determine to what extent and at what times and places
and under what conditions and regulations the accounts and books of the
Corporation, or any of them, shall be open to the inspection of the
stockholders; and no stockholder shall have any right to inspect any account or
book or document of the Corporation (except as conferred by the Corporation Law,
a resolution of
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the Board of Directors or a contract between the Corporation and any
stockholder), unless and until authorized so to do by resolution of the Board of
Directors or of the stockholders of the Corporation.
E. Location of Meetings, Books and Records. Except as otherwise provided
---------------------------------------
in the By-Laws, the stockholders of the Corporation and the Board of Directors
may hold their meetings and have an office or offices outside of the State of
Delaware and, subject to the provisions of the Corporation Law, may keep the
books of the Corporation outside of the State of Delaware at such places as may,
from time to time, be designated by the Board of Directors.
ARTICLE IX
To the fullest extent permitted by Corporation Law, a director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exception from liability or limitation thereof is not
permitted under the Corporation Law as the same exists or may hereafter be
amended. Neither any amendment nor repeal of this Article IX shall eliminate or
reduce the effect of this Article IX in respect of any matter occurring, or any
cause of action, suit or claim that, but for this Article IX, would accrue or
arise, prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
A. Indemnification of Directors and Officers. To the fullest extent
-----------------------------------------
permitted by law, the Corporation shall fully indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was a director or
officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such action,
suit or proceeding.
B. Indemnification of Employees and Agents. To the fullest extent
---------------------------------------
permitted by law, the Corporation may fully indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding (whether civil, criminal, administrative or
investigative) by reason of the fact that such person is or was an employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as an employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise, against expenses (including
attorneys' fees), judgment, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding.
C. Advancement of Expenses. The Corporation shall advance expenses
-----------------------
(including attorneys' fees) incurred by a director or officer in advance of the
final disposition of such action,
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suit or proceeding upon the receipt of an undertaking by or on behalf of the
director or officer to repay such amount if it shall ultimately be determined
that such director or officer is not entitled to indemnification. The
Corporation may advance expenses (including attorneys' fees) incurred by an
employee or agent in advance of the final disposition of such action, suit or
proceeding upon such terms and conditions, if any, as the Board of Directors
deems appropriate.
ARTICLE XI
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate in the manner now or
hereinafter prescribed herein and by the Corporation Law, and all rights
conferred upon stockholders herein are granted subject to this reservation.
Notwithstanding anything contained in this Restated Certificate to the contrary,
Division A of Article IV, Article VII, Article X and Article XI of this Restated
Certificate shall not be altered, amended or repealed and no provision
inconsistent therewith shall be adopted without the affirmative vote of the
holders of at least two-thirds of the voting power of the then outstanding
shares of capital stock of the Corporation entitled to vote on such alteration,
amendment or repeal, voting together as a single class (other than any
alteration or amendment to Part A of Article IV that increases the authorized
number of shares of Preferred Stock or Common Stock, which shall be subject to
amendment by the affirmative vote of the holders of a majority of the voting
power of the then outstanding shares of capital stock entitled to vote on such
amendment voting together as a single class).
ARTICLE XII
The Corporation expressly elects to be governed by Section 203 of the
Delaware General Corporation Law.
ARTICLE XIII
In the event that any provision of this Certificate of Incorporation
(including any provision within a single section, paragraph or sentence) is held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable, the remaining provisions are severable and shall remain
enforceable to the full extent permitted by law.
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IN WITNESS WHEREOF, this Second Amended and Restated Certificate of
Incorporation has been executed as of April 20, 2000.
NET-tel Communications, Inc
By: /s/ James F. Kenefick
----------------------------
James F. Kenefick
Chief Executive Officer
Attest:
/s/ James K. Dize
- --------------------------
James K. Dize
Secretary
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Exhibit 3.2
Bylaws of
NET-tel Holding Company
(A Delaware Corporation)
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders of NET-tel Holding Company (the
"Corporation"), for the election of directors to succeed those whose terms
expire and for the transaction of such other business as may properly come
before the meeting, shall be held at such place, on such date, and at such time
as the Board of Directors shall each year fix, which date shall be within
thirteen (13) months of the last annual meeting of stockholders or, if no such
meeting has been held, the date of incorporation.
Section 2. Special Meetings.
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of Directors
or the Chairman of the Board and shall be held at such place, on such date, and
at such time as they or he or she shall fix.
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law. Where a
separate vote by a class or classes is required, a majority of the shares of
such class or classes present in person or represented by proxy shall constitute
a quorum entitled to take action with respect to that vote on that matter.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the Chairman of the Board or, in his or her absence,
such person as may be chosen by the holders of a majority of the shares entitled
to vote who are present, in person or by proxy, shall call to order any meeting
of the stockholders and act as chairman of the meeting. In the absence of the
Secretary of the Corporation, the secretary of the meeting shall be such person
as the chairman appoints.
Section 6. Conduct of Business.
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him or her in order.
The date and time of the opening and closing of the polls for each matter upon
which the stockholders will vote at the meeting shall be announced at the
meeting.
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing or by a
transmission permitted by law filed in accordance with the procedure established
for the meeting. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing of transmission could be
used, provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or by his or her proxy, a
stock vote shall be taken. Every stock vote shall be taken by ballots, each of
which shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
The Corporation may, and to the extent required by law, shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law, shall
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the
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discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability. Every vote taken by ballots shall be counted by an inspector or
inspectors appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast affirmatively or negatively.
Section 8. Stock List.
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and
showing the address of each such stockholder and the number of shares registered
in his or her name, shall be open to the examination of any such stockholder,
for any purpose germane to the meeting, during ordinary business hours for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the meeting is
to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
Any action required to be taken at any annual or special meeting of
stockholders of the Corporation, or any action which may be taken at any annual
or special meeting of the stockholders, may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business,
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
Corporation's registered office shall be made by hand or by certified or
registered mail, return receipt requested.
Every written consent shall bear the date of signature of each stockholder
who signs the consent and no written consent shall be effective to take the
corporate action referred to therein unless, within sixty (60) days of the date
of the earliest dated consent delivered to the Corporation, a written consent or
consents signed by a sufficient number of holders to take action are delivered
to the Corporation in the manner prescribed in the first paragraph of this
Section.
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ARTICLE II - BOARD OF DIRECTORS
Section 1. Number and Term of Office.
The number of directors who shall constitute the whole Board shall not be
less than one (1) or more than seven (7), such number to be determined from time
to time by resolution of the Board of Directors. Each director shall be elected
for a term of one year and until his or her successor is elected and qualified,
except as otherwise provided herein or required by law.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office shall
have the power to elect such new directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the term
of the directors then in office unless, at the time of such decrease, there
shall be vacancies on the board which are being eliminated by the decrease.
Section 2. Vacancies.
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his or her successor is elected and
qualified.
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third (1/3)
of the directors then in office (rounded up to the nearest whole number) or by
the Chairman of the Board and shall be held at such place, on such date, and at
such time as they or he or she shall fix. Notice of the place, date, and time
of each such special meeting shall be given each director by whom it is not
waived by mailing written notice not less than five (5) days before the meeting
or by telegraphing or telexing or by facsimile transmission of the same not less
than twenty-four (24) hours before the meeting. Unless otherwise indicated in
the notice thereof, any and all business may be transacted at a special meeting.
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Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the total number of
the whole Board shall constitute a quorum for all purposes. If a quorum shall
fail to attend any meeting, a majority of those present may adjourn the meeting
to another place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(5) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, employees and agents;
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(6) To adopt from time to time such stock, option, stock purchase, bonus or
other compensation plans for directors, officers, employees and agents
of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(8) To adopt from time to time regulations, not inconsistent with these
Bylaws, for the management of the Corporation's business and affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the whole Board, may
from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for those committees and any others provided for herein,
elect a director or directors to serve as the member or members, designating, if
it desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its
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business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one (1) or two (2)
members, in which event one (1) member shall constitute a quorum; and all
matters shall be determined by a majority vote of the members present. Action
may be taken by any committee without a meeting if all members thereof consent
thereto in writing, and the writing or writings are filed with the minutes of
the proceedings of such committee.
ARTICLE IV - OFFICERS
Section 1. Generally.
The officers of the Corporation shall consist of a Chairman of the Board,
President, a Secretary, a Treasurer and such Vice Presidents, Assistant
Secretaries, Assistant Treasurers or other officers as may from time to time be
appointed by the Board of Directors. Officers shall be elected by the Board of
Directors, which shall consider that subject at its first meeting after every
annual meeting of stockholders. Each officer shall hold office until his or her
successor is elected and qualified or until his or her earlier resignation or
removal. Any number of offices may be held by the same person.
Section 2. Chairman of the Board.
The Chairman of the Board shall be the chief executive officer of the
Corporation and shall in general supervise and control all of the business and
affairs of the Corporation. The Chairman of the Board may sign, alone or with
the Secretary or any other proper officer of the Corporation thereunto
authorized by the Board of Directors, any deeds, mortgages, bonds, contracts, or
other instruments that the Board of Directors has authorized to be executed,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these By-Laws to some other officer or
agent of the Corporation, or shall be required by law to be otherwise signed or
executed, and in general he shall perform all duties incident to the offices of
the Chairman of the Board and chief executive officer and such other duties as
from time to time may be prescribed by the Board of Directors. When present, he
shall preside at all meetings of the stockholders and of the Board of Directors.
Section 3. President.
The President shall be the principal operating officer of the Corporation.
In the event the office of the Chairman of the Board is vacant or in the event
of the inability of the Chairman of the Board to act as Chairman of the Board
and chief executive officer or upon the refusal by the Chairman of the Board to
perform the duties of the Chairman of the Board and chief executive officer, the
President shall perform the duties and exercise the authority of the Chairman of
the Board and chief executive officer and, when so acting, shall have all the
powers of, and be
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<PAGE>
subject to all the restrictions placed upon the Chairman of the Board and chief
executive officer. He may sign, alone or with the Secretary or any other proper
officer of the Corporation thereunto authorized by the Board of Directors, any
deeds, mortgages, bonds, contracts or other instruments that the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the Corporation, or shall be
required by law to be otherwise signed or executed, and in general he shall
perform all duties incident to the office of President and such other duties as
from time to time may be prescribed by the Board of Directors or the Chairman of
the Board.
Section 3. Vice President.
Each Vice President shall in general perform all the duties incident to the
office of Vice President and such other duties as from time to time may be
assigned to him by the Chairman of the Board, the President or by the Board of
Directors. have such powers and duties as may be delegated to him or her by the
Board of Directors, the Chairman of the Board or the President. One (1) Vice
President shall be designated by the Board to perform the duties and exercise
the powers of the President in the event of the President's absence or
disability.
Section 4. Treasurer.
The Treasurer shall have charge and custody of and be responsible for all
funds and securities of the Corporation, receive and give receipts for moneys
due and payable to the Corporation from any source whatsoever, deposit all such
moneys in the name of the Corporation in such banks, trust companies or other
depositories as shall be selected by the Corporation, disburse the funds of the
Corporation as ordered by the Board of Directors or the Chairman of the Board or
as otherwise required in the conduct of the business of the Corporation, and
render to the Chairman of the Board or the Board of Directors, upon request, an
account of all his transactions as Treasurer and on the financial condition of
the Corporation. The Treasurer, unless another officer of the Corporation is
named by the Board of Directors to perform such functions, shall have the duties
and responsibilities and shall exercise the authority and powers of the chief
financial officer of the Corporation, and shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Chairman of the Board, the President or by
the Board of Directors.
Section 5. Secretary.
The Secretary shall (a) keep the minutes of the stockholders' and of the
Board of Directors' meetings and committees of the Board of Directors in one or
more books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation; (d) affix
the seal of the Corporation or a facsimile thereof, or cause it to be affixed
and, when so affixed, attest the seal by his signature, to all certificates for
shares prior to the
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issue thereof and to all documents the execution of which on behalf of the
Corporation under its seal is duly authorized by the Board of Directors or
otherwise in accordance with the provisions of these Bylaws (provided, however,
the Board of Directors or the Chairman of the Board and the President may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing by his signature); (e) keep a register of the post office
address of each stockholder, director or committee member, which shall be
furnished to the Secretary by such stockholder, director or member; (f) have
general charge of the stock transfer books of the Corporation; and (g) in
general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Chairman of the Board,
the President, any Vice President, or the Board of Directors.
Section 6. Assistant Treasurers and Assistant Secretaries.
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer or by the Secretary, respectively, or
by the Board, the Chairman of the Board, the President or any Vice President.
The Assistant Treasurers shall, respectively, if required by the Board of
Directors, give bonds (which shall be renewed regularly) for the faithful
discharge of their duties in such sums and with such sureties as the Board of
Directors shall determine.
Section 7. Delegation of Authority.
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.
Section 8. Removal.
Any officer of the Corporation may be removed at any time, with or without
cause, by the Board of Directors.
Section 9. Action with Respect to Securities of Other Corporations.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the Chairman of the Board shall have
power to vote and otherwise act on behalf of the Corporation, in person or by
proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such other
corporation.
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ARTICLE V - STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board, the President or a Vice
President, and by the Secretary or an Assistant Secretary, or the Treasurer or
an Assistant Treasurer, certifying the number of shares owned by him or her.
Any or all of the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date for
determining stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the day next preceding the day on which the meeting is held, and,
for determining stockholders entitled to receive payment of any dividend or
other distribution or allotment of rights or to exercise any rights of change,
conversion or exchange of stock or for any other purpose, the record date shall
be at the close of business on the day on which the Board of Directors adopts a
resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
In order that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board of Directors
may fix a record date, which shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall be not more than ten (10) days after the date upon which
the resolution fixing the record date is adopted. If no record date has been
fixed by the Board of Directors and no prior action by the Board of Directors is
required by the Delaware General Corporation Law, the record date shall be the
first date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Corporation in
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the manner prescribed by Article I, Section 9 hereof. If no record date has been
fixed by the Board of Directors and prior action by the Board of Directors is
required by the Delaware General Corporation Law with respect to the proposed
action by written consent of the stockholders, the record date for determining
stockholders entitled to consent to corporate action in writing shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, director, officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, or by sending such notice by pre-paid telegram or mailgram. Any
such notice shall be addressed to such stockholder, director, office, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered, or
dispatched, if delivered through the mails or by telegram or mailgram, shall be
the time of the giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director, officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, director, officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
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ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees or committees of the Board of Directors so designated, or by any other
person as to matters which such director or committee member reasonably believes
are within such other person's professional or expert competence and who has
been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these Bylaws which requires that an act be
done or not be done a specified number of days prior to an event or that an act
be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded,
and the day of the event shall be included.
ARTICLE VIII - INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification.
Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "Proceeding"), by
reason of the fact that he or she is or was a director
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or an officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "Indemnitee"), whether
the basis of such Proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than such law permitted
the Corporation to provide), against all expense, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) reasonably incurred or suffered by such Indemnitee in
connection therewith; provided, however, that, except as provided in Section 3
of this Article VIII with respect to Proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such Indemnitee in
connection with a Proceeding (or part thereof) initiated by such Indemnitee only
if such Proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
Section 2. Right to Advancement of Expenses.
The right to indemnification conferred in Section 1 of this Article VIII
shall include the right to be paid by the Corporation the expenses (including
attorneys' fees) incurred in defending any such Proceeding in advance of its
final disposition (hereinafter an "Advancement of Expenses"); provided, however,
that, if the Delaware General Corporation Law requires, an Advancement of
Expenses incurred by an Indemnitee in his or her capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such Indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "Undertaking") or by on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is not further right to appeal (hereinafter a "Final
Adjudication") that such Indemnitee is not entitled to be indemnified for such
expenses under this Section 2 or otherwise. The rights to indemnification and
to the Advancement of Expenses conferred in Sections 1 and 2 of this Article
VIII shall be contract rights and such rights shall continue as to an Indemnitee
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the Indemnitee's heirs, executors and administrators.
Section 3. Right of Indemnitee to Bring Suit.
If a claim under Section 1 or 2 of this Article VIII is not paid in full by
the Corporation within sixty (60) days after a written claim has been received
by the Corporation, except in the case of a claim for an Advancement of
Expenses, in which case the applicable period shall be twenty (20) days, the
Indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover an Advancement
of Expenses pursuant to the terms of an Advancement of Expenses pursuant to the
terms of
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<PAGE>
an Undertaking, the Indemnitee shall be entitled to be paid also to the expense
of prosecuting or defending such suit. In (i) any suit brought by the Indemnitee
to enforce a right to indemnification hereunder (but not in a suit brought by
the Indemnitee to enforce a right to an Advancement of Expenses) it shall be a
defense that, and (ii) in any suit brought by the Corporation to recover an
Advancement of Expenses pursuant to the terms of an Undertaking, the Corporation
shall be entitled to recover such expenses upon a Final Adjudication that, the
Indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an Advancement of Expenses hereunder,
or brought by the Corporation to recover an Advancement of Expenses pursuant to
the terms of an Undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such Advancement of Expenses, under this
Article VIII or otherwise shall be on the Corporation.
Section 4. Non-Exclusivity of Rights.
The right to indemnification and the Advancement of Expenses conferred in
this Article VIII shall not be exclusive of any other right which any person may
have or hereafter acquire under any statute, the Corporation's Certificate of
Incorporation, Bylaws, agreement, vote of stockholder or disinterested directors
or otherwise.
Section 5. Insurance.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
expense, liability or loss, whether or not the Corporation would have the power
to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
Section 6. Indemnification of Employees and Agents of the Corporation.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification and to the Advancement of
Expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
Advancement of Expenses of directors and officers of the Corporation.
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ARTICLE IX - AMENDMENTS
These Bylaws may be amended or repealed by the Board of Directors at any
meeting or by the stockholders at any meeting.
7016502.1
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<PAGE>
Exhibit 3.2.1
Form of
AMENDED AND RESTATED BY-LAWS
OF
NETTEL COMMUNICATIONS, INC.
ARTICLE I
OFFICES
Section 1.01. Registered Office. The address of the Corporation's
-----------------
registered office in the State of Delaware is 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware 19801. The Corporation's registered
agent at such address is The Corporation Trust Company.
Section 1.02. Other Offices. The Corporation may also have other
-------------
offices located in or outside of the State of Delaware as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
Section 2.01. Time and Place of Meetings. All meetings of the
--------------------------
stockholders shall be held at such time and place, within or without the State
of Delaware, as the Board of Directors may from time to time determine or as may
be designated in the notice of meeting or waiver of notice thereof, subject to
any provisions of the laws of the State of Delaware.
Section 2.02. Annual Meetings. Annual meetings of stockholders shall
---------------
be held at such date and time as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting, at which meeting,
the stockholders shall vote for the election of directors and shall transact
such other business as may properly be brought before the meeting.
Section 2.03. Notice of Annual Meetings. Written notice of the
-------------------------
annual meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given to each stockholder
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting. When a meeting is adjourned to another
place, date or time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are announced at the meeting at which the
adjournment is taken; provided, however, that if the date of any adjourned
meeting is more than thirty (30) days after the date for which the meeting was
originally noticed, or if a new record date is fixed for the adjourned meeting,
written
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notice of the place, date and time of the adjourned meeting, shall be
given in conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 2.04. Special Meetings. Special meetings of the
----------------
stockholders, for any purpose or purposes, unless otherwise prescribed by the
Delaware General Corporation Law or by the Certificate of Incorporation, may be
called at any time only by the Board of Directors of the Corporation pursuant to
a resolution adopted by the affirmative vote of the majority of the total number
of Directors then in office or by the Chief Executive Officer of the
Corporation.
Section 2.05. Notice of Special Meetings. Written notice of a
---------------------------
special meeting stating the place, date and hour of the meeting and the purpose
or purposes for which the meeting is called shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting, to each
stockholder entitled to vote at such meeting. When a meeting is adjourned to
another place, date or time, written notice need not be given of the adjourned
meeting if the place, date and time thereof are announced at the meeting at
which the adjournment is taken; provided, however, that if the date of any
adjourned meeting is more than thirty (30) days after the date for which the
meeting was originally noticed, or if a new record date is fixed for the
adjourned meeting, written notice of the place, date and time of the adjourned
meeting, shall be given in conformity herewith. At any adjourned meeting, any
business may be transacted which might have been transacted at the original
meeting.
Section 2.06. Notice of Stockholder Business; Nominations.
-------------------------------------------
(a) Annual Meeting of Stockholders.
-------------------------------
(1) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors, or (C) by
any stockholder of the Corporation who is a stockholder of record at the time of
giving of the notice provided for in this Section 2.06 and who complies with the
notice procedures set forth in this Section 2.06.
(2) For nominations or other business to be properly brought before an
annual meeting by a stockholder pursuant to clause (C) of paragraph (a) (1) of
this Section 2.06, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the principal executive offices of the
Corporation no later than the close of business on the sixtieth (60th) day nor
earlier than the close of business on the ninetieth (90th) day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual
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<PAGE>
meeting and not later than the close of business on the later of the sixtieth
(60th) day prior to such annual meeting or the close of business on the tenth
(10th) day following the day on which public announcement of the date of such
meeting is first made by the Corporation. Such stockholder's notice shall set
forth (A) as to each person whom the stockholder proposes to nominate for
election or re-election as a director, all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
including such person's written consent to being named in the proxy statement as
a nominee and to serving as a director if elected; (B) as to any other business
that the stockholder proposes to bring before the meeting, a brief description
of the business desired to be brought before the meeting, the reasons for
conducting such business at the meeting and any material interest in such
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made; and (C) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made (1)
the name and address of such stockholder, as they appear on the Corporation's
books, and of such beneficial owner; and (2) the class and number of shares of
the Corporation that are owned beneficially and held of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of paragraph (a)
(2) of this Section 2.06 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased Board of
Directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 2.06 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary at the principal executive office of the Corporation
not later than the close of business on the tenth (10th) day following the day
on which such public announcement is first made by the Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
---------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (A) by or at the direction of the Board of
Directors or (B) provided that the Board of Directors has determined that
directors shall be elected at such meeting by any stockholder of the Corporation
who is a stockholder of record at the time of giving of notice of the special
meeting, who shall be entitled to vote at such meeting and who complies with the
notice procedures set forth in this Section 2.06. If the Corporation calls a
special meeting of stockholders for the purpose of electing one or more
directors to the Board of Directors, any such stockholder may nominate a person
or persons (as the case may be) for election to such position(s) as specified in
the Corporation's notice of meeting, if the stockholder's notice required by
paragraph
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<PAGE>
(a) (2) or (a) (3) of this Section 2.06 shall be delivered to the
Secretary at the principal executive offices of the Corporation within the
notice periods set forth therein, as applicable.
(c) General.
-------
(1) Only such persons who are nominated in accordance with the
procedures set forth in this Section 2.06 shall be eligible to serve as
directors and only such business shall be conducted at such meeting of
stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.06. Except as otherwise provided by
law, the Certificate of Incorporation or these By-Laws, the chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made or proposed, as the
case may be, in accordance with the procedures set forth in this Section 2.06
and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.06, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the Exchange Act.
(3) Notwithstanding the forgoing provisions of this Section 2.06, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 2.06 shall be deemed to affect any rights
(A) of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the holders of
any series of preferred stock to elect directors under specified circumstances.
(d) Amendment. Subject to Section 8.12 of these By-Laws, the
---------
provisions of this Section 2.06 are subject to alteration, amendment or repeal,
and new or conflicting provisions may be adopted by the affirmative vote of the
holders of not less than 66 2/3% of the voting power of all outstanding shares
of common stock of the Corporation.
Section 2.07. Organization. Such person as the Board of Directors
------------
may have designated or, such person as may be chosen by the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
shall call to order any meeting of the stockholders and act as chairman of the
meeting. In the absence of the Secretary of the Corporation, the secretary of
the meeting shall be such person as the chairman of the meeting appoints.
Section 2.08. Quorum. The holders of a majority of the stock issued
------
and outstanding and entitled to vote, present in person or represented by proxy,
shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by the Delaware General
Corporation Law or by the Certificate of Incorporation. If, however, such quorum
shall not be present or represented at any meeting of the stockholders, the
stockholders entitled to
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vote, present in person or represented by proxy, shall have the power to adjourn
the meeting from time to time to another place, date or time. If a notice of any
adjourned special meeting of stockholders is sent to all stockholders entitled
to vote thereat, stating that it will be held with those present constituting a
quorum, then except as otherwise required by the Delaware General Corporation
Law, those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 2.09. Voting. At any meeting of the stockholders, every
------
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing filed in accordance with the procedure established for the
meeting. Each stockholder shall have one (1) vote for every share of stock
entitled to vote which is registered in his or her name on the record date for
the meeting, except as otherwise provided herein or required by the Delaware
General Corporation Law. All voting, including on the election of directors but
excepting where otherwise required by the Delaware General Corporation Law, may
be by a voice vote.
Section 2.10. Proxies. Any stockholder entitled to vote at any
-------
meeting of the stockholders or to express consent to or dissent from corporate
action without a meeting may, by a written instrument signed by such stockholder
or his attorney-in-fact, authorize another person or persons to vote at any such
meeting and express such consent or dissent for him by proxy. No such proxy
shall be voted or acted upon after the expiration of three (3) years from the
date of such proxy, unless such proxy provides for a longer period. Every proxy
shall be revocable at the pleasure of the stockholder executing it, except in
those cases where applicable law provides that a proxy shall be irrevocable. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
Secretary. A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power.
Section 2.11. Stock List. A complete list of stockholders entitled
----------
to vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) days prior to the meeting,
either at a place within the city where the meeting is to be held, which place
shall be specified, or at the place where the meeting is to be held. The stock
list shall also be kept at the place of the meeting during the whole time
thereof and shall be open to the examination of any such stockholder who is
present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
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ARTICLE III
BOARD OF DIRECTORS
Section 3.01. General Powers. Except as may otherwise be provided by
--------------
law, by the Certificate of Incorporation or by these By-Laws, the property,
affairs and business of the Corporation shall be managed by or under the
direction of the Board of Directors and the Board of Directors may exercise all
the powers of the Corporation. The Chief Executive Officer of the Corporation
shall also serve as the Chairman of the Board of the Corporation.
Section 3.02. Number and Term of Office. The number of directors
--------------------------
constituting the entire Board of Directors shall not be less than one (1) nor
more than fourteen (14), which number, subject to compliance with any applicable
stockholder approval requirements set forth in the Certificate of Incorporation
or in any agreement among the stockholders of the Corporation, may be modified
from time to time by resolution of the Board of Directors, but in no event shall
the number of directors be less than one (1). Each director shall be elected
for a term of one (1) year and until his successor is elected and qualified,
except as otherwise provided herein or by required by law.
Section 3.03. Annual or Regular Meetings; Notice. The annual meeting
----------------------------------
of the Board of Directors for the purpose of electing officers and for the
transaction of such other business as may come before the meeting shall be held
as soon as possible following adjournment of the annual meeting of the
stockholders at the place of such annual meeting of the stockholders. Notice of
such annual meeting of the Board of Directors need not be given. The Board of
Directors from time to time may by resolution provide for the holding of regular
meetings and fix the place (which may be within or without the State of
Delaware), date and hour of such meetings. Notice of regular meetings need not
be given, provided, however, that if the Board of Directors shall fix or change
the time or place of any regular meeting, notice of such action shall be mailed
promptly, or sent by telegram, radio or cable, to each director who shall not
have been present at the meeting at which such action was taken, addressed to
him at his usual place of business, or shall be delivered to him personally.
Notice of such action need not be given to any director who attends the first
regular meeting after such action is taken without protesting the lack of notice
to him, prior to or at the commencement of such meeting, or to any director who
submits a signed waiver of notice, whether before or after such meeting.
Section 3.04. Special Meetings; Notice. Special meetings of the
-------------------------
Board of Directors shall be held whenever called by one-third (1/3) of the
directors then in office (rounded up to the nearest whole number) or by the
Chief Executive Officer or, in the event of his absence or disability, by any
Senior Vice President or by the Secretary at such place (within or without the
State of Delaware), date and hour as may be specified in the respective notices
or waivers of notice of such meetings. Special meetings of the Board of
Directors may be called on twenty-four (24) hours' notice, if notice is given to
each director personally or by telephone or telegram, or on five (5) days'
notice, if notice is mailed to each director, addressed to him at his usual
place of business. Notice of any special meeting need not be given to any
director who attends such meeting without protesting the lack of notice to him,
prior to or at the commencement of such meeting, or to any director who submits
a signed waiver of notice, whether before or after such meeting, and any
business may be transacted thereat.
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Section 3.05. Quorum; Voting. At all meetings of the Board of
--------------
Directors, a majority of the directors then in office shall constitute a quorum
for transaction of business, and the vote of a majority of the directors present
at any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by the Delaware
General Corporation Law or by the Certificate of Incorporation. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 3.06. Adjournment. A majority of the directors present,
-----------
whether or not a quorum is present, may adjourn any meeting of the Board of
Directors to another time or place. No notice need be given of any adjourned
meeting unless the time and place of the adjourned meeting is not announced at
the time of adjournment, in which case notice conforming to the requirements of
Section 2.05 shall be given to each director.
Section 3.07. Action Without a Meeting. Unless otherwise restricted
------------------------
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board of
Directors or of such committee consent hereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
such committee.
Section 3.08. Regulations; Manner of Acting. To the extent
-----------------------------
consistent with applicable law, the Certificate of Incorporation and these By-
Laws, the Board of Directors may adopt such rules and regulations for the
conduct of meetings of the Board of Directors and for the management of the
property, affairs and business of the Corporation as the Board of Directors may
deem appropriate. The directors shall act only as a Board, and the individual
directors shall have no power as such.
Section 3.09. Participation in Meetings by Conference Telephone.
-------------------------------------------------
Members of the Board of Directors or of any committee thereof may participate in
a meeting of the Board of Directors or a committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting pursuant to this provision shall constitute presence in person at such
meeting.
Section 3.10. Removal and Resignation. No director may be removed
-----------------------
from office without cause and without the affirmative vote of the holders of a
majority of the voting power of the then outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors voting
together as a single class; provided, however, that if the holders of any class
or series of capital stock are entitled to elect one or more directors, such
director or directors so elected may be removed without cause only by the vote
of the holders of a majority of the outstanding shares of that class or series
entitled to vote. Any director may resign at any time upon written notice to
the Corporation.
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Section 3.11. Vacancies and Newly Created Directorships. Subject to
-----------------------------------------
any rights of holders of any series of Preferred Stock to fill such newly
created directorships or vacancies any newly created directorships resulting
from any increase in the authorized number of directors and any vacancies in the
Board of Directors resulting from death, resignation, disqualification or
removal from office for cause shall, unless otherwise provided by law or by
resolution approved by the affirmative vote of a majority of the total number of
directors then in office, be filled only by resolution approved by the
affirmative vote of a majority of the total number of directors then in office.
Any director so chosen shall hold office for the balance of a term and until his
successor shall have been duly elected and qualified, unless he shall resign,
die, become disqualified or be removed for cause. Any decrease in the
authorized number of directors shall not become effective until the expiration
of the term of the directors then in office unless, at the time of the decrease,
there shall be vacancies on the board which are being eliminated by the
decrease.
Section 3.12. Compensation. The amount, if any, which each director
------------
shall be entitled to receive as compensation for his services as such shall be
fixed from time to time by resolution of the Board of Directors.
Section 3.13. Reliance on Accounts and Reports, etc. A director, or
-------------------------------------
a member of any committee designated by the Board of Directors shall, in the
performance of his duties, be fully protected in relying in good faith upon the
records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of the Corporation's officers or
employees, or committees designated by the Board of Directors, or by any other
person as to the matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
ARTICLE IV
COMMITTEES
Section 4.01. Generally. The Board of Directors shall designate an
---------
Audit Committee and a Compensation Committee, and may designate one or more
other committees, each committee to consist of one (1) or more of the directors
of the Corporation. Any such committee shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority to amend the Certificate of Incorporation, adopt an
agreement of merger or consolidation, recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Corporation's property and
assets, recommend to the stockholders a dissolution, or amend the By-Laws of the
Corporation; and unless the resolution or By-Laws expressly so provide, no such
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committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 4.02. Committee Procedure. Each committee may determine the
-------------------
procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third (1/3) of the members shall constitute a quorum unless the committee shall
consist of one (1) or two (2) members, in which event one (1) member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of such committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any such absent or disqualified
member.
Section 4.03. Executive Committee. The Board of Directors may, in
-------------------
its discretion by resolution passed by a majority of the Board of Directors,
designate an Executive Committee consisting of such number of directors as the
Board of Directors shall determine. The Executive Committee shall have and may
exercise all of the authority of the Board of Directors in the management of the
Corporation with respect to any matter that may require action prior to, or that
in the opinion of the Executive Committee may be inconvenient, inappropriate or
undesirable to be postponed until, the next meeting of the Board of Directors;
provided, however, that the Executive Committee shall not have the power or
authority of the Board of Directors to amend the Certificate of Incorporation,
adopt an agreement of merger or consolidation, recommend to the stockholders the
sale, lease or exchange of all or substantially all of the Corporation's
property and assets, recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution, or amend these By-Laws. Any
member of the Board of Directors may request the chairman of the Executive
Committee to call a meeting of the Executive Committee with respect to a
specified subject.
Section 4.04. Audit Committee. The Audit Committee will review the
---------------
results and scope of the audit and other services provided by the Corporation's
independent accountants.
Section 4.05. Compensation Committee. The Compensation Committee
----------------------
will approve salaries and certain incentive compensation for officers and other
key employees of the Corporation, and administer the Corporation's stock option
and other employee benefit plans.
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ARTICLE V
OFFICERS
Section 5.01. Number and Designation. The officers of the
----------------------
Corporation shall be a Chief Executive Officer, a President, a Senior Vice
President, a Chief Operating Officer, a Secretary and such other officers (e.g.,
one or more Vice Presidents, a Treasurer and one or more Assistant Secretaries
or Assistant Treasurers) as the Board of Directors from time to time considers
necessary for the proper conduct of the business of the Corporation. Any two
(2) or more offices may be held by the same person. Vacancies may be filled or
new offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his or her successor shall have been duly
elected and shall have qualified or until his or her earlier death, resignation,
or removal.
Section 5.02. Chief Executive Officer. The Chief Executive Officer
-----------------------
shall be the Chairman of the Board and shall, in general, supervise and control
all of the business and affairs of the Corporation and perform all duties
incident to the offices of Chief Executive Officer and such other duties as from
time to time may be prescribed by the Board of Directors, subject, however, to
the control of the Board of Directors. When present, he shall preside at all
meetings of the stockholders and of the Board of Directors. The Chief Executive
Officer may sign, alone or with the Secretary or any other proper officer of the
Corporation thereunto authorized by the Board of Directors, any deeds,
mortgages, bonds, contracts, or other instruments that the Board of Directors
has authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these By-
Laws to some other officer or agent of the Corporation, or shall be required by
law to be otherwise signed or executed.
Section 5.03. Secretary. The Secretary shall (a) keep the minutes of
---------
the stockholders' and of the Board of Directors' meetings and committees of the
Board of Directors in one or more books provided for that purpose; (b) see that
all notices are duly given in accordance with the provisions of these By-Laws or
as required by law; (c) be custodian of the corporate records; (d) keep a
register of the post office address of each stockholder, director or committee
member, which shall be furnished to the Secretary by such stockholder, director
or member; (e) have general charge of the stock transfer books of the
Corporation; and (f) in general perform all duties incident to the office of
Secretary and such other duties as from time to time may be assigned to him by
the Chief Executive Officer or the Board of Directors.
Section 5.04. President. The President shall assist the Chief
---------
Executive Officer to supervise and control all of the business and affairs of
the Corporation and perform all duties incident to the office of President and
such other duties as from time to time may be prescribed by the Chief Executive
Officer or the Board of Directors. In the absence or disability of the Chief
Executive Officer, the President may, unless otherwise determined by the Board
of Directors, exercise the powers and perform the duties pertaining to the
office of the Chief Executive Officer.
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Section 5.05 Chief Operating Officer. The Chief Operating Officer
-----------------------
shall assist the President to supervise and control all of the business and
affairs of the Corporation and perform all duties incident to the office of
Chief Operating Officer and such other duties as may from time to time be
prescribed by the President. In the absence or disability of the President, the
Chief Operating Officer may, unless otherwise determined by the Board of
Directors, exercise and perform the duties of the President.
Section 5.06. Senior Vice President. The Senior Vice President or
---------------------
Senior Vice Presidents shall perform such duties as may be assigned to them from
time to time by the Board of Directors or by the Chief Executive Officer, if the
Board of Directors does not do so. In the absence or disability of the Senior
Vice President, the Vice Presidents in order of seniority, may, unless otherwise
determined by the Board of Directors, exercise the powers and perform the duties
pertaining to the office of the Senior Vice President, except that if one or
more Senior Vice Presidents has been elected or appointed, the person holding
such office in order of seniority shall exercise the powers and perform the
duties of the office of the Senior Vice President.
Section 5.07. Vice President. The Vice President or Vice Presidents
--------------
shall perform such duties as may be assigned to them from time to time by the
Board of Directors or by the Chief Executive Officer, if the Board of Directors
does not do so. In the absence or disability of the Senior Vice President, the
Vice President may, unless otherwise determined by the Board of Directors,
exercise and perform the duties of the Senior Vice President.
Section 5.08. Treasurer. The Treasurer, or such other officer of the
---------
Corporation as may be named by the Board of Directors or appointed by the Chief
Executive Officer of the Corporation to perform such function, shall have charge
and custody of and be responsible for all funds and securities of the
Corporation, receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever, deposit all such moneys in the name of
the Corporation in such banks, trust companies or other depositories, disburse
the funds of the Corporation as ordered by the Board of Directors or the Chief
Executive Officer of the Corporation or as otherwise required in the conduct of
the business of the Corporation, and render to the Chief Executive Officer of
the Corporation or the Board of Directors, upon request, an account of all his
transactions as Treasurer and on the financial condition of the Corporation.
The Treasurer, unless another officer of the Corporation is named by the Board
of Directors to perform such functions, shall have the duties and
responsibilities and shall exercise the authority and powers of the chief
financial officer of the Corporation, and shall in general perform all the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the Chief Executive Officer or by the Board of
Directors. If required by the Board of Directors, the Treasurer shall give a
bond (which shall be renewed regularly), in such sum and with such surety or
sureties as the Board of Directors shall determine for the faithful discharge of
his duties and for the restoration to the Corporation, in case of his death,
resignation, retirement or removal from office, of all books, papers, vouchers,
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money and other property of whatever kind in his possession or under his control
belonging to the Corporation.
Section 5.09. Assistant Treasurers and Assistant Secretaries.
----------------------------------------------
Assistant Treasurers and Assistant Secretaries shall perform such duties as
shall be assigned to them by the Treasurer or by the Secretary, respectively, or
by the Board of Directors or the Chief Executive Officer. If required by the
Board of Directors, the Assistant Treasurers shall give bonds (which shall be
renewed regularly) for the faithful discharge of their duties in such sums and
with such sureties as the Board of Directors shall determine.
Section 5.10. Compensation. The salaries of the officers shall be
------------
fixed from time to time by the Compensation Committee. No officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
Section 5.11. Removal and Resignation; Vacancies. Any officer may be
----------------------------------
removed with or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors or the Chief Executive
Officer. Unless otherwise specified therein, such resignation shall take effect
upon delivery. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise, shall be filled by the Board of Directors.
Section 5.12. Authority and Duties of Officers. The officers of the
--------------------------------
Corporation shall have such authority and shall exercise such powers and perform
such duties as may be specified by the Board of Directors, except that in any
event each officer shall exercise such powers and perform such duties as may be
required by law. In the event an officer other than the Chief Executive
Officer, the Secretary and the Senior Vice President is not elected by the Board
of Directors, the Board of Directors or the Chief Executive Officer may bestow
and delegate that officer's duties and powers on any other officer of the
Corporation.
Section 5.13. Failure to Elect. A failure to elect officers shall
----------------
not dissolve or otherwise affect the Corporation.
Section 5.14. Reliance on Accounts and Reports, etc. Each officer of
-------------------------------------
the Corporation shall, in the performance of his duties, be fully protected in
relying in good faith upon the records of the Corporation and upon such
information, opinions, reports or statements presented to the Corporation by any
of the Corporation's officers or employees, or committees designated by the
Board of Directors, or by any other person as to the matters the member
reasonably believes are within such other person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Corporation.
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ARTICLE VI
CAPITAL STOCK
Section 6.01. Certificates. Each stockholder shall be entitled to a
------------
certificate signed by, or in the name of the Corporation by, the Chief Executive
Officer, the President, a Senior Vice President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be facsimile.
Section 6.02. Uncertificated Shares. Subject to any conditions
---------------------
imposed by the Delaware General Corporation Law or by the Certificate of
Incorporation, the Board of Directors may provide by resolution or resolutions
that some or all of any or all classes or series of the stock of the Corporation
shall be uncertificated shares. Within a reasonable time after the issuance or
transfer of any uncertificated shares, the Corporation shall send to the
registered owner thereof any written notice prescribed by the Delaware General
Corporation Law.
Section 6.03. Lost, Stolen or Destroyed Certificates. The Board of
--------------------------------------
Directors may direct that a new certificate be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon delivery to the Board of Directors of an affidavit of
the owner or owners of such certificate, setting forth such allegation. The
Board of Directors may require the owner of such lost, stolen or destroyed
certificate, or his legal representative, to give the Corporation a bond
sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of any such new certificate.
Section 6.04. Stock Transfers. The Board of Directors shall have the
---------------
power and authority to make all such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of certificates of
stock. The Board of Directors may appoint transfer agents and registrars
thereof.
Section 6.05. Record Date. The Board of Directors may fix in advance
-----------
a date as a record date for the determination of the stockholders entitled to
notice of or to vote at any meeting of stockholders or to express consent (or
dissent) to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any rights
in respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action. Such record date shall not be more than sixty (60) nor
less than ten (10) days before the date of such meeting, nor more than sixty
(60) days prior to any other action to which such record date relates.
If no record date is fixed, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day before the day on which notice is given, or, if
notice is waived, at the close of business on the day before the day on which
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the meeting is held. The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed. The record date for determining
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating to such purpose.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 6.06. Registered Stockholders. Prior to due surrender of a
-----------------------
certificate for registration of transfer, the Corporation may treat the
registered owner as the person exclusively entitled to receive dividends and
other distributions, to vote, to receive notice and otherwise to exercise all
the rights and powers of the owner of the shares represented by such
certificate, and the Corporation shall not be bound to recognize any equitable
or legal claim to or interest in such shares on the part of any other person,
whether or not the Corporation shall have notice of such claim or interests.
Whenever any transfer of shares shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer or uncertificated
shares are requested to be transferred, both the transferor and transferee
request the Corporation to do so.
ARTICLE VII
INDEMNIFICATION
Section 7.01. Nature of Indemnity. The Corporation shall indemnify
-------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of fact that the person is
or was or has agreed to become a director or officer of the Corporation, or is
or was serving or has agreed to serve at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action, suit or proceeding by reason
of the fact that the person is or was or has agreed to become an employee or
agent of the Corporation, or is or was serving or has agreed to serve at the
request of the Corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with such action,
suit or proceeding and any appeal therefrom, if the person acted in good faith
and in a manner reasonably believed to be in or not opposed to the best
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interests of the Corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe the person's conduct was unlawful;
except that in the case of an action or suit by or in the right of the
Corporation to procure a judgment in its favor (1) such indemnification shall be
limited to expenses (including attorneys' fees) actually and reasonably incurred
by such person in the defense or settlement of such action or suit, and (2) no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Delaware Court of Chancery or the court
in which such action or suit was brought shall determine upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Delaware Court of Chancery or such other court shall deem
proper.
The termination of any action, suit or proceeding by judgment, order
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
---- ----------
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that the person's conduct was
unlawful.
Section 7.02. Successful Defense. To the extent that a director,
------------------
officer, employee or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to in Section
7.01 hereof or in defense of any claim, issue or matter therein, the person
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by the person in connection therewith.
Section 7.03. Determination That Indemnification Is Proper. Any
--------------------------------------------
indemnification of a director or officer of the Corporation under Section 7.01
hereof (unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the director or officer is not
proper in the circumstances because the person has not met the applicable
standard of conduct set forth in Section 7.01 hereof. Any indemnification of an
employee or agent of the Corporation under Section 7.01 hereof (unless ordered
by a court) may be made by the Corporation upon a determination that
indemnification of the employee or agent is proper in the circumstances because
the person has met the applicable standard of conduct set forth in Section 7.01
hereof. Any such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding; or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion; or (3) by the stockholders.
Section 7.04. Advance Payment of Expenses. Expenses incurred by a
---------------------------
director or officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that the person is not entitled to
be indemnified by the Corporation as authorized in this Article. Such expenses
(including attorneys' fees) incurred by other employees
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and agents may be so paid upon such terms and conditions, if any, as the Board
of Directors deems appropriate. The Board of Directors may authorize the
Corporation's counsel to represent such director, officer, employee or agent in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 7.05. Procedure for Indemnification of Directors and
----------------------------------------------
Officers. Any indemnification of a director or officer of the Corporation under
Sections 7.01 and 7.02, or advance of costs, charges and expenses to a director
or officer under Section 7.04 of this Article, shall be made promptly, and in
any event within thirty (30) days, upon the written request of the director or
officer. If a determination by the Corporation that the director or officer is
entitled to indemnification pursuant to this Article is required, and the
Corporation fails to respond within sixty (60) days to a written request for
indemnity, the Corporation shall be deemed to have approved such request. If
the Corporation denies a written request for indemnity or advancement of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within thirty (30) days, the right to indemnification or advances as
granted by this Article shall be enforceable by the director or officer in any
court of competent jurisdiction. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the Corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 7.04 of this
Article where the required undertaking, if any, has been received by the
Corporation) that the claimant has not met the standard of conduct set forth in
Section 7.01 of this Article, but the burden of proving such defense shall be on
the Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in Section 7.01 of this Article, nor the fact that
there has been an actual determination by the Corporation (including its Board
of Directors, its independent legal counsel, and its stockholders) that the
claimant has not met such applicable standard of conduct, shall be a defense to
the action or create a presumption that the claimant has not met the applicable
standard of conduct.
Section 7.06. Survival; Preservation of Other Rights. The foregoing
--------------------------------------
indemnification provisions shall be deemed to be a contract between the
Corporation and each director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit or proceeding previously or thereafter or brought or threatened based in
whole or in part upon any such state of facts. Such a "contract right" may not
be modified retroactively without the consent of such director, officer,
employee or agent.
The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in the person's official capacity and as to action
in another capacity while holding such office, and shall continue as to a person
who
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has ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such a person.
Section 7.07. Insurance. The Corporation shall purchase and maintain
---------
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the Corporation, or is or was serving at the request of
the Corporation as a director or officer or another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
the person and incurred by the person or on the person's behalf in any such
capacity, or arising out of the person's status as such, whether or not the
Corporation would have the power to indemnify the person against such liability
under the provisions of this Article, provided that such insurance is available
on acceptable terms, which determination shall be made by a vote of a majority
of the entire Board of Directors.
Section 7.08. Severability. If this Article or any portion hereof
------------
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article that shall not have been invalidated and to the fullest
extent permitted by applicable law.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.01. Dividends. Subject to any applicable provisions of law
---------
and the Certificate of Incorporation, dividends upon the shares of the
Corporation may be declared by the Board of Directors at any regular or special
meeting of the Board of Directors and any such dividend may be paid in cash,
property, or shares of the Corporation's capital stock.
A member of the Board of Directors, or a member of any committee
designated by the Board of Directors shall be fully protected in relying in good
faith upon the records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors, or by any other person as to
matters the director reasonably believes are within such other person's
professional or expert competence and who has been selected with reasonable care
by or on behalf of the Corporation, as to the value and amount of the assets,
liabilities and/or net profits of the Corporation, or any other facts pertinent
to the existence and amount of surplus or other funds from which dividends might
properly be declared and paid.
Section 8.02. Reserves. There may be set aside out of any funds of
--------
the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute
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discretion, thinks proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
Corporation or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and the Board of Directors may
similarly modify or abolish any such reserve.
Section 8.03. Execution of Instruments. The Chief Executive Officer,
------------------------
the President, any Senior Vice President, any Vice President, the Secretary or
the Treasurer may enter into any contract or execute and deliver any instrument
in the name and on behalf of the Corporation. The Board of Directors or the
Chief Executive Officer may authorize any other officer or agent to enter into
any contract or execute and deliver any instrument in the name and on behalf of
the Corporation. Any such authorization may be general or limited to specific
contracts or instruments.
Section 8.04. Corporate Indebtedness. No loan shall be contracted on
----------------------
behalf of the Corporation, and no evidence of indebtedness shall be issued in
its name, unless authorized by the Board of Directors or the Chief Executive
Officer. Such authorization may be general or confined to specific instances.
Loans so authorized may be effected at any time for the Corporation from any
bank, trust company or other institution, or from any firm, corporation or
individual. All bonds, debentures, notes and other obligations or evidences of
indebtedness of the Corporation issued for such loans shall be made, executed
and delivered as the Board of Directors or the Chief Executive Officer shall
authorize. When so authorized by the Board of Directors or the Chief Executive
Officer, any part of or all the properties, including contract rights, assets,
business or good will of the Corporation, whether then owned or thereafter
acquired, may be mortgaged, pledged, hypothecated or conveyed or assigned in
trust as security for the payment of such bonds, debentures, notes and other
obligations or evidences of indebtedness of the Corporation, and of the interest
thereon, by instruments executed and delivered in the name of the Corporation.
Section 8.05. Deposits. Any funds of the Corporation may be
--------
deposited from time to time in such banks, trust companies or other depositories
as may be determined by the Board of Directors or the Chief Executive Officer,
or by such officers or agents as may be authorized by the Board of Directors or
the Chief Executive Officer to make such determination.
Section 8.06. Checks. All checks or demands for money and notes of
------
the Corporation shall be signed by such officer or officers or such agent or
agents of the Corporation, and in such manner, as the Board of Directors or the
Chief Executive Officer from time to time may determine.
Section 8.07. Sale, Transfer, etc. of Securities. To the extent
----------------------------------
authorized by the Board of Directors or by the Chief Executive Officer, the
President, the Secretary or any other officers designated by the Board of
Directors or the Chief Executive Officer, the Corporation may sell, transfer,
endorse, and assign any shares of stock, bonds or other securities owned by or
held in the name of the Corporation, and may make, execute and deliver in the
name of the Corporation, under its corporate seal, any instruments that may be
appropriate to effect any such sale, transfer, endorsement or assignment.
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Section 8.08. Voting as Stockholder. Unless otherwise determined by
---------------------
resolution of the Board of Directors, the Chief Executive Officer, the
President, any Senior Vice President, any Vice President or Secretary shall have
full power and authority on behalf of the Corporation to attend any meeting of
stockholders of any corporation in which the Corporation may hold stock, and to
act, vote (or execute proxies to vote) and exercise in person or by proxy all
other rights, powers and privileges incident to the ownership of such stock.
Such officers acting on behalf of the Corporation shall have full power and
authority to execute any instrument expressing consent to or dissent from any
action of any such corporation without a meeting. The Board of Directors may by
resolution from time to time confer such power and authority upon any other
person or persons.
Section 8.09. Fiscal Year. The fiscal year of the Corporation shall
-----------
commence on the first day of January of each year (except for the Corporation's
first fiscal year, which shall commence on the date of incorporation) and shall
terminate in each case on December 31.
Section 8.10. Seal. The Board of Directors may adopt a corporate seal
----
and use the same by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section 8.11. Books and Records; Inspection. The Corporation shall
-----------------------------
keep correct and complete books and records of its accounts and transactions and
minutes of the proceedings of its stockholders and Board of Directors. The books
of the Corporation may be kept (subject to any provisions contained in the
Delaware General Corporation Law) outside the State of Delaware at such place or
places as may be designated from time to time by the Board of Directors.
Section 8.12. Amendments. These By-Laws, or any of them, may be
----------
altered, amended or repealed, or new By-Laws may be made, at any meeting of the
Board of Directors, by vote of a majority of the Board of Directors, provided
that the proposed action in respect thereof shall be stated in the notice of
waiver of notice of such meeting or that all of the directors of the Corporation
shall be present at such meeting.
Section 8.13. Time Periods. In applying any provision of these By-
------------
Laws which requires that an act be done or not be done a specified number of
days prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be included.
I hereby certify that the foregoing Amended and Restated By-Laws were duly
adopted by the Board of Directors of the Corporation on _______________________.
NETtel Communications, Inc.
By: ___________________________________
James K. Dize
Secretary
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<PAGE>
Exhibit 4.2
The security represented by this certificate was originally
issued on April 8, 1999 has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"),
and may not be transferred unless a registration statement
under the Securities Act is in effect with respect to such
security at the time of such transfer except pursuant to (i)
an effective registration statement under the Securities
Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably
satisfactory to counsel for the Company, that an exemption
from such registration is available.
NET-tel Communications, Inc.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: April 8, 1999 Certificate No. W-3
FOR VALUE RECEIVED, NET-tel Communications, Inc., a Delaware
corporation (the "Company"), hereby grants to Leasing Technologies
International, Inc. ("LTI") or its registered assigns (the "Registered Holder")
the right to purchase from the Company 12,500 shares of Warrant Stock at a price
per share of $8.00 (as adjusted from time to time hereunder, the "Exercise
Price") as provided herein. This Stock Purchase Warrant (this "Warrant") is one
of two warrants issued in connection with the transactions contemplated by that
certain Master Lease Agreement dated as of April 8, 1999 between NET-tel
Corporation and LTI. Certain capitalized terms used herein are defined in
Section 4 or Section 7 hereof, as applicable. The amount and kind of securities
obtainable pursuant to the rights granted hereunder and the purchase price for
such securities are subject to adjustment pursuant to the provisions contained
in this Warrant.
This Warrant is subject to the following provisions:
Section Exercise of Warrant.
-------------------
1A. Exercise Period. The Registered Holder may exercise, in whole
---------------
or in part (but not as to a fractional share of Warrant Stock), the purchase
rights represented by this Warrant at any time and from time to time after the
Date of Issuance to and including April 7, 2004 (the "Exercise Period").
<PAGE>
1B. Exercise Procedure.
------------------
(i) This Warrant (or any portion hereof) shall be deemed to have
been exercised when the Company has received all of the following items (the
"Exercise Time"):
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Warrant Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of
the Company having a Market Price equal to the Aggregate Exercise Price of
the Warrant Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Price of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of shares of Warrant Stock
issuable upon such exercise of the Warrant which when multiplied by the
Market Price of the Warrant Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax
2
<PAGE>
in respect thereof or other cost incurred by the Company in connection with such
exercise and the related issuance of shares of Warrant Stock. Each share of
Warrant Stock issuable upon exercise of this Warrant shall, upon payment of the
Exercise Price therefor, be fully paid and nonassessable and free from all liens
and charges with respect to the issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Warrant Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or the sale of the Company in which case such exercise
shall not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Warrant Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Warrant
Stock issuable upon the exercise of all outstanding Warrants. The Company shall
take all such actions as may be necessary to assure that all such shares of
Warrant Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Warrant Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company shall not take any action which would cause the number of
authorized but unissued shares of Warrant Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
(ix) Upon any exercise of this Warrant, the Company may require
customary investment representations from the Registered Holder and the
Purchaser to assure that the issuance of the Warrant Stock hereunder shall not
require registration or qualification under the Securities Act or any state
securities laws.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the
3
<PAGE>
name of the Person to whom a new Warrant for the unexercised portion of the
rights hereunder is to be delivered. Such Exercise Agreement shall be dated the
actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Warrant Stock
-----------------
would, but for the provisions of paragraph 1A, be issuable upon exercise of the
rights represented by this Warrant, the Company shall, within five business days
after the date of the Exercise Time, deliver to the Purchaser a check payable to
the Purchaser in lieu of such fractional share in an amount equal to the
difference between the Market Price of such fractional share as of the date of
the Exercise Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Warrant Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to insure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or in addition to (as the case may be) the shares of
Warrant Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Warrant Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision (as determined by its board
of directors) with respect to such holders' rights and interests to insure that
the provisions of this Section 2 and Section 3 hereof shall thereafter be
applicable to the Warrants. The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor entity
(if other than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
satisfactory to the Registered Holders of Warrants representing a majority of
the Warrant Stock obtainable upon exercise of all of the
4
<PAGE>
Warrants then outstanding), the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's board of directors may make an appropriate
adjustment in the Exercise Price and the number of shares of Warrant Stock
obtainable upon exercise of this Warrant.
Section 3. No Dividends or Other Rights. This Warrant shall not
----------------------------
entitle the holder thereof to any voting, dividend, liquidation, or other rights
of a stockholder prior to the Exercise Time.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means, collectively, the Company's Common Stock, par
------------
value $.0001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading. If
at any time such security is not listed on any domestic securities exchange or
quoted in the NASDAQ System or the domestic over-the-counter market, the "Market
Price" shall be the fair value thereof determined by the Company's board of
directors.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or securities convertible into Common Stock.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
5
<PAGE>
"Warrant Stock" means the Company's Common Stock, par value $.0001 per
-------------
share; provided that if there is a change such that the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the type or class of securities so issuable, then the term
"Warrant Stock" shall mean one share of the security issuable upon exercise of
the Warrants if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
Section 5. Warrant Transferable.
--------------------
5A. Subject to the transfer conditions referred to in the legend
endorsed hereon and in this Section 5, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Registered Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
- ----------
5B. Restrictive Legend. Each certificate representing (i) this
------------------
Warrant, (ii) the Warrant Stock, (iii) any other securities issued in respect of
the Warrant Stock or Warrant Stock issued upon conversion of the Common Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section 5C
below, or unless such securities have been registered under the Securities Act
or sold under Rule 144) be stamped or otherwise imprinted with a legend
substantially in the form (in addition to any legend required under applicable
state securities laws) set forth on the first page of this Warrant.
5C. Restrictions on Transfer. The holder of this Warrant and each
------------------------
person to whom this Warrant is subsequently transferred represents and warrants
to the Company (by acceptance of such transfer) that it will not transfer the
Warrant (or securities issuable upon exercise hereof) unless a registration
statement under the Securities Act is in effect with respect to such securities
at the time of such transfer except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act (or
any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
for the Company, that an exemption from such registration is available.
Section 6. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 7. Registration Rights
-------------------
7A. Certain Definitions. As used in this Section 7, the following
-------------------
terms shall have the following meanings:
6
<PAGE>
"Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
The terms "controls" and "controlling" have the meaning within
-------- -----------
the Securities Act and the rules and regulations thereunder.
"Holder" shall mean any holder of Warrants or of Registrable
------
Securities as hereinafter defined.
The terms "register" and "registration" shall refer to a
-------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean (i) shares of Common Stock
----------------------
issued or issuable upon exercise of the Warrants and (ii) any Common Stock
issued in respect of such securities upon any stock split, stock dividend,
recapitalization or similar event.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in compliance with Section 7B hereof, including, without limitation, all
registration and filing fees, printing expenses, reasonable fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and expenses
of regular annual and periodic audits, which shall be paid in any event by the
Company) and the expenses associated with the Company's obligations under
Section 7D hereof.
"Restricted Securities" shall refer collectively to the
---------------------
securities of the Company required to bear the legend referred to in Section 5B
hereof.
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulation of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities and all
reasonable fees and disbursements of counsel for any Holder.
7B. Piggyback Registration Rights.
-----------------------------
(a) If the Company shall determine to register any of its securities under
the Securities Act either for its own account or the account of any security
holder or holders, other than a registration relating solely to employee
benefits plans or corporate reorganizations or other transactions under Rule 145
of the Securities Act, the Company will:
(i) Promptly give to each Holder written notice thereof; and
7
<PAGE>
(ii) Except as set forth in Section 7B(b), include in such
registration (and any related qualification under state blue sky laws and other
compliance filings, and in any underwriting involved therein) all the
Registrable Securities specified in a written request or requests received by
the Company from a Holder within 15 days after the written notice from the
Company is given.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
7B(a)(i). In such event the right of any Holder to registration pursuant to
Section 7B shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other persons distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected or approved for underwriting by the Company.
Notwithstanding any other provision of this Section 7B, if the underwriter
determines that marketing factors require a limitation on the number of shares
that may be included in the offering, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto. The Company shall so advise all Holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
reduced in the following manner: (i) if such registration is being made in
respect of a sale for the account of the Company, pro rata among the requesting
Holders and all other security holders based upon the number of securities
requested to be registered by such Holders and other security holders and (ii)
if such registration is being made in respect of a sale for the account of other
security holders, first, pro rata among all Holders and other security holders
(other than those security holders on account of whom such registration is being
made) based upon the number of securities requested to be registered by them,
second, by any shares proposed to be registered by the Company and third, pro
rata among all security holders on account of whom such registration is being
made. Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 7 without thereby incurring
any liability to the Holders of Registrable Securities. If any Holder of
Registrable Securities or any officer, director or other security holder
requesting registration disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
7C. Expenses of Registration. All Registration Expenses incurred on
------------------------
behalf of the Holders in connection with any registration, qualification or
compliance pursuant to this Section 7 shall be borne by the Company, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
7D. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Section 7, the Company will advise each
Holder in writing as to the initiation of each registration and as to the
completion thereof. The Company will:
8
<PAGE>
(a) Use its best efforts to keep such registration effective for a
period of 120 days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
7E. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder with
respect to which registration, qualification or compliance has been
effected pursuant to this Section 7, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement or notification) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim,
loss, damage, liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on (x) any true
statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein or (y) any failure by any such Holder or underwriter to comply with
the prospectus delivery requirements of the Securities Act.
(b) Each Holder and other security holder will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter, each other such Holder
and other security holder and each of their officers, directors and
partners, and each person controlling such Holder or other security holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document (including any related
registration statement or notification), or any omission (or alleged
omission) to state therein a material fact necessary to make the statements
made therein not misleading. Each Holder and other security holder will, if
Registrable Securities held by him are included in the securities as to
9
<PAGE>
which such registration, qualification or compliance is being affected,
reimburse the Company and such Holders, other security holders, directors,
officers, partners, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigation
and defending any such claim, loss, damage, liability or action. The
obligation to indemnify and reimburse assumed under this Section 7E(b)
shall be limited to an untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
or other security holder (as the case may be) and stated to be specifically
for use therein; provided, however, that the obligations of such Holders
-------- -------
and other security holders hereunder shall be limited to an amount equal to
the proceeds to each such Holder or other security holder (as the case may
be) of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 7E (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7E, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice.
No Indemnified Party, in the defense of any such claim of litigation,
shall, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation and, if such defense is assumed by the Indemnifying Party,
the Indemnifying Party will not be subject to any liability for any
settlement made by the Indemnified Party without the consent of the
Indemnifying Party (such consent not to be unreasonably withheld).
7F. Information by Holder. Each Holder of Registrable Securities,
---------------------
and each person holding securities included in any registration, shall furnish
to the Company in writing such information regarding such Holder or other person
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 7.
7G. Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the Date of Issuance of this Warrant, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the Company to
register any securities of the Company unless such agreement specifically
provides that, in the case of any registration initiated by such holders, the
Holders shall
10
<PAGE>
have the right to participate in such registration to the extent and in the
manner specified in Section 7B hereof.
7H. Rule 144 Reporting. With a view of making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Use its best efforts to make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following 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) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") at any time during which it is subject to such reporting
requirements; and
(c) So long as a Holder owns any Restricted Securities, furnish to
the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following 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 during which it is subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed 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.
7I. Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted by the Company under Section 7B may be assigned
by any Holder to transferees or assignees of Restricted Securities who, after
such assignment or transfer, hold at least 10% of such Holder's Restricted
Securities; provided, however, that the Company is given written notice at the
-------- -------
time of or within a reasonable time after said transfer, stating the name and
address of said transferees or assignees and identifying the securities with
respect to which such registration rights are being assigned; and, provided,
--------
further, that the transferees or assignees of such rights assume the obligations
- -------
of such Holder under this Section 7 and that the Company shall have the right to
require such transferee or assignee to execute a counterpart of this Warrant as
a condition to such transferee's or assignee's claim to any rights hereunder.
The foregoing requirement as to the minimum percentage of shares to be
transferred or assigned in connection with any assignment of registration rights
shall not apply to an assignment by a Holder to any person or entity which is
affiliated with such Holder.
7J. "Market Stand-Off" Agreement. Each Holder agrees, if requested by
---------------------------
the Company and the underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Registrable
Securities without the prior written consent of the Company or such underwriter,
for a specified period of time (not to exceed 180 days) following the
11
<PAGE>
effective date of any registration statement of the Company filed under the
Securities Act with respect to any underwritten public offering of securities of
the Company, as provided in Section 7B hereof, provided that:
(a) all Holders, other security holders whose securities are included
in such registration statement and officers and directors of the Company
shall also enter into similar agreements, except as provided in Section
7B(b); and
(b) such agreement shall be in writing in a form satisfactory to the
Company and such underwriter.
7K. Termination of Registration Rights. The right to cause the
----------------------------------
Company to register securities granted by the Company under Section 7B shall
terminate with respect to any Holder at such time as all of the Registrable
Securities of such Holder can be sold within a given three-month period in
accordance with Rule 144 of the Commission provided, however, that,
notwithstanding the foregoing, the registration rights provided in Section 7B
shall terminate on the fifth anniversary of the Date of Issuance.
Section 8. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
Section 9. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three days after deposited in the U. S. Mail (i) to the Company, at its
principal executive offices and (ii) to the Registered Holder of this Warrant,
at such holder's address as it appears in the records of the Company (unless
otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least 80% of the shares of
Warrant Stock obtainable upon exercise of the Warrants.
12
<PAGE>
Section 11. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
NET-tel Communications, Inc.
By /s/ James F. Kenefick
---------------------
Its President
---------
[Corporate Seal]
Attest:
/s/ Thomas Lera
- ---------------
Secretary
14
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-3), hereby agrees to subscribe for the purchase of
______ shares of the Warrant Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-3) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
15
<PAGE>
Exhibit 4.3
The security represented by this certificate was originally issued on
April 8, 1999, has not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be transferred
unless a registration statement under the Securities Act is in effect
with respect to such security at the time of such transfer except
pursuant to (i) an effective registration statement under the
Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory
to counsel for the Company, that an exemption from such registration
is available.
NET-tel Communications, Inc.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: April 8, 1999 Certificate No. W-4
FOR VALUE RECEIVED, NET-tel Communications, Inc., a Delaware
corporation (the "Company"), hereby grants to Leasing Technologies
International, Inc. ("LTI") or its registered assigns (the "Registered Holder")
the right to purchase from the Company 5,000 shares of Warrant Stock at a price
per share of $8.00 (as adjusted from time to time hereunder, the "Exercise
Price") as provided herein. This Stock Purchase Warrant (this "Warrant") is one
of two warrants issued in connection with the transactions contemplated by that
certain Master Lease Agreement dated as of April 8, 1999 between NET-tel
Corporation and LTI (the "Master Lease"). Certain capitalized terms used herein
are defined in Section 4 or Section 7 hereof, as applicable. The amount and kind
of securities obtainable pursuant to the rights granted hereunder and the
purchase price for such securities are subject to adjustment pursuant to the
provisions contained in this Warrant.
This Warrant is subject to the following provisions:
<PAGE>
Section 1. Exercise of Warrant.
-------------------
1A. Vesting and Exercise Period. The purchase rights provided for
---------------------------
in this Warrant are subject to the following vesting requirements:
(i) Upon written notification by LTI to the Company that the remaining
$1,000,000 of availability under the Master Lease (it being
acknowledged and agreed that, as of the Date of Issuance of this
Warrant, $2,500,000 of availability under the Master Lease was
immediately available and fully utilized) is available to be drawn
upon by the Company or its affiliates pursuant to LTI's standard terms
and conditions, all of the purchase rights represented by this Warrant
shall vest and become fully exercisable hereunder.
(ii) Upon vesting of the purchase rights represented by this Warrant in
accordance with the provisions of clause (i) of this Section 1A, the
Registered Holder may exercise, in whole or in part (but not as to a
fractional share of Warrant Stock), the purchase rights represented by
this Warrant at any time and from time to time thereafter to and
including April 7, 2004 (the "Exercise Period").
1B. Exercise Procedure.
------------------
(i) This Warrant (or any portion hereof) shall be deemed to have
been exercised when the Company has received all of the following items (the
"Exercise Time"):
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Warrant Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of
the Company having a Market Price equal to the Aggregate Exercise Price of
the Warrant Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Price of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to
2
<PAGE>
withhold from issuance a number of shares of Warrant Stock issuable upon
such exercise of the Warrant which when multiplied by the Market Price of
the Warrant Stock is equal to the Aggregate Exercise Price (and such
withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall, within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Warrant Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the related
issuance of shares of Warrant Stock. Each share of Warrant Stock issuable upon
exercise of this Warrant shall, upon payment of the Exercise Price therefor, be
fully paid and nonassessable and free from all liens and charges with respect to
the issuance thereof.
(v) The Company shall not close its books against the
transfer of this Warrant or of any share of Warrant Stock issued or issuable
upon the exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Warrant Stock acquirable upon exercise of this Warrant is at all times
equal to or less than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any
Registered Holder or Purchaser required to make any governmental filings or
obtain any governmental approvals prior to or in connection with any exercise of
this Warrant (including, without limitation, making any filings required to be
made by the Company).
(vii) Notwithstanding any other provision hereof, if an
exercise of any portion of this Warrant is to be made in connection with a
registered public offering or the sale of the Company, the exercise of any
portion of this Warrant may, at the election of the holder hereof, be
conditioned upon the consummation of the public offering or the sale of the
Company in which case such exercise shall not be deemed to be effective until
the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Warrant Stock solely for the
purpose of issuance upon the exercise of the Warrants, such number of shares of
Warrant Stock issuable upon the exercise of all
3
<PAGE>
outstanding Warrants. The Company shall take all such actions as may be
necessary to assure that all such shares of Warrant Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Warrant
Stock may be listed (except for official notice of issuance which shall be
immediately delivered by the Company upon each such issuance). The Company shall
not take any action which would cause the number of authorized but unissued
shares of Warrant Stock to be less than the number of such shares required to be
reserved hereunder for issuance upon exercise of the Warrants.
(ix) Upon any exercise of this Warrant, the Company may require
customary investment representations from the Registered Holder and the
Purchaser to assure that the issuance of the Warrant Stock hereunder shall not
require registration or qualification under the Securities Act or any state
securities laws.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Warrant Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between the Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Warrant Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
4
<PAGE>
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to insure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or in addition to (as the case may be) the shares of
Warrant Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Warrant Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision (as determined by its board
of directors) with respect to such holders' rights and interests to insure that
the provisions of this Section 2 and Section 3 hereof shall thereafter be
applicable to the Warrants. The Company shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor entity
(if other than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
satisfactory to the Registered Holders of Warrants representing a majority of
the Warrant Stock obtainable upon exercise of all of the Warrants then
outstanding), the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's board of directors may make an appropriate
adjustment in the Exercise Price and the number of shares of Warrant Stock
obtainable upon exercise of this Warrant.
Section 3. No Dividends or Other Rights. This Warrant shall not
----------------------------
entitle the holder thereof to any voting, dividend, liquidation, or other rights
of a stockholder prior to the Exercise Time.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means, collectively, the Company's Common Stock, par
------------
value $.0001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
5
<PAGE>
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined by the Company's board
of directors.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or securities convertible into Common Stock.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Warrant Stock" means the Company's Common Stock, par value $.0001 per
-------------
share; provided that if there is a change such that the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the type or class of securities so issuable, then the term
"Warrant Stock" shall mean one share of the security issuable upon exercise of
the Warrants if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
Section 5. Warrant Transferable.
--------------------
5A. Subject to the transfer conditions referred to in the legend
endorsed hereon and in this Section 5, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Registered Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
- ----------
5B. Restrictive Legend. Each certificate representing (i) this
------------------
Warrant, (ii) the Warrant Stock, (iii) any other securities issued in respect of
the Warrant Stock or Warrant Stock issued upon conversion of the Common Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section 5C
below, or unless such securities have been registered under the Securities Act
or sold under Rule 144) be stamped or otherwise imprinted with a legend
substantially in the form (in addition to any legend required under applicable
state securities laws) set forth on the first page of this Warrant.
5C. Restrictions on Transfer. The holder of this Warrant and each
person to whom this Warrant is subsequently transferred represents and warrants
to the Company (by acceptance of such transfer) that it will not transfer the
Warrant (or securities issuable upon exercise hereof) unless a registration
statement under the Securities Act is in effect with respect to such securities
at the time
6
<PAGE>
of such transfer except pursuant to (i) an effective registration statement
under the Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of securities), or
(iii) an opinion of counsel, reasonably satisfactory to counsel for the Company,
that an exemption from such registration is available.
Section 6. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 7. Registration Rights
-------------------
7A. Certain Definitions. As used in this Section 7, the following
-------------------
terms shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
The terms "controls" and "controlling" have the meaning within the
-------- -----------
Securities Act and the rules and regulations thereunder.
"Holder" shall mean any holder of Warrants or of Registrable
------
Securities as hereinafter defined.
The terms "register" and "registration" shall refer to a registration
-------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of the effectiveness of such registration statement.
"Registrable Securities" shall mean (i) shares of Common Stock issued
----------------------
or issuable upon exercise of the Warrants and (ii) any Common Stock issued in
respect of such securities upon any stock split, stock dividend,
recapitalization or similar event.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in compliance with Section 7B hereof, including, without limitation, all
registration and filing fees, printing expenses, reasonable fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and expenses
of regular annual and periodic audits, which shall be paid in any event by the
Company) and the expenses associated with the Company's obligations under
Section 7D hereof.
7
<PAGE>
"Restricted Securities" shall refer collectively to the
---------------------
securities of the Company required to bear the legend referred to in Section 5B
hereof.
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulation of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities and all
reasonable fees and disbursements of counsel for any Holder.
7B. Piggyback Registration Rights.
-----------------------------
(a) If the Company shall determine to register any of its securities under
the Securities Act either for its own account or the account of any security
holder or holders, other than a registration relating solely to employee
benefits plans or corporate reorganizations or other transactions under Rule 145
of the Securities Act, the Company will:
(i) Promptly give to each Holder written notice thereof; and
(ii) Except as set forth in Section 7B(b), include in such
registration (and any related qualification under state blue sky laws and other
compliance filings, and in any underwriting involved therein) all the
Registrable Securities specified in a written request or requests received by
the Company from a Holder within 15 days after the written notice from the
Company is given.
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
7B(a)(i). In such event the right of any Holder to registration pursuant to
Section 7B shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other persons distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected or approved for underwriting by the Company.
Notwithstanding any other provision of this Section 7B, if the underwriter
determines that marketing factors require a limitation on the number of shares
that may be included in the offering, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto. The Company shall so advise all Holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
reduced in the following manner: (i) if such registration is being made in
respect of a sale for the account of the Company, pro rata among the requesting
Holders and all other security holders based upon the number of securities
requested to be registered by such Holders and other security holders and (ii)
if such registration is being made in respect of a sale for the account of other
security holders, first, pro rata among all Holders and other security holders
(other than those security holders on account of whom such
8
<PAGE>
registration is being made) based upon the number of securities requested to be
registered by them, second, by any shares proposed to be registered by the
Company and third, pro rata among all security holders on account of whom such
registration is being made. Notwithstanding the foregoing provisions, the
Company may withdraw any registration statement referred to in this Section 7
without thereby incurring any liability to the Holders of Registrable
Securities. If any Holder of Registrable Securities or any officer, director or
other security holder requesting registration disapproves of the terms of any
such underwriting, such person may elect to withdraw therefrom by written notice
to the Company and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn from
such registration.
7C. Expenses of Registration. All Registration Expenses incurred on
------------------------
behalf of the Holders in connection with any registration, qualification or
compliance pursuant to this Section 7 shall be borne by the Company, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
7D. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Section 7, the Company will advise each
Holder in writing as to the initiation of each registration and as to the
completion thereof. The Company will:
(a) Use its best efforts to keep such registration effective for a
period of 120 days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
7E. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder with
respect to which registration, qualification or compliance has been
effected pursuant to this Section 7, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement or notification) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim,
loss, damage, liability or action; provided, however, that the Company will
not
9
<PAGE>
be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on (x) any true statement or
omission based upon written information furnished to the Company by such
Holder or underwriter and stated to be specifically for use therein or (y)
any failure by any such Holder or underwriter to comply with the prospectus
delivery requirements of the Securities Act.
(b) Each Holder and other security holder will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter, each other such Holder
and other security holder and each of their officers, directors and
partners, and each person controlling such Holder or other security holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document (including any related
registration statement or notification), or any omission (or alleged
omission) to state therein a material fact necessary to make the statements
made therein not misleading. Each Holder and other security holder will, if
Registrable Securities held by him are included in the securities as to
which such registration, qualification or compliance is being affected,
reimburse the Company and such Holders, other security holders, directors,
officers, partners, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigation
and defending any such claim, loss, damage, liability or action. The
obligation to indemnify and reimburse assumed under this Section 7E(b)
shall be limited to an untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
or other security holder (as the case may be) and stated to be specifically
for use therein; provided, however, that the obligations of such Holders
-------- -------
and other security holders hereunder shall be limited to an amount equal to
the proceeds to each such Holder or other security holder (as the case may
be) of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 7E (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7E, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice.
No Indemnified Party, in the defense of any such claim of litigation,
shall, except with the consent of each Indemnified Party, consent to entry
10
<PAGE>
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation and, if such defense is assumed by the Indemnifying Party,
the Indemnifying Party will not be subject to any liability for any
settlement made by the Indemnified Party without the consent of the
Indemnifying Party (such consent not to be unreasonably withheld).
7F. Information by Holder. Each Holder of Registrable Securities, and
---------------------
each person holding securities included in any registration, shall furnish to
the Company in writing such information regarding such Holder or other person as
the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 7.
7G. Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the Date of Issuance of this Warrant, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the Company to
register any securities of the Company unless such agreement specifically
provides that, in the case of any registration initiated by such holders, the
Holders shall have the right to participate in such registration to the extent
and in the manner specified in Section 7B hereof.
7H. Rule 144 Reporting. With a view of making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Use its best efforts to make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following 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) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") at any time during which it is subject to such reporting
requirements; and
(c) So long as a Holder owns any Restricted Securities, furnish to
the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following 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 during which it is subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed 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.
11
<PAGE>
7I. Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted by the Company under Section 7B may be assigned
by any Holder to transferees or assignees of Restricted Securities who, after
such assignment or transfer, hold at least 10% of such Holder's Restricted
Securities; provided, however, that the Company is given written notice at the
-------- -------
time of or within a reasonable time after said transfer, stating the name and
address of said transferees or assignees and identifying the securities with
respect to which such registration rights are being assigned; and, provided,
--------
further, that the transferees or assignees of such rights assume the obligations
- -------
of such Holder under this Section 7 and that the Company shall have the right to
require such transferee or assignee to execute a counterpart of this Warrant as
a condition to such transferee's or assignee's claim to any rights hereunder.
The foregoing requirement as to the minimum percentage of shares to be
transferred or assigned in connection with any assignment of registration rights
shall not apply to an assignment by a Holder to any person or entity which is
affiliated with such Holder.
7J. "Market Stand-Off" Agreement. Each Holder agrees, if requested by
----------------------------
the and the underwriter of Common Stock (or other securities) of the Company,
not to sell or otherwise transfer or dispose of any Registrable Securities
without the prior written consent of the Company or such underwriter, for a
specified period of time (not to exceed 180 days) following the effective date
of any registration statement of the Company filed under the Securities Act with
respect to any underwritten public offering of securities of the Company, as
provided in Section 7B hereof, provided that:
(a) all Holders, other security holders whose securities are included
in such registration statement and officers and directors of the Company
shall also enter into similar agreements, except as provided in Section
7B(b); and
(b) such agreement shall be in writing in a form satisfactory to the
Company and such underwriter.
7K. Termination of Registration Rights. The right to cause the
----------------------------------
Company to register securities granted by the Company under Section 7B shall
terminate with respect to any Holder at such time as all of the Registrable
Securities of such Holder can be sold within a given three-month period in
accordance with Rule 144 of the Commission provided, however, that,
notwithstanding the foregoing, the registration rights provided in Section 7B
shall terminate on the fifth anniversary of the Date of Issuance.
Section 8. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
12
<PAGE>
Section 9. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three days after deposited in the U. S. Mail (i) to the Company, at its
principal executive offices and (ii) to the Registered Holder of this Warrant,
at such holder's address as it appears in the records of the Company (unless
otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided herein,
--------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least 80% of the shares of
Warrant Stock obtainable upon exercise of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Delaware, without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
NET-tel Communications, Inc.
By /s/ James F. Kenefick
---------------------
Its President
---------
[Corporate Seal]
Attest:
/s/ Thomas Lera
- ---------------
Secretary
14
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-4), hereby agrees to subscribe for the purchase of
______ shares of the Warrant Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-4) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
15
<PAGE>
Exhibit 4.4
The security represented by this certificate was originally
issued on April 30, 1999, has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"),
and may not be transferred unless a registration statement
under the Securities Act is in effect with respect to such
security at the time of such transfer except pursuant to (i)
an effective registration statement under the Securities
Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably
satisfactory to counsel for the Company, that an exemption
from such registration is available.
NET-tel Communications, Inc.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: April 30, 1999 Certificate No. W-5
FOR VALUE RECEIVED, NET-tel Communications, Inc., a Delaware
corporation (the "Company"), hereby grants to Scott Loney, 4153 Wendell Road,
West Bloomfield, Michigan, 48323 or its registered assigns (the "Registered
Holder") the right to purchase from the Company 8,000 shares of Warrant Stock at
a price per share of $9.49 (as adjusted from time to time hereunder, the
"Exercise Price") as provided herein. Certain capitalized terms used herein are
defined in Section 4 or Section 7 hereof, as applicable. The amount and kind of
securities obtainable pursuant to the rights granted hereunder and the purchase
price for such securities are subject to adjustment pursuant to the provisions
contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The purchase rights provided for in this
---------------
Warrant are subject to the following vesting requirements: the Registered Holder
may exercise, in whole or in part (but not as to a fractional share of Warrant
Stock), the purchase rights represented by this Warrant at any time and from
time to time thereafter to and including April 30, 2002 (the "Exercise Period").
1B. Exercise Procedure.
------------------
(i) This Warrant (or any portion hereof) shall be deemed to have been
exercised when the Company has received all of the following items (the
"Exercise Time"):
<PAGE>
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Warrant Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of
the Company having a Market Price equal to the Aggregate Exercise Price of
the Warrant Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Price of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of shares of Warrant Stock
issuable upon such exercise of the Warrant which when multiplied by the
Market Price of the Warrant Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Warrant Stock. Each share of Warrant Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
2
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Warrant Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or the sale of the Company in which case such exercise
shall not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Warrant Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Warrant
Stock issuable upon the exercise of all outstanding Warrants. The Company shall
take all such actions as may be necessary to assure that all such shares of
Warrant Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Warrant Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company shall not take any action which would cause the number
of authorized but unissued shares of Warrant Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
(ix) Upon any exercise of this Warrant, the Company may require
customary investment representations from the Registered Holder and the
Purchaser to assure that the issuance of the Warrant Stock hereunder shall not
require registration or qualification under the Securities Act or any state
securities laws.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Warrant Stock
-----------------
would, but for the provisions of paragraph 1A, be issuable upon exercise of the
rights represented by this Warrant, the Company shall, within five business days
after the date of the Exercise Time, deliver to the Pur-
3
<PAGE>
chaser a check payable to the Purchaser in lieu of such fractional share in an
amount equal to the difference between the Market Price of such fractional share
as of the date of the Exercise Time and the Exercise Price of such fractional
share.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Warrant Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to insure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or in addition to (as the case may be) the shares of
Warrant Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Warrant Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision (as determined by its board
of directors) with respect to such holders' rights and interests to insure that
the provisions of this Section 2 and Section 3 hereof shall thereafter be
applicable to the Warrants. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the Registered Holders of Warrants
representing a majority of the Warrant Stock obtainable upon exercise of all of
the Warrants then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's
4
<PAGE>
board of directors may make an appropriate adjustment in the Exercise Price and
the number of shares of Warrant Stock obtainable upon exercise of this Warrant.
Section 3. No Dividends or Other Rights. This Warrant shall not
----------------------------
entitle the holder thereof to any voting, dividend, liquidation, or other rights
of a stockholder prior to the Exercise Time.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means, collectively, the Company's Common Stock, par
------------
value $.0001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined by the Company's board
of directors.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or securities convertible into Common Stock.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Warrant Stock" means the Company's Common Stock, par value $.0001 per
-------------
share; provided that if there is a change such that the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the type or class of securities so issuable, then the term
"Warrant Stock" shall mean one share of the security issuable upon exercise of
the Warrants if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
5
<PAGE>
Section 5. Warrant Transferable.
--------------------
5A. Subject to the transfer conditions referred to in the legend
endorsed hereon and in this Section 5, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Registered Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
- ----------
5B. Restrictive Legend. Each certificate representing (i) this
------------------
Warrant, (ii) the Warrant Stock, (iii) any other securities issued in respect of
the Warrant Stock or Warrant Stock issued upon conversion of the Common Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section 5C
below, or unless such securities have been registered under the Securities Act
or sold under Rule 144) be stamped or otherwise imprinted with a legend
substantially in the form (in addition to any legend required under applicable
state securities laws) set forth on the first page of this Warrant.
5C. Restrictions on Transfer. The holder of this Warrant and each
------------------------
person to whom this Warrant is subsequently transferred represents and warrants
to the Company (by acceptance of such transfer) that it will not transfer the
Warrant (or securities issuable upon exercise hereof) unless a registration
statement under the Securities Act is in effect with respect to such securities
at the time of such transfer except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act (or
any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
for the Company, that an exemption from such registration is available.
Section 6. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 7. Registration Rights
-------------------
7A. Certain Definitions. As used in this Section 7, the following
-------------------
terms shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission or any
----------
other federal agency at the time administering the Securities Act.
The terms "controls" and "controlling" have the meaning within the
-------- -----------
Securities Act and the rules and regulations thereunder.
6
<PAGE>
"Holder" shall mean any holder of Warrants or of Registrable
------
Securities as hereinafter defined.
The terms "register" and "registration" shall refer to a registration
-------- ------------
effected by preparing and filing a registration statement in compliance with the
Securities Act and applicable rules and regulations thereunder, and the
declaration or ordering of the effectiveness of such registration statement.
"Registrable Securities" shall mean (i) shares of Common Stock issued
----------------------
or issuable upon exercise of the Warrants and (ii) any Common Stock issued in
respect of such securities upon any stock split, stock dividend,
recapitalization or similar event.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in compliance with Section 7B hereof, including, without limitation, all
registration and filing fees, printing expenses, reasonable fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and expenses
of regular annual and periodic audits, which shall be paid in any event by the
Company) and the expenses associated with the Company's obligations under
Section 7D hereof.
"Restricted Securities" shall refer collectively to the securities of
---------------------
the Company required to bear the legend referred to in Section 5B hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar federal statute and the rules and regulation of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
----------------
commissions applicable to the sale of Registrable Securities and all reasonable
fees and disbursements of counsel for any Holder.
7B. Piggyback Registration Rights.
-----------------------------
(a) If the Company shall determine to register any of its securities under
the Securities Act either for its own account or the account of any security
holder or holders, other than a registration relating solely to employee
benefits plans or corporate reorganizations or other transactions under Rule 145
of the Securities Act, the Company will:
(i) Promptly give to each Holder written notice thereof; and
(ii) Except as set forth in Section 7B(b), include in such
registration (and any related qualification under state blue sky laws and other
compliance filings, and in any underwriting involved therein) all the
Registrable Securities specified in a written request or requests received by
the Company from a Holder within 15 days after the written notice from the
Company is given.
7
<PAGE>
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
7B(a)(i). In such event the right of any Holder to registration pursuant to
Section 7B shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other persons distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected or approved for underwriting by the Company.
Notwithstanding any other provision of this Section 7B, if the underwriter
determines that marketing factors require a limitation on the number of shares
that may be included in the offering, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto. The Company shall so advise all Holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
reduced in the following manner: (i) if such registration is being made in
respect of a sale for the account of the Company, pro rata among the requesting
Holders and all other security holders based upon the number of securities
requested to be registered by such Holders and other security holders and (ii)
if such registration is being made in respect of a sale for the account of other
security holders, first, pro rata among all Holders and other security holders
(other than those security holders on account of whom such registration is being
made) based upon the number of securities requested to be registered by them,
second, by any shares proposed to be registered by the Company and third, pro
rata among all security holders on account of whom such registration is being
made. Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 7 without thereby incurring
any liability to the Holders of Registrable Securities. If any Holder of
Registrable Securities or any officer, director or other security holder
requesting registration disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
7C. Expenses of Registration. All Registration Expenses incurred on
------------------------
behalf of the Holders in connection with any registration, qualification or
compliance pursuant to this Section 7 shall be borne by the Company, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
7D. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Section 7, the Company will advise each
Holder in writing as to the initiation of each registration and as to the
completion thereof. The Company will:
(a) Use its best efforts to keep such registration effective for a
period of 120 days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; and
8
<PAGE>
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
7E. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder with
respect to which registration, qualification or compliance has been
effected pursuant to this Section 7, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement or notification) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim,
loss, damage, liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on (x) any true
statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein or (y) any failure by any such Holder or underwriter to comply with
the prospectus delivery requirements of the Securities Act.
(b) Each Holder and other security holder will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter, each other such Holder
and other security holder and each of their officers, directors and
partners, and each person controlling such Holder or other security holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document (including any related
registration statement or notification), or any omission (or alleged
omission) to state therein a material fact necessary to make the statements
made therein not misleading. Each Holder and other security holder will,
if Registrable Securities held by him are included in the securities as to
which such registration, qualification or compliance is being affected,
reimburse the Company and such Holders, other security holders, directors,
officers, partners, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigation
and defending any such claim, loss, damage, liability or action.
9
<PAGE>
The obligation to indemnify and reimburse assumed under this Section 7E(b)
shall be limited to an untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
or other security holder (as the case may be) and stated to be specifically
for use therein; provided, however, that the obligations of such Holders
-------- -------
and other security holders hereunder shall be limited to an amount equal to
the proceeds to each such Holder or other security holder (as the case may
be) of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 7E (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7E, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice.
No Indemnified Party, in the defense of any such claim of litigation,
shall, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation and, if such defense is assumed by the Indemnifying Party,
the Indemnifying Party will not be subject to any liability for any
settlement made by the Indemnified Party without the consent of the
Indemnifying Party (such consent not to be unreasonably withheld).
7F. Information by Holder. Each Holder of Registrable Securities,
---------------------
and each person holding securities included in any registration, shall furnish
to the Company in writing such information regarding such Holder or other person
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 7.
7G. Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the Date of Issuance of this Warrant, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the Company to
register any securities of the Company unless such agreement specifically
provides that, in the case of any registration initiated by such holders, the
Holders shall have the right to participate in such registration to the extent
and in the manner specified in Section 7B hereof.
10
<PAGE>
7H. Rule 144 Reporting. With a view of making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Use its best efforts to make and keep public information
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times from and after 90 days following 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) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") at any time during which it is subject to such reporting
requirements; and
(c) So long as a Holder owns any Restricted Securities, furnish to
the Holder forthwith upon written request a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
(at any time from and after 90 days following 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 during which it is subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed 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.
7I. Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted by the Company under Section 7B may be assigned
by any Holder to transferees or assignees of Restricted Securities who, after
such assignment or transfer, hold at least 10% of such Holder's Restricted
Securities; provided, however, that the Company is given written notice at the
-------- -------
time of or within a reasonable time after said transfer, stating the name and
address of said transferees or assignees and identifying the securities with
respect to which such registration rights are being assigned; and, provided,
--------
further, that the transferees or assignees of such rights assume the obligations
- -------
of such Holder under this Section 7 and that the Company shall have the right to
require such transferee or assignee to execute a counterpart of this Warrant as
a condition to such transferee's or assignee's claim to any rights hereunder.
The foregoing requirement as to the minimum percentage of shares to be
transferred or assigned in connection with any assignment of registration rights
shall not apply to an assignment by a Holder to any person or entity which is
affiliated with such Holder.
7J. "Market Stand-Off" Agreement. Each Holder agrees, if requested
----------------------------
by the Company and the underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Registrable
Securities without the prior written consent of the Company or such
underwriter, for a specified period of time (not to exceed 180 days) following
the effective date of any registration statement of the Company filed under the
Securities Act with respect to any underwritten public offering of securities of
the Company, as provided in Section 7B hereof, provided that:
11
<PAGE>
(a) all Holders, other security holders whose securities are included
in such registration statement and officers and directors of the Company
shall also enter into similar agreements, except as provided in Section
7B(b); and
(b) such agreement shall be in writing in a form satisfactory to the
Company and such underwriter.
7K. Termination of Registration Rights. The right to cause the
----------------------------------
Company to register securities granted by the Company under Section 7B shall
terminate with respect to any Holder at such time as all of the Registrable
Securities of such Holder can be sold within a given three-month period in
accordance with Rule 144 of the Commission provided, however, that,
notwithstanding the foregoing, the registration rights provided in Section 7B
shall terminate on the fifth anniversary of the Date of Issuance.
Section 8. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
Section 9. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three days after deposited in the U. S. Mail (i) to the Company, at its
principal executive offices and (ii) to the Registered Holder of this Warrant,
at such holder's address as it appears in the records of the Company (unless
otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least 80% of the shares of
Warrant Stock obtainable upon exercise of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning
12
<PAGE>
the construction, validity, enforcement and interpretation of this Warrant shall
be governed by the internal law of the State of Delaware, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
NET-tel Communications, Inc.
By /s/ James F. Kenefick
---------------------
Its President
---------
[Corporate Seal] Received by Scott Loney
Attest: /s/ Scott Loney
----------------
Dated: 5/26/99
-------
/s/ Thomas Lera
- ---------------
Secretary
14
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-5), hereby agrees to subscribe for the purchase of
______ shares of the Warrant Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-5) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
15
<PAGE>
Exhibit 4.5
The security represented by this certificate was originally issued on
April 30, 1999, has not been registered under the Securities Act of
1933, as amended (the "Securities Act"), and may not be transferred
unless a registration statement under the Securities Act is in effect
with respect to such security at the time of such transfer except
pursuant to (i) an effective registration statement under the
Securities Act, (ii) Rule 144 under the Securities Act (or any other
rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory
to counsel for the Company, that an exemption from such registration
is available.
NET-tel Communications, Inc.
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: April 30, 1999 Certificate No. W-6
FOR VALUE RECEIVED, NET-tel Communications, Inc., a Delaware
corporation (the "Company"), hereby grants to Tom Marino dba Tandem Associates,
28220 Franklin Road, Southfield Michigan 48034, or its registered assigns (the
"Registered Holder") the right to purchase from the Company 4,500 shares of
Warrant Stock at a price per share of $9.49 (as adjusted from time to time
hereunder, the "Exercise Price") as provided herein. Certain capitalized terms
used herein are defined in Section 4 or Section 7 hereof, as applicable. The
amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
-------------------
1A. Exercise Period. The purchase rights provided for in this
---------------
Warrant are subject to the following vesting requirements: the Registered Holder
may exercise, in whole or in part (but not as to a fractional share of Warrant
Stock), the purchase rights represented by this Warrant at any time and from
time to time thereafter to and including April 30, 2002 (the "Exercise Period").
1B. Exercise Procedure.
------------------
(i) This Warrant (or any portion hereof) shall be deemed to have been
exercised when the Company has received all of the following items (the
"Exercise Time"):
<PAGE>
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case
the Registered Holder shall have complied with the provisions set forth in
Section 5 hereof; and
(d) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of
Warrant Stock being purchased upon such exercise (the "Aggregate Exercise
Price"), (2) the surrender to the Company of debt or equity securities of
the Company having a Market Price equal to the Aggregate Exercise Price of
the Warrant Stock being purchased upon such exercise (provided that for
purposes of this subparagraph, the Market Price of any note or other debt
security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus
all accrued and unpaid interest thereon or accrued or declared and unpaid
dividends thereon) or (3) a written notice to the Company that the
Purchaser is exercising the Warrant (or a portion thereof) by authorizing
the Company to withhold from issuance a number of shares of Warrant Stock
issuable upon such exercise of the Warrant which when multiplied by the
Market Price of the Warrant Stock is equal to the Aggregate Exercise Price
(and such withheld shares shall no longer be issuable under this Warrant).
(ii) Certificates for shares of Warrant Stock purchased upon exercise
of this Warrant shall be delivered by the Company to the Purchaser within five
business days after the date of the Exercise Time. Unless this Warrant has
expired or all of the purchase rights represented hereby have been exercised,
the Company shall prepare a new Warrant, substantially identical hereto,
representing the rights formerly represented by this Warrant which have not
expired or been exercised and shall, within such five-day period, deliver such
new Warrant to the Person designated for delivery in the Exercise Agreement.
(iii) The Warrant Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Warrant Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Warrant Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Warrant Stock. Each share of Warrant Stock issuable upon exercise of
this Warrant shall, upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
2
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Warrant Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as may
be necessary to assure that the par value per share of the unissued Warrant
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a registered public
offering or the sale of the Company, the exercise of any portion of this Warrant
may, at the election of the holder hereof, be conditioned upon the consummation
of the public offering or the sale of the Company in which case such exercise
shall not be deemed to be effective until the consummation of such transaction.
(viii) The Company shall at all times reserve and keep available out
of its authorized but unissued shares of Warrant Stock solely for the purpose of
issuance upon the exercise of the Warrants, such number of shares of Warrant
Stock issuable upon the exercise of all outstanding Warrants. The Company shall
take all such actions as may be necessary to assure that all such shares of
Warrant Stock may be so issued without violation of any applicable law or
governmental regulation or any requirements of any domestic securities exchange
upon which shares of Warrant Stock may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance). The Company shall not take any action which would cause the number
of authorized but unissued shares of Warrant Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
(ix) Upon any exercise of this Warrant, the Company may require
customary investment representations from the Registered Holder and the
Purchaser to assure that the issuance of the Warrant Stock hereunder shall not
require registration or qualification under the Securities Act or any state
securities laws.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Warrant Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Warrant Stock are to be issued, and if the number of shares of
Warrant Stock to be issued does not include all the shares of Warrant Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Warrant Stock would,
-----------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Pur-
3
<PAGE>
chaser a check payable to the Purchaser in lieu of such fractional share in an
amount equal to the difference between the Market Price of such fractional share
as of the date of the Exercise Time and the Exercise Price of such fractional
share.
Section 2. Adjustment of Exercise Price and Number of Shares. In
-------------------------------------------------
order to prevent dilution of the rights granted under this Warrant, the Exercise
Price shall be subject to adjustment from time to time as provided in this
Section 2, and the number of shares of Warrant Stock obtainable upon exercise of
this Warrant shall be subject to adjustment from time to time as provided in
this Section 2.
2A. Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Warrant
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Warrant Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
2B. Reorganization, Reclassification, Consolidation, Merger or Sale.
---------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
which in each case is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to insure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or in addition to (as the case may be) the shares of
Warrant Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Warrant Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision (as determined by its board
of directors) with respect to such holders' rights and interests to insure that
the provisions of this Section 2 and Section 3 hereof shall thereafter be
applicable to the Warrants. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof, the
successor entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes by written instrument (in
form and substance satisfactory to the Registered Holders of Warrants
representing a majority of the Warrant Stock obtainable upon exercise of all of
the Warrants then outstanding), the obligation to deliver to each such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
2C. Certain Events. If any event occurs of the type contemplated by
--------------
the provisions of this Section 2 but not expressly provided for by such
provisions, then the Company's
4
<PAGE>
board of directors may make an appropriate adjustment in the Exercise Price and
the number of shares of Warrant Stock obtainable upon exercise of this Warrant.
Section 3. No Dividends or Other Rights. This Warrant shall not
----------------------------
entitle the holder thereof to any voting, dividend, liquidation, or other rights
of a stockholder prior to the Exercise Time.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means, collectively, the Company's Common Stock, par
------------
value $.0001 per share, and any capital stock of any class of the Company
hereafter authorized which is not limited to a fixed sum or percentage of par or
stated value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Company.
"Market Price" means as to any security the average of the closing
------------
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined by the Company's board
of directors.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or securities convertible into Common Stock.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"Warrant Stock" means the Company's Common Stock, par value $.0001 per
-------------
share; provided that if there is a change such that the securities issuable upon
exercise of the Warrants are issued by an entity other than the Company or there
is a change in the type or class of securities so issuable, then the term
"Warrant Stock" shall mean one share of the security issuable upon exercise of
the Warrants if such security is issuable in shares, or shall mean the smallest
unit in which such security is issuable if such security is not issuable in
shares.
5
<PAGE>
Section 5. Warrant Transferable.
--------------------
5A. Subject to the transfer conditions referred to in the legend
endorsed hereon and in this Section 5, this Warrant and all rights hereunder are
transferable, in whole or in part, without charge to the Registered Holder, upon
surrender of this Warrant with a properly executed Assignment (in the form of
Exhibit II hereto) at the principal office of the Company.
- ----------
5B. Restrictive Legend. Each certificate representing (i) this
------------------
Warrant, (ii) the Warrant Stock, (iii) any other securities issued in respect of
the Warrant Stock or Warrant Stock issued upon conversion of the Common Stock
upon any stock split, stock dividend, recapitalization, merger, consolidation or
similar event, shall (unless otherwise permitted by the provisions of Section 5C
below, or unless such securities have been registered under the Securities Act
or sold under Rule 144) be stamped or otherwise imprinted with a legend
substantially in the form (in addition to any legend required under applicable
state securities laws) set forth on the first page of this Warrant.
5C. Restrictions on Transfer. The holder of this Warrant and each
------------------------
person to whom this Warrant is subsequently transferred represents and warrants
to the Company (by acceptance of such transfer) that it will not transfer the
Warrant (or securities issuable upon exercise hereof) unless a registration
statement under the Securities Act is in effect with respect to such securities
at the time of such transfer except pursuant to (i) an effective registration
statement under the Securities Act, (ii) Rule 144 under the Securities Act (or
any other rule under the Securities Act relating to the disposition of
securities), or (iii) an opinion of counsel, reasonably satisfactory to counsel
for the Company, that an exemption from such registration is available.
Section 6. Warrant Exchangeable for Different Denominations. This
------------------------------------------------
Warrant is exchangeable, upon the surrender hereof by the Registered Holder at
the principal office of the Company, for new Warrants of like tenor representing
in the aggregate the purchase rights hereunder, and each of such new Warrants
shall represent such portion of such rights as is designated by the Registered
Holder at the time of such surrender. The date the Company initially issues
this Warrant shall be deemed to be the "Date of Issuance" hereof regardless of
the number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 7. Registration Rights
-------------------
7A. Certain Definitions. As used in this Section 7, the following
-------------------
terms shall have the following meanings:
"Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
The terms "controls" and "controlling" have the meaning within
-------- -----------
the Securities Act and the rules and regulations thereunder.
6
<PAGE>
"Holder" shall mean any holder of Warrants or of Registrable
------
Securities as hereinafter defined.
The terms "register" and "registration" shall refer to a
-------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean (i) shares of Common Stock
----------------------
issued or issuable upon exercise of the Warrants and (ii) any Common Stock
issued in respect of such securities upon any stock split, stock dividend,
recapitalization or similar event.
"Registration Expenses" shall mean all expenses incurred by the
---------------------
Company in compliance with Section 7B hereof, including, without limitation, all
registration and filing fees, printing expenses, reasonable fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company and expenses
of regular annual and periodic audits, which shall be paid in any event by the
Company) and the expenses associated with the Company's obligations under
Section 7D hereof.
"Restricted Securities" shall refer collectively to the
---------------------
securities of the Company required to bear the legend referred to in Section 5B
hereof.
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended, or any similar federal statute and the rules and regulation of the
Commission thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts and
----------------
selling commissions applicable to the sale of Registrable Securities and all
reasonable fees and disbursements of counsel for any Holder.
7B. Piggyback Registration Rights.
-----------------------------
(a) If the Company shall determine to register any of its securities under
the Securities Act either for its own account or the account of any security
holder or holders, other than a registration relating solely to employee
benefits plans or corporate reorganizations or other transactions under Rule 145
of the Securities Act, the Company will:
(i) Promptly give to each Holder written notice thereof; and
(ii) Except as set forth in Section 7B(b), include in such
registration (and any related qualification under state blue sky laws and other
compliance filings, and in any underwriting involved therein) all the
Registrable Securities specified in a written request or requests received by
the Company from a Holder within 15 days after the written notice from the
Company is given.
7
<PAGE>
(b) If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, the Company shall so
advise the Holders as part of the written notice given pursuant to Section
7B(a)(i). In such event the right of any Holder to registration pursuant to
Section 7B shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other persons distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected or approved for underwriting by the Company.
Notwithstanding any other provision of this Section 7B, if the underwriter
determines that marketing factors require a limitation on the number of shares
that may be included in the offering, the underwriter may (subject to the
allocation priority set forth below) exclude from such registration and
underwriting some or all of the Registrable Securities which would otherwise be
underwritten pursuant hereto. The Company shall so advise all Holders of
securities requesting registration, and the number of shares of securities that
are entitled to be included in the registration and underwriting shall be
reduced in the following manner: (i) if such registration is being made in
respect of a sale for the account of the Company, pro rata among the requesting
Holders and all other security holders based upon the number of securities
requested to be registered by such Holders and other security holders and (ii)
if such registration is being made in respect of a sale for the account of other
security holders, first, pro rata among all Holders and other security holders
(other than those security holders on account of whom such registration is being
made) based upon the number of securities requested to be registered by them,
second, by any shares proposed to be registered by the Company and third, pro
rata among all security holders on account of whom such registration is being
made. Notwithstanding the foregoing provisions, the Company may withdraw any
registration statement referred to in this Section 7 without thereby incurring
any liability to the Holders of Registrable Securities. If any Holder of
Registrable Securities or any officer, director or other security holder
requesting registration disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
7C. Expenses of Registration. All Registration Expenses incurred on
------------------------
behalf of the Holders in connection with any registration, qualification or
compliance pursuant to this Section 7 shall be borne by the Company, and all
Selling Expenses shall be borne by the Holders of the securities so registered
pro rata on the basis of the number of their shares so registered.
7D. Registration Procedures. In the case of each registration
-----------------------
effected by the Company pursuant to this Section 7, the Company will advise each
Holder in writing as to the initiation of each registration and as to the
completion thereof. The Company will:
(a) Use its best efforts to keep such registration effective for a
period of 120 days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; and
8
<PAGE>
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
7E. Indemnification.
---------------
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder with
respect to which registration, qualification or compliance has been
effected pursuant to this Section 7, and each underwriter, if any, and each
person who controls any underwriter, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on
(i) any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus, offering circular or other document (including
any related registration statement or notification) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (ii)
any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such
Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls
any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating and defending any such claim,
loss, damage, liability or action; provided, however, that the Company will
not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on (x) any true
statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein or (y) any failure by any such Holder or underwriter to comply with
the prospectus delivery requirements of the Securities Act.
(b) Each Holder and other security holder will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify the
Company, each of its directors and officers and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter, each other such Holder
and other security holder and each of their officers, directors and
partners, and each person controlling such Holder or other security holder,
against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document (including any related
registration statement or notification), or any omission (or alleged
omission) to state therein a material fact necessary to make the statements
made therein not misleading. Each Holder and other security holder will,
if Registrable Securities held by him are included in the securities as to
which such registration, qualification or compliance is being affected,
reimburse the Company and such Holders, other security holders, directors,
officers, partners, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigation
and defending any such claim, loss, damage, liability or action.
9
<PAGE>
The obligation to indemnify and reimburse assumed under this Section 7E(b)
shall be limited to an untrue statement (or alleged untrue statement) or
omission (or alleged omission) made in such registration statement,
prospectus, offering circular or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder
or other security holder (as the case may be) and stated to be specifically
for use therein; provided, however, that the obligations of such Holders
-------- -------
and other security holders hereunder shall be limited to an amount equal to
the proceeds to each such Holder or other security holder (as the case may
be) of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 7E (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 7E, except to the extent that the
Indemnifying Party is actually prejudiced by such failure to give notice.
No Indemnified Party, in the defense of any such claim of litigation,
shall, except with the consent of each Indemnified Party, consent to entry
of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim
or litigation and, if such defense is assumed by the Indemnifying Party,
the Indemnifying Party will not be subject to any liability for any
settlement made by the Indemnified Party without the consent of the
Indemnifying Party (such consent not to be unreasonably withheld).
7F. Information by Holder. Each Holder of Registrable Securities,
---------------------
and each person holding securities included in any registration, shall furnish
to the Company in writing such information regarding such Holder or other person
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Section 7.
7G. Limitations on Registration of Issues of Securities. From and
---------------------------------------------------
after the Date of Issuance of this Warrant, the Company shall not enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder the right to require the Company to
register any securities of the Company unless such agreement specifically
provides that, in the case of any registration initiated by such holders, the
Holders shall have the right to participate in such registration to the extent
and in the manner specified in Section 7B hereof.
10
<PAGE>
7H. Rule 144 Reporting. With a view of making available the benefits
------------------
of certain rules and regulations of the Commission which may permit the sale of
the Restricted Securities to the public without registration, the Company agrees
to:
(a) Use its best efforts to make and keep public information available
as those terms are understood and defined in Rule 144 under the Securities
Act, at all times from and after 90 days following 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) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") at any time during which it is subject to such reporting
requirements; and
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as
to its compliance with the reporting requirements of Rule 144 (at any time
from and after 90 days following 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 during which it is subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed 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.
7I. Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted by the Company under Section 7B may be assigned
by any Holder to transferees or assignees of Restricted Securities who, after
such assignment or transfer, hold at least 10% of such Holder's Restricted
Securities; provided, however, that the Company is given written notice at the
-------- -------
time of or within a reasonable time after said transfer, stating the name and
address of said transferees or assignees and identifying the securities with
respect to which such registration rights are being assigned; and, provided,
--------
further, that the transferees or assignees of such rights assume the obligations
- -------
of such Holder under this Section 7 and that the Company shall have the right to
require such transferee or assignee to execute a counterpart of this Warrant as
a condition to such transferee's or assignee's claim to any rights hereunder.
The foregoing requirement as to the minimum percentage of shares to be
transferred or assigned in connection with any assignment of registration rights
shall not apply to an assignment by a Holder to any person or entity which is
affiliated with such Holder.
7J. "Market Stand-Off" Agreement. Each Holder agrees, if requested
----------------------------
by the Company and the underwriter of Common Stock (or other securities) of the
Company, not to sell or otherwise transfer or dispose of any Registrable
Securities without the prior written consent of the Company or such
underwriter, for a specified period of time (not to exceed 180 days) following
the effective date of any registration statement of the Company filed under the
Securities Act with respect to any underwritten public offering of securities of
the Company, as provided in Section 7B hereof, provided that:
11
<PAGE>
(a) all Holders, other security holders whose securities are included
in such registration statement and officers and directors of the Company
shall also enter into similar agreements, except as provided in Section
7B(b); and
(b) such agreement shall be in writing in a form satisfactory to the
Company and such underwriter.
7K. Termination of Registration Rights. The right to cause the
----------------------------------
Company to register securities granted by the Company under Section 7B shall
terminate with respect to any Holder at such time as all of the Registrable
Securities of such Holder can be sold within a given three-month period in
accordance with Rule 144 of the Commission provided, however, that,
notwithstanding the foregoing, the registration rights provided in Section 7B
shall terminate on the fifth anniversary of the Date of Issuance.
Section 8. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Company, or, in the case of any such mutilation upon surrender of such
certificate, the Company shall execute and deliver in lieu of such certificate a
new certificate of like kind representing the same rights represented by such
lost, stolen, destroyed or mutilated certificate and dated the date of such
lost, stolen, destroyed or mutilated certificate.
Section 9. Notices. Except as otherwise expressly provided herein,
-------
all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or three days after deposited in the U. S. Mail (i) to the Company, at its
principal executive offices and (ii) to the Registered Holder of this Warrant,
at such holder's address as it appears in the records of the Company (unless
otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided
--------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Warrant
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of Warrants representing at least 80% of the shares of
Warrant Stock obtainable upon exercise of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Delaware shall govern all issues concerning the relative
rights of the Company and its stockholders. All other questions concerning
12
<PAGE>
the construction, validity, enforcement and interpretation of this Warrant shall
be governed by the internal law of the State of Delaware, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdictions) that would cause the application of the
laws of any jurisdictions other than the State of Delaware.
* * * *
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
NET-tel Communications, Inc.
By /s/ James F. Kenefick
---------------------
Its President
---------
[Corporate Seal] Received by Tom Marino
Attest: /s/ Tom Marino
--------------
/s/ Thomas Lera
- ---------------
Secretary
14
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-6), hereby agrees to subscribe for the purchase of
______ shares of the Warrant Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature ____________________
Address ______________________
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, _________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-6) with respect to the number of shares of the
Warrant Stock covered thereby set forth below, unto:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
Dated: Signature _______________________
_______________________
Witness _______________________
15
<PAGE>
Exhibit 4.6
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED IN A TRANSACTION NOT
INVOLVING ANY PUBLIC OFFERING AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SUCH ACT AND LAWS. THIS WARRANT AND THE SHARES ISSUABLE
HEREUNDER ARE SUBJECT TO CERTAIN TRANSFER AND OTHER RESTRICTIONS SET OUT IN A
CERTAIN INVESTOR RIGHTS AGREEMENT DATED JULY 23,1999.
NET-tel Communications, Inc.
Washington, D.C.
----------------------------
STOCK PURCHASE WARRANT
----------------------------
August 2, 1999
1. Grant. NET-tel Communications, Inc. a Delaware corporation (hereinafter,
the Company), for value received hereby grants to Allied Capital Corporation, a
Maryland corporation or its registered assigns (hereinafter, Holder), or its
nominee, under the terms herein, the right to purchase 474,159.68 of the fully
paid and non-assessable shares of the Company's authorized but unissued $0.0001
par value common stock. The $0.0001 par value common shares of the Company are
sometimes hereinafter referred to as Common Stock. The Common Stock shares
issuable under this Warrant are sometimes hereinafter referred to as the Warrant
Shares. The number of Warrant Shares stated above is subject to certain
antidilution and other adjustments as set out below. Such number, as it may be
adjusted from time-to-time, is hereinafter referred to as the Warrant Number.
2. Warrant Purchase Agreement. This Warrant has been issued under the terms
of a Common Stock Warrant Purchase Agreement among the Company, the Holder and
certain other parties, dated this date (the Warrant Purchase Agreement);
capitalized terms not otherwise defined herein shall have the meanings set forth
in the Warrant Purchase Agreement. This Warrant evidences the obligation of the
Company to issue shares of its capital stock, in the aggregate, corresponding to
One and Eight-Tenths percent (1.8%) of such stock, calculated on a Fully-Diluted
Basis as of Closing. The Holder is entitled to the benefits of the Warrant
Purchase Agreement and all of the exhibits thereto, and reference is made
thereto for a description of the rights and remedies thereunder.
3. Term. The right to exercise this Warrant shall expire seven (7) years
after the date hereof.
<PAGE>
4. Exercise Price. The exercise price of this Warrant (the Exercise Price)
shall be $100, expressed for the entire Warrant, not on a per-share basis.
5. Anti-dilution and Other Adjustments.
(a) Issuance of Additional Stock; Increase in Warrant Number. If the
Company at any time after the date hereof shall issue or be deemed to have
issued any Additional Stock for a per-share consideration less than the Base
Price in effect immediately prior to such issuance or deemed issuance, the
Warrant Number after such issuance shall increase to equal the number determined
by multiplying the Warrant Number in effect immediately prior to such issuance
by a fraction, (i) the denominator of which shall be the number of shares of
Common Stock issued and outstanding (or deemed issued) on a Fully Diluted Basis
immediately prior to such issuance plus the number of shares of Common Stock
which the aggregate consideration received by the Company for such Additional
Stock would purchase at the Base Price immediately prior to such issuance, and
(ii) the numerator of which shall be the number of shares of Common Stock issued
and outstanding (or deemed issued) on a Fully Diluted Basis immediately after
such issuance; provided, however, that the Warrant Number shall not increase in
the event of any issuance of Additional Stock that is either Employee Stock or
Excluded Stock as defined in this sub-paragraph. Employee Stock shall mean
--------------
Common Stock, and/or options, warrants or other rights to purchase Common Stock,
(i) issued or granted to officers, directors, employees or agents of the Company
or any subsidiary of the Company pursuant to any employee stock option plan or
arrangement, employee stock purchase plan or arrangement, or other equity
incentive, bonus, or similar plan or arrangement approved by the board of
directors of the Company (the Board of Directors), provided the total does not
exceed twenty percent (20%) of the shares of Common Stock then outstanding
and/or issuable upon conversion of the outstanding convertible securities,
options, warrants or other rights to acquire Common Stock (the Fully Diluted
Common Stock); (ii) issued or granted pursuant to written agreements with
"branchisees" or similar agreements with "branchisees" or similar agents of the
Company or any subsidiary, provided that any options, warrants or other rights
granted thereunder with respect to Common Stock shall be exercisable at not less
than fair market value (as determined by the Board of Directors) as of the date
of grant; and provided further, that the total shares of Common Stock issuable
----------------
upon the exercise of all such options, warrants or other rights shall not exceed
five percent (5%) of the Fully Diluted Common Stock as of any such grant date;
or (iii) approved by the holders of at least 66 2/3% of the shares of Series B
preferred stock of the Company (the Series B Stock) then outstanding, voting
separately as a class. Excluded Stock shall mean (i) Common Stock issuable upon
--------------
conversion of shares of Series B Stock which were issued for a consideration of
$7,730 or more per Series B Stock share, (ii) Employee Stock, or (iii) Common
Stock issuable upon the exercise of this Warrant.
(b) Decrease in Base Price. The Base Price shall initially be $7.73 per
share. Whenever the Warrant Number increases according to sub-paragraph (a)
above, the Base Price shall thereupon decline according to the following
equation:
2
<PAGE>
X = (AP + C) / B
wherein
X = the Base Price to be in effect immediately after the subject issuance or
sale;
A = the number of shares of Common Stock issued and outstanding (or deemed to be
issued) on a Fully Diluted Basis immediately before such issuance or sale;
B = the number of shares of Common Stock issued and outstanding (or deemed to be
issued) on a Fully Diluted Basis immediately after such issuance or sale;
P = the Base Price as in effect immediately prior to such issuance or sale; and
C = the net consideration received for such issuance or sale.
(c) Options and Warrants. If the Company shall at any time other than
pursuant to this Warrant or with respect to Employee Stock or Excluded Stock,
issue or grant any options or rights to subscribe for or to purchase Common
Stock, all shares of Common Stock which the holders of such options or rights
shall be entitled to subscribe for or to purchase thereunder shall be deemed to
be issued as of the date of the issuing or granting of such options or rights;
and the minimum aggregate consideration specified in such options or rights for
the shares covered thereby, plus the cash consideration, if any, received by the
Company for the issuance of such options or rights, shall be deemed to be the
consideration actually received by the Company for the issuance of such shares;
except as may be provided in subparagraph (n) below, no further adjustments to
the Warrant Number or the Base Price shall be made upon the actual issuance of
Common Stock upon exercise of such options or rights;
(d) Convertible Securities. If the Company shall at any time other than
pursuant to this Warrant or with respect to Employee Stock or Excluded Stock,
issue any stock or obligations directly or indirectly convertible into or
exchangeable for Common Stock, then such issuance shall be deemed to be an
issuance (as of the date of issue of such stock or obligations) of the total
maximum number of shares of Common Stock necessary to effect the exchange or
conversion of all such stock or obligations. The amount received or receivable
by the Company in consideration for the issuance of such stock or obligations
(deducting therefrom any commissions or expenses paid or incurred by the Company
for any underwriting of, or otherwise in connection with, such issuance), plus
the minimum aggregate amount of premiums, if any, payable to the Company upon
exchange or conversion, shall be deemed to be the consideration actually
received by the Company for such Common Stock; except as may be provided in
subparagraph (n) below, no further adjustments to the Warrant Number or the Base
Price shall be made upon the actual issuance of Common Stock upon the conversion
or exchange of such stock or obligations;
(e) Calculation of Consideration. In the case of an issuance of Common
Stock for cash, the consideration received by the Company therefor shall be
deemed to be the net proceeds received for such shares, deducting therefrom any
commissions or expenses paid or incurred by
3
<PAGE>
the Company for any underwriting of, or otherwise in connection with, the issue
of such shares; provided, however, that in any such case where the shares of
-----------------
Common Stock so issued are part of a unit or combination of securities of the
Company consisting of one or more shares of Common Stock and other securities of
the Company, if the amount of the cash consideration received by the Company for
the Stock so issued is not deterrminable at the time of such issuance, such
amount shall be deemed to be such portion of the total cash consideration
received by the Company for such units or combinations as reasonably determined
in good faith by the Company's Board of Directors, regardless of the accounting
treatment thereof by the Company;
(f) Non-Cash Consideration. In the case of an issuance (other than as a
dividend or other distribution on any Common Stock or upon conversion or
exchange of other securities of the Company) of shares of Additional Stock for a
consideration part or all of which shall be other than cash, the amount of such
consideration other than cash shall for purposes of this Warrant be the fair
market value of such consideration as reasonably determined in good faith by the
Company's Board of Directors regardless of the accounting treatment thereof by
the Company;
(g) Resale of Treasury Stock. The sale or other disposition of any shares
of Common Stock of the Company or other securities held in the treasury of the
Company today, or of any securities resulting from any reclassification or
reclassifications of such shares or other securities which were effected while
they were held in the treasury of the Company, shall be deemed an issuance
thereof; provided, however, that if any such share or other security is sold or
disposed of and subsequently re-acquired by the Company, no future sale or other
disposition thereof shall be deemed an issuance thereof.
(h) Stock Split or Dividend. In case the shares of Common Stock at any
time outstanding shall be subdivided into a greater or combined into a lesser
number of shares of Common Stock, by stock-split, reverse split or otherwise, or
in case shares of Common Stock shall be issued as a stock dividend, the Warrant
Number and the Base Price, shall be increased or decreased, as applicable, to
amounts which shall bear the same relation to the Warrant Number and the Base
Price in effect immediately prior to such subdivision, combination or stock
dividend as the total number of shares of Common Stock issued and outstanding
(or deemed issued) immediately prior to such subdivision, combination or stock
dividend shall bear to the total number of shares of Common Stock issued and
outstanding (or deemed issued) immediately after such subdivision, combination
or stock dividend; an adjustment pursuant to this subparagraph shall become
effective immediately after the effective date of such subdivision, combination
or stock dividend, retroactive to the record date (if any) for such subdivision,
combination or stock dividend;
(i) Adjustment for initial Errors. The Warrant Number specified in
paragraph 1 above was calculated upon the Company's representation of the amount
of outstanding Common Stock on a Fully Diluted Basis as of Closing and with the
intention that the full exercise of this Warrant will result in the holders
thereof obtaining Common Stock constituting a certain percentage of the
Company's equity securities, calculated on such basis. If for any reason it
shall hereafter be determined that such representation is incorrect and the
actual amount of such Common Stock corresponding to such percentage is greater
than as specified in paragraph 1, then
4
<PAGE>
the Company or the Holder (whichever shall discover such error) shall notify the
other of such determination and the Company shall forthwith reissue this
Warrant, with an appropriate proportional adjustment in the Warrant Number to be
effective from the date hereof.
(j) Merger. In case of any capital reorganization, or any reclassification
of the Common Stock of the Company, or in case of any consolidation of the
Company with or the merger of the Company into any other entity (other than a
consolidation or merger in which the Company is the surviving entity), this
Warrant shall after such reorganization, reclassification, consolidation or
merger be exercisable upon the terms and conditions specified herein, for the
number of shares of stock or other securities or property of the Company, or of
the other entity resulting from such consolidation or surviving such merger (as
the case may be), which the holder of this Warrant would have been entitled to
receive, under the terms of such reorganization, reclassification, consolidation
or merger, if this Warrant had been exercised in full prior to such
reorganization, reclassification, consolidation or merger. In any such case, if
necessary, the provision set forth in this Warrant with respect to the rights
and interests thereafter of the Holder shall be appropriately adjusted so as to
be applicable, as nearly as may reasonably be, to any shares of stock or other
securities or property thereafter deliverable on the exercise of this Warrant.
The subdivision or combination of shares of Common Stock at any time outstanding
into a greater or lesser number of shares of Common Stock shall not be deemed to
be a reclassification of the Common Stock of the Company for the purposes of
this subparagraph. The Company shall not effect any such consolidation or merger
unless, prior to or simultaneously with the consummation thereof, the surviving
entity (if other than the Company) resulting from such consolidation or merger
shall assume, by written agreement executed and delivered to the Company, the
obligation to deliver to the Holder such shares of stock, securities or assets
to which in accordance with the foregoing provisions, such Holder may be
entitled, as well as any other obligations arising under this Warrant;
(k) Dividends in Kind. If the Company shall declare a dividend upon Common
Stock payable other than from earnings or earned surplus or other than in shares
of Common Stock or stock or obligations directly or indirectly convertible into
or exchangeable for Common Stock, the holder of this Warrant shall, upon
exercise hereof in whole or in part, be entitled, in addition to the shares of
Common Stock deliverable upon such exercise, to the cash, stock or other
securities or property which Holder would have received as dividends if
continuously since the date hereof such Holder
(i) had been the holder of record of the Common Stock deliverable upon
such exercise, and
(ii) had retained all dividends in stock or other securities (other
than shares of Common Stock or such convertible or exchangeable stock or
obligations) paid or payable in respect of such Common Stock or in respect of
any such stock or other securities so paid or payable as such dividends.
For purposes of this subparagraph, a dividend payable other than in cash shall
be considered to be payable from earnings or earned
5
<PAGE>
surplus only to the extent that such earnings or earned surplus shall be charged
in an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors of the Company;
(l) Adjustments to Numbers of Other Securities. If as a result of any
provision of this paragraph 5 the Holder shall become entitled to acquire any
securities of the Company other than or in addition to Common Stock, the number
or amount of such other securities to which the Holder is entitled shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions applicable to the Warrant Number,
and the provisions of this paragraph with respect thereto shall apply as nearly
as may be practicable to such other securities.
(m) De Minimis. Anything in this paragraph to the contrary
notwithstanding, no adjustment shall be made hereunder in any case where the
increase in the Warrant Number would be less than one (1) share of Common Stock;
but in such case any adjustment that would otherwise be made shall be delayed
and the adjustment shall be made only after the next issuance or deemed issuance
of Additional Stock which, together with any and all such issuances, shall
entitle Holder to receive at least one (1) whole additional share of such stock;
(n) Changes to Options and Convertible Securities. Upon any change to the
consideration specified in any option or night described in subparagraph (c),
above for the Common Stock issuable thereunder, or to the rate of conversion or
exchange specified in any stock or obligation described in subparagraph (d)
above, in any case where the issuance or grant thereof had previously been the
basis for an adjustment of the Warrant Number and the Base Price, the Warrant
Number and the Base Price then in effect shall forthwith be readjusted to the
Warrant Number and the Base Price which would have been in effect if the
adjustments made upon the original issuance or grant thereof had been made on
the basis of such consideration or rate as so changed. Upon the exercise of
options or rights described in subparagraph (c) hereof, in any case where the
issuance or grant thereof had previously been the basis for an adjustment of the
Warrant Number and the Base Price, if the actual aggregate consideration
received for the shares covered thereby is greater than the minimum
consideration which was deemed to have been received according to such
subparagraph, the Warrant Number and the Base Price in effect at the time of
such exercise shall forthwith be readjusted to the Warrant Number and the Base
Price which would have been in effect if the adjustment made upon the issuance
or grant thereof had been made on the basis of such consideration actually
received. Likewise, upon the conversion or exchange of stock or obligations
described in subparagraph (d), above, in any case where the issuance thereof had
previously been the basis for an adjustment of the Warrant Number and the Base
Price, if the actual number of shares of Common Stock issued upon such
conversion or exchange shall be less than the maximum number deemed, according
to such subparagraph, to have been issued, or if the actual aggregate premium
paid to the Company upon such conversion or exchange shall be greater than the
minimum premium deemed (according to such subparagraph,) to have been paid, the
Warrant Number and the Base Price in effect at the time of such conversion or
exchange shall forthwith be readjusted to the Warrant Number and the Base Price
which would have been in effect if the adjustment on the original issuance
thereof had been made on the basis of the actual number of shares issued or, (as
the case may be) the actual premium paid.
6
<PAGE>
(o) Expiration of Options; Retirement of Convertible Securities. Upon the
expiration or lapse of options or rights described in subparagraph (c) above in
any case where the issuance or grant thereof had previously been the basis for
an adjustment of the Warrant Number and the Base Price, the Warrant Number and
the Base Price then in effect shall forthwith be readjusted to the Warrant
Number and the Base Price which would have been in effect if the adjustments
made upon the original issuance or grant of such options or rights had excluded
from the calculation of Common Stock issued and outstanding (or deemed issued)
immediately after such issuance or grant, all Common Stock which the holders of
such expired or lapsed options or rights had been entitled to acquire
thereunder, and had excluded from the calculation of consideration deemed to
have been received by the Company, the consideration deemed by the terms of sub-
paragraph (c) to have been received for such expired or lapsed options or
warrants. Upon the retirement without conversion or exchange of obligations
described in subparagraph (d) above in any case where the issuance thereof had
previously been the basis for an adjustment of the Warrant Number and the Base
Price, the Warrant Number and the Base Price then in effect shall forthwith be
readjusted to the Warrant Number and the Base Price which would have been in
effect if the adjustments made upon the original issuance of such obligations
had excluded from the calculation of Common Stock issued and outstanding (or
deemed issued) immediately after such issuance, all Common Stock which the
holders of such retired obligations had been entitled to acquire thereunder, and
had excluded from the calculation of consideration deemed to have been received
by the Company, all consideration deemed, by the terms of subparagraph (d), to
have been received for such retired obligations.
6. Covenants As To Par Value, Authority and Charges. If at any time the per
share exercise price of this Warrant shall be less than the par value of one
share of Common Stock, the Company shall take such action as shall be necessary
to reduce such par value to an amount less than the per share exercise price of
this Warrant. The Company shall take such action as shall be necessary to
maintain the authority to issue validly, upon exercise hereof according to the
terms herein, the number of shares of Common Stock provided herein, and shall
cause such shares, upon payment of the Exercise Price, to be fully paid, free of
preemptive rights and free from all taxes, liens, security interests and charges
with respect to the issuance thereof.
7. Notice of Stock Sales and Other Adjustments. Whenever there is an issuance
or sale of Additional Stock, the Company shall promptly place on file at the
Company's principal office a certificate signed by its Chief Financial Officer
stating the per-share price applicable to the transaction, a detailed
calculation of such price, the number of shares of Common Stock sold or issued,
the consideration received, and all fees and expenses incurred, and further
describing the transaction in detail and the adjustments (if any) to the Base
Price and the Warrant Number resulting therefrom; and cause a copy of such
certificate to be sent to the Holder. Whenever the number of Warrant Number or
the Base Price shall change other than upon the issuance of Additional Stock,
the Company shall promptly notify the Holder in writing of such change and
deliver to Holder a statement setting forth the Warrant Number and the Base
Price after such adjustment(s), and a brief statement of the facts requiring
such adjustment(s) and the computation by which such adjustment(s) was made.
7
<PAGE>
8. Holder's Rights to Redemptions and Dividends. The Holder shall be entitled
to a ratable portion of any redemption of stock by the Company from Gold & Appel
Transfer, S.A., James Kenefick, or any other owner of at least fifteen percent
of the Common Stock (a Qualifying Redemption). If the Company makes a Qualifying
Redemption or otherwise purchases for value any of its Common Stock from any
owner of stock described in the preceding sentence prior to full exercise of
this Warrant, the Company shall provide to the Holder at the time of the
exercise hereof, in addition to the Warrant Shares, the same proceeds the Holder
would have been entitled to receive if this Warrant had been exercised in full
prior to the record date for such redemption and Holder had been entitled to
have a ratable portion of its Warrant Shares redeemed at the same price per
Share. Likewise, the Holder will be entitled to a ratable portion of any
dividends or other distributions paid by the Company. If the Company pays any
dividend or makes any distribution (whether in cash, property or securities) to
the holders of Common Stock prior to full exercise of this Warrant, then the
Company shall provide the Holder, at the time of exercise hereof, in addition to
the Warrant Shares, the same proceeds the Holder would have been entitled to
receive on the Warrant Shares if this Warrant had been exercised in full prior
to the record date for such dividend or distribution or, if no record is taken,
the date as of which the record holders of Common Stock entitled to such
dividend or distribution are to be determined.
9. Exercise Procedure.
(a) Unconditional Subscription. This Warrant may be exercised by
presenting it and tendering the aggregate Exercise Price in legal tender or by
bank's, cashier's or certified check to the Company at its address specified in
the Warrant Purchase Agreement, along with written subscription substantially in
the form of Exhibit 9.00 hereof. The date on which this Warrant is thus
------------
presented, accompanied by tender or payment as hereinbefore or hereinafter
provided, is referred to herein as the Exercise Date. The Company shall
forthwith at its expense (including the payment of issue taxes), issue and
deliver the proper number of shares of Common Stock, and such shares shall be
deemed validly issued for all purposes as of the opening of business on the
Exercise Date regardless of any delay in the actual issuance.
(b) Conditional Exercise. This Warrant may also be exercised conditionally
in contemplation of the future consummation of one or more transactions, by
presenting it and tendering the aggregate Exercise Price in the manner specified
in subparagraph (a) above, along with a notice clearly stating the conditional
nature of the exercise, specifying the conditions precedent to the exercise in
reasonable detail and the date after which the exercise shall be deemed
withdrawn if such conditions remain unsatisfied, and otherwise containing the
information called for in Exhibit 9.00. Upon such presentment, tender and
------------
notice, if the specified conditions are satisfied within the specified period
without prior revocation of the exercise by Holder, the Company shall forthwith
issue and deliver the proper number of shares of Common Stock in the manner
described above. In such case, the date on which the last remaining condition
was met shall be referred to herein as the Exercise Date, and such shares shall
be deemed validly issued for all purposes as of the opening of business on such
exercise date, regardless of any delay in the actual issuance. If, on the other
hand, after any such presentment, tender and notice, any condition is
unsatisfied on the specified date, or if the Holder revokes such exercise in
writing prior to the satisfaction of all conditions, the Company shall forthwith
return
8
<PAGE>
this Warrant and the Exercise Price to the Holder and this Warrant shall be
deemed not to have been exercised.
10. Exchange of Shares for Exercise Price. The Holder at its option may
provide the Exercise Price under this Warrant by reducing the number of shares
for which the Warrant is otherwise exercisable by the number of shares having
fair market value equal to the Exercise Price. In such a case, delivery of the
Exercise Price shall be effected by Holder's written notice to the Company of
such reduction. For purposes hereof, the average of any publicly-reported
closing bid and asked prices for the Common Stock on the last ten (10) trading
days prior to the Exercise Date, shall be deemed to be the fair market value of
the Common Stock.
11. Sale or Exchange of Company or Assets. If prior to the exercise in full
hereof, the Company sells or exchanges all or substantially all of its assets,
or all or substantially all the outstanding Common Stock is sold or exchanged to
any party other than the Holder, then the Holder at its option may receive upon
exercise hereof, in lieu of the Warrant Shares, such money or property it would
have been entitle to receive if this Warrant had been exercised in full prior to
such sale or exchange.
12. Resale of Warrant or Shares. Neither this Warrant nor other shares of
common stock issuable upon exercise hereof, have been registered under the
Securities Act of 1933 as amended, or under the securities laws of any state.
- ----------------------
Neither this Warrant nor any shares when issued may be sold, transferred,
pledged or hypothecated in the absence of (i) an effective registration
statement for this Warrant or the shares, as the case may be, under the
Securities Act of 1933 as amended and such registration or qualification as may
- ----------------------
be necessary under the securities laws of any state, or (ii) an opinion of
counsel reasonably satisfactory to the Company that such registration or
qualification is not required. The Company shall cause a certificate or
certificates evidencing all or any of the shares issued upon exercise hereof
prior to said registration and qualification of such shares to bear the
following legend:
The shares evidenced by this certificate have not been registered
under the Securities Act of 1933 as amended, or under the securities
----------------------
laws of any state. The shares may not be sold, transferred, pledged or
hypothecated in the absence of an effective registration statement
under the Securities Act of 1933, as amended, and such registration or
----------------------
qualification as may be necessary under the securities laws of any
state, or an opinion of counsel satisfactory to the Company that such
registration or qualification is not required.
13. Transfer. This Warrant shall be registered on the books of the Company
which shall be kept at its principal office for that purpose, and shall be
transferable in whole or in part but only on such books by the Holder in person
or by duly authorized attorney with written notice substantially in the form of
Exhibit 13.00 hereof, and only in compliance with the preceding paragraph. The
- -------------
Company may issue appropriate stop orders to its transfer agent to prevent a
transfer in violation of the preceding paragraph.
9
<PAGE>
14. Closing of Books. The Company shall not close its transfer books against
the transfer of this Warrant or any Common Stock or other securities issuable
upon the exercise of this Warrant in any manner which interferes with the
exercise of this Warrant.
15. Replacement of Warrant. At the request of the Holder and on production of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and (in the case of loss, theft, or destruction)
if required by the Company, upon delivery of an indemnity agreement with surety
in such reasonable amount as the Company may determine thereof, the Company at
its expense will issue in lieu thereof a new Warrant of like tenor.
16. Investment Covenant. The Holder by its acceptance hereof covenants that
this Warrant is, and any stock issued hereunder will be, acquired for investment
purposes, and that the Holder will not distribute the same in violation of any
state or federal law or regulation.
17. Notice. Any notice or other communication required by this Warrant to be
given to the Holder shall be provided according to the notice provisions in the
Warrant Purchase Agreement.
18. Waiver of Jury Trial. THE COMPANY WAIVES ALL RIGHT TO TRIAL BY JURY OF ALL
CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS OF ANY KIND DIRECTLY OR INDIRECTLY
ARISING FROM OR RELATING TO THIS WARRANT OR THE DEALINGS OF THE PARTIES IN
RESPECT HERETO. THE COMPANY ACKNOWLEDGES AND AGREES THAT THIS PROVISION IS A
MATERIAL TERM OF THIS WARRANT AND THAT THE HOLDER WOULD NOT EXTEND ANY FUNDS
UNDER THE LOAN DOCUMENTS IF THIS WAIVER OF JURY TRIAL WERE NOT A PART OF THIS
WARRANT. THE COMPANY ACKNOWLEDGES THAT THIS IS A WAIVER OF A LEGAL RIGHT AND
THAT IT MAKES THIS WAIVER VOLUNTARILY AND KNOWINGLY AFTER CONSULTATION WITH, OR
THE OPPORTUNITY TO CONSULT WITH, COUNSEL OF ITS CHOICE. THE COMPANY AGREES THAT
ALL SUCH CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS SHALL BE TRIED BEFORE A JUDGE
OF A COURT OF COMPETENT JURISDICTION, WITHOUT A JURY.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on its
behalf by its undersigned officer, and its corporate seal to be hereunto
affixed, as of the date first above written.
Net-tel Communications, Inc.
Attest:
By: /s/ Thomas Lera By: /s/ James F. Kenefick
--------------------- -------------------------------
Thomas Lera, Secretary James F. Kenefick, President
10
<PAGE>
Exhibit 9.00
IRREVOCABLE SUBSCRIPTION
To: Net-Tel Communications, Inc.
Gentlemen:
The undersigned hereby elects to exercise its right under the attached Warrant
by purchasing _________________ shares of the Common Stock of your company, and
hereby irrevocably subscribes to such issue. The certificates for such shares
shall be issued in the name of
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
(Taxpayer Number)
and deliver to _______________________________________________________________
(Name)
- ------------------------------------------------------------------------------
(Address)
The exercise price of $________________ is enclosed.
Date:__________________________________________
Signed:________________________________________ (Name of Holder, Please Print)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
(Signature)
11
<PAGE>
Exhibit 13.00
ASSIGNMENT
FOR VALUE RECEIVED: __________________________________________________________
- ------------------------------------------------------------------------------
(Name)
- ------------------------------------------------------------------------------
(Address)
the attached Warrant together with all right, title and
- ----------------
interest therein, and does hereby irrevocably appoint ______________________
attorney to transfer said Warrant on the books of Net-Tel Communications, Inc.,
with full power of substitution in the premises.
Done this _____ day of _______________, 19___.
Signed:______________________________________
By:__________________________________________
Its:_________________________________________
12
<PAGE>
Exhibit 4.7
NET-tel COMMUNICATIONS, INC.
Washington, DC
-------------------------------
COMMON STOCK WARRANT
PURCHASE AGREEMENT
August 2, 1999
In connection with financing provided by
ALLIED CAPITAL CORPORATION
----------------------------------------
----------------------------------------
<PAGE>
TABLE OF CONTENTS
PREAMBLE
--------
Parties
Recitals
ARTICLE...................................................................1
Equity ................................................................1
Section 1.1 Warrants ............................................1
--------
Section 1.2 Valuation of Warrants ...............................2
ARTICLE 2 ................................................................2
Registration and Investor Rights ......................................2
ARTICLE 3.................................................................2
Representations and Warranties ........................................2
ARTICLE 4.................................................................3
Covenants .............................................................3
Section 4.1 [Intentionally Omitted] .............................3
Section 4.2 Further Assurance ...................................3
ARTICLE 5 ................................................................3
Section 5.1 Survival of Representations .........................3
Section 5.2 Agreement of the Company to Indemnify ...............3
Section 5.3 Conditions of Indemnification .......................4
Section 5.4 Specific Performance ................................5
Section 5.5 Exclusive Remedies ..................................5
ARTICLE 5
Section 6.1 No Implied Waiver....................................6
ARTICLE 7.................................................................6
Parties................................................................6
ARTICLE 8.................................................................6
Notice.................................................................7
ARTICLE 9.................................................................7
Controlling Law; Venue and jurisdiction; Service of Process ...........8
ARTICLE 10................................................................8
Captions; Severance....................................................8
ARTICLE 11................................................................8
Counterparts; Entire Agreement
ARTICLE 12 ...............................................................8
Definitions and Rules of Construction .................................8
Section 12.1 Definitions ........................................8
Section 12.2 Rules of Construction .............................10
i
<PAGE>
THIS COMMON STOCK WARRANT PURCHASE AGREEMENT is made as of August 2,
1999, by and among (i) NET-tel Communications, Inc., a Delaware corporation
(collectively with successors and assigns, the "Parent"); and NET-tel
Corporation. a Florida corporation (collectively with successors and assigns,
the "Borrower"; the Parent and the Borrower being hereinafter sometimes together
referred to as the "Company"); and (ii) Allied Capital Corporation, a Maryland
corporation (collectively with successors and assigns, "Holders").
RECITALS
A. Under terms of a credit agreement dated July 28, 1999,
Nortel Networks Inc., as administrative agent for itself and for other Lenders,
("Senior Lender") is providing to Borrower certain term loans and a revolving
credit facility in the aggregate principal amount of One Hundred Forty Million
Dollars ($140,000,000) pursuant to a Credit Agreement dated July 28, 1999 (the
"Credit Agreement") in the form of Exhibit A.
---------
B. Parent proposes to issue to Holders certain warrants to
purchase shares of the common stock of Parent, in consideration for Holders'
entry into in the Credit Agreement as a lender of the principal amount of Ten
Million Dollars ($10,000,000).
C. Under terms of a certain Securities Purchase Agreement,
Parent has issued and/or proposes to issue to Holders and other investors Series
B Convertible Preferred Stock ("Series B Stock") for an aggregate purchase price
of approximately Fifty Million Dollars ($50,000,000) ("Securities Purchase
Agreement") in the form of Exhibit B.
---------
PROVISIONS
In consideration of the premises and the covenants herein, Holders and
the Company agree as set forth below.
ARTICLE 1
Equity
------
Section 1.1 Warrants. At Closing, Parent will issue and sell, and each Holder
--------
will purchase, a Warrant (collectively with all modifications, extensions,
renewals and replacements thereof and therefor, the "Warrants"), to acquire
shares of Parent's common stock, par value $.0001 ("Shares"), which will entitle
Holders to receive that number of Parent's authorized but unissued shares that
will provide Holder with One and Eight Tenths Percent (1.8%) of Parent's capital
stock on a Fully Diluted Basis immediately after Closing, with such percentage
being subject to certain anti-dilution provisions set forth in the Warrants. The
aggregate purchase price for the Warrants shall be One Hundred Dollars ($100),
which Holders shall pay to Parent at Closing.
<PAGE>
Section 1.2 Valuation of Warrants. The Holders and Parent hereby agree that as
---------------------
of the Closing, the fair market value of the Warrants shall be as set out in
Exhibit 1.03 hereto, and that they shall prepare and maintain their books of
- ------------
account, financial statements and tax returns in a manner consistent therewith.
ARTICLE 2
Registration and Investor Rights
--------------------------------
Holders are hereby made parties to the Investor Rights Agreement and
the Registration Rights Agreement attached hereto as Exhibits C and D,
---------- -
respectively, as Purchasers, as defined therein, and shall, with respect to
Shares issued or issuable under the Warrant, be bound by and entitled to the
benefits of all terms therein applicable to Purchasers. For purposes of the
Registration Rights Agreement the Warrant Shares shall be deemed to be
Registrable Securities. With respect to the Investor Rights Agreement, the
Warrant and Warrant Shares shall be deemed to be that number of shares of Series
B Preferred Stock convertible into the number of shares of Common Stock
corresponding to the number of Warrant Shares; provided, however, that the
Warrant and Warrant Shares shall not be deemed to be Series B Preferred Stock
for purposes of Section 2.7 or the second sentence of Section 6.2 of such
Agreement, except with respect to consents to amendments to Section 1 of such
Agreement.
ARTICLE 3
Representations and Warranties
------------------------------
To induce Holders to enter into the Credit Agreement and the other
transactions contemplated herein and to purchase the Warrants, Parent hereby
provides the same representations and warranties to Holders as it provided in
Article III of the Securities Purchase Agreement attached hereto as Exhibit C.
---------
All representations and warranties in this Article shall refer to facts as they
exist at Closing, shall be deemed to have been modified by the Compliance
Certificate set out as Exhibit E hereto, and shall survive the Closing.
---------
ARTICLE 4
Covenants
---------
So long as a Holder owns a Warrant or any equity security of the
Company issued directly or indirectly in exchange for, or pursuant to provisions
of a Warrant, the Company shall comply with the following covenants.
Section 4.1 [Intentionally Omitted]
-----------------------
2
<PAGE>
Section 4.2 Further Assurance. The Company and the Holders shall from time to
-----------------
time promptly execute and deliver to each other such additional documents, and
take such other reasonable steps, as they may reasonably require to carry out
the purposes hereof.
ARTICLE 5
Survival of Representations, Indemnification; Remedies
------------------------------------------------------
Section 5.1 Survival of Representations. All representations and warranties (as
---------------------------
modified by Exhibit E), covenants, agreements and indemnities made by a party to
---------
this Agreement herein or pursuant hereto shall also be deemed made on and as of
the Closing Date as though such representations, warranties, covenants,
agreements and indemnities were made on and as of such date, and all such
representations, warranties, covenants, agreements and indemnities shall survive
the Closing Date and remain in full force and effect as follows: (a) unless
otherwise specified hereinbelow, representations, warranties, covenants and
agreements shall survive for a period of one (1) year after the Closing Date;
(b) the representations and warranties of the Company set forth in Section 3.13
of the Securities Purchase Agreement shall survive until the expiration of the
applicable statute of limitations; (c) the covenants and agreements in this
Article 5 shall continue in full force and effect until fully discharged; and
(d) any representation, warranty, covenant, indemnity or agreement that is the
subject of a claim which is asserted in writing prior to the expiration of the
applicable survival period set forth above shall survive with respect to such
claim until the final resolution thereof.
Section 5.2 Agreement of the Company to Indemnify. Subject to the conditions and
-------------------------------------
provisions of this Article 5, the Company hereby agrees to indemnify, defend and
hold harmless the Holders and their directors, officers, employees, agents, and
controlling persons (the "Indemnified Persons") from and against and in respect
of all demands, claims, actions or causes of action, assessments, losses,
damages (including, without limitation, diminution in value), liabilities, costs
and expenses, including, without limitation, interest, penalties and reasonable
attorneys' fees and disbursements ("Claims") asserted against, resulting to,
imposed upon or incurred by the indemnified Persons (whether such Claims are by,
against or relate to the Company, or any other party, including, without
limitation, a governmental entity), directly or indirectly, by reason of or
resulting from any misrepresentation or breach of any representation or
warranty, or noncompliance with covenants or agreements given or made by the
Company in this Agreement, the Investor Rights Agreement, the Registration
Rights Agreement or in any document furnished by or on behalf of the Company
pursuant to this Agreement.
Section 5.3 Conditions of Indemnification. The obligations and liabilities of
-----------------------------
the Company hereunder with respect to its indemnities pursuant to this Article
5, resulting from any Claim shall be subject to the following terms and
conditions:
(a) The indemnified party shall give prompt written notice to
the indemnifying party of any Claim which is asserted against, resulting to,
imposed upon or incurred by such
3
<PAGE>
indemnified party and which may give rise to liability of the indemnifying party
pursuant to this Article 5, stating (to the extent known or reasonably
anticipated) the nature and basis of such Claim and the amount thereof.
(b) The indemnifying party shall engage counsel with respect
to any such Claim, such representation (including the compromise or settlement
of any Claim) to be undertaken on behalf of and for the account and risk of the
indemnified party, and the indemnified party shall have the right to approve
such counsel (such approval shall not be unreasonably withheld). No settlement
or compromise of any Claim may be made without the consent of the indemnified
party (such consent shall not be unreasonably withheld). In the event the
indemnifying party elects not to undertake such defense by its own counsel, the
indemnifying party shall give prompt written notice of such election to the
indemnified party, and the indemnified party will undertake the defense thereof
by counsel or other representatives designated by it, at the cost and expense of
the indemnifying party (such costs and expenses of such defense to be advanced
by the indemnifying party as incurred by the indemnified party). Notwithstanding
the foregoing, the indemnified party shall have the right to retain its own
counsel and to participate or assume its own defense in any proceeding where (i)
the indemnifying party and the indemnified party have mutually agreed to the
retention of counsel by, and the participation of, the indemnified party or (ii)
the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them.
(c) In the event that any Claim shall arise out of a
transaction or cover any period or periods wherein the Company on the one hand,
and the Investors on the other hand, shall each be liable hereunder for part of
the liability or obligation arising therefrom, then the parties shall, each
choosing its or his own counsel and bearing its or his own expense, defend such
Claim, and no settlement or compromise of such Claim may be made without the
Joint consent or approval of the Company and the Holders (which consent shall
not be unreasonably withheld), except where the respective liabilities and
obligations of the Company and the Investors are clearly allocable or
attributable on the basis of objective facts.
(d) The Company shall not be required to indemnify the
Indemnified Persons with respect to any claim for indemnification pursuant to
Section 5.2 unless and until the aggregate amount of all Claims asserted
against, resulting to, imposed upon or incurred by the Indemnified Persons
exceeds One Hundred Fifty Thousand Dollars ($150,000), and then only to the
extent such aggregate amount exceeds One Hundred Fifty Thousand Dollars
($150,000). Claims thereafter may be asserted regardless of amount. The
Company's maximum liability to the Indemnified Persons for claims for
indemnification pursuant to Section 5.2 shall not exceed, in the aggregate, Two
Million Seven Hundred Thousand Dollars ($2,700,000). The limitations on
indemnification provided for in this Section 5.3(d) shall not apply to any
Claims asserted against, resulting to, imposed upon or incurred by the
Indemnified Persons related to fraud.
4
<PAGE>
Section 5.4 Specific Performance. In addition to any other remedies which the
--------------------
Indemnified Persons may have at law or in equity, the Company hereby
acknowledges that the Shares and the Company are unique, and that the harm to
the Indemnified Persons resulting from breaches by the Company of its
obligations cannot be adequately compensated by damages. Accordingly, the
Company agrees that the Indemnified Persons shall have the right to have all
obligations, undertakings, covenants, agreements and other provisions of this
Agreement specifically performed by the Company, and that the Indemnified
Persons 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 of any state
or other political subdivision thereof.
Section 5.5 Exclusive Remedies. Except for any remedies that the Indemnified
------------------
Persons might have based on fraud, the remedies provided in this Article 5 shall
be the exclusive remedies available to each party hereto for any breach of the
representations, warranties, covenants and agreements of the other party under
this Agreement; provided, however, that the foregoing shall not limit or
diminish the rights and remedies afforded to the parties under the Investor
Rights Agreement or Registration Rights Agreement.
ARTICLE 6
Waiver
------
Section 6.1 No Implied Waiver. No course of dealing between a Holder and any
-----------------
other party hereto, or any failure or delay on the part of a Holder in
exercising any rights or remedies hereunder, shall operate as a waiver of any
rights or remedies of any Holder under this or any other applicable agreement.
No single or partial exercise of any rights or remedies hereunder shall operate
as a waiver or preclude the exercise of any other rights or remedies hereunder.
ARTICLE 7
Parties
-------
This Agreement will bind and accrue to the benefit of the Company, the
Holders, any holders of the Warrants, and their successors and permitted
assigns. Any purchaser, assignee, transferee or pledgee of the Warrants, or any
document arising in connection with the transaction subject to this Agreement
(or any of them), sold, assigned, transferred, pledged or repledged by a Holder
shall forthwith become vested with and entitled to exercise all rights and
remedies provided herein to Holders, as if said purchaser, assignee, transferee
or pledgee were originally named in this Agreement in place of the Holders.
5
<PAGE>
ARTICLE 8
Notice
All notices or communications under this Agreement or the Warrants shall
be in writing and mailed, postage prepaid, or delivered as follows:
To Holders: 1919 Pennsylvania Avenue, N.W., 3rd Floor
Washington, D.C. 20006
Attn: Scott S. Binder, Principal
Thoma H. Aiken
and to
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
Attn: David P. Parker, Esquire
To the Borrower.
NET-tel Corporation
1023 31st Street, N.W.
Washington, D.C. 20007
Attn: Craig R. Bandes
Senior Vice President
To the Parent:
NET-tel Communications Inc.
1023 31st Street, N.W.
Washington, D.C. 20007
Attn: Craig R. Bandes
Senior Vice President
and to
Swidler Berlin Shereff Friedman LLP
3000 K Street, N.W., Suite 300
Washington, D.C. 20007
Attn: Andrew M. Ray, Esquire
6
<PAGE>
or, to such subsequent addresses as may hereafter be specified by the parties.
Rejection or other refusal to accept, or the inability to deliver because of a
changed address of which no notice was given, shall not affect the date of such
notice sent in accordance with the foregoing provisions. Each such notice,
request or other communication shall be deemed sufficiently given, served, sent
and received for all purposes at such time as it is delivered to the addressee
(with the return receipt, the delivery receipt, the affidavit of the messenger
or the answer back being deemed conclusive evidence of such delivery), or at
such time as delivery is refused by addressee upon presentation.
ARTICLE 9
Controlling Law; Venue and Jurisdiction; Service of Process.
-----------------------------------------------------------
This Agreement shall be interpreted, and the rights and liabilities of
the parties hereto determined, in accordance with the laws of the State of
Delaware, without regard to its principles of conflicts of law. Venue for any
adjudication hereof shall be only in the courts of the District of Columbia or
the Federal courts in such District, to the jurisdiction of which courts all
undersigned parties hereby submit as the agreement of such parties, as not
inconvenient, and as not subject to review by any court other than such courts
in the District of Columbia. All parties intend and agree that the courts of
jurisdictions in which the Company is incorporated and conducts its business
shall afford full faith and credit to any judgment rendered by a court of the
District of Columbia against the Company or other obligees hereunder, and that
such District of Columbia and federal courts shall have in personam jurisdiction
to enter a valid judgment against the Company or other obligees hereunder.
Service of any summons and/or complaint and any other process which may be
served on the Company in any action in respect hereto, may be made by mailing
via registered mail, or delivering a copy of such process to the Company at its
address specified above. The parties hereto agree that this submission to and
consent to service of process are reasonable and made for the express benefit of
Holders.
ARTICLE 10
Captions; Severance.
-------------------
The captions in this Agreement and the Warrants are inserted for
convenience of reference only and shall be construed neither to limit nor
amplify the meaning of the other text of such documents. To the extent any
provision herein violates any applicable law, such provision shall be void and
the balance of this Agreement shall remain unchanged.
ARTICLE 11
Counterparts; Entire Agreement
------------------------------
This Agreement may be executed in as many counterpart copies and with as
many counterpart signature pages as may be convenient. It shall not be necessary
that the signature of, or
7
<PAGE>
on behalf of, each party appear on each counterpart, but it shall be sufficient
that the signature of, or on behalf of, each party appear on one or more of the
counterparts. An counterparts shall collectively constitute a single agreement;
it shall not be necessary in any proof of this Agreement to produce or account
for more than a number of counterparts containing the respective signatures of,
or on behalf of, all of the parties. This Agreement and the Warrants, and the
documents mentioned herein set forth the entire agreements and understandings of
the parties hereto in respect of this transaction. Any verbal agreements in
respect of this transaction are hereby terminated. The terms herein may not be
changed verbally but only by a writing signed by the party against which
enforcement of the change is sought.
ARTICLE 12
Definitions and Rules of Construction
-------------------------------------
Section 12.1 Definitions. As used in this Agreement, and unless the context
-----------
requires a different meaning, the following terms shall have the meanings as
follow:
(a) "Affiliate" shall have the meaning ascribed to it under
---------
Rule 13e-3 promulgated under the Securities Exchange Act of 1934, as amended;
(b) "Affiliated Person" shall have the definition for such
-----------------
term set out in section 2(a)(3) of the Investment Company Act of 1940, as
amended;
(c) "Agreement" is defined as this Common Stock Warrant
---------
Purchase Agreement and the exhibits and schedules hereto, as the same may be
amended, supplemented, extended, modified or replaced in accordance with the
terms hereof;
(d) "Borrower" shall have the definition set out in the
--------
Preamble hereof.
(e) "Closing" is defined as the consummation of this
-------
Agreement;
(f) "Closing Date" shall mean the day on which the Closing
------------
occurs;
(g) "Company" shall have the definition set out in the
-------
Preamble hereof;
(h) "Fully Diluted Basis" shall mean as of a particular date,
-------------------
in respect to a corporation or other legal entity, the condition wherein all
options, warrants and other securities of such entity outstanding on such date
which are then or later exercisable or exchangeable for capital stock or other
equity interests in the entity, are, for the purpose of calculating relative
ownership rights, presumed to have been exercised or exchanged in full;
8
<PAGE>
(i) "Gold & Appel" means Gold & Appel Transfer S.A., a
------------
corporation organized under the laws of The British Virgin Islands, and a
wholly-owned subsidiary of Iceberg Transport, S.A., a corporation organized
under the laws of Panama;
(j) "Holders" shall have the definition set out in the
-------
Preamble hereof;
(k) "Parent" shall have the definition set forth in the
------
Preamble hereof;
(l) "The Securities Act" is defined as the Securities Act of
------------------
1933, as amended;
(m) "Securities Purchase Agreement" shall have the definition
-----------------------------
set forth in Recital C hereof;
(n) "Credit Agreement" shall have the definition set forth in
----------------
Recital A hereof;
(o) "Senior Lender" shall have the definition set forth in
-------------
Recital A hereof;
(p) "Series B Stock" shall have the definition set forth in
--------------
Recital C hereof;
(q) "Shares" shall have the meaning set forth in Section 1.1
------
hereof;
9
<PAGE>
(r) "Warrants" shall have the meaning set forth in Section 1.1
--------
hereof; and
(s) "Warrant Shares" is defined as the Shares issued or
--------------
issuable pursuant to the warrants.
Section 12.2 Rules of Construction. The rule of ejusdem generis shall not be
--------------------- ------- -------
applicable herein to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned. Unless the context otherwise requires:
(a) A term has the meaning assigned to it;
(b) "Or" is not exclusive;
(c) Provisions apply to successive events and transactions;
(d) "Herein", "Hereof", "Hereto", "Hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision unless otherwise so provided,
(e) The word "person" shall mean any natural person,
partnership, corporation, nation, state, government, union, association, agency,
tribunal, board, bureau and any other form of business or legal entity;
(f) All words or terms used in this Agreement, regardless of
the number or gender in which they are used, shall be deemed to include any
other number and any other gender; and
(g) All financial terms used herein and not capitalized shall
have the meaning accorded them under GAAP.
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
duly executed as of the date first above written
Parent:
[Seal]
Attest: /s/ Thomas Lera By: /s/ James F. Kenefick
------------------------------- -----------------------------
Thomas Lera, Secretary James F. Kenefick, President
Borrower: NET-tel Corporation
[Seal]
Attest: /s/ Thomas Lera By: /s/ James F. Kenefick
------------------------------- -----------------------------
Thomas Lera, Secretary James P. Kenefick, President
Holders: Allied Capital Corporation
[Seal]
By: /s/ Thomas H. Aiken
----------------------------
Thomas H. Aiken, Associate
11
<PAGE>
Agreed to and Accepted for purposes Gold & Appel Transfer, S.A.
of Article II only
By: /s/ Walter Anderson
-----------------------------------
Walter Anderson
James Kenefick
By: /s/ James Kenefick
-----------------------------------
James Kenefick
Williams Communications, Inc.
By: /s/ James W. Dutton
-----------------------------------
James W. Dutton
Vice President
Nortel Networks, Inc.
By: /s/ Jay R. Prestipino
-----------------------------------
Jay R. Prestipino
Director, Customer Finance
12
<PAGE>
Exhibit 4.8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") dated as of July
23, 1999 (the "Effective Date"), by and among NET-TEL COMMUNICATIONS, INC., a
Delaware corporation (the "Company"), JAMES F. KENEFICK ("Kenefick"), WILLIAMS
COMMUNICATIONS, INC., a Delaware corporation ("Williams,"and together with
Kenefick, the "Existing Stockholders") and certain persons and entities listed
on Schedule 1 of the Purchase Agreement, as defined below (each a "Purchaser"
----------
and collectively, the "Purchasers").
WHEREAS, the Company has agreed to provide the Existing Stockholders
certain registration rights with respect to the Common Stock of the Company in
order to induce them to invest in the Company and to keep them as investors of
the Company;
WHEREAS, the Company is simultaneously entering into the Securities
Purchase Agreement dated as of the Effective Date by and among the Company and
the Purchasers (as amended from time to time,the "Purchase Agreement"), which
provides for the Company's issuance of shares of the Company's Series B
Convertible Preferred Stock (the "Preferred Stock"). As an inducement to the
Purchasers to enter into the Purchase Agreement, the Company agreed to provide
to the Purchasers certain registration rights with respect to the Common Stock
of the Company which may be acquired by the conversion of the Preferred Stock
subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the parties hereto agree as follows:
1. Registration Rights.
-------------------
1.1 (a) Certain Definitions. As used in this Agreement, the
-------------------
following terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" means the Common Stock, par value $0.0001 per share, of
the Company.
"Holders" means the Existing Stockholders, the Purchasers and any
Person who acquires any Registrable Shares in accordance with Section 2.1
-----------
hereof.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"Public Offering" means a public offering registered under the
Securities Act, other than a registration relating solely to a transaction under
Rule 145 under the Securities Act (or any successor provision) or to an employee
benefit plan of the Company.
<PAGE>
"Registrable Shares" means all shares of Common Stock held by the
Holders and all shares of Common Stock issued or issuable to the Holders upon
the conversion of the Preferred Stock, options or warrants; provided, however,
-------- -------
that Registrable Shares shall cease to be Registrable Shares (1) when they have
been sold to the public pursuant to a public offering registered under the
Securities Act (or any successor provision) or (2) when they may be sold
pursuant to Rule 144 under the Securities Act, based on the written opinion of
counsel for the Company that, without compliance with the registration and
prospectus delivery requirements of the Securities Act, no transfer restrictions
or restrictive legends will appear upon the shares following the consummation of
such sale.
"Registration Expenses" means all expenses to be incurred by the
Company in connection with the Existing Stockholders' and Purchasers' exercise
of their registration rights under this Agreement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
"Registration Statement" means a registration statement on Form S-1 or
other appropriate form.
"Required Holders" means the Holders of at least eighty percent
(80%)of the Registrable Shares.
"Securities Act means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated under such Act, as they may,
from time to time, be in effect.
"Selling Expenses" means all underwriting discounts and selling
commissions and transfer taxes applicable to the sale of Registrable Shares and
all fees and disbursements of counsel for the Holders.
"Subscription Price" means the amount payable to the Company in
consideration of the initial issuance of the Registrable Shares or the
securities from which the Registrable Shares were issued, whether by way of
conversion, exercise, stock dividend, stock-split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
(b) Registration and Offering Rights. The Company hereby grants
--------------------------------
to the Holders the applicable demand and piggyback rights with respect to the
Registrable Shares set forth in this Article 1. The Company covenants that,
---------
upon a Demand (as hereinafter defined), the Company, at its expense, will use
its best efforts to prepare or cause to be prepared financial statements
(including financial statements reconciled to United States generally accepted
accounting principles in accordance with the applicable requirements of the
Securities Act, as may be appropriate for the intended method of disposition
specified in the Demand) and disclosure documents (prepared in accordance with
the applicable requirements of the Securities Act for a Public Offering) and
otherwise take all necessary steps with a view to filing a registration
statement with the Commission with respect to a Public Offering as soon as
possible but in any event no later than specified below.
2
<PAGE>
1.2 Demand Registration. At any time one hundred eighty (180) or
-------------------
more days after the closing of the Company's initial firm commitment,
underwritten Public Offering, the Holders of an aggregate of at least fifty
percent (50%) of the then outstanding Registrable Shares may request that the
Company effect the registration under the Securities Act of all or part of such
Registrable Shares (a "Demand"). Upon receipt of such request, the Company
shall promptly (but in any event within ten (10) days) give written notice of
such proposed registration to all Holders. Such Holders shall have the right,
by giving written notice to the Company within twenty (20) days after the
receipt of notice from the Company, to elect to have included in such
registration such of their Registrable Shares as such Holders may request in
such notice of election. Upon receipt of the Demand and all such elections, the
Company shall (subject to Section 1.3 hereof), as expeditiously as possible, use
-----------
its best efforts to effect the registration, on the appropriate form of
Registration Statement, of all of the Registrable Shares submitted by the
Holders electing to participate in the proposed registration; provided, however,
-------- -------
that nothing in this Section 1.2 shall obligate the Company to effect a
-----------
Registration Statement to register a number of Registrable Shares that would
have an aggregate offering price to the public of less than Five Million Dollars
($5,000,000). The Holders shall have the right to have the Company effect (a)
two (2) Demands of Registrable Shares pursuant to this Section 1.2; provided
----------- --------
that such Demands shall be at least twelve (12) months apart or (b) if the
Company is eligible to register its securities on Form S-3 (or any successor
form), an unlimited number of Demands pursuant to this Section 1.2; provided
that such Demands shall be at least one hundred twenty (120) days apart.
1.3 Registration Process.
--------------------
(a) Notwithstanding any provision in this Agreement to the
contrary, if the Board of Directors of the Company determines in its reasonable
judgment, at the time it receives a request to register Registrable Shares
pursuant to Section 1.2, that (i) there shall be an adverse effect on a then
-----------
contemplated Public Offering of the Company's securities, (ii) the registration
and offering would interfere with any material financing, acquisition, corporate
reorganization or other material corporate transaction or development involving
the Company that is pending or imminent, (iii) the disclosures that would be
required to be made by the Company in connection with such registration would be
materially harmful to the Company because of transactions then being considered
by, or other events then concerning, the Company, or (iv) registration at the
time would require the inclusion of pro forma or other information, which
requirement the Company is reasonably unable to comply with without incurring
material expense, and the Company promptly gives each Holder, in the case of any
registration statement referred to in Section 1.2, notice of that determination
-----------
(it being understood, however, that in any such event, the Company shall use
best efforts to minimize the length of the postponement), then the Company may
defer the filing of the registration statement which is required to effect any
registration pursuant to Section 1.2 for a reasonable period of time, but not in
-----------
excess of ninety (90) calendar days. If the Company shall so postpone the
filing of a registration statement, the Holders, in the case of any registration
statement referred to in Section 1.2, shall have the right to withdraw their
-----------
request to register the Registrable Shares by giving written notice to the
Company within thirty (30) days after the receipt of the notice of the
postponement and, in the event of the withdrawal, the demand that was withdrawn
shall not be deemed to have been made.
(b) An offering or filing of a registration statement will not
count as a Demand until the registration statement has become effective (for
Public Offerings only) and the firm commitment underwriting or purchase
agreement with respect to the Demand has been
3
<PAGE>
executed and delivered by all parties thereto, and such registration statement
remains continuously effective for the lesser of (i) the period during which all
Registrable Shares registered in the Demand are sold, and (ii) one hundred
eighty (180) days; provided that if, after a Registration Statement for a
--------
Public Offering has become effective or after the firm commitment underwriting
or purchase agreement with respect to the Demand has been executed and delivered
by all parties thereto, (A) an offering of Registrable Shares is interfered with
by any stop order, injunction or other order or requirement of the Commission or
other governmental agency or court, or (B) the conditions to closing specified
in the underwriting or purchase agreement are not satisfied or waived, then, in
either case, such offering will be deemed not to have been effected and shall
not count as a Demand. The requesting Holders may abandon the Demand at any time
before the filing of the related registration statement with the Commission
without it counting as a Demand and shall retain the demand rights hereunder.
(c) The requesting Holders holding a majority of the Registrable
Shares to be included in the Demand offering (the "Majority Requesting Holders")
shall have the right to select the managing underwriters for the Demand offering
so long as such underwriter is a firm of nationally recognized standing and
reasonably acceptable to the Company.
(d) No securities to be sold for the account of any Person
(including the Company) other than a Requesting Holder shall be included in a
Demand offering unless the managing underwriters shall advise the Requesting
Holders in writing that the inclusion of such securities will not materially and
adversely affect the price (based on a price range acceptable to the Majority
Requesting Holders) or success of the Demand offering (a "Material Adverse
Effect").
1.4 Piggy-Back Registration Rights.
------------------------------
(a) If at any time or from time to time after the Company's
initial Public Offering, the Company shall determine to register any of its
securities for its own account or for any other holder of securities of the
Company (except for registration on Form S-4 or S-8 or any successor or similar
forms), the Company will: (i) promptly (and at least thirty (30) days prior to
the anticipated filing date) give the Holders written notice thereof (which
shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and (ii) include in such registration (and any related
qualification under blue sky laws or other compliance solely in such
jurisdictions) and in any underwriting involved therein, all the Registrable
Shares specified in a written request or requests made by the Holders within
thirty (30) days after receipt of such written notice from the Company, except
as set forth in Section 1.4(b) below.
--------------
(b) The right of the Holders to registration pursuant to Section
-------
1.4(a) shall be conditioned upon the Holders' participation in the underwriting
- ------
and the inclusion of the Holders' Registrable Shares in the underwriting to the
extent provided herein. The Holders electing to have Registrable Shares
included in the offering and the Company shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for
such underwriting by the Company. The Company shall, and shall use its best
efforts to cause the underwriters to, permit each Holder who has requested to
participate in the offering to include such Holder's Registrable Shares in such
offering on the same terms and conditions as the securities of the Company
included therein. Notwithstanding any other provision of this Section 1.4, if,
-----------
in the opinion of the underwriter, the underwriter determines in good faith that
4
<PAGE>
marketing factors require a limitation of the number of shares to be
underwritten, the underwriter may limit the number of Registrable Shares to be
included in the registration and underwriting. The Company shall so advise all
Holders and the Company will include in such registration, to the extent of the
number which the Company is so advised can reasonably be expected to be sold in
(or during the time of) such offering, (i) first, all securities proposed by the
Company to be sold for its own account, (ii) then, shares requested to be
included in such registration by shareholders with piggyback registration rights
which (x) by their terms take priority over the piggyback registration rights
granted hereunder and (y) have been granted with the prior written consent of
the Required Holders, (iii) then, the Registrable Shares requested to be
included in such registration by the Holders pursuant to this Agreement and
shares requested to be included in such registration by shareholders with
piggyback registration rights which by their terms are pari pasu with the rights
granted hereunder, pro rata among all such selling shareholders on the basis of
the estimated aggregate gross proceeds from the sale thereof, and (iv) finally,
other securities to be sold by holders, pro rata among all sellers on the basis
of the estimated aggregate gross proceeds from the sale thereof. To facilitate
the allocation of shares in accordance with the foregoing provision, the Company
may round the number of shares allocated to any Holder or other shareholder to
the nearest ten (10) shares. If any of the Holders disapproves of the terms of
any such underwriting, he may elect to withdraw therefrom by written notice to
the Company and the underwriter.
1.5 Holdback.
--------
(a) If any Holder or Holders shall have declined to include any
of their Registrable Shares in a Registration Statement filed pursuant to
Section 1.2 or Section 1.4 and in any event with respect to the Company's
- ----------- -----------
initial Public Offering, such Holder or Holders agree now, and agree to sign
such supplemental agreements as the managing underwriter shall request, that
they will not effect any public sale or distribution of any shares of Common
Stock (other than those, if any, being sold pursuant to the Registration
Statement) until one hundred twenty (120) days after the effective date of such
Registration Statement, or such longer period, not to exceed one hundred eighty
(180) days, as may be requested by the managing underwriter.
(b) The Company agrees not to effect any sale or distribution of
any securities similar to those being offered, or any securities convertible
into or exchangeable or exercisable for such securities, during the fourteen
(14) days prior to, and during the ninety (90) day period beginning on, the date
of any final offering circular or other offering material which includes
Registrable Shares (unless such sale or distribution is pursuant to such
Registration Statement or the Holders of a majority of the shares of Registrable
Shares to be included in such offering consent).
1.6 Registration Procedures. In connection with the offering of
-----------------------
Registrable Shares pursuant to Section 1.2 or Section 1.4 hereof, the Company
----------- -----------
shall keep each Holder advised in writing as to the initiation of such
registration and as to the completion thereof. At its expense, the Company
will:
(a) prepare and file with the Commission the requisite
Registration Statement to effect such registration and thereafter keep the
Registration Statement effective for a period of one hundred eighty (180) days
or until the Holder or Holders have completed the distribution described in the
Registration Statement relating thereto, which first occurs;
5
<PAGE>
(b) furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request;
(c) furnish at least five (5) business days before filing a
registration statement that registers such Registrable Shares, a prospectus
relating thereto and any amendments or supplements relating to such a
registration statement or prospectus, to one counsel selected by the holders of
a majority of Registrable Shares to be included in such registration (the
"Investor Counsel"), and copies of all such documents proposed to be filed (it
being understood that such five (5) business day period need not apply to
successive drafts of the same document proposed to be filed so long as such
successive drafts are supplied to such counsel in advance of the proposed filing
by a period of time that is customary and reasonable under the circumstances);
(d) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of up to one hundred eighty (180) days and to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement until 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;
(e) enter into such agreements (including underwriting agreements
in the managing underwriter's customary form) as are reasonably required in
order to expedite or facilitate the disposition of the Registrable Shares;
(f) notify each Holder of Registrable Shares covered by such
registration at any time when a prospectus relating thereto is required to be
delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing;
(g) use best efforts to obtain the withdrawal of any order
suspending or withdrawing the authorization for an offering, the effectiveness
of a registration statement, or the lifting of any suspension of the
qualification (or exemption from qualification) of any of the Registrable Shares
for sale in any jurisdiction, at the earliest practicable moment;
(h) use best efforts to register or qualify such Registrable
Shares as promptly as practicable under such other securities or blue sky law of
such jurisdictions as the Holders or managing underwriters reasonably (in light
of the intended plan of distribution) request and do any and all other acts and
things which may be reasonably necessary or advisable to enable such selling
Holders or managing underwriters to complete the disposition in such
jurisdiction of the Registrable Shares owned by such selling Holders; provided
--------
that the Company will not be required to (i) qualify generally to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 1.6(h), (ii) subject itself to taxation in any such jurisdiction,
--------------
(iii) consent to service of process in any such jurisdiction (other than with
respect to matters relating to the registration), or (iv) undertake compliance
with substantive requirements of the blue sky law or regulations (other than the
primary jurisdiction in which the
6
<PAGE>
Demand offering is requested to be made) that are unreasonably burdensome or
onerous, including escrow requirements;
(i) use its best efforts to furnish, on the date that such
Registrable Shares are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters and to the
Holders requesting registration of the Registrable Shares and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
addressed to the underwriters and to the Holders requesting registration of the
Registrable Shares;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission;
(k) provide and cause to be maintained a transfer agent and
registrar for all Registrable Shares covered by such registration statement from
and after a date not later than the effective date of such registration
statement;
(l) list such Registrable Shares on any national securities
exchange or Nasdaq on which any shares of the Common Stock are listed or quoted
or, if the Common Stock is not listed on a national securities exchange or
quoted on Nasdaq, use its best efforts to qualify such Registrable Shares for
inclusion on such national securities exchange as the holders of a majority of
such Registrable Shares shall request;
(m) use best efforts to cause such Registrable Shares and the
Demand offering to be registered with or approved by such other governmental
agencies, authorities, and board of directors and stockholders of the Company to
enable the selling Holders thereof to complete the disposition of such
Registrable Shares;
(n) enter into customary agreements in customary form (including
an underwriting or purchase agreement) and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of such
Registrable Shares; and
(o) make available for inspection by a representative Holder
designated in writing to the Company by the Majority Requesting Holders (the
"Representative"), any underwriter participating in any disposition pursuant to
such registration statement and any attorney, accountant or other professional
designated by the Representative or underwriter (collectively, the
"Inspectors"), all financial and other records, pertinent corporate documents
and properties of the Company and its subsidiaries (collectively, the "Records")
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility; cause the Company's officers, directors, examiners, accountants,
attorneys, employees and subsidiaries to supply all information reasonably
requested by any such Inspectors in connection with such Registration Statement,
and cooperate and assist in the performance of any due diligence investigation
by any underwriter, including any qualified independent underwriter, or any
selling Holder (notwithstanding the forgoing, the Company shall have no
obligation to disclose a Record
7
<PAGE>
to the Inspectors if the Company reasonably determines that such disclosure is
reasonably likely to have an adverse effect on the Company's ability to assert
the existence of any attorney-client privilege with respect thereto).
1.7 Suspension of Dispositions. Following the effectiveness of any
--------------------------
Registration Statement pursuant to this Agreement, the Company may, at any time,
suspend the effectiveness of such Registration Statement and sales thereunder
for up to sixty (60) days, as appropriate (a "Suspension Period"), by giving
notice to each Holder (or underwriter, if any) selling thereunder, if the
Company shall have determined that the Company is required to disclose any
material corporate development which disclosure (i) could be reasonably expected
to have a material adverse effect on the Company, (ii) could be reasonably
expected to have a material adverse effect on the transaction or matter to be
disclosed, or (iii) would be detrimental to the Company or its stockholders.
Notwithstanding the foregoing, no more than two (2) Suspension Periods (i.e.,
----
one hundred and twenty (120) days) may occur in immediate succession, and the
Company shall use its best efforts to limit the duration and number of any
suspension periods. The Holder agrees (and shall require that any underwriter
agree) that, upon receipt of any notice from the Company of any Suspension
Period, the Holder shall forthwith discontinue disposition of shares covered by
the Registration Statement or prospectus until such Holder (i) is advised in
writing by the Company that the use of the applicable prospectus may be resumed,
(ii) has received copies of a supplemental or omitted prospectus, if applicable,
and (iii) has received copies of any additional or supplemental filings which
are incorporated or deemed to be incorporated by reference in such prospectus.
No Registration Statement will be considered effective during any Suspension
Period for purposes of any provision of this Agreement that relates to the time
period for which a Registration Statement shall remain effective.
1.8. Registration Expenses. All Registration Expenses incurred in
---------------------
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, whether or not such
registration becomes effective, and all Selling Expenses shall be borne by the
Holder, whether or not such registration becomes effective.
8
<PAGE>
1.9. Indemnification; Contribution.
-----------------------------
(a) The Company will indemnify and hold harmless to the full
extent permitted by the law each Holder, each of its officers, directors,
agents, underwriters, attorneys, accountants and employees of each Holder, and
each person controlling the Holder, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, against all claims, losses, damages liabilities and expenses (or
actions in respect thereof) arising out of, based on or related to any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus or other offering materials, (including, without limitation, any
related Registration Statement, notification or the like) relating to any such
registration, qualification or compliance, or arising out of, based on or
related to any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any state
securities law or in either case, any rule or regulation thereunder applicable
to the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance, and will
reimburse each Holder, each of its officers, directors, agents, underwriters,
attorneys, accountants and employees of each Holder, and each person controlling
such Holder, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of, is based on or related to any untrue statement or omission based
upon written information furnished to the Company by the Holder and stated to be
specifically for use therein.
(b) The Company may require, as a condition to including any
Registrable Shares in any registration statement filed pursuant to Section 1.2
-----------
or Section 1.4, that the Company shall have received an undertaking reasonably
-----------
satisfactory to the Company from the Holder of such Registrable Shares to
indemnify and hold harmless to the full extent permitted by the law the Company,
each of its directors, officers, agents, attorneys, accountants and Company
employees and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act and the rules
and regulations thereunder, each other shareholder (if any), and each of their
officers, directors and partners, and each person controlling such other
shareholder against all claims, losses, damages, liabilities and expenses (or
actions in respect thereof) arising out of based on or related to any untrue
statement (or alleged untrue statement) of a material fact contained in any such
Registration Statement, prospectus, offering circular or other document, or any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statement therein not misleading, and
will reimburse the Company and such other shareholders and their directors,
officers, agents, attorneys, accountants and Company employees and partners,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating and defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by the Holder and stated to be specifically for use
therein, and provided that the maximum amount for which the Holder shall be
liable under this indemnity shall not exceed the net proceeds received by the
Holder from the sale of the Registrable Shares.
9
<PAGE>
(c) Each party entitled to indemnification under this Section 1.9 (the
-----------
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim in any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Article except to the extent
that the Indemnifying Party is materially and adversely affected by such failure
to provide notice. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and litigation resulting therefrom.
(d) Contributions. If the indemnification provided for in this
-------------
Agreement shall for any reason be unavailable or insufficient to an indemnified
party under this Section 1.9 in respect of any loss, claim, damage or liability,
-----------
or any action in respect thereof, or referred to therein, then each indemnifying
party shall, in lieu of indemnifying such party, contribute to the amount paid
or payable by such indemnified party as a result of such loss, claim, damage or
liability, or action in respect thereof, in such proportion as shall be
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the holders of the Registrable Shares included in the offering on
the other hand, from the offering of the Registrable Shares and (ii) the
relative fault of the Company on the one hand and the holders of the Registrable
Shares included in the offering on the other, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the holders of the
Registrable Shares on the other with respect to such offering shall be deemed to
be in the same proportion as the sum of the total Subscription Price paid to the
Company in respect of the Registrable Shares plus the total net proceeds from
the offering of the securities (before deducting expenses) received by the
Company bears to the amount by which the total net proceeds from the offering of
the securities (before deducting expenses) received by the holders of the
Registrable Shares with respect to such offering exceeds the Subscription Price
paid to the Company in respect of the Registrable Shares and in each case the
net proceeds received from such offering shall be determined as set forth on the
table of the cover page of the prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by the Company or the holders of
the Registrable Shares the intent of the parties and their relative knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The Company and the holders of the Registrable Shares agree that it
would not be just and equitable if contribution pursuant to this Section 1.9
-----------
were to be determined by pro rata allocation or by any other method of
allocation which does not take into account the equitable considerations
referred to herein.
10
<PAGE>
The amount paid or payable by an indemnified party as a result of the loss,
claim, damage or liability, or action in respect thereof, referred to in this
Section 1.9 shall be deemed to include, for purposes of this Section 1.9 any
- ----------- -----------
legal or other expenses reasonably incurred by such indemnified party in
connection with investigating or defending any such action or claim. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation.
1.10. Survival. The indemnity agreements contained in Section 1.9
-------- -----------
shall remain operative and in full force and effect regardless of (i) any
termination of the Agreement or any underwriting agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on behalf
of the Company and (iii) the consummation of the sale or successive resales of
the Registrable Shares.
1.11. Information by the Holder. Each Holder shall furnish to the
-------------------------
Company such information regarding such Holder and the distribution proposed by
such Holder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Agreement.
1.12 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may permit the
sale of the Common Stock to the public without registration, the Company agrees
to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
following the effective date of the initial Public Offering.
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934 (the "1934 Act"); and
(c) So long as any Holder owns any Common Stock, furnish to the
Holder, as appropriate, forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of the Securities
Act and the 1934 Act, a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents so filed as any Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
2. Miscellaneous.
-------------
2.1 Transfer of Certain Rights. The rights granted to the Holders
--------------------------
under this Agreement to register the Registrable Shares may be transferred by
the Holders to a transferee of any of the Registrable Shares. As a condition to
a transfer of the rights granted to the Holders under this Agreement, such
transferee shall deliver to the Company a written instrument by which such
transferee agrees to be bound by the applicable provisions of this Agreement.
11
<PAGE>
2.2 Amendments. Except as otherwise provided in this Agreement, the
----------
terms and provisions of the Agreement may not be modified or amended except in a
writing executed by the Company and the Required Holders. Waivers and
exceptions to the requirements and limitations of the covenants hereof may be
given, and shall be effective if given in writing by the Required Holders.
Notice of any waiver or amendment shall be promptly provided to any Holder not
consenting to such waiver or amendment. No waivers of or exceptions of any
term, condition or provision of this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
2.3 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
2.4 Headings. The headings of the sections, subsections, and
--------
paragraphs of this Agreement have been added for convenience only and shall not
be deemed to be a part of this Agreement.
2.5 Notices. All notices and other communications provided for or
-------
permitted hereunder shall be made by hand delivery or registered first class
mail:
(a) If to the Purchasers, to the address and numbers set forth
next to the name of each Purchaser on Schedule 1 of the Purchase Agreement.
----------
(b) If to another Holder of Registrable Shares, at the most
current address or addresses provided to the Company by such Holder;
(c) If to the Company:
NET-tel Communications, Inc.
1023 31st Street, N.W.
Washington, D.C. 20007
Attention: Craig Bandes
Senior Vice President
Tel: (202) 295-6600
Fax: (202) 965-4154
2.6 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, without regard to
principles of conflicts of law.
2.7 Entire Agreement; Severability. This Agreement, the Purchase
------------------------------
Agreement and the other documents delivered pursuant thereto constitute the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and no party shall be liable or bound to any other in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein. In the event one or more of the
provisions of this Agreement should, for any reason, be held to be invalid,
illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein.
12
<PAGE>
[Signature page follows.]
13
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Registration Rights
Agreement as of the date set forth on the first page hereof.
COMPANY:
NET-TEL COMMUNICATIONS, INC.
By: /s/ James F. Kenefick
______________________________
Name: James F. Kenefick
Title: President
EXISTING STOCKHOLDERS:
/s/ James F. Kenefick
_________________________________
James F. Kenefick
WILLIAMS COMMUNICATIONS, INC.
By: /s/ James W. Dutton
______________________________
Name: James W. Dutton
Title: Vice President
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
______________________________
Name: Walt Anderson
Title: Attorney-in-Fact
14
<PAGE>
PURCHASERS:
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
______________________________
Name: Walt Anderson
Title: Attorney-in-Fact
NORTEL NETWORKS INC.
By: /s/ Jay R. Prestipino
______________________________
Name: Jay R. Prestipino
Title: Director, Customer Finance
ALLIED CAPITAL CORPORATION
By: /s/ Thomas Aiken
______________________________
Name: Thomas Aiken
Title: Associate
August 2, 1999
15
<PAGE>
SCHEDULE 1 (as amended August 2, 1999)
--------------------------------------
PURCHASERS
1. Gold & Appel Transfer, S.A. 1023 31st Street, N.W.
Washington, D.C. 20007
Attn: Walter Anderson, Attorney in Fact
2. Nortel Networks Inc. GSM 991 15 A40
2221 Lakeside Boulevard
Richardson, TX 75082
Attn: Vice President, Customer Finance
3. Allied Capital Corporation 1919 Pennsylvania Avenue, N.W., 3rd Floor
Washington, D.C. 20037
Attn: Scott S. Binder, Principal
Thomas H. Aiken
16
<PAGE>
Exhibit 4.8.1
FIRST AMENDMENT TO
REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO REGISTRATION RIGHTS AGREEMENT (this
"Amendment") dated as of April 20, 2000 (the "Effective Date"), by and among
NETTEL COMMUNICATIONS, INC., a Delaware corporation (the "Company"), JAMES F.
KENEFICK ("Kenefick"), GOLD & APPEL TRANSFER, S.A. ("G&A") and WILLIAMS
COMMUNICATIONS, INC., a Delaware corporation ("Williams," and together with
Kenefick and G&A, the "Existing Stockholders"), those certain persons and
entities listed as a Series B Purchaser on Schedule 1 of this Amendment, (each a
----------
"Series B Purchaser" and collectively, the "Series B Purchasers") and those
certain persons and entities listed as a Series C Purchaser on Schedule 1 of
----------
this Amendment (each a "Series C Purchaser," collectively, the "Series C
Purchasers" and together with the Series B Purchasers, the "Purchasers").
WHEREAS, the Company entered into that certain Securities Purchase
Agreement by and among the Company and certain of the Series B Purchasers (the
"Series B Purchase Agreement"), dated as of July 23, 1999 and amended on August
2, 1999, which provided for the issuance of shares of the Company's Series B
Convertible Preferred Stock (the "Series B");
WHEREAS, the Company entered into that certain Registration Rights
Agreement by and among the Company, the Existing Stockholders and the Series B
Purchasers (the "Registration Rights Agreement"), dated as of July 23, 1999 and
amended on August 2, 1999;
WHEREAS, the Company is simultaneously entering into the Securities
Purchase Agreement dated as of the Effective Date by and among the Company and
the Series C Purchasers (as amended from time to time, the "Series C Purchase
Agreement"), which provides for the Company's issuance of shares of the
Company's Series C Convertible Preferred Stock (the "Series C," and together
with the Series B, the "Preferred Stock");
WHEREAS, as an inducement to the Series C Purchasers to enter into the
Series C Purchase Agreement, the Company agreed to provide to the Series C
Purchasers certain registration rights with respect to the Common Stock of the
Company which may be acquired by the conversion of the Preferred Stock subject
to the terms and conditions of the Registration Rights Agreement;
WHEREAS, the parties desire to amend the Registration Rights Agreement
to include the Series C and the Series C Purchasers;
WHEREAS, Section 2.2 of the Registration Rights Agreement provides for
amendments in a writing signed by the Company and the Required Holders; and
WHEREAS, capitalized terms used herein without definition shall have
the meanings given to such terms in the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the parties hereto agree as follows:
1
<PAGE>
1. The definitions of the Registration Rights Agreement hereby shall be amended
as follows:
(a) "Preferred Stock" shall have the meaning ascribed to such term in this
Amendment.
(b) "Purchaser" and "Purchasers" shall have the meanings ascribed to such terms
in this Amendment.
2. Schedule I of the Registration Rights Agreement is hereby deleted in its
----------
entirety and replaced with Schedule I to this Amendment.
----------
3. Except as otherwise provided in this Amendment, the Registration Rights
Agreement remains unchanged and in full force and effect, and references to the
"Agreement" contained in the Registration Rights Agreement shall for all
purposes be deemed to refer to the Registration Agreement as amended by this
Amendment.
4. The Registration Rights Agreement, as amended herein, constitutes the entire
understanding and agreement among the parties hereto with respect to the subject
matter hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, express or implied, oral or written,
among the parties hereto except as herein and therein contained.
5. This Amendment may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument, and a facsimile signature shall be deemed and original.
[Signature page follows.]
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this First Amendment to
Registration Rights Agreement as of the date set forth on the first page hereof.
COMPANY:
NETTEL COMMUNICATIONS, INC.
By: /s/ James F. Kenefick
--------------------------
Name: James F. Kenefick
Title: CEO
EXISTING STOCKHOLDERS:
/s/ James F. Kenefick
_____________________________________
James F. Kenefick
WILLIAMS COMMUNICATIONS, INC.
By: /s/ Gordon C. Martin, Jr.
--------------------------
Name: Gordon C. Martin, Jr.
Title: SVP, Global Network Svcs.
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
--------------------------
Name: Walt Anderson
Title: Attorney-in-Fact
3
<PAGE>
SERIES B PURCHASERS:
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
--------------------------
Name: Walt Anderson
Title: Attorney-in-Fact
NORTEL NETWORKS INC.
By: /s/ Mitchell L. Stone
--------------------------
Name: Mitchell L. Stone
Title: Director
ALLIED CAPITAL CORPORATION
By: /s/ Scott S. Binder
--------------------------
Name: Scott S. Binder
Title: Principal
4
<PAGE>
SERIES C PURCHASERS:
ALLIED CAPITAL CORPORATION
By: /s/ Scott S. Binder
--------------------------
Name: Scott S. Binder
Title: Principal
FOUNDATION FOR THE INTERNATIONAL NON-GOVERNMENTAL
DEVELOPMENT OF SPACE
By: /s/ Walt Anderson
--------------------------
Name: Walt Anderson
Title: President
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
--------------------------
Name: Walt Anderson
Title: Attorney-in-Fact
NORTEL NETWORKS INC.
By: /s/ Mitchell L. Stone
--------------------------
Name: Mitchell L. Stone
Title: Director
WILLIAMS COMMUNICATIONS, INC.
By: /s/ Gordon C. Martin Jr.
--------------------------
Name: Gordon C. Martin Jr.
Title: SVP, Global Network Svcs.
5
<PAGE>
SCHEDULE 1
----------
SERIES B PURCHASERS
<TABLE>
<CAPTION>
<S> <C> <C>
1. Gold & Appel Transfer, S.A. 1023 31st Street, N.W.
Washington, D.C. 20007
Attn: Walter Anderson, Attorney in Fact
2. Nortel Networks Inc. GSM 991 15 A40
2221 Lakeside Boulevard
Richardson, TX 75082
Attn: Vice President, Customer Finance
3. Allied Capital Corporation 1919 Pennsylvania Avenue, N.W., 3rd Floor
Washington, D.C. 20037
Attn: Scott S. Binder, Principal
Thomas H. Aiken, Principal
</TABLE>
SERIES C PURCHASERS
<TABLE>
<S> <C> <C>
1. Gold & Appel Transfer, S.A. 1023 31st Street, N.W.
Washington, D.C. 20007
Attn: Walter Anderson, Attorney in Fact
2. Nortel Networks Inc. GSM 991 15 A40
2221 Lakeside Boulevard
Richardson, TX 75082
Attn: Vice President, Customer Finance
North America
3. Allied Capital Corporation 1919 Pennsylvania Avenue, N.W., 3rd Floor
Washington, D.C. 20037
Attn: Scott S. Binder, Principal
Thomas H. Aiken, Principal
4. Foundation for the c/o: Walt Anderson
International Non-Governmental 1023 31st Street, N.W.
Development of Space Washington, D.C. 20007
5. Williams Communications, Inc. One Williams Center
Suite 4100
Tulsa, OK 74172
Attn: S. Miller Williams, Vice President
Lisa Manning, Esq.
</TABLE>
6
<PAGE>
Exhibit 4.9
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is entered into as
of July 23, 1999 (the "Effective Date"), by and among NET-TEL COMMUNICATIONS,
INC., a Delaware corporation (the "Company") and certain persons and entities
listed on the signature page to this Agreement hereto, as such Schedule may be
amended to add persons purchasing up to an additional 647 shares of Series B (as
defined below) (each a "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company has issued to the Purchasers 5,821.47 shares of
the Company's Series B Convertible Preferred Stock (the "Series B Preferred
Stock");
WHEREAS, the Company and the Purchasers desire to enter into this
Agreement in order to provide for certain rights and responsibilities as set
forth herein; and
WHEREAS, capitalized terms used in this Agreement shall have the
meaning ascribed to them in Section 4 hereof.
---------
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
1. RIGHT OF First Refusal; Right of CO-SALE
1.1 Transfers by Purchasers
Except as permitted by Section 1.2, f any of the Purchasers desires to
accept an offer to buy its Series B Preferred Stock (any such Person a
"Selling Person") (except as permitted by Section 1.2), the Selling
Person shall deliver a written notice (the "Sale Notice") to the
(other) Purchasers, at least ten (10) business days prior to the
proposed sale, which such notice shall specify the terms and
conditions upon which the proposed sale is intended to be consummated.
The (other) Purchasers shall have the option to either exercise a
right of first refusal by purchasing such offered Series B Preferred
Stock, or to participate in such sale as co-sellers, either way in the
manner hereinafter set forth. To exercise either option, any
interested Purchaser(s) shall give written notice (the "Participation
Notice") of their election to either exercise a right of first
refusal, or participate in such sale as co-sellers, to the Selling
Person within ten (10) business days after receipt of the Sale Notice.
Thereupon, each of the Purchasers shall have the right to either
purchase the offered Series B Preferred
<PAGE>
Stock upon the same terms and conditions specified in the Sale Notice
pro rata with the other interested Purchasers, or to sell their Series
B Preferred Stock to the proposed purchaser upon the same terms and
conditions specified in the Sale Notice, pro rata with the Selling
Person and all other Purchasers delivering a Participation Notice
based upon the then current holdings of equity securities of the
Company, on a fully diluted basis, of the Selling Person and all such
Purchasers delivering a Participation Notice; provided, however, that
-----------------
notwithstanding any other provision of this Section 1.1, no Selling
Person shall be required to sell to any interested Purchaser(s)
exercising a right of first refusal hereunder unless the Selling
Person receives timely Participation Notices containing subscriptions
for all of the shares of Series B Preferred Stock proposed to be sold
pursuant to the Sale Notice in which case the Selling Person and any
Purchaser exercising a co-sale right shall sell to the interested
Purchaser in accordance with this Section 1.1. In the event a Selling
Person receives one or more Participation Notices requesting co-sale,
the number of Series B Preferred Stock to be sold by the Selling
Person (whether sold pursuant to the Sale Notice or to interested
Purchasers pursuant to a Purchase Notice) shall be reduced, pro rata
as described above, by the Series B Preferred Stock to be sold by such
Purchasers. If any of the Purchasers exercise either such option, it
shall bear its pro rata portion of expenses incident to such sale.
Failure by the any of the Purchasers to exercise the option within the
ten (10) business day period shall be deemed a declination of any
right of such Purchaser to participate in such sale, provided that
such sale is completed within ninety (90) days of expiration of such
ten (10) business day period at a price and on terms and conditions
substantially similar to those set forth in the Sale Notice. Failure
to meet the foregoing conditions shall require a new Sale Notice and
right of first refusal and/or right of co-sale with respect to such
sale. Notwithstanding any other provision of this Agreement, no sale
may be made to any Person who is not a Purchaser, unless such Person
executes a joinder agreement in a form satisfactory to the Company and
becomes a "Purchaser" under this Agreement.
1.2 Excluded Transfers
Any Purchaser may transfer its Series B Preferred Stock without
compliance with Section 1.1, upon at least five (5) business days prior written
notice of such transfer to the Company (a) to an Affiliate of such Purchaser or
(b) in the case of a Purchaser who is a lender to the Company or a Subsidiary
under a credit facility, to any Person who is an assignee or participant in all
or a portion of the loans under such credit facility; provided, that any such
--------
transferee shall execute a joinder agreement in a form reasonably satisfactory
to the Company pursuant to which such transferee becomes a "Purchaser" under
this Agreement.
-2-
<PAGE>
1.3 Transfers by James F. Kenefick
If James F. Kenefick or any of his Affiliates (any such person a
"Founder") desires to accept an offer to buy any equity securities of the
Company which are owned by such Founder (except in a Kenefick Excluded Transfer
(as defined below), such Founder shall deliver a Sale Notice to the
Purchasers, at least ten (10) business days prior to the proposed sale, which
such notice shall specify the terms and conditions upon which the proposed sale
is intended to be consummated. The (other) Purchasers shall have the option to
either exercise a right of first refusal by purchasing such offered equity
securities, or to participate in such sale as co-sellers, either way in the
manner hereinafter set forth. To exercise either option, any interested
Purchaser(s) shall give a "Participation Notice" of their election to either
exercise a right of first refusal, or participate in such sale as co-sellers, to
the transferring Founder within ten (10) business days after receipt of the Sale
Notice. Thereupon, each of the Purchasers shall have the right to either
purchase the offered equity securities upon the same terms and conditions
specified in the Sale Notice, pro rata with the other interested Purchasers, or
to sell their Series B Preferred Stock to the proposed purchaser upon the same
terms and conditions specified in the Sale Notice, pro rata with the
transferring Founder and all other Purchasers delivering a Participation Notice
based upon the then current holdings of equity securities of the Company, on a
fully diluted basis, of such transferring Founder and all such Purchasers
delivering a Participation Notice; provided, however, that notwithstanding any
-----------------
other provision of this Section 1.2, the transferring Founder shall not be
required to sell to any interested Purchaser(s) exercising a right of first
refusal hereunder unless the transferring Founder receives timely Participation
Notices containing subscriptions for all of the shares of Series B Preferred
Stock proposed to be sold pursuant to the Sale Notice in which case the Selling
Person and any Purchaser exercising a co-sale right shall sell to the interested
Purchaser in accordance with this Section 1.1. In the event the transferring
Founder receives one or more Participation Notices requesting co-sale, the
number of equity securities to be sold by the transferring Founder (whether sold
pursuant to the Sale Notice or to interested Purchasers pursuant to a Purchase
Notice) shall be reduced, pro rata as described above, by the Series B Preferred
Stock to be sold by such Purchasers. If any of the Purchasers exercise either
such option, it shall bear its pro rata portion of expenses incident to such
sale. Failure by the any of the Purchasers to exercise the option within the
ten (10) business day period shall be deemed a declination of any right of such
Purchaser to participate in such sale, provided that such sale is completed
within ninety (90) days of expiration of such ten (10) business day period at a
price and on terms and conditions substantially similar to those set forth in
the Sale Notice. Failure to meet the foregoing conditions shall require a new
Sale Notice and right of first refusal and/or right of co-sale with respect to
such sale. For purposes of this Section 1.3, a "Kenefick Excluded Transfer"
means a transfer of equity securities (a) pursuant to the applicable laws of
descent and distribution, (b) to or among Mr. Kenefick's family group (which
shall include his parents, siblings, spouse, descendants, whether natural or
adopted, and any trust established or maintained for the benefit of any of the
foregoing), or (c) made as a charitable contribution; provided, however, that
any such transferee described in clause (a) or (b) shall execute a joinder
agreement in a form satisfactory to the Company agreeing to be bound by the
provisions of this Section 1.3 as a "Founder".
-3-
<PAGE>
2. ADDITIONAL COVENANTS OF THE COMPANY
From and after the date hereof, the Company hereby covenants and agrees
with the Purchasers as follows:
2.1. Books and Records.
The Company shall, and shall cause its Subsidiaries to, keep and
maintain adequate and proper books and records of account, in which complete
entries are made in accordance with generally accepted accounting principles
consistently applied and in accordance with all applicable laws, rules, and
regulations, reflecting all financial and other transactions of the Company and
its Subsidiaries normally or customarily included in books and records of
account of companies engaged in the same or similar businesses and activities as
the Company and its Subsidiaries.
2.2. Access and Examination Rights.
Upon the reasonable request of the Purchasers, the Company shall
permit the Purchasers and any agents or representatives of the Purchasers to
visit and inspect the properties of the Company and its Subsidiaries, to examine
and make abstracts from any of the books and records of the Company and its
Subsidiaries (including agreements, licenses, and similar documents) at any
reasonable time and as often as the Purchasers or such agents or representatives
may reasonably request, and to discuss the business, operations, prospects,
Assets and condition (financial or otherwise) of the Company and its
Subsidiaries with any of the officers, directors, employees, agents, or
representatives of the Company and its Subsidiaries; provided, however, that
-------- -------
such rights of access and examination shall be subject to such security,
confidentiality and safety rules and regulations as the Company and its
Subsidiaries may have in effect from time to time that are applicable to all
visitors to its facilities and to applicable Laws, including those applying to
classified material and facilities.
2.3. Financial and Business Information.
The Company shall furnish to the Purchasers:
(a) as soon as available and in any event within one hundred twenty
(120) days after the end of each fiscal year of the Company, a copy of the
audited balance sheet of the Company as of the end of such fiscal year and the
related audited statements of income, stockholders' equity, and changes in
financial condition for such fiscal year, all prepared in reasonable detail, and
certified by
-4-
<PAGE>
independent certified public accountants of recognized national standing as
presenting fairly the financial position of the Company and approved by the
Board of Directors, including footnotes and setting forth in comparative form
the corresponding figures for the corresponding period of the preceding fiscal
year and the figures for such period set forth in the operating plan and budget
delivered by the Company;
(b) as soon as available and in any event within sixty (60) days after
the end of each fiscal quarter of the Company (other than the last quarter of
each fiscal year) in the case of quarterly statements and within thirty (30)
days after the close of each month of each fiscal year in the case of monthly
statements, a copy of the unaudited balance sheet of the Company as of the end
of such quarter or month and the related unaudited statements of income,
stockholders' equity, and changes in financial condition of the Company for the
periods commencing at the end of the previous quarter or month and ending at the
end of such quarter or month and commencing at the beginning of the fiscal year
and ending at the end of such quarter or month, in each case including footnotes
and setting forth in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year and, with respect to monthly
statements only, the figures for such period set forth in the operating plan and
budget delivered by the Company; and
(c) promptly after the sending or filing thereof, copies of all
financial statements and reports that the Company sends to its stockholders or
any third party lender of the Company (including, without limitation, any
financial statements and reports sent to a lender under the Senior Secured
Credit Facility.
2.4. Observer.
Any Purchaser holding at least 2,000 shares of Series B Preferred
Stock, and so long as such Purchaser continues to beneficially own at least
2,000 of Series B Preferred Stock or Common Stock, may designate one person to
serve as an observer (an "Observer"). Except in cases where attendance at
meetings or receipt of information would cause the attorney-client privilege
between the Company and its counsel to be adversely affected or in cases in
which the Board of Directors is considering a contract between the Company and
one or more of the Purchasers or one of their Affiliates or in which the
Purchasers or one of their Affiliates has a financial interest, an Observer
shall be entitled (i) to receive the same notice in respect of all meetings
(both regular and special) of the Board of Directors and each committee thereof
as required to be furnished to members of the Board of Directors of such
committee by law or by the certificate of incorporation or the bylaws of the
Company, (ii) to attend all meetings of the Board of Directors and each
committee thereof, and (iii) to receive all information and reports which are
furnished to members of the Board of Directors and each committee thereof
(including the Audit Committee and Compensation Committee) at the time so
furnished. An Observer may share any information gained from presence at such
meetings with the Purchaser
-5-
<PAGE>
that designated such Observer and such Purchaser's employees, officers,
directors, attorneys and advisors (collectively, the "Purchaser's
Representatives") solely on a need-to-know basis, but such information shall
otherwise be kept confidential by the Observer, Purchaser and Purchaser's
Representatives to the same extent that financial information or other
confidential information with regard to the Company is required to be kept
confidential in accordance with Section 3.1.
-----------
2.5. Reserve for Conversion Shares.
-----------------------------
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, for the purpose of
effecting the conversion of the Series B Preferred Stock and otherwise
complying with the terms of this Agreement, such number of its duly
authorized shares of Common Stock as shall be sufficient to effect the
conversion of the Series B Preferred Stock from time to time outstanding or
otherwise to comply with the terms of this Agreement. If at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of the Series B Preferred Stock or
otherwise to comply with the terms of this Agreement, the Company will take
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes. The Company will obtain any authorization,
consent, approval or other action by or make any filing with any court or
administrative body that may be required under applicable state securities
laws in connection with the issuance of shares of Common Stock upon
conversion of the Series B Preferred Stock.
2.6. Rule 144A Information. The Company shall, at all times during
---------------------
which it is neither subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b)
under the Exchange Act, provide in writing, upon the written request
of the Purchasers or a prospective buyer of the Series B Preferred
Stock or shares of Common Stock issued upon conversion of the Series B
Preferred Stock from the Purchasers, all information required by Rule
144A(d)(4)(i) of the General Regulations promulgated by the Securities
Exchange Commission under the Securities Act ("Rule 144A
Information"). The Company's obligations under this Section 2.6 shall
-----------
at all times be contingent upon the Purchasers obtaining from the
prospective buyer of Series B Preferred Stock or shares of Common
Stock issued upon conversion of the Series B Preferred Stock a written
agreement to take all reasonable precautions
-6-
<PAGE>
to safeguard the Rule 144A Information from disclosure to anyone other
than a person who will assist such buyer in evaluating the purchase of
any Series B Preferred Stock or of Common Stock issued upon conversion
of the Series B Preferred Stock, and the Requesting Purchaser agrees
that it may be held strictly liable and fully responsible for any
damages suffered by the Company as a result of a disclosure of the
Rule 144 Information by any such person.
2.7 Restricted Corporate Actions. The Company will not, without
----------------------------
the vote or written approval of the holders of 66 2/3% of the
outstanding Series B Preferred Stock, take any of the following
actions:
1. engage in any business outside the Telecommunications Business .
For purposes of this Section 2.7 and as otherwise used in this
Agreement, "Telecommunications Business" shall mean the business
of (i) transmitting, or providing services relating to the
transmission of , voice, data or video through owned or leased
transmission facilities, (ii) constructing, creating, developing
or marketing communications-related network equipment, software
and other devices for use in, or performing, developing or
marketing services related to, a telecommunications business, or
(iii) evaluating, participating or pursuing any other activity
or opportunity that is primarily related to those referred to in
clauses (i) or (ii) above;
2. make any loans to any employees, officers or directors of the
Company in the ordinary course of business that exceed
$1,000,000 in aggregate amount at any time outstanding, other
than commission advances and travel or miscellaneous cash
advances in the ordinary course of business and loans to
employees seeking to exercise stock options issued pursuant to
any of the Plans, the proceeds of which are used to exercise
such options; or
3. enter into any business arrangement or agreement (other than a
stock option, stock purchase or similar agreement with respect
to Employee Stock) with any officer, director or affiliate of
the Company on terms less favorable to the Company than an arms-
length transaction.
4. Enter into any registration rights agreement granting
registration rights to any person which are senior in any
respect to the registration rights of the holders of the Series
B Preferred Stock.
3. COVENANTS OF THE PURCHASERS.
3.1. Confidentiality.
Purchasers will, and will cause their Affiliates, Observers and
Purchaser's Representatives to, treat and hold as confidential all of
the Confidential Information, refrain from using any of the
Confidential
-7-
<PAGE>
Information except in connection with this Agreement, and following
the disposition by Purchaser of its Series B Preferred Stock, deliver
promptly to the Company or destroy, at the request and option of the
Company, all tangible embodiments of the Confidential Information
which are in its possession; provided that nothing herein shall
---------
prevent any Purchaser from disclosing such information (a) to any
other Purchaser, (b) upon the order of any court or administrative
agency, (c) which has been publicly disclosed, (d) in connection with
any litigation to which such Purchaser may be a party, (e) to the
extent reasonably required in connection with the exercise of any
right or remedy under the Loan Documents, (f) to such Purchaser's
legal counsel and independent auditors, and (g) to any actual or
proposed Transferee all or part of its Series B stock, so long as such
actual or proposed Transferee agrees to be bound by the provisions of
this Section 3.1.
------------
4. RESTRICTIONS ON TRANSFER
------------------------
4.1. The Series B Preferred Stock may only be transferred in accordance
with applicable securities laws and Section 1 of this Agreement. The Company
may, as a condition to any such transfer, require an opinion of counsel from
counsel to any such transferor, that such transfer has been made in accordance
with applicable securities laws. Each of the Purchasers acknowledges and agrees
that the stock certificate(s) evidencing the Series B Preferred Stock shall
contain a legend regarding the transfer restrictions set forth in this
Agreement.
5. DEFINITIONS
Capitalized terms used in this Agreement shall have the meaning ascribed to
them as follows:
"Affiliate(s)" means: (a) with respect to a 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" has the meaning set forth in the Preamble to this
Agreement.
-8-
<PAGE>
"Assets" means assets of every kind and everything that is or may be
available for the payment of liabilities (whether inchoate, tangible or
intangible), including, without limitation, real and personal property.
"Board of Directors" means the board of directors of the Company.
"Common Stock" means the Company's common stock, par value $.0001 per
share.
"Company" has the meaning set forth in the Preamble to this Agreement.
"Confidential Information" means the Company's confidential and
proprietary information, in written, oral or other tangible or intangible forms,
including, but is not limited to, financial or furnished to a Purchaser whether
other information regarding the business plans and strategies, including,
without limitation, ideas, strategies, memorandums, know-how, data, reports,
interpretations, financial statements and forecasts, together with all notes,
analyses, compilations, studies, interpretations or other documents prepared by
the Purchaser or its agents or representatives which contain, reflect or are
based upon, in whole or in part, the information furnished by the Company .
"Control" means possession, directly or indirectly, of power to direct
or cause the direction of management or policies (whether through ownership of
voting securities, by contract or otherwise).
"Employee Stock" has the meaning set forth in Section 7(e)(i)(2) of
the Series B Certificate.
"Participation Notice" has the meaning set forth in Section 1.
---------
"Person" or "person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"Purchase Agreement" means that certain Securities Purchase Agreement
dated as of the Effective Date by and between the Company, Gold & Appel
Transfer, S.A. and Nortel Networks Inc.
"Purchasers" has the meaning set forth in the Preamble to this
Agreement.
"Sale Notice" has the meaning set forth in Section 1.
---------
"Senior Secured Credit Facility" means a credit facility with a third
party lender(s) which permits the Company to borrow up to at least $50 million
dollars, and pursuant to which such lender(s) are granted a first priority
-9-
<PAGE>
perfected security interest in Assets of the Company as security for the
repayment of such borrowings.
"Series B Certificate" means the Certificate of Designations,
Preferences and Rights of Series B Convertible Preferred Stock filed with the
Secretary of State of the State of Delaware, as amended from time to time.
"Series B Preferred Stock" means the Company's Series B Convertible
Preferred Stock, par value $0.0001 per share.
"Selling Person" has the meaning set forth in Section 1.
---------
"Subsidiary" of any person means any corporation, partnership, joint
venture or other legal entity of which such person (either alone or through or
together with any other Subsidiary) (i) owns, directly or indirectly, fifty
percent (50%) or more of the stock, partnership interests or other equity
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation,
partnership, joint venture or other legal entity; or (ii) possesses, directly or
indirectly, control over the direction of management or policies of such
corporation, partnership, joint venture or other legal entity (whether through
ownership of voting securities, by agreement or otherwise).
6. MISCELLANEOUS
6.1. Assignment.
Except as expressly contemplated elsewhere in this Agreement no party
hereto shall assign this Agreement, in whole or in part, whether by operation of
law or otherwise, unless the other party consents in writing. Any purported
assignment of this Agreement contrary to the terms hereof shall be null and void
and of no force and effect.
6.2. Entire Agreement; Amendment.
This Agreement constitutes the entire agreement among the parties
hereto with respect to the matters provided for herein, and it supersede all
prior oral or written agreements, commitments or understandings with respect to
the matters provided for herein. This Agreement may not be amended without the
written consent of the Company and the Purchasers holding sixty-six and two-
thirds percent (66 2/3%) of the Series B Preferred Stock.
-10-
<PAGE>
6.3. Waiver.
No delay or failure on the part of any party hereto in exercising any
right, power or privilege under this Agreement or under any other instruments
given in connection with or pursuant to this Agreement shall impair any such
right, power or privilege or be construed as a waiver of any default or any
acquiescence therein. 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. No waiver shall be
valid against any party hereto unless made in writing and signed by the party
against whom enforcement of such waiver is sought and then only to the extent
expressly specified therein.
6.4. No Third Party Beneficiaries.
It is the explicit intention of the parties hereto that no person or
entity other than the parties hereto is or shall be entitled to bring any action
to enforce any provision of this Agreement against any of the parties hereto,
and 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 or their respective successors, heirs, executors, administrators, legal
representatives and permitted assigns.
6.5. Binding Effect.
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.
6.6. Governing Law.
This Agreement, the rights and obligations of the parties hereto, and
any claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the State of Delaware (excluding the choice of law
rules thereof).
6.7. 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 hand-delivered or
mailed by first-class, registered or certified mail, return receipt requested,
postage prepaid, or transmitted by telegram, telecopy, facsimile transmission or
telex, addressed as follows:
-11-
<PAGE>
(a) If to the Purchasers, to the address and numbers set forth next to
the name of each Purchaser on Schedule 1 of the Purchase Agreement.
----------
(b) If to the Company:
NET-tel Communications, Inc.
1023 31st Street, N.W.
Washington, D.C. 20007
Attention: Craig Bandes
Senior Vice President
Tel: (202) 295-6600
Fax: (202) 965-4154
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,
mailed transmitted, telecopied or telexed in the manner described above, or
which shall be delivered to a telegraph company, 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, the delivery receipt, or
the answerback being deemed conclusive, but not exclusive, evidence of such
delivery) or at such time as delivery is refused by the addressee upon
presentation.
6.8. Execution in Counterparts.
To facilitate execution, this Agreement may be executed in as many
counterparts as may be required; and it shall not be necessary that the
signatures of, or on behalf of, each party, or that the signatures of all
persons required to bind any party, appear on each counterpart; but it shall be
sufficient that the signature of, or on behalf of, each party, or that the
signatures of the persons required to bind any party, appear on one or more of
the counterparts. All counterparts shall collectively constitute a single
agreement. It shall not be necessary in making proof of this Agreement to
produce or account for more than a number of counterparts containing the
respective signatures of, or on behalf of, all of the parties hereto.
6.9. Termination.
This Agreement shall terminate in its entirety and be of no further
force and effect upon the occurrence of a "Qualified Offering" (as defined in
Section 8 (a) of the Series B Certificate or a "Sale" (as defined in Section
5(b) of the Series B Certificate.
-12-
<PAGE>
6.10. Additional Purchaser(s).
In the event of a Subsequent Issuance (as defined in the Purchase
Agreement), any purchaser of Series B Preferred Stock shall be deemed to be a
"Purchaser" under this Agreement and shall execute a joinder agreement in a form
which is satisfactory to the Company or become a signatory to this Agreement.
[The remainder of this page intentionally left blank.]
-13-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Investor
Rights Agreement, or have caused this Investor Rights Agreement to be duly
executed on their behalf, as of the day and year first hereinabove set forth.
COMPANY:
NET-TEL COMMUNICATIONS, INC.
By: /s/ James F. Kenefick
---------------------------
Name: James F. Kenefick
--------------------------
Title: President
-------------------------
PURCHASERS:
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
----------------------------
Name: Walt Anderson
---------------------------
Title: Power of Attorney in Fact
-------------------------
WILLIAMS COMMUNICATIONS, INC.
By: /s/ James W. Dutton
----------------------------
Name: James W. Dutton
--------------------------
Title: Vice President
-------------------------
ALLIED CAPITAL CORPORATION NORTEL NETWORKS INC.
By: /s/ Thomas H. Aiken By: /s/ Jay R. Prestipino
----------------------- -----------------------------
Name: Tom Aiken Name: Jay R. Prestipino
--------------------- ----------------------------
Title: Associate Title: Director, Customer Finance
-------------------- --------------------------
Dated: August 2, 1999
The undersigned agrees to be bound by Section 1.3 of this Agreement.
/s/ James F. Kenefick
----------------------------
James F. Kenefick
-14-
<PAGE>
Exhibit 4.9.1
FIRST AMENDMENT TO
INVESTOR RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO INVESTOR RIGHTS AGREEMENT (this "Amendment")
is entered into as of April 20, 2000 (the "Effective Date"), by and among NETtel
COMMUNICATIONS, INC., a Delaware corporation (the "Company"), GOLD & APPEL
TRANSFER, S.A., WILLIAMS COMMUNICATIONS, INC., NORTEL NETWORKS, INC. AND ALLIED
CAPITAL CORPORATION (each a "Series B Purchaser" and collectively, the "Series B
Purchasers") and certain persons and entities listed on the signature page to
the Series C Purchase Agreement (as defined below) (each a "Series C Purchaser"
and collectively, the "Series C Purchasers" and together with the Series B
Purchasers, the "Purchasers" and each, a "Purchaser").
WHEREAS, the Company entered into that certain Securities Purchase
Agreement by and among the Company and certain of the Series B Purchasers dated
as of July 23, 1999 and amended on August 2, 1999 (the "Series B Purchase
Agreement") pursuant to which the Company issued to certain of the Series B
Purchasers certain shares of the Company's Series B Convertible Preferred Stock,
par value $.0001 per share (the "Series B Preferred Stock");
WHEREAS, the Company entered into that certain Investor Rights
Agreement by and among the Company and the Series B Purchasers dated as of July
23, 1999 and amended on August 2, 1999 (the "Investor Rights Agreement"), which
provided for certain rights and responsibilities as set forth therein;
WHEREAS, the Company has issued shares of the Company's Series C
Convertible Preferred Stock, par value $.0001 per share (the "Series C Preferred
Stock" and together with the Series B Preferred Stock, the "Preferred Stock") to
the Series C Purchasers pursuant to that certain Securities Purchase Agreement
dated as of the Effective Date by and among the Company and the Series C
Purchasers (the "Series C Purchase Agreement");
WHEREAS, the parties desire to amend the Investor Rights Agreement to
include the Series C Preferred Stock and the Series C Purchasers in the
definition of "Purchasers" as set forth in the introduction herein and to
provide for certain rights and responsibilities as set forth in the Investor
Rights Agreement;
WHEREAS, Section 6.2 of the Investor Rights Agreement provides for
amendments in a writing signed by the Company and sixty-six and two-thirds
percent of the Series B Purchasers; and
WHEREAS, capitalized terms used herein without definition shall have
the meanings given to such terms in the Investor Rights Agreement.
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto agree
as follows:
<PAGE>
1. All references to "Series B Preferred Stock" in the Investor Rights
Agreement are deleted in their entirety and are hereby replaced with the
term "Preferred Stock," as such term is defined in this Amendment; provided,
--------
however, that the foregoing shall not apply to Section 2.4 of the Investor
-------
Rights Agreement, which shall retain its reference to "Series B Preferred
Stock" and shall retain its original intent; provided further, that the
-------- -------
foregoing shall not apply to the definition of "Series B Preferred Stock"
set forth in Section 5 of the Investor Rights Agreement.
2. The first sentence of Section 2.4 is hereby deleted in its entirety and is
replaced with the following:
"The following Purchasers may designate one person to serve as an
observer (an "Observer"): (i) any Purchaser holding at least 2,000 shares of
Series B Preferred Stock, and so long as such Purchaser continues to
beneficially own at least (a) 2,000 shares of Series B Preferred Stock or (b)
2,000,000 shares of Common Stock issued on conversion of Series B Preferred
Stock, and (ii) Allied Capital Corporation ("Allied"), until the later of the
expiration of (A) the period during which the aggregate of the following totals
at least $10,000,000: (a) the balance outstanding under Term Loan B Facility
pursuant to that certain Credit Agreement by and among NET-tel Corporation, a
wholly-owned subsidiary of the Company (the "Operating Subsidiary"), Nortel
Networks Inc. and the lenders named therein, dated as of July 28, 1999, as
amended from time to time, owed by the Operating Subsidiary to Allied; (b) the
stated value of the shares of Series B Preferred Stock held by Allied; and (c)
the stated value of the shares of Series C Preferred Stock held by Allied or (B)
the Lock-up Period. As used herein "Lock-up Period" shall mean that specified
period of time following an initial public offering by the Company pursuant to
which certain stockholders of the Company are prohibited by the managing
underwriter of such initial public offering from transferring or disposing of
certain capital stock of the Company.
3. Section 6.7(a) is hereby deleted in its entirety and is replaced with the
following:
"(a) If to the Purchasers, to the addresses and numbers set forth next to
the name of each Purchaser on Schedule 1 hereto."
----------
4. The Investor Rights Agreement is hereby amended to include the Schedule 1
----------
attached hereto.
5. Except as otherwise provided in this Amendment, the Investor Rights
Agreement remains unchanged and in full force and effect, and references to
the "Agreement" contained in the Investor Rights Agreement shall for all
purposes be deemed to refer to the Investor Agreement as amended by this
Amendment.
6. The Investor Rights Agreement, as amended hereby, constitutes the entire
understanding and agreement among the parties hereto with respect to the
subject matter hereof, and supersedes all prior and contemporaneous
agreements and understandings, inducements or conditions, express or
implied, oral or written, among the parties hereto except as herein and
therein contained.
-2-
<PAGE>
7. This Amendment may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument, and a facsimile signature shall be deemed and original.
[The remainder of this page intentionally left blank.]
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Amendment
to Investor Rights Agreement, or have caused this First Amendment to Investor
Rights Agreement to be duly executed on their behalf, as of the day and year
first hereinabove set forth.
COMPANY:
NETTEL COMMUNICATIONS, INC.
By: /s/ James F. Kenefick
------------------------
Name: James Kenefick
-----------------------
Title: CEO
----------------------
PURCHASERS:
ALLIED CAPITAL CORPORATION
By: /s/ Scott S. Binder
------------------------
Name: Scott S. Binder
-----------------------
Title: Principal
----------------------
FOUNDATION FOR THE INTERNATIONAL NON-
GOVERNMENTAL DEVELOPMENT OF SPACE
By: /s/ Walt Anderson
-------------------------
Name: Walt Anderson
-----------------------
Title: President
---------------------
GOLD & APPEL TRANSFER, S.A.
By: /s/ Walt Anderson
------------------------
Name: Walt Anderson
-----------------------
Title: Attorney-in-fact
---------------------
NORTEL NETWORKS INC.
By: /s/ Mitchell L. Stone
------------------------
Name: Mitchell L. Stone
----------------------
Title: Director
---------------------
<PAGE>
WILLIAMS COMMUNICATIONS, INC.
By: Gordon C. Martin, Jr.
---------------------------
Name: Gordon C. Martin
-------------------------
Title: SVP, Global Network Svcs
------------------------
The undersigned agrees to be bound by the changes to Section 1.3 of
the Investor Rights Agreement as provided in this Amendment.
James F. Kenefick
------------------------------
James F. Kenefick
<PAGE>
Schedule 1
----------
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Name Address
<S> <C>
- -------------------------------------------------------------------------------
Allied Capital Corporation 1919 Pennsylvania Avenue, N.W. (Third
Floor)
Washington, D.C. 20006
- -------------------------------------------------------------------------------
Foundation for the International C/o: Walter Anderson
Non-Governmental Development of 1023 I Street, NW
Space Washington, DC 20007
- -------------------------------------------------------------------------------
Gold & Appel Transfer, S.A. Omar Hodge Building
Wickhams Cay
Road Town, Tortula
British Virgin Islands
- -------------------------------------------------------------------------------
Nortel Networks Inc. GSM 991 15 A40
2221 Lakeside Boulevard
Richardson, TX 75082
- -------------------------------------------------------------------------------
Williams Communications, Inc. One Williams Center
Suite 4100
Tulsa, OK 74172
- -------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 4.10
FORM OF
NET-TEL LONG-TERM INCENTIVE PLAN
ARTICLE I
Purpose of the Plan and Definitions
Section 1.1 Purpose. The purpose of the NET-tel Long-Term Incentive Plan (the
-------
"Plan") is to enable employees, officers, directors of, and consultants and
vendors to, NET-tel Communications, Inc., a Delaware corporation (the
"Company"), and its subsidiaries to (i) own shares of stock in the Company, (ii)
participate in the growth in shareholder value of the Company, (iii) have a
mutuality of interest with shareholders of the Company, and (iv) enable the
Company and its subsidiaries to attract, retain and motivate employees,
officers, directors and consultants and vendors of a particular merit.
Section 1.2 Definitions. For the purposes of the Plan, capitalized terms not
-----------
otherwise defined herein shall have the meanings set forth below:
"Award" means any Option, SAR, Restricted Stock, Stock granted as a bonus or in
lieu of other awards, other Stock-Based Awards, Tax Bonus or other cash payments
granted to a Participant under the Plan.
"Board" means the Board of Directors of the Company.
"Change in Control" means when (i) any "person" as such term is used in Sections
13(d) and 14(d) of the Exchange Act, other than the Company, an affiliate (as
defined in Rule 12b-2 under the Exchange Act) of the Company or any employee
benefit plan of the Company or any Subsidiary (including any trustee of such
plan acting as trustee), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act) directly or indirectly of securities of the
Company representing more than 50% of the combined voting power of the Company's
then outstanding securities, (ii) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation, other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation (including, without
limitation, an entity that as a result of that transaction owns the Company or
all or substantially all of the Company's assets either directly or through one
or more subsidiaries), or (iii) the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one or more transactions) all or substantially
all of the Company's assets.
<PAGE>
"Code" means the Internal Revenue Code of l986, as amended from time to time,
and any successor thereto.
"Consultant" means any independent consultant hired to provide consulting,
technical, business, or other professional services to the Company or any
Subsidiary.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means the fair market value of the Stock as determined by
the Committee in good faith determined by such methods or procedures (including
over such periods) as shall be established from time to time by the Committee in
good faith and in accordance with applicable law and the best available facts
and circumstances at the time. Unless otherwise determined by the Committee,
the Fair Market Value of Stock shall mean the closing sales price of Stock on
the relevant date as reported on the stock exchange or market on which the Stock
is primarily traded, or the Fair Market Value is the closing sales price of the
Stock averaged over the 45 preceding days on which such sales were made, as
reported on the stock exchange or market on which the Stock is primarily traded.
"Incentive Stock Option" or "ISO" means any Stock Option granted under this Plan
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
"Non-Qualified Stock Option" means any Stock Option that is not an Incentive
Stock Option.
"Stock Option" means the right granted to a Participant pursuant to the Plan to
purchase Stock at a specified price during specified times periods. A Stock
Option may be either as ISO or a Non-Qualified Stock Option.
"Participant" means any employee, officer or director of the Company or any
Subsidiary or Consultant or Vendor whom the Committee has selected to
participate in the Plan and to whom an Award is granted pursuant to the Plan.
"Restricted Stock" means Stock granted to a Participant pursuant to this Plan
that is subject to restrictions on transferability and to a substantial risk of
forfeiture.
"Stock" means the common stock, $ .0001 par value, of the Company.
"Stock-Based Award" means a right that may be denominated or payable in, or
valued in whole or in part by reference to the market value of, Stock,
including, but not limited to, any Stock Option, SAR, Restricted Stock, Stock
granted as a bonus or in lieu of cash obligations.
"Stock Appreciation Right" or "SAR" means the right granted to a Participant to
be paid an amount in cash and/or shares of Stock equal to the increase in the
Fair Market Value of Stock from the date such SAR was granted until the date the
SAR was exercised.
2
<PAGE>
"Subsidiary" shall mean any corporation during any period in which it is a
"subsidiary corporation" (as defined in Section 424(f) of the Code) of the
Company, and any other corporation, partnership, joint venture, business trust
or other entity which is, directly or indirectly, controlled by, in control of,
or is commonly controlled with, the Company.
"Tax Bonus" means a payment in cash in the year in which an amount is included
in the gross income of a Participant in respect of an Award of an amount equal
to the federal, foreign, if any, and applicable state and local income and
employment tax liabilities payable by the Participant as a result of (i) the
amount included in gross income in respect of the Award and (ii) the payment of
the amount in clause (i) and the amount in this clause (ii). For purposes of
determining the amount to be paid to the Participant pursuant to the preceding
sentence, the Participant shall be deemed to pay federal, foreign, if any, and
state and local income taxes at the highest marginal rate of tax imposed upon
ordinary income for the year in which an amount in respect of the Award is
included in gross income, after giving effect to any deductions therefrom or
credits available with respect to the payment of any such taxes.
"Vendor" means any vendor or supplier of goods, including hardware, software,
programming or technical support or other products, to the Company or any
Subsidiary.
Except where otherwise indicated by the Plan context, any masculine terminology
used herein also shall include the feminine and vice versa, and the definition
of any term herein in the singular shall also include the plural and vice versa.
ARTICLE II
Administration of the Plan
Section 2.1 Administration of the Plan. The Plan shall be administered by the
--------------------------
Compensation Committee of the Board ("Committee"), but if at any time no
Committee shall be in office, then the Board shall exercise all of the functions
of the Committee specified in the Plan.
Section 2.2 Authority of the Committee. Subject to the limitations and terms of
--------------------------
the Plan, the Committee shall have the sole and complete authority to:
(a) select from among the employees, officers and directors of, and
Consultants and Vendors to, the Company and its Subsidiaries, the
persons to whom Awards may from time to time be granted hereunder;
(b) determine whether and to what extent any Award or any combination of
Awards are to be granted to each Participant hereunder, without any
obligation to treat any similarly situated Participants in a similar
manner;
(c) determine the number of shares of Stock to be covered by each such
Award granted hereunder;
(d) determine the terms and conditions, not inconsistent with the terms of
the Plan, of any Award granted hereunder, including, but not limited
to, the option or exercise price, the vesting schedule and any
restrictions or limitations, based upon such
3
<PAGE>
factors as the Committee shall determine, in its sole discretion,
without any need for uniformity among such Awards or in any Award
agreements;
(e) determine whether and under what circumstances a Stock Option, SAR or
Stock-Based Award may be exercised and settled in cash or Stock or
without a payment of cash;
(f) determine whether, to what extent and under what circumstances Stock
and other amounts payable with respect to an Award shall be deferred
either automatically or at the election of the Participant;
(g) amend the terms of any outstanding Award (with the consent of the
Participant) to reflect terms not otherwise inconsistent with the
Plan, including amendments concerning vesting acceleration or
forfeiture waiver regarding any Award or the extension of a
Participant's right with respect to Awards granted under the Plan as a
result of termination of employment or service or otherwise, based on
such factors as the Committee shall determine, in its sole discretion;
(h) adopt, alter and repeal such administrative rules, guidelines and
practices governing the Plan as it shall, from time to time, deem
advisable;
(i) interpret the terms and provisions of the Plan and any Award (and any
agreements relating thereto) and correct any defect or omission of
reconcile any inconsistency in the Plan or in any Award granted
thereunder; and
(j) otherwise supervise the administration of the Plan.
Section 2.3 Finality of Decisions by the Committee. All decisions made by the
--------------------------------------
Committee pursuant to the provisions of the Plan shall be final and binding on
all persons, including the Company, any Subsidiary, shareholders and
Participants. In exercising, or declining to exercise, any grant of authority
or discretion hereunder, the Committee may consider or ignore such factors or
circumstances and may accord such weight to such factors and circumstances as
the Committee alone and in its sole judgment deems appropriate and without
regard to the affect such exercise, or declining to exercise such grant of
authority or discretion, would have upon the affected Participant, any other
Participant, any employee, the Company, any Subsidiary, any shareholder or any
other person.
ARTICLE III
Stock Subject to the Plan
Section 3.1 Stock Subject to the Plan. The aggregate number of shares of Stock
-------------------------
available for the grant of Awards under the Plan from time to time shall equal
1,699,000 shares of Stock.
4
<PAGE>
No Award may be granted if the number of shares to which such Award relates,
when added to the number of shares previously issued under the Plan and the
number of shares which may then be acquired pursuant to other outstanding,
unexercised Awards, exceeds the number of shares of Stock then available for
issuance pursuant to the Plan. If any shares of Stock subject to an Award are
forfeited or such Award is settled in cash or otherwise terminates for any
reason whatsoever without an actual distribution of shares of Stock to the
Participant, any shares of Stock counted against the number of shares of Stock
available for issuance pursuant to the Plan with respect to such Award shall, to
the extent of any such forfeiture, settlement, or termination, again be
available for Awards under the Plan; provided, however, that the Committee may
adopt procedures for the counting of shares of Stock relating to any Award to
ensure appropriate counting, avoid double counting, and provide for adjustments
in any case in which the number of shares of Stock actually distributed differs
from the number of shares previously counted in connection with such Award.
Section 3.2 Adjustments. If any change is made to the Stock, whether by reason
-----------
of merger, consolidation, reorganization, recapitalization, stock dividend,
stock-split, combination of shares, or exchange of shares or any other change in
capital structure made without the receipt of consideration such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of Participants under the Plan, then the Committee shall, in such manner
as it may deem equitable (including by eliminating any fractional shares),
adjust any or all of (i) the number and kind of shares of Stock which may
thereafter be issued in connection with Awards and the maximum amount of Awards,
(ii) the number and kind of shares of Stock issuable in respect of outstanding
Awards, (iii) the aggregate number and kind of shares of Stock available under
the Plan, (iv) the exercise price, grant price, or purchase price relating to
any Award or, if deemed appropriate, make provision for a cash payment with
respect to any outstanding Award; provided, however, in each case, that no
adjustment shall be made which would cause the Plan to violate Section 422(b)(1)
of the Code with respect to ISOs.
ARTICLE IV
Awards and Grants
Section 4.1 Eligibility. Employees and officers of the Company or any
-----------
Subsidiary, members of the Board, Consultants, and Vendors who are responsible
for, or contribute to, the management, growth and/or profitability of the
Company shall be eligible to be granted Awards under the Plan.
Section 4.2 Awards Under the Plan. The Committee shall have the authority to
---------------------
grant Awards pursuant to the terms of the Plan. The Committee may impose on any
Award or the exercise thereof, at the date of grant or thereafter (subject to
Section 9.2), such additional terms and
5
<PAGE>
conditions, not inconsistent with the provisions of the Plan, as the Committee
shall determine, including terms requiring forfeiture of Awards in the event of
termination of employment by the Participant; provided, however, that the
Committee shall retain full power to accelerate or waive any such additional
term or condition it may have previously imposed. All Awards shall be evidenced
by an Award agreement in such form as the Committee may from time to time
approve.
Section 4.3 Maximum Amounts of Awards. The aggregate number of shares of Stock
-------------------------
that may be granted to any one individual in any calendar year as Awards under
the Plan shall not exceed [600,000] shares, as such number shall be adjusted
pursuant to Section 3.2 hereof. In addition, the maximum number of shares of
Stock that shall be available for Awards as ISOs under the Plan shall not exceed
1,699,000 shares of Stock, the maximum number of shares of Stock that shall be
available for Awards as Restricted Stock under the Plan shall not exceed
1,699,000 shares of Stock, the maximum number of shares of Stock that shall be
available for Awards as SARs under the Plan shall not exceed 1,699,000 shares of
Stock and the maximum number of shares of Stock that shall be available for
Awards as Stock-Based Awards under the Plan shall not exceed 1,699,000 shares of
Stock, in each case as such number shall be adjusted pursuant to Section 3.2
hereof.
ARTICLE V
Stock Options
Section 5.1 Awards of Stock Options. Stock Options may be granted alone, in
-----------------------
addition to, or in tandem with other Awards granted under the Plan. Stock
Options granted under the Plan may be Incentive Stock Options or Non-Qualified
Stock Options; provided, however, that only persons who are officers or key
employees of the Company or any "subsidiary corporation" (as defined in Section
424(f) of the Code) of the Company may be granted Stock Options which are
intended to constitute ISOs.
Section 5.2 Option Terms. Stock Options granted under the Plan shall be
------------
subject to the following terms and conditions and shall contain such additional
terms and conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem appropriate:
(a) Option Price. The option price per share of Stock purchasable under
------------
any Stock Option shall be determined by the Committee at the time of
grant but shall be not less than 100% of the Fair Market Value of such
Stock at the time such Stock Option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
-----------
Committee, but no Stock Option shall be exercisable more than ten
years after the date the Stock Option is granted. No Option may be
exercised by any person after expiration of the term of the Option.
(c) Exercisability. Stock Options shall be exercisable at such time or
--------------
times and subject to such terms and conditions upon exercisability as
shall be determined by the Committee at or after grant.
(d) Method of Exercise. Stock Options which are exercisable may be
------------------
exercised in whole or in part at any time and from time to time during
the option period by
6
<PAGE>
giving written notice of exercise to the Company specifying the number
of whole shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price in cash, or the Committee, in
its sole discretion, may permit payment with in other forms (including
promissory notes) or over such periods or may accept payment in full
or in part in the form of Stock (with our without requiring such Stock
to have been owned by the Participant for a minimum period) at Fair
Market Value as of the date the Option is exercised, all as specified
by the Committee. No shares of Stock shall be issued until full
payment of the exercise price has been made. A Participant shall not
have any rights to dividends or other rights of a shareholder with
respect to shares subject to the Option until such time as Stock is
issued.
(e) Incentive Stock Options. The terms of any Option granted under the
-----------------------
Plan as an ISO shall comply in all respects with the provisions of
Section 422 of the Code, including, but not limited to, the
requirements applicable to ISOs granted to 10% shareholders.
ARTICLE VI
Stock Appreciation Rights
Section 6.1 Grant and Exercise of Stock Appreciation Rights. Stock
-----------------------------------------------
Appreciation Rights may be granted alone, in addition to, or in tandem with
other Awards granted under the Plan. The exercise price of each Stock
Appreciation Right shall not be less than the Fair Market Value of a share of
Stock as of the date of grant of such Stock Appreciation Right.
Section 6.2 Terms and Conditions. The Committee shall determine the time or
--------------------
times at which an SAR may be exercised in whole or in part, the method of
exercise, the method of settlement, the form of consideration payable in
settlement, the method by which Stock will be delivered or deemed to be
delivered to Participants, whether or not any SAR shall be in tandem with any
other Award, and any other terms and conditions of any SAR.
ARTICLE VII
Restricted Stock
Section 7.1 Awards of Restricted Stock. Shares of Restricted Stock may be
--------------------------
granted alone, in addition to, or in tandem with other Awards issued under the
Plan. The Committee shall determine the time or times at which grants of
Restricted Stock will be made, the number of shares of Stock to be awarded, the
price (if any) to be paid by the recipient of Restricted Stock, the time or
times within which such Restricted Stock may be subject to forfeiture, and all
other conditions relating to the Restricted Stock.
Section 7.2 Restrictions and Conditions. The shares of Restricted Stock
---------------------------
awarded pursuant to the Plan shall be subject to such restrictions and
conditions and shall be forfeitable to the
7
<PAGE>
Company upon termination of employment during the applicable restricted periods
as shall be established by the Committee. During such restricted period, the
Participant shall not be permitted to sell, transfer, pledge, assign or
otherwise encumber the shares of Restricted Stock awarded under the Plan. Within
these limits, the Committee, in its sole discretion, may provide for the lapse
of such restrictions separately or in combination at such times, under such
circumstances, or otherwise, and may accelerate or waive such restrictions in
whole or in part, based on service, performance and/or such other factors or
criteria as the Committee may determine, in its sole discretion.
Section 7.3 Status as Shareholder. Except as provided herein or in the
---------------------
agreement evidencing the Award, the Participant shall have, with respect to the
shares of Restricted Stock, all of the rights of a shareholder of the Company,
including the right to vote the shares, and the right to receive any cash
dividends. The Committee, in its sole discretion, as determined at the time of
Award, may permit or require the payment of cash dividends to be deferred and,
if the Committee so determines, reinvested in additional Restricted Stock to the
extent shares are available under Section 3.1 hereof.
Section 7.4 Certificates for Stock. Restricted Stock granted under the Plan
----------------------
may be evidenced in such manner as the Committee shall determine. If
certificates representing shares of Restricted Stock are registered in the name
of the Participant, such certificates may bear an appropriate legend referring
to the terms, conditions and restrictions applicable to such Restricted Stock.
If and when the restriction period expires without a prior forfeiture of such
Restricted Stock, the certificates for such shares shall be delivered to the
Participant.
ARTICLE VIII
Change in Control
Section 8.1 Impact of Change in Control. In the event of a Change in Control
---------------------------
any Stock Appreciation Rights, or Stock Options awarded under the Plan not
previously exercisable and vested shall become fully vested and exercisable, any
restrictions applicable to any Restricted Stock shall lapse and any shares of
Stock otherwise outstanding under any other Stock-Based Awards which are not
vested or subject to restrictions or limitations shall be deemed fully vested
and such restrictions or limitations shall lapse.
ARTICLE IX
Amendments and Term of the Plan
Section 9.1 Amendments and Termination of The Plan. The Board may amend,
--------------------------------------
alter, suspend or discontinue the Plan at any time and from time to time, but no
amendment, alteration, or discontinuation shall be made which would materially
and adversely impair the rights of a Participant under any Award therefore
granted.
8
<PAGE>
Section 9.2 Amendments of Awards. The Committee may amend the terms of any
--------------------
Award therefore granted and any agreement relating thereto, whether
prospectively or retroactively, but no such amendment shall materially and
adversely impair the rights of any Participant without the Participant's
consent.
Section 9.3 Term of the Plan. No Award under the Plan shall be granted
----------------
pursuant to the Plan on or after the tenth anniversary of the date the Plan is
adopted by the Board, but Awards granted prior to such tenth anniversary shall
be unaffected and may continue to be exercised after that date.
ARTICLE X
Other Awards and Other Terms
Section 10.1 Vesting. In the event the Committee does not establish at the
-------
time of grant of an Award a specific period with respect to the vesting of any
Stock Option or SAR or the period for the lapse of restrictions on Restricted
Stock, such Stock Option or SAR shall vest, or the restrictions applicable to
Restricted Stock shall lapse, in accordance with the following schedule:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------
Anniversary of Date of Grant Percentage of Vesting or Lapse of
Restrictions
- -----------------------------------------------------------------
<S> <C>
0 to 12 Months 0%
- -----------------------------------------------------------------
12 Months 25%
- -----------------------------------------------------------------
18 Months 37.5%
- -----------------------------------------------------------------
24 Months 50%
- -----------------------------------------------------------------
30 Months 62.5%
- -----------------------------------------------------------------
36 Months 75%
- -----------------------------------------------------------------
42 Months 87.5%
- -----------------------------------------------------------------
48 Months 100%
- -----------------------------------------------------------------
</TABLE>
Section 10.2 Loan Provisions. The Committee, subject at all times to laws and
---------------
regulations and other binding obligations or provisions applicable to the
Company, may require the Company or any Subsidiary to make, guarantee, or
arrange for a loan or loans to a Participant with respect to the exercise of any
Option or other payment in connection with any Award, including the payment by a
Participant of any or all federal, state, or local income or other taxes due in
connection with any Award. Subject to such limitations, the Committee shall have
full authority to decide whether to make a loan or loans hereunder and to
determine the amount, terms, and provisions of any such loan or loans, including
the interest rate to be charged in respect of any such loan or loans, whether
the loan or loans are to be with or without recourse against the borrower, the
terms on which the loan is to be repaid and the conditions, if any, under which
the loan or loans may be forgiven.
9
<PAGE>
Section 10.3 Form of Payment. Subject to the terms of the Plan and any
---------------
applicable agreement relating to Awards, payments or transfers to be made by the
Company or a Subsidiary upon the grant or exercise of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards, or other property (and may be made in a single
payment or transfer, in installments, or on a deferred basis), in each case
determined in accordance with rules adopted by, and at the discretion of, the
Committee. (Such payments may include, without limitation, provisions for the
payment or crediting of reasonable interest on installments or deferred
payments.) The Committee, in its discretion, may accelerate any payment or
transfer upon a change in control as defined by the Committee. The Committee may
also authorize payment upon the exercise of a Stock Option by net issuance or
other cashless exercise methods.
Section 10.4 Bonus Stock and Awards in Lieu of Cash Obligations. The Committee
--------------------------------------------------
is authorized to grant Stock as a bonus, or to grant Stock or other Awards in
lieu of Company or Subsidiary obligations to pay cash or deliver other property
under other plans or compensatory arrangements; provided that, in the case of
Participants subject to Section 16 of the Exchange Act, such cash amounts are
determined under such other plans in a manner that complies with applicable
requirements of Rule 16b-3 so that the acquisition of Stock or Awards hereunder
shall be exempt from Section 16(b) liability. Stock or Awards granted hereunder
shall be subject to such other terms as shall be determined by the Committee.
Section 10.5 Other Stock-Based Awards. The Committee is authorized, subject to
------------------------
limitations under applicable law, to grant to Participants such other Stock-
Based Awards in addition to those provided in Articles V, VI, and VII and
Section 10.4 hereof, as deemed by the Committee to be consistent with the
purposes of the Plan. The Committee shall determine the terms and conditions of
such Awards. Stock delivered pursuant to an Award in the nature of a purchase
right granted under this Section 10.5 shall be purchased for such consideration
and paid for at such times, by such methods, and in such forms, including,
without limitation, cash, Stock, other Awards, or other property, as the
Committee shall determine.
Section 10.6 Cash Payments. The Committee is authorized, subject to
-------------
limitations under applicable law, to grant to Participants Tax Bonuses and other
cash payments, whether awarded separately or as a supplement to any Stock-Based
Award. The Committee shall determine the terms and conditions of such Awards.
Section 10.7 Limits on Transferability; Beneficiaries. No Award or other right
----------------------------------------
or interest of a Participant under the Plan shall be pledged, encumbered, or
hypothecated to, or in favor of, or subject to any lien, obligation, or
liability of such Participants to, any party, other than the Company or any
Subsidiary, or assigned or transferred by such Participant otherwise than by
will or the laws of descent and distribution, and such Awards and rights shall
be exercisable during the lifetime of the Participant only by the Participant or
his or her guardian or legal representative. Notwithstanding the foregoing, the
Committee may, in its discretion, provide that Awards or other rights or
interests of a Participant granted pursuant to the Plan (other than an ISO) be
transferable, without consideration, to such persons as may be permitted by the
Committee. The Committee may attach to such transferability feature such terms
and conditions
10
<PAGE>
as it deems advisable. In addition, a Participant may, in the manner established
by the Committee, designate a beneficiary (which may be a person or a trust) to
exercise the rights of the Participant, and to receive any distribution, with
respect to any Award upon the death of the Participant. A beneficiary, guardian,
legal representative or other person claiming any rights under the Plan from or
through any Participant shall be subject to all terms and conditions of the Plan
and any Award Agreement applicable to such Participant, except as otherwise
determined by the Committee, and to any additional restrictions deemed necessary
or appropriate by the Committee.
ARTICLE XI
General Provisions
Section 11.1 Other Arrangements. Nothing contained in this Plan shall prevent
------------------
the Board from adopting other or additional compensation arrangements (subject
to shareholder approval if such approval is required), and such arrangements may
be either generally applicable or applicable only in specific cases.
Section 11.2 No Employment Rights. The adoption of the Plan shall not confer
--------------------
upon any Participant any right to continued employment or other relationship
with the Company or any of its Subsidiaries.
Section 11.3 Tax Withholding. No later than the date as of which an amount
---------------
first becomes includible in the gross income of the Participant for federal
income tax purposes with respect to any Award under the Plan, a Participant who
is an officer or employee of the Company or a Subsidiary shall pay to the
Company or a Subsidiary or make arrangements satisfactory to the Committee
regarding the payment of any federal, state or local income or employment taxes
required in the judgment of the Company to be withheld with respect to such
amount. The Committee, in its discretion, may permit such required withholding
obligations to be settled with Stock, including Stock that is part of the Award
that gives rise to the withholding requirement. The obligations of the Company
under the Plan shall be conditional on such payment or the making of such
arrangements, and the Company to the extent permitted by law shall have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
Section 11.4 Governing Law. The validity, construction and effect of the Plan
-------------
and any agreement hereunder shall be determined in accordance with the laws of
the State of Delaware and applicable federal law.
ARTICLE XII
Effective Date; Approval by Shareholders
Section 12.1 Effective Date. The Plan shall become effective when adopted by
--------------
the Board.
11
<PAGE>
Section 12.2 Approval by Shareholders. The Plan is subject to the approval of
------------------------
the shareholders of the Company at the Company's 2000 annual meeting of its
shareholders, and to the extent that Awards are granted under the Plan prior to
its approval by shareholders, such Awards shall be contingent upon such approval
of the Plan by the shareholders of the Company.
12
<PAGE>
Exhibit 10.1
NET-Tel, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective this 5th day of January, 1998, by
and between, NET-Tel, Inc., (hereinafter referred to as "Corporation") having
its principal place of business at 3050 "K" Street, NW, #250, Washington, DC
20007 and David Lynch (hereinafter referred to as the "Employee") who resides at
917 N. Glenhurst Road, Birmingham, MI 48009.
A. Corporation is engaged in the business of designing, creating, and
marketing telephone services and telephone management and consulting, including
the resale of long distance 1+ service, both domestic and international.
B. Corporation desires to hire the Employee.
C. Employee is willing to be employed by the Corporation.
D. The parties hereto desire to specify the terms of Employee's
employment by Corporation.
Therefore, the parties agree as follows.
1. Term of Employment.
------------------
Corporation hereby employs Employee and Employee accepts
employment with and agrees to serve Corporation, subject to and upon the terms
and conditions of this Agreement. This Agreement shall commence on January 5,
1998 and remain in full force and effect unless and until terminated by either
party pursuant to the provisions in Paragraph 13.
2. Duties.
------
Employee shall be employed by the Corporation as the
President, Direct Sales in such other positions involving comparable
responsibilities as the Chief Executive Officer or the Board of Directors of the
Corporation may designate from time to time. Employee shall perform the duties
normally associated with such position. In addition, Employee shall perform such
other duties as the Corporation shall reasonably assign from time to time.
3. Compensation.
------------
3.1 As compensation for services rendered to the Corporation, the
Corporation shall pay Employee a Base Salary, which on an annualized basis would
be equivalent to $ 150,000. In addition to the Base Salary, Corporation shall
pay Employee quarterly commissions based upon the Direct Sales revenue goals set
forth in Schedule A hereto, plus any other payments or benefits which may be
granted to him specifically or to which he may hereafter be entitled under any
plan or arrangement maintained by the Corporation for its executives, management
employees, or employees
<PAGE>
generally. Employee's Base Salary shall be payable in installments at such
intervals as the Corporation pays the salaries of its management employees
generally, but in no event less frequently than on a monthly basis, and subject
to such deductions and withholdings as are required to be made pursuant to
applicable government laws, rules and regulations. Employee shall also be
eligible for such additional incentive compensation as may be determined by the
Board of Directors from time to time in its sole discretion.
3.2 Employee shall be eligible to participate in any
executive pension plan, benefit plan, or arrangement of the Corporation
applicable to executives, management employees, or employees generally, which
becomes available during the term of Employee's employment
4. Best Efforts.
------------
4.1 Employee agrees to perform faithfully, industriously, and
to the best of Employee's ability, experience, and talents, all of the duties
that may be required by the express and implicit terms of this Agreement, to the
reasonable satisfaction of Corporation. Such duties shall be performed at such
place(s) as the needs, business, or opportunities the Corporation may require
from time to time.
4.2 Employee agrees that so long as this Agreement continues
in effect, Employee shall devote substantially all of his full business time and
energies to the business and affairs of the Corporation, Employee shall use his
best efforts, skills and abilities to promote the Corporation's interests, and
Employee shall perform the duties described in this Agreement and such other
duties as may reasonably be assigned to Employee.
4.3 During the Employee's employment by Corporation, Employee
shall not directly or indirectly, either as owner, partner, shareholder, broker,
dealer, agent, employee or otherwise, engage in any other significant business
activity for gain or profit or other pecuniary advantage; provided, however,
that this section shall not limit or restrict Employee's right to make and have
personal investments in such form or manner that do not require Employee's
active services in the daily operations or affairs of the business in which such
investments are made and do not otherwise conflict with Employee's duties and
obligations to the Corporation.
5. Personal Days.
-------------
5.1 Employee shall be entitled to three (3) weeks (i.e. 15
days) paid personal days days) after he/she has been employed with Corporation
for six months of employment. After the first year of employment, if Employee
continues to be employed by Corporation, Employee will be entitled to three (3)
weeks paid personal days on the anniversary of Employee's date of hire. After
four years of employment, Employee will be entitled to four (4) weeks of paid
personal days on his employment anniversary date.
2
<PAGE>
5.2 At the end of each calendar year, Employee can elect to
have one-half of his unused personal days, up to 10 days, paid to him as a bonus
(based on Employee's Base Salary). Employee can carry over the remainder of his
unused personal days into the following year, but at no time can Employee begin
a new year on January I with more than 20 personal days.
6. Business Expenses.
-----------------
Employee shall be entitled to reimbursement by Corporation for
any ordinary and necessary business expenses incurred by Employee in the
performance of Employee's duties on behalf of the Corporation, provided that:
(a) Each such expenditure is of a nature qualifying it as a
proper deduction on the federal and state income tax returns of Corporation as a
business expense and not as compensation to Employee; and
(b) Employee furnishes to Corporation adequate records and
other documentary evidence as required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation
of such expenditures as a deductible business expense of Corporation.
7. Reimbursement.
-------------
Employee agrees that, if at any time any payment made to
Employee by Corporation as business expense reimbursement shall be disallowed in
whole or in part as a nondeductible expense of Corporation by any taxing
authority, Employee shall reimburse Corporation to the full extent of such
disallowance, with interest thereon at the rate as would be charged by the
Internal Revenue Service for such period from the date of reimbursement by
Corporation until repaid.
8. Stock Options.
-------------
Employee shall be entitled to options to purchase shares of
common stock of the Corporation in accordance with the Corporation's Stock
Incentive Plan.
9. Prohibition on Using Confidential Information.
---------------------------------------------
9.1 Employee recognizes and acknowledges that Confidential
Information (defined below) is a valuable and unique asset of NET-tel, access to
and knowledge of which is essential to the performance of the Employee' duties
to NET-tel. Except as required to perform the services required under this
Agreement, Employee shall not, during his employment or any time thereafter,
disclose, in whole or in part, such Confidential Information to any person,
firm, corporation, association, or other entity for any reasons or purpose
whatsoever, or make use of such Confidential Information for his own purposes or
for the benefit of such person or other entity (except NET-tel), under any
circumstances.
3
<PAGE>
9.2 Employee shall, prior to or upon leaving NET-tel, deliver
to NET-tel any and all records, items, media of any type (including all partial
or complete copies or duplicates) containing or otherwise relating to
Confidential Information whether prepared or acquired by Employee or provided to
Employee by NET-tel. Employee also acknowledges that all such records, items and
media are at all times and shall remain the property of NET-tel.
9.3 Confidential information means information disclosed to or
known by an employee as a consequence or through his association with NET-tel,
including any information conceived, originated, discovered, or developed by
Employee , which is not generally known to the public or potential competitors
of NET-tel and which constitutes or relates to marketing, sales, research,
development, or know-how, including, but not limited to plans, specifications,
drawings, sketches, lay-outs and formulas, development and manufacture of the
products of the Corporation, purchasing, accounting, customer or contract lists,
trade engineering and technical data, computer software and hardware design,
information entrusted to NET-tel by third parties, or any trade secrets,
proprietary or confidential matter.
9.4 Employee shall not acquire any intellectual property
rights under this Agreement except the limited right to use set out above.
Employee acknowledges that, as between NET-tel and Employee, the Confidential
Information and all related copyrights and other intellectual property rights,
are (and at all times will be) the property of NET-tel, even if suggestions,
comments, and/or ideas made by Employee are incorporated into the Confidential
Information or related materials during the period of this Agreement.
10. Non-Solicitation.
----------------
Employee recognizes and acknowledges that NET-tel has a
national and international market for its services, and that Employee's duties
will be performed in, and will require him to come into contact with the
national and international market. Employee acknowledges that this market is
very competitive and that because of these factors and because of the
Confidential Information and customer lists which NET-tel has purchased or
developed that have been or will be obtained by or disclosed to Employee, as
well as the access Employee has or will have to NET-tel's subscribers,
customers, and accounts, Employee will abide by the following conditions during
his employment and for a term of one year after termination of this Agreement
and Employee's employment thereunder, whether voluntary or involuntary. During
this period, Employee will not directly or indirectly:
(a) Induce or attempt to induce any employee of NET-tel to
leave its employ;
(b) Persuade or attempt to persuade any Subscriber of
Corporation to cease doing business with the Corporation, to reduce the amount
of business it does with the Corporation, or to do business with any other
person, firm, or corporation that directly or indirectly engages in any business
competitive to that of the Corporation;
4
<PAGE>
(c) Persuade or attempt to persuade any potential Subscriber
not to do business with the Corporation or to do business with any other
company, person, or firm that directly or indirectly engages in any business
competitive to that of the Corporation. For the purposes of this subparagraph
10(c), the term "potential Subscriber" includes any person, firm, or corporation
to which the Corporation made a presentation or otherwise actively solicited at
any time during the twelve (12) months preceding the date of the termination of
this Agreement.
11. Covenant Not to Compete.
-----------------------
11.1 Except as expressly noted herein, during Employee's
employment with the Corporation, and for a period of one (1) year following the
termination of the Agreement and Employee's employment thereunder, Employee
shall not, either directly or indirectly, engage in or have any interest in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, or principal investor) that engages in the business of
designing, creating or marketing telephone services in direct competition with
the Corporation in the continental United States.
11.2 Subject to the terms of Paragraph 13. 1 (c), upon
termination of this Agreement by Corporation under Paragraph 13.1 (Termination
Without Cause), Employee will be paid severance pay for a period of one year
based on the Employee's Base Salary, to be paid in accordance with the
Corporation's payment of Base Salary.
12. Enforcement of Confidential Information Clause, Non-
Solicitation Clause, and Covenant Not to Compete
----------------------------------------------------
If Employee breaches or threatens to breach the terms of the
Confidential Information clause, Non-Solicitation clause, or Covenant Not to
Compete of this Agreement, NET-tel may pursue any remedies it is or may be
entitled to under the law or equity, including injunctive relief. Employee
acknowledges that NET-tel would be irreparably injured upon Employee's breach of
the foregoing provisions regarding confidential information, non-solicitation,
and covenant not to compete, and it is difficult to ascertain with certainty the
amount of money damages NET-tel will suffer. Employee agrees, however, that a
reasonable amount of such money damages would be the commissions and bonuses
Employee was paid by NET-tel in the six (6) month period prior to Employee's
termination. Provided further however, that nothing herein shall preclude
NET-tel from seeking a recoupment of its actual damages should they be
ascertainable in an amount certain and should they exceed the amount of
commissions and bonuses Employee received in the six (6) months prior to
termination.
5
<PAGE>
13. Termination.
-----------
13.1 Termination Without Cause. Employee's employment under
--------------------------
this Agreement shall be on an "at will" basis. Subject to the provisions of
Paragraph 13.2, either party may terminate this Agreement and Employee's
employment thereunder at any time, for any reason or no reason whatsoever by
providing the other party thirty (30) days notice of such termination.
(a) Subject to the terms of Paragraph 13.1 (c), upon
termination of this Agreement by either party under Paragraph 13.1 (Termination
Without Cause), Employee will be entitled to commissions earned up to the date
of termination which are subsequently collected by Corporation. Such commission
will be paid in the same manner and within the same period as if Employee was
still employed by Corporation.
(b) Subject to the terms of Paragraph 13.1(c), upon
termination of this Agreement by Corporation under Paragraph 13.1 (Termination
Without Cause), Employee will be paid severance pay for a period of one year
based on the Employee's Base Salary, to be paid in accordance with the
Corporation's payment of Base Salary.
(c) If, in the good faith belief of the Corporation,
the Employee breaches the prohibition against disclosing Confidential
Information in Paragraph 9, the Non-Solicitation clause in Paragraph 10, and the
Covenant Not Compete in Paragraph 11, the Employee's entitlement to any
commissions pursuant to Paragraph 13.1(a) or severance pursuant to Paragraph
13.1(b) will cease immediately and Corporation shall have no further obligation
or liability to Employee.
(d) Upon termination of employment under Paragraph
13. 1, Employee will be entitled to payment for his unused personal days.
However, if Employee terminates his employment under Paragraph 13.1 without
giving 30 days notice of that termination, he will forfeit his unused personal
days.
13.2 Termination for Cause. Corporation may, without providing
---------------------
the notice specified in Paragraph 13.1, terminate this Agreement for Cause and
cancel its obligation to Employee hereunder, except for base salary earned but
unpaid to the effective date of termination. In the event the Agreement is
terminated under this Paragraph for cause, Employee will not be entitled to any
further payment of commissions nor will Employee be entitled to severance pay.
As used herein, the term "Cause" shall include, but not be limited to: (i ) the
commission of Employee of a felony or a crime involving moral turpitude or the
commission of any other act involving dishonesty, disloyalty or fraud, (ii)
conduct by Employee tending to bring Corporation into substantial public
disgrace or dispute, (iii) failure of Employee to perform, in any material
respect, his obligations under this Agreement or the reasonable directives of
the Board or the Corporation's Chief Executive Officer, (iv) failure of Employee
to perform his job in an efficient and satisfactory manner, (v) negligence or
willful misconduct by Employee in providing services required hereby, (vi) the
Corporation files a voluntary bankruptcy petition or any bankruptcy, insolvency,
liquidation, dissolution proceeding or any other similar proceedings are
otherwise commenced against the
6
<PAGE>
Corporation or Corporation admits in writing its inability to pay its debts as
they become due and payable, (vii) Employee's breach of any aspect of this
Agreement (viii) the determination by the Board that Employee has acted, or had
failed to act, which action or failure to take actions are within Employee's
power and authority, in a manner detrimental to the best interests of
Corporation.
13.3 Death or Disability. In the event of Employee's death or
-------------------
the Employee's inability, due to a disability, to perform the essential
functions of his job with or without reasonable accommodation during the term of
this Agreement, Corporation shall have no further obligations or liability
hereunder, except to pay to Employee or Employee's estate (in addition to and
without regard for any benefits due under any insurance, retirement, stock
option, or other benefit plan of the Corporation or any other person or entity)
the amount of Employee's Compensation, including base salary, commissions, and
unused personal leave, other payments accrued but unpaid at the date of
Employee's death or disability as described above. Employee's employment shall
be deemed terminated by reason of disability as described above only if the
Board of Directors of the Corporation shall determine in good faith that
Employee shall be unable to perform his duties by reason of such disability for
a period of at least four (4) consecutive months.
13.4 Return of Property. Upon termination of this Agreement,
------------------
Employee shall deliver all property (including keys, records, notes, data,
memoranda, models, and equipment) that is in the Employee's possession or under
the Employee's control which is the Corporation's property or related to the
Corporation's business.
14. Arbitration.
-----------
With the exception of the Corporation's enforcement of the
Confidential Information provisions in Paragraph 9, the Non-Solicitation
Provisions of Paragraph 10, and the Covenant Not to Compete in Paragraph 11, any
dispute, controversy, or claim arising out of or related to this Agreement,
shall be resolved exclusively by arbitration in the Washington, D.C. area before
a single arbitrator appointed by the American Arbitration Association (the
"AAA") in a confidential arbitration conducted on an expedited basis in
accordance with applicable AAA rules and procedures. The determination and award
of the arbitrator shall be conclusive and binding on the Corporation and the
Employee, and judgment on the arbitrator's award shall be entered in any court
having jurisdiction thereof.
15. Successors.
----------
15.1 This Agreement is personal to Employee and neither it nor
any benefits hereunder shall, without the prior written consent of the
Corporation, be assignable by Employee.
15.2 This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns and any such
successor or assignee shall be deemed substituted for the Corporation under the
terms of this Agreement for all purposes. As used herein, "successor" and
"assignee" shall include any person, firm, corporation, or other business entity
that
7
<PAGE>
at any time, whether by purchase, merger, or otherwise, directly or indirectly
acquires the stock of the Corporation or to which the Corporation assigns this
Agreement by operation of law or otherwise.
16. Indemnification.
---------------
The Corporation shall indemnify and hold harmless Employee
from and against any costs, expenses (including attorney's fees) judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with the defense or settlement of any threatened, pending, or future
civil, criminal, administrative or investigative action, suit or proceeding to
which he is or is threatened to be made a party by reason of the execution or
performance of this Agreement, the fact that he is or was a director, officer,
employee, or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, or other enterprise, if (i) such action, suit or
proceeding arises out of activities of the Corporation prior to his assumption
of such position, or (ii) he acted in good faith and in the manner he reasonably
believed to be in or not opposed to the best interests of the Corporation.
17. Governing Law.
-------------
Because NET-tel is a national corporation, with employees
working on a national basis, to ensure uniformity, this Agreement is made
pursuant to, and shall be governed, construed, and enforced in all respects and
for all purposes in accordance with the laws of the State of Virginia.
18. Waivers.
-------
No consent or waiver, express or implied, by either party, to
or of any breach or default by the other in the performance by the other of its
obligations hereunder, shall be deemed or construed to be a consent or waiver
to, or of, any other breach or default in the performance by such other party
hereunder. Failure on the part of either party to complain of any act or failure
to act of any other party, or to declare any other party in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder.
19. Amendments.
----------
This Agreement is subject to amendment only by a written
agreement signed by all of the parties hereto.
20. Invalid Provisions.
------------------
In the event any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
8
<PAGE>
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and the same shall be enforceable to the fullest extent
permitted by law.
21. Attorneys' Fees.
---------------
In the event of any arbitration or litigation between the
parties hereto to enforce any provision of this Agreement or any right of any
party hereto, the unsuccessful party to such arbitration or litigation agrees to
pay to the successful party, all costs and expenses, including reasonable
attorneys' fees and costs incurred therein.
22. Captions and Headings.
---------------------
The headings of the articles of this Agreement are inserted
solely for convenience of reference and are not a part of and are not intended
to govern, limit or aid in the construction of any term or provision hereto.
23. Entire Agreement.
----------------
This Agreement contains the entire Agreement of the parties.
It supersedes any and all other agreements, either oral or in writing, between
the parties. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing.
24. Use of Terms.
------------
Wherever the context of this Agreement requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural.
25. Consideration.
-------------
The parties hereto agree that no consideration, independent of
the services to be performed by Employee for Corporation and the compensation
and benefits to be provided Employee for such services as may be agreed to by
Corporation and Employee from time to time, exists or has been provided by
either party hereto to induce the other to enter into this Employment Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
the same on the date and year first above written.
NET-Tel, Inc. Employee:
/s/ David Lynch
By: _________________________________ _____________________________________
David Lynch
Its:__________________________________
10
<PAGE>
Exhibit 10.2
NET-Tel INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective this 26th day of January, 1998, by
and between, NET-Tel, Inc., (hereinafter referred to as "Corporation") having
its principal place of business at 3050 "K" Street, NW, #250, Washington, DC
20007 and Ron Allen (hereinafter referred to as the "Employee"), who resides at
565 South Road, Wakefield, Rhode Island, 02879.
A. Corporation is engaged in the business of designing, creating, and
marketing telephone services and telephone management and consulting, including
the resale of long distance 1+ service, both domestic and international.
B. Corporation desires to hire the Employee.
C. Employee is willing to be employed by the Corporation.
D. The parties hereto desire to specify the terms of Employee's
employment by Corporation.
Therefore, the parties agree as follows.
1. Term of Employment.
------------------
Corporation hereby employs Employee and Employee accepts
employment with and agrees to serve Corporation, subject to and upon the terms
and conditions of this Agreement. This Agreement shall commence on January 26,
1998 and remain in fall force and effect unless and until terminated by either
party pursuant to the provisions in Paragraph 13.
2. Duties.
------
Employee shall be employed by the Corporation as the President
of Prime Dealer/Agent and Casual Calling or in such other positions involving
comparable responsibilities as the Chief Executive Officer or the Board of
Directors of the Corporation may designate from time to time. Employee shall
perform the duties normally associated with such position. In addition, Employee
shall perform such other duties, as the Corporation shall reasonably assign from
time to time.
3. Compensation.
------------
3.1 As compensation for services rendered to the Corporation,
the Corporation shall pay Employee a Base Salary, which on an annualized basis
would be equivalent to $ 150,000. In addition to the Base Salary, Corporation
shall pay Employee quarterly commissions based upon the Prime Dealer/Agent and
Casual Calling revenue goals set forth in Schedule A hereto, plus any other
payments or benefits which may be granted to him specifically or to which he may
hereafter
<PAGE>
be entitled under any plan or arrangement maintained by the Corporation for its
executives, management employees, or employees generally. Employee's Base Salary
shall be payable in installments at such intervals as the Corporation pays the
salaries of its management employees generally, but in no event less frequently
than on a monthly basis, and subject to such deductions and withholdings as are
required to be made pursuant to applicable government laws, rules and
regulations. Employee shall also be eligible for such additional incentive
compensation as may be determined by the Board of Directors from time to time in
its sole discretion.
3.2 Employee shall be eligible to participate in any executive
pension plan, benefit plan, or arrangement of the Corporation applicable to
executives, management employees, or employees generally, which becomes
available during the term of Employee's employment
4. Best Efforts.
------------
4.1 Employee agrees to perform faithfully, industriously, and
to the best of Employee's ability, experience, and talents, all of the duties
that may be required by the express and implicit terms of this Agreement, to the
reasonable satisfaction of Corporation. Such duties shall be performed at such
place(s) as the needs, business, or opportunities the Corporation may require
from time to time.
4.2 Employee agrees that so long as this Agreement continues
in effect, Employee shall devote substantially all of his full business time and
energies to the business and affairs of the Corporation, Employee shall use his
best efforts, skills and abilities to promote the Corporation's interests, and
Employee shall perform the duties described in this Agreement and such other
duties as may reasonably be assigned to Employee.
4.3 During the Employee's employment by Corporation, Employee
shall not directly or indirectly, either as owner, partner, shareholder, broker,
dealer, agent, employee or otherwise, engage in any other significant business
activity for gain or profit or other pecuniary advantage; provided, however,
that this section shall not limit or restrict Employee's right to make and have
personal investments in such form or manner that do not require Employee's
active services in the daily operations or affairs of the business in which such
investments are made and do not otherwise conflict with Employee's duties and
obligations to the Corporation.
5. Personal Days.
-------------
5.1 Employee shall be entitled to three (3) weeks (i.e., 15
days) paid personal days days) after he/she has been employed with Corporation
for six months of employment. After the first year of employment, if Employee
continues to be employed by Corporation, Employee will be entitled to three (3)
weeks paid personal days on the anniversary of Employee's date of hire. After
four years of employment, Employee will be entitled to four (4) weeks of paid
personal days on his employment anniversary date.
2
<PAGE>
5.2 At the end of each calendar year, Employee can elect to
have one-half of his unused personal days, up to 10 days, paid to him as a bonus
(based on Employee's Base Salary). Employee can carry over the remainder of his
unused personal days into the following year, but at no time can Employee begin
a new year on January 1 with more than 20 personal days.
6. Business Expenses.
-----------------
Employee shall be entitled to reimbursement by Corporation for
any ordinary and necessary business expenses incurred by Employee in the
performance of Employee's duties on behalf of the Corporation, provided that:
(a) Each such expenditure is of a nature qualifying it as a
proper deduction on the federal and state income tax returns of Corporation as a
business expense and not as compensation to Employee; and
(b) Employee furnishes to Corporation adequate records and
other documentary evidence as required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation
of such expenditures as a deductible business expense of Corporation.
7. Reimbursement.
-------------
Employee agrees that, if at any time any payment made to
Employee by Corporation as business expense reimbursement shall be disallowed in
whole or in part as a nondeductible expense of Corporation by any taxing
authority, Employee shall reimburse Corporation to the full extent of such
disallowance, with interest thereon at the rate as would be charged by the
Internal Revenue Service for such period from the date of reimbursement by
Corporation until repaid.
8. Stock Options.
-------------
Employee shall be entitled to options to purchase shares of
common stock of the Corporation in accordance with the Corporation's Stock
Incentive Plan.
9. Prohibition on Using Confidential Information.
---------------------------------------------
9.1 Employee recognizes and acknowledges that Confidential
Information (defined below) is a valuable and unique asset of NET-tel, access to
and knowledge of which is essential to the performance of the Employee' duties
to NET-tel. Except as required to perform the services required under this
Agreement, Employee shall not, during his employment or any time thereafter,
disclose, in whole or in part, such Confidential Information to any person,
firm, corporation, association, or other entity for any reasons or purpose
whatsoever, or make use of such Confidential Information for his own purposes or
for the benefit of such person or other entity (except NET-tel), under any
circumstances.
3
<PAGE>
9.2 Employee shall, prior to or upon leaving NET-tel, deliver
to NET-tel any and all records, items, media of any type (including all partial
or complete copies or duplicates) containing or otherwise relating to
Confidential Information whether prepared or acquired by Employee or provided to
Employee by NET-tel. Employee also acknowledges that all such records, items and
media are at all times and shall remain the property of NET-tel.
9.3 Confidential information means information disclosed to or
known by an employee as a consequence or through his association with NET-tel,
including any information conceived, originated, discovered, or developed by
Employee, which is not generally known to the public or potential competitors of
NET-tel and which constitutes or relates to marketing, sales, research,
development, or know-how, including, but not limited to plans, specifications,
drawings, sketches, lay-outs and formulas, development and manufacture of the
products of the Corporation, purchasing, accounting, customer or contract lists,
trade engineering and technical data, computer software and hardware design,
information entrusted to NET-tel by third parties, or any trade secrets,
proprietary or confidential matter.
9.4 Employee shall not acquire any intellectual property
rights under this Agreement except the limited right to use set out above.
Employee acknowledges that, as between NET-tel and Employee, the Confidential
Information and all related copyrights and other intellectual property rights,
are (and at all times will be) the property of NET-tel, even if suggestions,
comments, and/or ideas made by Employee are incorporated into the Confidential
Information or related materials during the period of this Agreement.
10. Non-Solicitation.
----------------
Employee recognizes and acknowledges that NET-tel has a
national and international market for its services, and that Employee's duties
will be performed in, and will require him to come into contact with the
national and international market. Employee acknowledges that this market is
very competitive and that because of these factors and because of the
Confidential Information and customer lists which NET-tel has purchased or
developed that have been or will be obtained by or disclosed to Employee, as
well as the access Employee has or will have to NET-tel's subscribers,
customers, and accounts, Employee will abide by the following conditions during
his employment and for a term of one year after termination of this Agreement
and Employee's employment thereunder, whether voluntary or involuntary. During
this period, Employee will not directly or indirectly:
(a) Induce or attempt to induce any employee of NET-tel to
leave its employ;
(b) Persuade or attempt to persuade any Subscriber of
Corporation to cease doing business with the Corporation, to reduce the amount
of business it does with the Corporation, or to do business with any other
person, firm, or corporation that directly or indirectly engages in any business
competitive to that of the Corporation;
4
<PAGE>
(c) Persuade or attempt to persuade any potential Subscriber
not to do business with the Corporation or to do business with any other
company, person, or firm that directly or indirectly engages in any business
competitive to that of the Corporation. For the purposes of this subparagraph
10(c), the term "potential Subscriber" includes any person, firm, or corporation
to which the Corporation made a presentation or otherwise actively solicited at
any time during the twelve (12) months preceding the date of the termination of
this Agreement.
11. Covenant Not to Compete.
-----------------------
11.1 Except as expressly noted herein, during Employee's
employment with the Corporation, and for a period of one (1) year following the
termination of the Agreement and Employee's employment thereunder, Employee
shall not, either directly or indirectly, engage in or have any interest in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, or principal investor) that engages in the business of
designing, creating or marketing telephone services in direct competition with
the Corporation in the continental United States.
11.2 Subject to the terms of Paragraph 13.1 (c), upon
termination of this Agreement by Corporation under Paragraph 13.1 (Termination
Without Cause), Employee will be paid severance pay for a period of one year
based on the Employee's Base Salary, to be paid in accordance with the
Corporation's payment of Base Salary.
12. Enforcement of Confidential Information Clause, Non-
Solicitation Clause, and Covenant Not to Compete
----------------------------------------------------
If Employee breaches or threatens to breach the terms of the
Confidential Information clause, Non-Solicitation clause, or Covenant Not to
Compete of this Agreement, NET-tel may pursue any remedies it is or may be
entitled to under the law or equity, including injunctive relief. Employee
acknowledges that NET-tel would be irreparably injured upon Employee's breach of
the foregoing provisions regarding confidential information, non-solicitation,
and covenant not to compete, and it is difficult to ascertain with certainty the
amount of money damages NET-tel will suffer. Employee agrees, however, that a
reasonable amount of such money damages would be the commissions and bonuses
Employee was paid by NET-tel in the six (6) month period prior to Employee's
termination. Provided further, however, that nothing herein shall preclude
NET-tel from seeking a recoupment of its actual damages should they be
ascertainable in an amount certain and should they exceed the amount of
commissions and bonuses Employee received in the six (6) months prior to
termination.
13. Termination.
-----------
13.1 Termination Without Cause. Employee's employment under
-------------------------
this Agreement shall be on an "at will" basis. Subject to the provisions of
Paragraph 13.2, either party may terminate this Agreement and Employee's
employment thereunder at any time, for any reason or no reason whatsoever by
providing the other party thirty (30) days notice of such termination.
5
<PAGE>
(a) Subject to the terms of Paragraph 13. 1 (c), upon
termination of this Agreement by either party under Paragraph 13.1 (Termination
Without Cause), Employee will be entitled to commissions earned up to the date
of termination which are subsequently collected by Corporation. Such commission
will be paid in the same manner and within the same period as if Employee was
still employed by Corporation.
(b) Subject to the terms of Paragraph 13.1(c), upon
termination of this Agreement by Corporation under Paragraph 13.1 (Termination
Without Cause), Employee will be paid severance pay for a period of one year
based on the Employee's Base Salary, to be paid in accordance with the
Corporation's payment of Base Salary.
(c) If, in the good faith belief of the Corporation,
the Employee breaches the prohibition against disclosing Confidential
Information in Paragraph 9, the Non-Solicitation clause in Paragraph 10, and the
Covenant Not Compete in Paragraph 11, the Employee's entitlement to any
commissions pursuant to Paragraph 13. 1(a) or severance pursuant to Paragraph
13. 1(b) will cease immediately and Corporation shall have no further obligation
or liability to Employee.
(d) Upon termination of employment under Paragraph
13.1, Employee will be entitled to payment for his unused personal days.
However, if Employee terminates his employment under Paragraph 13.1 without
giving 30 days notice of that termination, he will forfeit his unused personal
days.
13.2 Termination for Cause. Corporation may, without providing
---------------------
the notice specified in Paragraph 13.1, terminate this Agreement for Cause and
cancel its obligation to Employee hereunder, except for base salary earned but
unpaid to the effective date of termination. In the event the Agreement is
terminated under this Paragraph for cause, Employee will not be entitled to any
further payment of commissions nor will Employee be entitled to severance pay.
As used herein, the term "Cause" shall include, but not be limited to: (i ) the
commission of Employee of a felony or a crime involving moral turpitude or the
commission of any other act involving dishonesty, disloyalty or fraud, (ii)
conduct by Employee tending to bring Corporation into substantial public
disgrace or dispute, (iii) failure of Employee to perform, in any material
respect, his obligations under this Agreement or the reasonable directives of
the Board or the Corporation's Chief Executive Officer, (iv) failure of Employee
to perform his job in an efficient and satisfactory manner, (v) negligence or
willful misconduct by Employee in providing services required hereby, (vi) the
Corporation files a voluntary bankruptcy petition or any bankruptcy, insolvency,
liquidation, dissolution proceeding or any other similar proceedings are
otherwise commenced against the Corporation or Corporation admits in writing its
inability to pay its debts as they become due and payable, (vii) Employee's
breach of any aspect of this Agreement (viii) the determination by the Board
that Employee has acted, or had failed to act, which action or failure to take
actions are within Employee's power and authority, in a manner detrimental to
the best interests of Corporation.
13.3 Death or Disability. In the event of Employee's death or
-------------------
the Employee's inability, due to a disability, to perform the essential
functions of his job with or without reasonable
6
<PAGE>
accommodation during the term of this Agreement, Corporation shall have no
further obligations or liability hereunder, except to pay to Employee or
Employee's estate (in addition to and without regard for any benefits due under
any insurance, retirement, stock option, or other benefit plan of the
Corporation or any other person or entity) the amount of Employee's
Compensation, including base salary, commissions, and unused personal leave,
other payments accrued but unpaid at the date of Employee's death or disability
as described above. Employee's employment shall be deemed terminated by reason
of disability as described above only if the Board of Directors of the
Corporation shall determine in good faith that Employee shall be unable to
perform his duties by reason of such disability for a period of at least four
(4) consecutive months.
13.4 Return of Property. Upon termination of this Agreement,
------------------
Employee shall deliver all property (including keys, records, notes, data,
memoranda, models, and equipment) that is in the Employee's possession or under
the Employee's control which is the Corporation's property or related to the
Corporation's business.
14. Arbitration.
-----------
With the exception of the Corporation's enforcement of the
Confidential Information provisions in Paragraph 9, the Non-Solicitation
Provisions of Paragraph 10, and the Covenant Not to Compete in Paragraph 11, any
dispute, controversy, or claim arising out of or related to this Agreement,
shall be resolved exclusively by arbitration in the Washington, D.C. area before
a single arbitrator appointed by the American Arbitration Association (the
"AAA") in a confidential arbitration conducted on an expedited basis in
accordance with applicable AAA rules and procedures. The determination and award
of the arbitrator shall be conclusive and binding on the Corporation and the
Employee, and judgment on the arbitrator's award shall be entered in any court
having jurisdiction thereof.
15. Successors.
----------
15.1 This Agreement is personal to Employee and neither it nor
any benefits hereunder shall, without the prior written consent of the
Corporation, be assignable by Employee.
15.2 This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns and any such
successor or assignee shall be deemed substituted for the Corporation under the
terms of this Agreement for all purposes. As used herein, "successor" and
"assignee" shall include any person, firm, corporation, or other business entity
that at any time, whether by purchase, merger, or otherwise, directly or
indirectly acquires the stock of the Corporation or to which the Corporation
assigns this Agreement by operation of law or otherwise.
16. Indemnification.
---------------
7
<PAGE>
The Corporation shall indemnify and hold harmless Employee
from and against any costs, expenses (including attorney's fees) judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with the defense or settlement of any threatened, pending, or future
civil, criminal, administrative or investigative action, suit or proceeding to
which he is or is threatened to be made a party by reason of the execution or
performance of this Agreement, the fact that he is or was a director, officer,
employee, or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, or other enterprise, if (i) such action, suit or
proceeding arises out of activities of the Corporation prior to his assumption
of such position, or (ii) he acted in good faith and in the manner he reasonably
believed to be in or not opposed to the best interests of the Corporation.
17. Governing Law
-------------
Because NET-tel is a national corporation, with employees
working on a national basis, to ensure uniformity, this Agreement is made
pursuant to, and shall be governed, construed, and enforced in all respects and
for all purposes in accordance with the laws of the State of Virginia.
18. Waivers.
-------
No consent or waiver, express or implied, by either party, to
or of any breach or default by the other in the performance by the other of its
obligations hereunder, shall be deemed or construed to be a consent or waiver
to, or of, any other breach or default in the performance by such other party
hereunder. Failure on the part of either party to complain of any act or failure
to act of any other party, or to declare any other party in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder.
19. Amendments.
----------
This Agreement is subject to amendment only by a written
agreement signed by all of the parties hereto.
20. Invalid Provisions.
------------------
In the event any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and the same shall be enforceable to the fullest extent
permitted by law.
21. Attorneys' Fees.
---------------
8
<PAGE>
In the event of any arbitration or litigation between the
parties hereto to enforce any provision of this Agreement or any right of any
party hereto, the unsuccessful party to such arbitration or litigation agrees to
pay to the successful party, all costs and expenses, including reasonable
attorneys' fees and costs incurred therein.
22. Captions and Headings.
---------------------
The headings of the articles of this Agreement are inserted
solely for convenience of reference and are not a part of and are not intended
to govern, limit or aid in the construction of any term or provision hereto.
23. Entire Agreement
----------------
This Agreement contains the entire Agreement of the parties.
It supersedes any and all other agreements, either oral or in writing, between
the parties. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing.
24. Use of Terms.
------------
Wherever the context of this Agreement requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural.
25. Consideration.
-------------
The parties hereto agree that no consideration, independent of
the services to be performed by Employee for Corporation and the compensation
and benefits to be provided Employee for such services as may be agreed to by
Corporation and Employee from time to time, exists or has been provided by
either party hereto to induce the other to enter into this Employment Agreement.
9
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly
executed the same on the date and year first above written.
NET-Tel, Inc. Employee:
/s/ Ron Allen 5/6/98
By: _____________________________ _____________________________________
Ron Allen
Its: _____________________________
10
<PAGE>
SCHEDULE A
----------
QUARTERLY COMMISSION SCHEDULE AND PAYMENT ARRANGEMENTS
11
<PAGE>
Exhibit 10.3
NET-Tel INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective this 26th day of January, 1998, by
and between, NET-Tel, Inc., (hereinafter referred to as "Corporation") having
its principal place of business at 3050 "K" Street, NW, #250, Washington, DC
20007 and Ed McNamara (hereinafter referred to as the "Employee"), who resides
at 501 Amon Lake Drive, Great Falls, VA 22066.
A. Corporation is engaged in the business of designing, creating, and
marketing telephone services and telephone management and consulting, including
the resale of long distance 1+ service, both domestic and international.
B. Corporation desires to hire the Employee.
C. Employee is willing to be employed by the Corporation.
D. The parties hereto desire to specify the terms of Employee's
employment by Corporation.
Therefore, the parties agree as follows.
1. Term of Employment
------------------
Corporation hereby employs Employee and Employee accepts
employment with and agrees to serve Corporation, subject to and upon the terms
and conditions of this Agreement. This Agreement shall commence on January 26,
1998 and remain in full force and effect unless and until terminated by either
party pursuant to the provisions in Paragraph 13.
2. Duties.
------
Employee shall be employed by the Corporation as the President
Alternate Sales in such other positions involving comparable responsibilities as
the Chief Executive Officer or the Board of Directors of the Corporation may
designate from time to time. Employee shall perform the duties normally
associated with such position. In addition, Employee shall perform such other
duties as the Corporation shall reasonably assign from time to time.
3. Compensation.
------------
3.1 As compensation for services rendered to the Corporation,
the Corporation shall pay Employee a Base Salary, which on an annualized basis
would be equivalent to $ 150,000. In addition to the Base Salary, Corporation
shall pay Employee quarterly commissions based upon the Alternate Channel Sales
revenue goals set forth in Schedule A hereto, plus any other payments or
benefits which may be granted to him specifically or to which he may hereafter
be entitled under any plan or arrangement maintained by the Corporation for its
executives, management employees,
<PAGE>
or employees generally. Employee's Base Salary shall be payable in installments
at such intervals as the Corporation pays the salaries of its management
employees generally, but in no event less frequently than on a monthly basis,
and subject to such deductions and withholdings as are required to be made
pursuant to applicable government laws, rules and regulations. Employee shall
also be eligible for such additional incentive compensation as may be determined
by the Board of Directors from time to time in its sole discretion.
3.2 Employee shall be eligible to participate Mi any
executive pension plan, benefit plan, or arrangement of the Corporation
applicable to executives, management employees, or employees generally, which
becomes available during the term of Employee's employment
4. Best Efforts.
------------
4.1 Employee agrees to perform faithfully, industriously, and
to the best of Employee's ability, experience, and talents, all of the duties
that may be required by the express and implicit terms of this Agreement, to the
reasonable satisfaction of Corporation. Such duties shall be performed at such
place(s) as the needs, business, or opportunities the Corporation may require
from time to time.
4.2 Employee agrees that so long as this Agreement continues
in effect, Employee shall devote substantially all of his full business time and
energies to the business and affairs of the Corporation, Employee shall use his
best efforts, skills and abilities to promote the Corporation's interests, and
Employee shall perform the duties described in this Agreement and such other
duties as may reasonably be assigned to Employee.
4.3 During the Employee's employment by Corporation, Employee
shall not directly or indirectly, either as owner, partner, shareholder, broker,
dealer, agent, employee or otherwise, engage in any other significant business
activity for gain or profit or other pecuniary advantage; provided, however,
that this section shall not limit or restrict Employee's right to make and have
personal investments in such form or manner that do not require Employee's
active services in the daily operations or affairs of the business in which such
investments are made and do not otherwise conflict with Employee's duties and
obligations to the Corporation.
5. Personal Days.
-------------
5.1 Employee shall be entitled to three (3) weeks (i.e., 15
----
days) paid personal days days) after he/she has been employed with Corporation
for six months of employment. After the first year of employment, if Employee
continues to be employed by Corporation, Employee will be entitled to three (3)
weeks paid personal days on the anniversary of Employee's date of hire. After
four years of employment, Employee will be entitled to four (4) weeks of paid
personal days on his employment anniversary date.
-2-
<PAGE>
5.2 At the end of each calendar year, Employee can elect to
have one-half of his unused personal days, up to 10 days, paid to him as a bonus
(based on Employee's Base Salary). Employee can carry over the remainder of his
unused personal days into the following year, but at no time can Employee begin
a new year on January I with more than 20 personal days.
6. Business Expenses
-----------------
Employee shall be entitled to reimbursement by Corporation for
any ordinary and necessary business expenses incurred by Employee in the
performance of Employee's duties on behalf of the Corporation, provided that:
(a) Each such expenditure is of a nature qualifying it as a
proper deduction on the federal and state income tax returns of Corporation as a
business expense and not as compensation to Employee; and
(b) Employee furnishes to Corporation adequate records and
other documentary evidence as required by federal and state statutes and
regulations issued by the appropriate taxing authorities for the substantiation
of such expenditures as a deductible business expense of Corporation.
7. Reimbursement.
-------------
Employee agrees that, if at any time any payment made to
Employee by Corporation as business expense reimbursement shall be disallowed in
whole or in part as a nondeductible expense of Corporation by any taxing
authority, Employee shall reimburse Corporation to the full extent of such
disallowance, with interest thereon at the rate as would be charged by the
Internal Revenue Service for such period from the date of reimbursement by
Corporation until repaid.
8. Stock Options.
-------------
Employee shall be entitled to options to purchase shares of common
stock of the Corporation in accordance with the Corporation's Stock Incentive
Plan.
9. Prohibition on Using Confidential Information.
---------------------------------------------
9.1 Employee recognizes and acknowledges that Confidential
Information (defined below) is a valuable and unique asset of NET-tel, access to
and knowledge of which is essential to the performance of the Employee' duties
to NET-tel. Except as required to perform the services required under this
Agreement, Employee shall not, during his employment or any time thereafter,
disclose, in whole or in part, such Confidential Information to any person,
firm, corporation, association, or other entity for any reasons or purpose
whatsoever, or make use of such Confidential Information for his own purposes or
for the benefit of such person or other entity (except NET-tel), under any
circumstances.
-3-
<PAGE>
9.2 Employee shall, prior to or upon leaving NET-tel, deliver
to NET-tel any and all records, items, media of any type (including all partial
or complete copies or duplicates) containing or otherwise relating to
Confidential Information whether prepared or acquired by Employee or provided to
Employee by NET-tel. Employee also acknowledges that all such records, items and
media are at all times and shall remain the property of NET-tel.
9.3 Confidential information means information disclosed to
or known by an employee as a consequence or through his association with NET-
tel, including any information conceived, originated, discovered, or developed
by Employee, which is not generally known to the public or potential competitors
of NET-tel and which constitutes or relates to marketing, sales, research,
development, or know-how, including, but not limited to plans, specifications,
drawings, sketches, lay-outs and formulas, development and manufacture of the
products of the Corporation, purchasing, accounting, customer or contract lists,
trade engineering and technical data, computer software and hardware design,
information entrusted to NET-tel by third parties, or any trade secrets,
proprietary or confidential matter.
9.4 Employee shall not acquire any intellectual property
rights under this Agreement except the limited right to use set out above.
Employee acknowledges that, as between NET-tel and Employee, the Confidential
Information and all related copyrights and other intellectual property rights,
are (and at all times will be) the property of NET-tel, even if suggestions,
comments, and/or ideas made by Employee are incorporated into the Confidential
Information or related materials during the period of this Agreement.
10. Non-Solicitation.
----------------
Employee recognizes and acknowledges that NET-tel has a
national and international market for its services, and that Employee's duties
will be performed in, and will require him to come into contact with the
national and international market. Employee acknowledges that this market is
very competitive and that because of these factors and because of the
Confidential Information and customer lists which NET-tel has purchased or
developed that have been or will be obtained by or disclosed to Employee, as
well as the access Employee has or will have to NET-tel's subscribers,
customers, and accounts, Employee will abide by the following conditions during
his employment and for a term of one year after termination of this Agreement
and Employee's employment thereunder, whether voluntary or involuntary. During
this period, Employee will not directly or indirectly:
(a) Induce or attempt to induce any employee of NET-tel to
leave its employ;
(b) Persuade or attempt to persuade any Subscriber of
Corporation to cease doing business with the Corporation, to reduce the amount
of business it does with the Corporation, or to do business with any other
person, firm, or corporation that directly or indirectly engages in any business
competitive to that of the Corporation;
-4-
<PAGE>
(c) Persuade or attempt to persuade any potential Subscriber
not to do business with the Corporation or to do business with any other
company, person, or firm that directly or indirectly engages in any business
competitive to that of the Corporation. For the purposes of this subparagraph
10(c), the term "potential Subscriber" includes any person, firm, or corporation
to which the Corporation made a presentation or otherwise actively solicited at
any time during the twelve (12) months preceding the date of the termination of
this Agreement.
11. Covenant Not to Compete.
-----------------------
11.1 Except as expressly noted herein, during Employee's
employment with the Corporation, and for a period of one (1) year following the
termination of the Agreement and Employee's employment thereunder, Employee
shall not, either directly or indirectly, engage in or have any interest in any
person, firm, corporation or business (whether as an employee, officer,
director, agent, or principal investor) that engages in the business of
designing, creating or marketing telephone services in direct competition with
the Corporation in the continental United States.
11.2 Subject to the terms of Paragraph 13.1 (c), upon
termination of this Agreement by Corporation under Paragraph 13.1 (Termination
Without Cause), Employee will be paid severance pay for a period of one year
based on the Employee's Base Salary, to be paid in accordance with the
Corporation's payment of Base Salary.
12. Enforcement of Confidential Information Clause, Non-
Solicitation Clause, and Covenant Not to Compete.
----------------------------------------------------
If Employee breaches or threatens to breach the terms of the
Confidential Information clause, Non-Solicitation clause, or Covenant Not to
Compete of this Agreement, NET-tel may pursue any remedies it is or may be
entitled to under the law or equity, including injunctive relief. Employee
acknowledges that NET-tel would be irreparably injured upon Employee's breach of
the foregoing provisions regarding confidential information, non-solicitation,
and covenant not to compete, and it is difficult to ascertain with certainty the
amount of money damages NET-tel will suffer. Employee agrees, however, that a
reasonable amount of such money damages would be the commissions and bonuses
Employee was paid by NET-tel in the six (6) month period prior to Employee's
termination. Provided further, however, that nothing herein shall preclude
NET-tel from seeking a recoupment of its actual damages should they be
ascertainable in an amount certain and should they exceed the amount of
commissions and bonuses Employee received in the six (6) months prior to
termination.
13. Termination.
-----------
13.1 Termination Without Cause. Employee's employment under
-------------------------
this Agreement shall be on an "at will" basis. Subject to the provisions of
Paragraph 13.2, either party may terminate this Agreement and Employee's
employment thereunder at any time, for any reason or no reason whatsoever by
providing the other party thirty (30) days notice of such termination.
-5-
<PAGE>
(a) Subject to the terms of Paragraph 13.1 (c), upon
termination of this Agreement by either party under Paragraph 13.1 (Termination
Without Cause), Employee will be entitled to commissions earned up to the date
of termination which are subsequently collected by Corporation. Such commission
will be paid in the same manner and within the same period as if Employee was
still employed by Corporation.
(b) Subject to the terms of Paragraph 13. 1 (c), upon
termination of this Agreement by Corporation under Paragraph 13.1 (Termination
Without Cause), Employee will be paid severance pay for a period of one year
based on the Employee's Base Salary, to be paid in accordance with the
Corporation's payment of Base Salary.
(c) If, in the good faith belief of the Corporation,
the Employee breaches the prohibition against disclosing Confidential
Information in Paragraph 9, the Non-Solicitation clause in Paragraph 10, and the
Covenant Not Compete in Paragraph 11, the Employee's entitlement to any
commissions pursuant to Paragraph 13. 1 (a) or severance pursuant to Paragraph
13.1(b) will cease immediately and Corporation shall have no further obligation
or liability to Employee.
(d) Upon termination of employment under Paragraph
13. 1, Employee will be entitled to payment for his unused personal days.
However, if Employee terminates his employment under Paragraph 13.1 without
giving 30 days notice of that termination, he will forfeit his unused personal
days.
13.2 Termination for Cause. Corporation may, without
---------------------
providing the notice specified in Paragraph 13.1, terminate this Agreement for
Cause and cancel its obligation to Employee hereunder, except for base salary
earned but unpaid to the effective date of termination. In the event the
Agreement is terminated under this Paragraph for cause, Employee will not be
entitled to any further payment of commissions nor will Employee be entitled to
severance pay. As used herein, the term "Cause" shall include, but not be
limited to: (i ) the commission of Employee of a felony or a crime involving
moral turpitude or the commission of any other act involving dishonesty,
disloyalty or fraud, (ii) conduct by Employee tending to bring Corporation into
substantial public disgrace or dispute, (iii) failure of Employee to perform, in
any material respect, his obligations under this Agreement or the reasonable
directives of the Board or the Corporation's Chief Executive Officer, (iv)
failure of Employee to perform his job in an efficient and satisfactory manner,
(v) negligence or willful misconduct by Employee in providing services required
hereby, (vi) the Corporation files a voluntary bankruptcy petition or any
bankruptcy, insolvency, liquidation, dissolution proceeding or any other similar
proceedings are otherwise commenced against the Corporation or Corporation
admits in writing its inability to pay its debts as they become due and payable,
(vii) Employee's breach of any aspect of this Agreement (viii) the determination
by the Board that Employee has acted, or had failed to act, which action or
failure to take actions are within Employee's power and authority, in a manner
detrimental to the best interests of Corporation.
13.3 Death or Disability. In the event of Employee's death or
-------------------
the Employee's inability, due to a disability, to perform the essential
functions of his job with or without reasonable accommodation during the term of
this Agreement, Corporation shall have no further obligations or liability
hereunder, except to pay to Employee or Employee's estate (in addition to and
without
-6-
<PAGE>
regard for any benefits due under any insurance, retirement, stock option, or
other benefit plan of the Corporation or any other person or entity) the amount
of Employee's Compensation, including base salary, commissions, and unused
personal leave, other payments accrued but unpaid at the date of Employee's
death or disability as described above. Employee's employment shall be deemed
terminated by reason of disability as described above only if the Board of
Directors of the Corporation shall determine in good faith that Employee shall
be unable to perform his duties by reason of such disability for a period of at
least four (4) consecutive months.
13.4 Return of Property. Upon termination of this Agreement,
------------------
Employee shall deliver all property (including keys, records, notes, data,
memoranda, models, and equipment) that is in the Employee's possession or under
the Employee's control which is the Corporation's property or related to the
Corporation's business.
14. Arbitration.
-----------
With the exception of the Corporation's enforcement of the
Confidential Information provisions in Paragraph 9, the Non-Solicitation
Provisions of Paragraph 10, and the Covenant Not to Compete in Paragraph 11, any
dispute, controversy, or claim arising out of or related to this Agreement,
shall be resolved exclusively by arbitration in the Washington, D.C. area before
a single arbitrator appointed by the American Arbitration Association (the
"AAA") in a confidential arbitration conducted on an expedited basis in
accordance with applicable AAA rules and procedures. The determination and award
of the arbitrator shall be conclusive and binding on the Corporation and the
Employee, and judgment on the arbitrator's award shall be entered in any court
having jurisdiction thereof.
15. Successors.
----------
15.1 This Agreement is personal to Employee and neither it
nor any benefits hereunder shall, without the prior written consent of the
Corporation, be assignable by Employee.
15.2 This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns and any such
successor or assignee shall be deemed substituted for the Corporation under the
terms of this Agreement for all purposes. As used herein, "successor" and
"assignee" shall include any person, firm, corporation, or other business entity
that at any time, whether by purchase, merger, or otherwise, directly or
indirectly acquires the stock of the Corporation or to which the Corporation
assigns this Agreement by operation of law or otherwise.
16. Indemnification.
---------------
The Corporation shall indemnify and hold harmless Employee
from and against any costs, expenses (including attorney's fees) judgments,
fines and amounts paid in settlement actually and reasonably incurred by him in
connection with the defense or settlement of any threatened, pending, or future
civil, criminal, administrative or investigative action, suit or proceeding to
which he is or is threatened to be made a party by reason of the execution or
performance of this
-7-
<PAGE>
Agreement, the fact that he is or was a director, officer, employee, or agent of
the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, or other enterprise, if (i) such action, suit or proceeding arises out
of activities of the Corporation prior to his assumption of such position, or
(ii) he acted in good faith and in the manner he reasonably believed to be in or
not opposed to the best interests of the Corporation.
17. Governing Law.
-------------
Because NET-tel is a national corporation, with employees
working on a national basis, to ensure uniformity, this Agreement is made
pursuant to, and shall be governed, construed, and enforced in all respects and
for all purposes in accordance with the laws of the State of Virginia.
18. Waivers.
-------
No consent or waiver, express or implied, by either party, to
or of any breach or default by the other in the performance by the other of its
obligations hereunder, shall be deemed or construed to be a consent or waiver
to, or of, any other breach or default in the performance by such other party
hereunder. Failure on the part of either party to complain of any act or failure
to act of any other party, or to declare any other party in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder.
19. Amendments.
----------
This Agreement is subject to amendment only by a written
agreement signed by all of the parties hereto.
20. Invalid Provisions.
------------------
In the event any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and the same shall be enforceable to the fullest extent
permitted by law.
21. Attorneys' Fees.
---------------
In the event of any arbitration or litigation between the
parties hereto to enforce any provision of this Agreement or any right of any
party hereto, the unsuccessful party to such arbitration or litigation agrees to
pay to the successful party, all costs and expenses, including reasonable
attorneys' fees and costs incurred therein.
-8-
<PAGE>
22. Captions and Headings.
---------------------
The headings of the articles of this Agreement are inserted
solely for convenience of reference and are not a part of and are not intended
to govern, limit or aid in the construction of any term or provision hereto.
23. Entire Agreement
----------------
This Agreement contains the entire Agreement of the parties.
It supersedes any and all other agreements, either oral or in writing, between
the parties. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing.
24. Use of Terms.
------------
Wherever the context of this Agreement requires, the masculine
gender includes the feminine or neuter, and the singular number includes the
plural.
25. Consideration.
-------------
The parties hereto agree that no consideration, independent of
the services to be performed by Employee for Corporation and the compensation
and benefits to be provided Employee for such services as may be agreed to by
Corporation and Employee from time to time, exists or has been provided by
either party hereto to induce the other to enter into this Employment Agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
the same on the date and year first above written.
NET-tel, Inc. Employee:
/s/ Ed McNamara
By: _________________________________ ___________________________________
Ed McNamara
Its: __________________________________
-10-
<PAGE>
SCHEDULE A
QUARTERLY COMMISSION SCHEDULE AND PAYMENT ARRANGEMENTS
-11-
<PAGE>
Exhibit 10.4
NET-Tel Communications, Inc.,
A Delaware Corporation.
1998 Stock Incentive Plan
Adopted on January 26, 1998
Amended on September 30, 1998
Amended on March 15, 1999
Amended on November 10, 1999
Amended on January 25, 2000
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. ESTABLISHMENT AND PURPOSE................................................................... 1
SECTION 2. ADMINISTRATION.............................................................................. 1
(a) Committees of the Board of Directors................................................... 1
(b) Authority of the Board of Directors.................................................... 1
SECTION 3. ELIGIBILITY................................................................................. 1
(a) General Rule........................................................................... 1
(b) Ten-Percent Shareholders............................................................... 1
SECTION 4. STOCK SUBJECT TO PLAN....................................................................... 1
(a) Basic Limitation....................................................................... 2
(b) Additional Shares...................................................................... 2
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES..................................................... 2
(a) Stock Purchase Agreement............................................................... 2
(b) Duration of Offers and Nontransferability of Rights.................................... 2
(c) Purchase Price......................................................................... 2
(d) Withholding Taxes...................................................................... 2
(e) Restrictions on Transfer of Shares and Minimum Vesting................................. 2
(f) Accelerated Vesting.................................................................... 3
SECTION 6. TERMS AND CONDITIONS OF OPTIONS............................................................. 3
(a) Stock Option Agreement................................................................. 3
(b) Number of Shares....................................................................... 3
(c) Limitation on ISOs..................................................................... 3
(d) Exercise Price......................................................................... 3
(e) Withholding Taxes...................................................................... 4
(f) Exercisability......................................................................... 4
(g) Accelerated Exercisability............................................................. 4
(h) Basic Term............................................................................. 4
(i) Nontransferability..................................................................... 4
(j) Termination of Service (Except by Death)............................................... 4
(k) Leaves of Absence...................................................................... 5
(l) Death of Optionee...................................................................... 5
(m) No Rights as a Shareholder............................................................. 6
(n) Modification, Extension and Assumption of Options...................................... 6
(o) Restrictions on Transfer of Shares and Minimum Vesting................................. 6
(p) Accelerated Vesting.................................................................... 6
SECTION 7. PAYMENT FOR SHARES.......................................................................... 6
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
(a) General Rule............................................................................ 6
(b) Surrender of Stock...................................................................... 6
(c) Services Rendered....................................................................... 7
(d) Promissory Note......................................................................... 7
(e) Exercise/Sale........................................................................... 7
(f) Exercise/Pledge......................................................................... 7
SECTION 8. ADJUSTMENT OF SHARES......................................................................... 7
(a) General................................................................................. 7
(b) Mergers and Consolidations.............................................................. 7
(c) Reservation of Rights................................................................... 8
SECTION 9. SECURITIES LAW REQUIREMENTS.................................................................. 8
(a) General................................................................................. 8
(b) Financial Reports....................................................................... 8
SECTION 10. NO RETENTION RIGHTS.......................................................................... 8
SECTION 11. DURATION AND AMENDMENTS...................................................................... 9
(a) Term of the Plan........................................................................ 9
(b) Right to Amend or Terminate the Plan.................................................... 9
(c) Effect of Amendment or Termination...................................................... 9
SECTION 12. DEFINITIONS.................................................................................. 9
SECTION 13. EXECUTION.................................................................................... 12
</TABLE>
ii
<PAGE>
NET-TEL HOLDING COMPANY 1998 STOCK INCENTIVE PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code. Capitalized
terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) Committees of the Board of Directors. The Plan may be administered by
one or more Committees. Each Committee shall consist of two or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) Authority of the Board of Directors. Subject to the provisions of
the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) General Rule. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs.
(b) Ten-Percent Shareholders. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for designation as
an Optionee or Purchaser unless (i) the Exercise Price is at least 110% of the
Fair Market Value of a Share on the date of grant, (ii) the Purchase Price (if
any) is at least 100% of the Fair Market Value of a Share and (iii) in the case
of an ISO, such ISO by its terms is not exercisable after the expiration of five
years from the date of grant. For purposes of this Subsection (b), in
determining stock ownership, the attribution rules of Section 424(d) of the Code
shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. The aggregate number of Shares that may be issued
under the Plan
<PAGE>
(upon exercise of Options or other rights to acquire Shares) shall not exceed
4,255,000 issued Shares, subject to adjustment pursuant to Section 8. The number
of Shares that are subject to Options or other rights outstanding at any time
under the Plan shall not exceed the number of Shares that then remain available
for issuance under the Plan. The Company, during the term of the Plan, shall at
all times reserve and keep available sufficient Shares to satisfy the
requirements of the Plan.
(b) Additional Shares. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
4,255,000 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Stock Purchase Agreement. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) Duration of Offers and Nontransferability of Rights. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) Purchase Price. The Purchase Price of Shares to be offered under
the Plan shall not be less than 85% of the Fair Market Value of such Shares, and
a higher percentage may be required by Section 3(b). Subject to the preceding
sentence, the Purchase Price shall be determined by the Board of Directors at
its sole discretion. The Purchase Price shall be payable in a form described in
Section 7.
(d) Withholding Taxes. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares
awarded or sold under the Plan shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Purchase Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of a Purchaser who is
2
<PAGE>
not an officer of the Company, an Outside Director or a Consultant, any right to
repurchase the Purchaser's Shares at the original Purchase Price (if any) upon
termination of the Purchaser's Service shall lapse at least as rapidly as 20%
per year over the five-year period commencing on the date of the award or sale
of the Shares. Any such repurchase right may be exercised only within 90 days
after the termination of the Purchaser's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(f) Accelerated Vesting. Unless the applicable Stock Purchase Agreement
expressly provides to the contrary or the Board of Directors determines
otherwise prior to a Change in Control, any right to repurchase a Purchaser's
Shares at the original Purchase Price (if any) upon termination of the
Purchaser's Service shall lapse and all of such Shares shall become fully vested
upon a Change in Control.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreement. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms and conditions of the Plan
and may be subject to any other terms and conditions which are not inconsistent
with the Plan and which the Board of Directors deems appropriate for inclusion
in a Stock Option Agreement. The provisions of the various Stock Option
Agreements entered into under the Plan need not be identical.
(b) Number of Shares. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.
(c) Limitation on ISOs. The aggregate Fair Market Value of the Stock
(determined at the time of the grant of the Option) for which any Employee may
be granted ISOs in any calendar year must not be more than $100,000 plus a
carryover amount. The carryover amount for an Employee from any year is one-half
of the amount by which $100,000 exceeds the value at the time of grant of the
Stock for which ISOs were granted in such prior year. Amounts may be carried
over three years. Options granted in any year use up the $100,000 current year
limitation first and then the carryover from the earliest year.
(d) Exercise Price. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option granted
on or before the Reliance Period Termination Date shall not be less than 85% of
the Fair Market Value of a Share on the date of grant, and a higher percentage
may be required by Section 3(b). The Exercise Price of a Nonstatutory Option
granted after the Reliance Period Termination Date shall not be less than 100%
of the Fair Market Value of a Share on the date of grant, and a higher
percentage may be required by Section 3(b). Subject to the preceding three
sentences, the Exercise Price under any Option shall be determined by the Board
of Directors at its sole discretion. The Exercise Price shall be payable in a
form described in Section 7.
3
<PAGE>
(e) Withholding Taxes. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(f) Exercisability. Each Stock Option Agreement shall specify the date
when all or any installment of the Option is to become exercisable. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant, an Option shall become exercisable at least as rapidly as 20% per
year over the five-year period commencing on the date of the grant. Subject to
the preceding sentence, the exercisability provisions of any Stock Option
Agreement shall be determined by the Board of Directors at its sole discretion.
An Option shall not be exercised for fewer than 100 Shares (without adjustment
under Section 8), unless fewer than 100 Shares remain subject to such Option.
(g) Accelerated Exercisability. Unless the applicable Stock Option
Agreement expressly provides to the contrary or the Board of Directors
determines otherwise prior to a Change in Control, all of an Optionee's Options
shall become fully exercisable upon a Change in Control.
(h) Basic Term. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and a shorter
term may be required by Section 3(b). Subject to the preceding sentence, the
Board of Directors at its sole discretion shall determine when an Option is to
expire.
(i) Nontransferability. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(j) Termination of Service (Except by Death). If an Optionee's Service
terminates for any reason other than the Optionee's death, then the Optionee's
Options shall expire on the earliest of the following occasions:
(i) The expiration date determined pursuant to Subsection (g)
above;
(ii) The date three months after the termination of the Optionee's
Service for any reason other than Cause, Retirement or Disability;
(iii) The date of the termination of the Optionee's Service for
Cause; or
(iv) The date 12 months after the termination of the Optionee's
Service by reason of Retirement or Disability.
4
<PAGE>
The Optionee may exercise all or part of the Optionee's Options at any time
before the expiration of such Options under the preceding sentence, but only to
the extent that such Options had become exercisable before the Optionee's
Service terminated (or became exercisable as a result of the termination) and
the underlying Shares had vested before the Optionee's Service terminated (or
vested as a result of the termination). The balance of such Options shall lapse
when the Optionee's Service terminates. In the event that the Optionee dies
after the termination of the Optionee's Service but before the expiration of the
Optionee's Options, all or part of such Options may be exercised (prior to
expiration) by the executors or administrators of the Optionee's estate or by
any person who has acquired such Options directly from the Optionee by
beneficiary designation, bequest or inheritance, but only to the extent that
such Options had become exercisable before the Optionee's Service terminated (or
became exercisable as a result of the termination) and the underlying Shares had
vested before the Optionee's Service terminated (or vested as a result of the
termination).
(k) Leaves of Absence. For purposes of Subsection (i) above, Service
shall be deemed to continue while the Optionee is on a bona fide leave of
absence, if such leave was approved by the Company in writing and if continued
crediting of Service for this purpose is expressly required by the terms of such
leave or by applicable law (as determined by the Company).
(l) Death of Optionee. If an Optionee dies while the Optionee is in
Service, then the Optionee's Options shall expire on the earlier of the
following dates:
(i) The expiration date determined pursuant to Subsection (g) above;
or
(ii) The date 12 months after the Optionee's death.
All or part of the Optionee's Options may be exercised at any time before the
expiration of such Options under the preceding sentence by the executors or
administrators of the Optionee's estate or by any person who has acquired such
Options directly from the Optionee by beneficiary designation, bequest or
inheritance, but only to the extent that such Options had become exercisable
before the Optionee's death or became exercisable as a result of the death. The
balance of such Options shall lapse when the Optionee dies.
(m) No Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(n) Modification, Extension and Assumption of Options. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations
5
<PAGE>
under such Option.
(o) Restrictions on Transfer of Shares and Minimum Vesting. Any Shares
issued upon exercise of an Option shall be subject to such special forfeiture
conditions, rights of repurchase, rights of first refusal and other transfer
restrictions as the Board of Directors may determine. Such restrictions shall be
set forth in the applicable Stock Option Agreement and shall apply in addition
to any restrictions that may apply to holders of Shares generally. In the case
of an Optionee who is not an officer of the Company, an Outside Director or a
Consultant, any right to repurchase the Optionee's Shares at the original
Exercise Price upon termination of the Optionee's Service shall lapse at least
as rapidly as 20% per year over the five-year period commencing on the date of
the option grant. Any such repurchase right may be exercised only within 90 days
after the termination of the Optionee's Service for cash or for cancellation of
indebtedness incurred in purchasing the Shares.
(p) Accelerated Vesting. Unless the applicable Stock Option Agreement
expressly provides to the contrary or the Board of Directors determines
otherwise prior to a Change in Control, any right to repurchase an Optionee's
Shares at the original Exercise Price upon termination of the Optionee's Service
shall lapse and all of such Shares shall become fully vested upon a Change in
Control.
SECTION 7. PAYMENT FOR SHARES.
(a) General Rule. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) Surrender of Stock. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) Services Rendered. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.
(d) Promissory Note. To the extent that a Stock Option Agreement so
provides, all or a portion of the Exercise Price of Shares issued under the Plan
may be paid with a full-recourse promissory note. The Shares shall be pledged as
security for payment of the principal amount of the promissory note and interest
thereon. The interest rate payable under the terms of the promissory note shall
not be less than the minimum rate (if any) required to avoid the imputation of
additional interest under the Code. Subject to the foregoing, the Board of
Directors (at its sole discretion) shall specify the term, interest rate,
amortization requirements (if any) and other provisions of such note.
6
<PAGE>
(e) Exercise/Sale. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) Exercise/Pledge. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
SECTION 8. ADJUSTMENT OF SHARES.
(a) General. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) Mergers and Consolidations. In the event that the Company is a party
to a merger or consolidation, outstanding Options shall be subject to the
agreement of merger or consolidation. Such agreement, without the Optionees'
consent, may provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of such outstanding Options without payment of
any consideration.
(c) Reservation of Rights. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option.
7
<PAGE>
The grant of an Option pursuant to the Plan shall not affect in any way the
right or power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business structure, to merge or
consolidate or to dissolve, liquidate, sell or transfer all or any part of its
business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
(a) General. Shares shall not be issued under the Plan unless the
issuance and delivery of such Shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
(b) Financial Reports. Upon receipt of written request from any
Participant or shareholder who has received stock under the Plan, the Company,
once each year shall furnish to such Participant or shareholder its balance
sheet and income statement, unless such Participant or shareholder are key
employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or retaining
the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are
hereby expressly reserved by each, to terminate his or her Service at any time
and for any reason, with or without Cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's shareholders. In the event that the shareholders fail
to approve the Plan within 12 months after its adoption by the Board of
Directors, any grants of Options or sales or awards of Shares that have already
occurred shall be rescinded, and no additional grants, sales or awards shall be
made thereafter under the Plan. The Plan shall terminate automatically 10 years
after its adoption by the Board of Directors and may be terminated on any
earlier date pursuant to Subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan which increases the number of Shares
available for issuance under the Plan (except as provided in Section 8), or
which materially changes the class of persons who are eligible for the grant of
ISOs, shall be subject to the approval of the Company's shareholders.
Shareholder approval shall not be required for any other amendment of the Plan.
8
<PAGE>
(c) Effect of Amendment or Termination. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Shares previously issued or any Options previously
granted under the Plan, unless, in the case of an amendment, such amendment
expressly so provides.
SECTION 12. DEFINITIONS.
(a) "Board of Directors" shall mean the Board of Directors of the Company,
as constituted from time to time.
(b) "Cause" shall mean:
(i) Unauthorized use or disclosure of the confidential information
or trade secrets of the Company;
(ii) Conviction of, or a plea of "guilty" or "no contest" to, a
felony under the laws of the United States or any state thereof;
(iii) Willful misconduct or gross negligence; or
(iv) Continued failure to perform assigned duties or to comply with
reasonable policies of the Company.
(c) "Change in Control" shall mean:
i. The consummation of a merger or consolidation of the
Company with or into another entity or any other
corporate reorganization, if more than 50% of the
combined voting power of the continuing or surviving
entity's securities outstanding immediately after such
merger, consolidation or other reorganization is owned by
persons who were not shareholders of the Company
immediately prior to such merger, consolidation or other
reorganization;
ii. The sale, transfer or other disposition of all or
substantially all of the Company's assets; or
iii. The dissolution or liquidation of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
9
<PAGE>
(e) "Committee" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(f) "Company" shall mean NET-tel Communications, Inc., a Delaware
corporation.
(g) "Consultant" shall mean an individual who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(h) "Disability" shall mean that the Optionee is unable to engage in any
substantial gainful activity by reason of any medically determinable physical or
mental impairment.
(i) "Employee" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(j) "Exercise Price" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(k) "Fair Market Value" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(l) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(m) "Nonstatutory Option" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(n) "Option" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(o) "Optionee" shall mean an individual who holds an Option.
(p) "Outside Director" shall mean a member of the Board of Directors who
is not an Employee.
(q) "Parent" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(r) "Plan" shall mean this NET-tel Communications, Inc. 1998 Stock
Incentive Plan.
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<PAGE>
(s) "Purchase Price" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
(t) "Purchaser" shall mean an individual to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).
(u) "Reliance Period Termination Date" shall mean the date that is the
earlier of:
(1) The date of expiration or termination of the Plan;
(2) The date of any material modification of the Plan;
(3) The first date as of which all Options provided for under the
Plan have been issued; and
(4) The date of the first meeting of shareholders of the Company at
which directors are to be elected that occurs after the close of the third
calendar year following the calendar year in which an initial public offering of
the Company occurs or, in case the Company becomes publicly held without an
initial public offering, the first calendar year following the calendar year in
which the Company becomes publicly held.
(v) "Retirement" shall mean termination of Service after attainment of age
65.
(w) "Service" shall mean service as an Employee, Outside Director or
Consultant.
(x) "Share" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(y) "Stock" shall mean the Common Stock of the Company.
(z) "Stock Option Agreement" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(aa) "Stock Purchase Agreement" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan which contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.
(bb) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
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<PAGE>
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company
has caused its authorized officer to execute the same.
NET-TEL COMMUNICATIONS, INC.
/s/ James F. Kenefick
-----------------------------------
By: James F. Kenefick
Title: Founder and CEO
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Exhibit 10.5
Epoch Networks
Branded Services Agreement
--------------------------
THIS AGREEMENT ("Agreement") is made and entered into this 2nd day of April,
1998, by and between Epoch Networks, Inc., d.b.a. Epoch Internet ("Epoch") and
NET-tel Corporation ("Branded Provider").
WHEREAS, Epoch is an Internet access provider with proprietary technology,
software, systems, and engineering;
WHEREAS, Branded Provider is a communications company which desires to offer an
Internet access product in its own name or the name(s) of its designee(s)
("Branded");
WHEREAS, Branded Provider desires to market Internet services in the markets
agreed to by the parties hereto set forth on Attachment B hereto and other
markets selected by the parties hereto (the "Markets") in conjunction with a
sales forecast as set forth on Attachment B and updated from time to time under
this Agreement; and
WHEREAS, Epoch desires to extend its marketing efforts and establish
relationships throughout the U.S. with Branded Providers who shall re-brand and
market Epoch products and services to their customers,
NOW, THEREFORE, in consideration of the mutual premises contained herein, it is
hereby agreed:
1. Relationship of Parties
-----------------------
Epoch appoints Branded Provider to act as an authorized Epoch Branded Provider
subject to all the terms and conditions herein.
Upon Branded Provider's solicitation of a customer, Branded Provider shall be
responsible for exercising effective control over the customer and shall offer
and furnish such customer billing and other services as it deems appropriate.
Branded Provider shall be responsible to collect any charges pertaining to
customer access fees, as well as other services rendered by Epoch to customer.
Epoch and Branded Provider intend that Branded Provider shall be an independent
contractor. The mode, manner, method and means employed by Branded Provider and
the performance of the terms and conditions of this Agreement shall be of
Branded Provider's selection and under the sole control of Branded Provider. The
parties acknowledge that personnel employed by Branded Provider to perform
services under this Agreement shall not be Epoch employees and Branded Provider
assumes full responsibility for their acts. Branded Provider and Epoch
acknowledge that their relationship arising from this Agreement shall not
constitute or create a general agency, joint venture, partnership, employment
relationship or franchise between them and Branded Provider shall not have any
authority to bind Epoch in any manner.
<PAGE>
2. Epoch Responsibilities
----------------------
In connection with this Agreement, Epoch shall use reasonable efforts to provide
the following services and products for customers of Branded Provider (the
"Services"):
a) Provide customized Internet Services listed on Attachment A; including
lines (56K, fractional T-1, and T-1), network consulting (billable on an
hourly or project basis), web development, hosting, training, and Dial-Up
access (the "Branded Services"). This may also include branded dial-up
software (the "Branded Software") and branded customer service for
customers; Branded Provider shall bear the costs of programming, packaging,
duplication, third-party components, and branding of the Branded Software
(the costs of which are estimated on Attachment A);
b) Provide registration, mail and other servers sufficient to support the
Branded Software customers;
c) Provide a network operations center for dedicated and hosted customers on a
"24X7" basis at (888) NET-DOWN;
d) Provide the billing information in a form and timeframe mutually agreed
upon by Branded Provider and Epoch sufficient for Branded Provider to bill
its customers;
e) Provide network monitoring and engineering for the network and maintain the
network;
f) Provide Internet equipment and backbone infrastructure at the Network
Access Points ("NAP") to service connections between the NAPs and Epoch's
Points of Presence ("POPs"). Epoch, in its sole discretion, may offer
Branded Provider the opportunity to co-locate its equipment at the NAPs or
its POPs at reasonable rates;
g) Provide Internet protocol ("IP") addresses to Branded Provider and its
customers, per Epoch's normal IP policies and as defined in Attachment A,
as needed in provisioning dedicated access services. It is noted
specifically that all IP addresses shall be owned by Epoch, and not Branded
Provider, and shall be returned to Epoch upon expiration or termination of
this Agreement;
h) Provide, at the sole cost of Branded Provider, marketing support for the
Brandcd Software;
i) Provide sufficient personnel, consistent with the standards agreed to
herein, to support for the Internet services provided hereunder;
j) Timely disconnection of the access of any customer of Branded Provider upon
written notice from Branded Provider, as soon as is reasonably practical.
Epoch shall have no liability for any problems resulting from such
disconnection;
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<PAGE>
k) Provision and install equipment and obtain locations for POPs, which shall
be established and configured based on the projections of Branded Provider
(per Attachment B). Epoch shall not be required to open or expand a POP in
any market where the user base does not meet Epoch's minimum requirements
for spending the capital and resources;
l) Make available Internet University training, in both classroom and online
formats, to Branded Provider for training Branded Provider's sales,
marketing and project management personnel. Branded Provider shall pay
reasonable fees, plus any necessary travel expenses, for such training; and
m) Within thirty (30) days of execution of this Agreement the parties shall
meet to develop an implementation plan for fulfilling this Agreement; which
shall be amended from time to time as needed.
3. Branded Provider Responsibilities
---------------------------------
In consideration for being appointed as a Branded Provider, Branded Provider
assumes the following responsibilities:
a) Solicit customers (e.g. companies, organizations and/or individuals who
shall utilize Internet services) and maintain a trained and capable sales
and support organization to solicit customers and support Epoch to assure
customer satisfaction;
b) Allocate necessary funding and personnel to support the Branded Product
development, integration, marketing, sales, and training which shall ensure
the success of the commitments made by both parties hereto;
c) Present to potential customers an Internet Service Application (forms may
be changed or adapted for Branded Providers' specific needs with
authorization from Epoch). Branded Provider shall work with and assist such
customers in completing the form, as updated from time to time by Epoch.
Further, Branded Provider shall ensure that its personnel are adequately
trained to assist such customers. The Service Application shall constitute
a directive from Branded Provider to Epoch to provide the customer with all
Services set forth therein. Branded Provider shall then be billed by Epoch
for the Services in accordance with the prices set forth on Attachment A.
Receipt of the Service Application by Epoch shall constitute a binding
contract between Epoch and Branded Provider. Branded Provider understands
that Epoch may refuse service to any customer, which is: (i) an Internet
service provider using BGP, (ii) utilizes the UDP layer (streaming), (iii)
violates or plans to violate generally accepted net protocol, including
Epoch's Acceptable Use Policy ("AUP"), as such AUP may be modified from
time to time by Epoch in its sole discretion (the most recent statement of
Epoch's AUP is located at http://www.eni.net/products services/aup.html)
(e.g. "spamming"), or (iv) breaches any provision of Epoch's standard
Internet Services Agreement (the subject matter and provisions of which
Branded Provider shall incorporate into its own agreement);
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<PAGE>
d) Set prices for products and services provided to its customers independent
of any prices charged by Epoch to its customers;
e) Provide Epoch with a monthly forecast (the "Request") that forecasts four
(4) months out, attached as Attachment B, that specifies the sales forecast
for each type of Branded Service for each Market in which Branded Provider
shall be selling such services. Epoch may rely on the Request to build
infrastructure to meet Branded Providers forecasted needs. The Request
shall include, at a minimum, a schedule of projected volume of dial-up and
dedicated access customers and other information reasonably necessary for
Epoch to project usage and build POPs. Furthermore, Epoch reserves the
right, in its sole discretion, to decline to build a new POP or add
capacity to an existing POP where Request does not warrant the investment
of capital and resources by Epoch. In the event that Branded Provider
requests that Epoch open any new POP or add capacity to an existing POP to
serve the Request, then Branded Provider and Epoch shall enter into the POP
Expansion Agreement attached as Exhibit A hereto;
f) Branded Provider shall agree to pay the monthly minimum Revenue Commitment
dollar amount as set forth on Attachment A, according the revenue Ramp
(defined as a percentage of the minimum Revenue Commitment due in a given
month) set forth in Attachment A, if billing based on actual network and/or
services usage shall be less than as set forth in Attachment A;
g) Take no action inconsistent with this Agreement, and reasonably support
Epoch's efforts in providing Internet service to the customers.
4. Pricing & Commissions
---------------------
Epoch shall provide products and services to Branded Provider's customers and
charge Branded Provider prices as agreed in Attachment A; such pricing shall not
change during the term of this Agreement except with the express written consent
of both parties. Epoch shall bill Branded Provider on a monthly basis for
services provided to customers by Epoch; with such billing occurring in advance
of the services provided for standard recurring charges (e.g. access is paid in
advance of the month) and in arrears following provisioning of services for
usage based or consulting services. All invoices are payable within thirty (30)
days of receipt. Unpaid invoices are subject to Epoch's then-current late
payment charge and interest of one percent (1%) per month on any outstanding
balance, or the maximum permitted by law, plus all expenses of collection. The
initial price and commission schedule is attached hereto as Attachment A.
Furthermore, all definitions in this Agreement shall be subject to modification
by Epoch at any time, upon thirty (30) days notice to Branded Provider as needed
to conform with Epoch's AUP and to control abusers of Internet services, as well
as to comply with regulatory authorities or changes of law.
5. Trademarks and Related Matters
------------------------------
Branded Provider shall clearly mark its packaging and collateral materials with
the " Epoch"
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<PAGE>
logo. Epoch shall provide and periodically update a list of marks
which the Branded Provider may use, pursuant to the terms of this Agreement (the
"Marks"). All rights, title and interest in and to such Marks shall remain in
Epoch and Branded Provider shall not at any time challenge Epoch's rights in and
to said Mark or Marks or seek to obtain or obtain any rights therein. Any
unauthorized use of the Marks by Branded Provider or any person employed by or
contracting with Branded Provider, or any use not in compliance with the rules
and procedures prescribed by Epoch relating to such use, shall constitute an
infringement of Epochs rights in and to the Marks and be a material breach of
this Agreement.
Branded Provider agrees that upon the expiration or termination of this
Agreement, Branded Provider shall:
a) Not thereafter use any actual or similar Marks in any manner or for any
purpose; and,
b) Destroy all advertising and marketing materials, forms, and other materials
containing any Mark or otherwise identifying or relating to Epoch.
6. Confidentiality, Non-Disclosure, Trade Secrets & Intellectual Property
----------------------------------------------------------------------
Rights
- ------
a) For purposes of this Agreement, the term "Confidential Information" shall
mean all documents, information, financial statements, agreements, software
programs, pricing information, contracts, know-how, inventories,
projections, customer names, customer requirements, materials, details,
programs, software, specifications, techniques, properties, methods,
manufacturing processes, marketing and sales plans and techniques, employee
lists and information regarding employees such as work habits, skills, and
areas of expertise, products and services, as well as future and proposed
products and services, and other data, or any combination thereof, whether
or not the party who disclosed such Confidential Information ("Disclosing
Party") is the owner of such Confidential Information, which is disclosed
to the other party hereunder ("Receiving Party") by the Disclosing Party,
whether or not such information is or is not generally known to the public
or to other persons, and whether or not economic value may be obtained from
its disclosure or use by others.
b) The Receiving Party, along with its employees and agents, shall hold and
maintain the Confidential Information in strictest confidence and in trust
for the sole and exclusive benefit of the Disclosing Party.
c) The Receiving Party shall not, without the prior written approval of the
Disclosing Party, use for its own benefit, nor for the benefit of others,
other than in connection with this Agreement, nor publish or otherwise
disclose to others, or permit any use by others for their benefit or to the
detriment of the Disclosing Party, any of the Confidential Information.
d) The Receiving Party shall carefully restrict access to the Confidential
Information received from the Disclosing Party to the officers, directors,
employees, partners, and
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<PAGE>
professional advisors of the Receiving Party, who clearly need such access.
The Receiving Party further warrants and represents that it shall advise
each of the persons to whom it provides access to any of the Confidential
Information pursuant to this paragraph that such persons are strictly
prohibited from making any use, publishing or otherwise disclosing to
others, or permitting others to use for their benefit or to the detriment
of the Disclosing Party, any of the Confidential Information except as
required in the performance of its duties hereunder.
e) The Receiving Party shall take all necessary action to protect the
confidentiality of the Confidential Information, except for its disclosure
pursuant to paragraph (d) above, and hereby agrees to be held accountable
to the Disclosing Party for any and all losses, damages, claims, or
expenses incurred or suffered by the Disclosing Party as a result of the
Receiving Party's breach of this Agreement.
f) The Receiving Party shall not solicit the employment of, or the termination
of employment with the Disclosing Party, of any employee, officer, or
director of the Disclosing Party.
g) The Receiving Party understands and acknowledges that any disclosure or
misappropriation of any of the Confidential Information or the solicitation
or employment of any employees, officers or directors of the Disclosing
Party is in violation of this Agreement and shall constitute a material
breach of the Agreement as well as irreparable business harm, the amount of
which may be difficult to ascertain and, therefore, agrees that the
Disclosing Party shall have the right to apply to a court of competent
jurisdiction for an order restraining any such violation and for such other
relief as the Disclosing Party shall deem appropriate. The right of the
Disclosing Party to enjoin a violation of this Agreement is to be in
addition to the remedies otherwise available to the Disclosing Party at law
or in equity.
h) The Receiving Party shall return to the Disclosing Party any and all
records, notes, and other written, printed, or tangible materials
containing the Confidential Information immediately in the event of the
termination of this Agreement; provided, however, that any failure by the
Disclosing Party to request the return of such materials shall not affect
the duties of the Receiving Party as provided for in this Agreement.
i) Each party represents to the other party that it is the owner or licensee
of all proprietary software and intellectual property provided by such
party under the terms of this Agreement. To the extent that Branded
Provider requests Epoch to develop new software which is deemed proprietary
by and to Branded Provider then Branded Provider shall own all rights and
interest to such software. Branded Provider shall not own any rights to
software which is proprietary to Epoch, even though Branded Provider may
have paid reasonable fees for Epoch to customize such Epoch software for
Branded Provider's use while under this Agreement; specific examples of
which include, but are not limited to, CustomDial, SmartList, and
Start.page.
-6-
<PAGE>
7. Term & Termination Of Agreement
-------------------------------
The term of this Agreement shall extend for a period of four (4) years from the
date of execution by both parties. The term may be extended at any time upon
mutual agreement of the parties.
Branded Provider may terminate this Agreement for convenience at any time by
providing Epoch with sixty (60) days written notice. In the event of such
termination, Branded Provider shall immediately pay Epoch fifty percent (50%) of
the sum of all minimum monthly Revenue Commitments, as set forth on Attachment
A, for each remaining month in the term of this Agreement; in addition to any
and all amounts currently due and owing.
Either party may terminate this Agreement "for cause" in the event that the
other party hereto breaches any material term of this Agreement. In the event
that such breach is made by Epoch, then Branded Provider may terminate the
Agreement without penalty. In the event that such breach is made by Branded
Provider, then Epoch may terminate the Agreement and require payment from
Branded Provider equal to the minimum monthly Revenue Commitment defined in
Attachment A for the remaining balance of the term of the Agreement. In either
case, any and all past due amounts outstanding shall be payable prior to any
termination. Prior to the effectiveness of such termination the party noticing
the termination shall first give the other party a written explanation of the
breach which clearly describes the problem(s) constituting cause; the other
party shall then have sixty (60) days to correct and cure the breach. Should the
breach be cured, then this Agreement shall remain in full force and effect.
All sections of this Agreement which by their nature should survive expiration
or termination shall, in fact, survive expiration or termination, including,
without limitation, accrued rights to payment, warranty disclaimers, limitations
of liability, confidentiality and proprietary information.
8. LIMITATION OF LIABILITY
-----------------------
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT OR OTHERWISE, EPOCH SHALL
NOT BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY
CONTRACT, NEGLIGENCE, STR1CT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (I)
FOR ANY AMOUNT IN EXCESS OF ONE HUNDRED THOUSAND DOLLARS ($100,000) IN THE
AGGREGATE OR (II) FOR ANY INCIDENTAL. CONSEQUENTIAL, EXEMPLARY OR PUNITIVE
DAMAGES OF ANY KIND, INCLUDING, WITHOUT LIMITATION, LOSS OF DATA OR FILES,
PROFIT, GOODWILL, TIME, SAVINGS OR REVENUE. SOME STATES DO NOT ALLOW THE
EXCLUSION OR LIMITATION OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THE ABOVE
LIMITATION AND EXCLUSIONS MAY NOT APPLY TO BRANDED PROVIDER.
9. Electronic Communications Privacy Act Notice (18 USC 2701-2711)
---------------------------------------------------------------
EPOCH MAKES NO GUARANTEE OF CONFIDENTIALITY OR PRIVACY OF ANY
-7-
<PAGE>
COMMUNICATION OR INFORMATION TRANSMITTED ON ITS NETWORK OR ANY NETWORK ATTACHED
TO ITS NETWORK. Epoch shall not be liable for the privacy of e-mail addresses,
registration and identification information disk space, communications,
confidential or trade-secret information, or any other Content stored on Epoch's
equipment, transmitted over networks accessed by the Services, or otherwise
connected with Branded Provider's or End Users' use of the Services.
10. Warranty Disclaimer
-------------------
Branded Provider uses the services provided hereunder at Branded Provider's own
risk. Epoch, its employees, affiliates, agents, third-party information
providers, merchants, licensors and the like do not warrant that the Services
shall be uninterrupted or error free; nor do they make any warranty as to the
results that may be obtained from use of the Services, or as to the accuracy or
reliability of any content, product, service, or merchandise provided through
the Services. Epoch shall not warrant that any access number provided to End
Users for connecting to the Services shall be a local call from End Users' area
code and exchange. THE SERVICES ARE PROVIDED ON AN "AS IS, AS AVAILABLE" BASIS.
NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT BY WAY OF LIMITATION,
THOSE OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF NON-
INFRINGEMENT, ARE MADE WITH RESPECT TO THE SERVICES OR ANY CONTENT OR SOFTWARE
THEREIN. SOME STATES DO NOT ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY
LASTS, SO THE ABOVE LIMITATIONS MAY NOT APPLY TO BRANDED PROVIDER.
11. Indemnification
---------------
Branded Provider and Epoch each agree to be responsible for their own acts and
those of their subordinates, employees and subcontractors during the performance
of the work under this Agreement. Each party hereby indemnifies the other
against any and all losses, costs, damages, claims, expenses or liabilities
arising from any breach of each party's obligations and duties as set forth in
this Agreement.
12. Binding Arbitration
-------------------
Epoch and Branded Provider agree to settle by arbitration any disagreement or
controversy arising between Epoch and Branded Provider and any of their
respective employees, agents, etc. relating to this Agreement and/or any
customer serviced by Epoch. Such arbitration shall be conducted, with venue in
Orange County, California, according to standard arbitration rules then in
effect of the American Arbitration Association. Initiation of arbitration may
be made by serving written notice to the other party. This arbitration
agreement is binding upon all parties. Any award the arbitrator makes shall be
final and binding on all parties and judgment on it may be entered in any court
having jurisdiction. Furthermore, the prevailing party shall be entitled to
recover reasonable attorneys fees.
-8-
<PAGE>
13. General
-------
Neither this Agreement nor any rights, duties or obligations hereunder shall be
assignable by Branded Provider without the prior written consent of Epoch, which
may be withheld in the sole and absolute discretion of Epoch.
Epoch shall not be held liable for failure to fulfill its obligations hereunder
if such failure is due to causes beyond its reasonable control (Force Majeure)
including, without limitation, actions or failures to act of any third-party
upon whom Epoch reasonably relies for services (e.g. LECs, IXCs, etc.), acts of
God, fire, catastrophe, governmental prohibitions or regulations, hackers,
national emergencies, riots, wars, strikes, lockouts, work stoppages or other
labor difficulties, or other causes reasonably unforeseen in the normal course
of business. The time for any performance required under this Agreement shall be
extended by the delay incurred as a result of any such act of Force Majeure and
Epoch shall in no way be responsible for, nor liable for, any damages or losses
incurred as a result of such act(s).
The entire Agreement between the parties is incorporated in this Agreement
(including all Attachments hereto) and supersedes all prior discussions and
agreements between the parties relating to the subject matter herein. This
Agreement can be modified only in writing, when duly signed by authorized
representatives of both parties.
If any provision of this Agreement shall be held to be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
Every provision of this Agreement is intended to be severable. If any term or
provision hereof is illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the validity of the remainder of this
Agreement.
This Agreement is governed by the laws of the State of California.
14. Miscellaneous
-------------
Neither party shall publicize or disclose the existence of this Agreement or its
terms without the consent of the other, and in the event of such agreement, all
press release materials shall be reviewed and approved by the other party. The
failure of either party to exercise in any respect any right provided for herein
shall not be deemed a waiver of any further rights hereunder.
-9-
<PAGE>
15. Acknowledgments
---------------
Branded Provider acknowledges that it has read this Agreement and understands
and accepts the terms, conditions and covenants contained herein. Epoch
expressly disclaims the making of, and Branded Provider acknowledges that is has
not received or relied on, any guaranty, express or implied, as to the amount of
commissions or other revenue that it may earn as a result of its activities
pursuant to this Agreement.
16. Notices And Payments
--------------------
All notices and payments made to Branded Provider shall be delivered to its
address designated below, or as otherwise designated by Branded Provider from
time to time. All notices to Epoch shall be delivered to its address designated
below, or as otherwise designated by Epoch from time to time.
17. Binding Effect
--------------
This Agreement is binding upon the parties hereto, their respective executors,
administrators, heirs and successors in interest. All obligations by either
party which expressly or by their nature survive the expiration or termination
of this Agreement shall continue in force and effect subsequent to and
notwithstanding this Agreements expiration or termination until such time that
the obligations are satisfied in full or by their nature expire.
IN WITNESS WHEREOF, the parties have so agreed and made effective on the date
first-above written,
Epoch Networks, Inc.: NET-tel Corporation:
By: /s/ Scott Purcell By: /s/ James F. Kenefick
Name: Scott Purcell Name: James F. Kenefick
Title: President Title: President
18201 Von Karman Ave., 5th Floor 3050 "K" Street, NW, #250
Irvine, CA 92612 Washington, DC 20007
714-474-4950 202-736-5100
Attachments A - Branded Provider Price List, Monthly Revenue Commitment and Ramp
Schedule
Attachment B - Markets and Forecast
Exhibit A - POP Expansion Agreement
NET-tel Corporation
Standard Dedicated Access Service Agreement
-10-
<PAGE>
[*] IMPORTANT NOTICE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
Exhibit 10.5.1
EPOCH NETWORKS, INC.
FIRST AMENDMENT TO
BRANDED SERVICES AGREEMENT
This First Amendment to Branded Services Agreement, entered into as of July
16, 1998, amends that certain Branded Services Agreement, dated as of April 2,
1998 ("Agreement), between Net-tel Corporation ("Branded Provider") and Epoch
Networks, Inc. ("Epoch").
WHEREAS, Branded Provider and Epoch desire to amend the Agreement to revise
the price list and to include equipment purchase provisions in Attachment A to
the Agreement.
NOW, THEREFORE, in consideration of the mutual promises provided herein, the
parties hereto agree as follow:
1. Attachment A to the Agreement is hereby amended by deleting the material in
the table under the caption "Dial-up Access," but not the bullet points
--------------
following such table, and substituting therefor the following:
<TABLE>
<CAPTION>
"Discount Level"
Services Basic Ex. Min
- -------- ----- -------
<S> <C> <C>
Epoch Unlimited 9600-56K Analog * *
ISDN 1B * *
ISDN 2B * *
UUNet Access * *
</TABLE>
Notes:
1. Unlimited dial-up access shall be subject to control of abusive network
users.
2. Excess Minutes charge shall apply to time used above the basic allotment.
3. 56K analog service, where available, shall be standardized on Rockwell
chipsets and K56Flex technology.
4. ISDN Basic fee shall be for minutes of access per month per user.
Minutes shall not aggregate across user-base and expire at the end of each
month.
5. UUNet Access Basic fee shall be for minutes of access per month per
user. Minutes shall not aggregate across user-base and expire at the end of
each month.
2. Attachment A is hereby by including after the caption "Equipment Rental
----------------
Packages" the following new caption
--------
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
-1-
<PAGE>
Equipment Purchase Packages:
- ----------------------------
Equipment Price
- --------- -----
CISCO 2501 Epoch agrees to sell all hardware equipment at
Proteon 60 cost plus *% are further agrees to provide all
Ascend Pipeline 130 cost invoice upon such reasonable requests.
Motorola FT 100 (for 128K-T1)
Motorola (for 56K)
3. This Agreement, except as amended by this Amendment, shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties have set their hands to this Amendment as of
the date first above written.
EPOCH NETWORKS, INC.: NET-TEL CORPORATION:
By: /s/ Scott Purcell By: /s/ James F. Kenefick
Name: Scott Purcell Name: James F. Kenefick
Its: President 7/16/98 Title: President 7/16/98
18201 Von Karman Ave., 5th Floor 3050 "K" Street, NW, #250
Irvine, CA 92612 Washington, DC 20007
Tel: 949-474-4950 Tel: 202-736-5100
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
-2-
<PAGE>
[*] IMPORTANT NOTICE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.5.2
[EPOCH INTERNET LOGO
APPEARS HERE]
Branded Services Agreement
Second Amendment
This Amendment, entered into as of September 28, 1998, amends that
certain Branded Services Agreement, dated April 2, 1998 ("Agreement"), between
NET-tel Corporation ("Company") and Epoch Networks, Inc. ("Epoch").
WHEREAS, Company and Epoch desire to amend Attachment A to the
Agreement to include the availability of Epoch's SelectPro product in the
Services;
NOW, THEREFORE, in consideration of the mutual promises provided
herein, the parties hereto agree as follows:
1. Attachment A to the Agreement is hereby amended by inserting after
the table with the caption "DEDICATED INTERNET ACCESS - Dedicated Pricing:" the
following:
<TABLE>
<CAPTION>
DEDICATED INTERNET ACCESS
- --------------------------------------------------------------------------------------------------------------------
Dedicated Pricing:
- --------------------------------------------------------------------------------------------------------------------
Epoch Retail Price/1/
- --------------------------------------------------------------------------------------------------------------------
Service Base Monthly Monthly Usage Rate Activation Fee Monthly Cap
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SelectPro T-1 * * * *
- --------------------------------------------------------------------------------------------------------------------
Price to Branded Provider (*% off current Epoch retail prices)/1/:
- --------------------------------------------------------------------------------------------------------------------
Service Base Monthly Monthly Usage Rate/2/ Activation Fee Monthly Cap
- --------------------------------------------------------------------------------------------------------------------
SelectPro T-1 * * *
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
1. The "Base Monthly" shall be for Epoch Internet service only; the
"Activation Fee" shall be for Epoch set-up only. LEC monthly;
cross-connect and installation charges shall be quoted separately
and charged in addition to all Epoch fees and charges.
2. The Monthly Usage Rate shall be calculated by applying the
percentage amount of the discount to the total monthly usage based
on the retail rate.
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
1
<PAGE>
2. The terms and provisions of the Agreement shall remain in full force
and effect, except as expressly modified or amended by this Amendment.
This Amendment shall be attached to and become part of the Agreement.
IN WITNESS WHEREOF, the parties have set their hands to this Amendment
as of the date first above written.
EPOCH NETWORKS, INC. NET-tel CORPORATION
By: /s/ Robert S. Hawekotte By: /s/ James F. Kenefick
--------------------------- -----------------------
Name: Robert S. Hawekotte, Esq. Name: James F. Kenefick
------------------------- ---------------------
Its: Its: President
-------------------------- ---------------------
18201 Von Karman Avenue, 5th Floor 3050 "K" Street, NW, #250
Irvine, CA 92612 Washington, DC 20007
Tel: 949-474-4950 Tel: 202-736-5100
Fax: 949-955-3229 Fax: 202-736-1680
2
<PAGE>
[*] IMPORTANT NOTICE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
EXHIBIT 10.5.3
[EPOCH INTERNET LOGO APPEARS HERE]
Branded Services Agreement
Third Amendment
This Amendment, entered into as of February 22, 1999, amends that
certain Branded Services Agreement, dated April 2, 1998, as amended by certain
amendments thereto ("Agreement"), between NET-tel Corporation ("Company") and
Epoch Networks, Inc., d.b.a. Epoch Internet ("Epoch").
WHEREAS, Company and Epoch desire to amend various provisions of the
Agreement and Attachment A to the Agreement, as amended by certain amendments
thereto ("Attachment A");
NOW, THEREFORE, in consideration of the mutual promises provided
herein, the parties hereto agree as follows:
1. Attachment A is hereby amended by adding thereto under the caption
"Dedicated Access" the following:
"Branded Provider shall receive * percent (*%) off the below listed prices for
DS3 (3-45 Mbps) connectivity for fixed and metered rate listed below:
Fixed Rate
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Service Base Monthly Rate Activation Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
3 Mb * *
- ---------------------------------------------------------------------------------------------------------
6 Mb * *
- ---------------------------------------------------------------------------------------------------------
9 Mb * *
- ---------------------------------------------------------------------------------------------------------
12 Mb * *
- ---------------------------------------------------------------------------------------------------------
15 Mb * *
- ---------------------------------------------------------------------------------------------------------
21 Mb * *
- ---------------------------------------------------------------------------------------------------------
30 Mb * *
- ---------------------------------------------------------------------------------------------------------
35 Mb * *
- ---------------------------------------------------------------------------------------------------------
45Mb * *
- ---------------------------------------------------------------------------------------------------------
</TABLE>
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
1
<PAGE>
Metered Rate *% off prices listed below
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Service Base Monthly Fee Monthly Usage Rate Monthly Cap Activation Fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Select pro* * * * *
- -------------------------------------------------------------------------------------------------------------------------
Commerce * * * *
- -------------------------------------------------------------------------------------------------------------------------
3Mb - 15Mb * * * *
- -------------------------------------------------------------------------------------------------------------------------
15Mb - 30Mb * * * *
- -------------------------------------------------------------------------------------------------------------------------
30Mb - 45Mb * * * *
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Some restrictions apply.
The above fees are for Internet access ONLY. They do NOT include LEC/IXC
installations or monthly LEC/IXC charges."
Epoch agrees to sell the equipment to Branded Provider for DS3 access for a
price equal to Epoch's cost of goods purchased, including shipping and taxes,
plus * percent (*%). Equipment may only be purchased, but not leased, from
Epoch."
2. Attachment A is hereby amended by adding after the caption "Dedicated
Access" the following new section:
"Customer Provided Access:
-------------------------
Branded Provider may provision the local loops for its customers. Epoch
agrees to provide support in such process if requested by representatives of
Branded Provider's Operations Desk, or such other source as Branded Provider
may designate. Except as set forth in the table below, Epoch agrees that it
shall accept requests for such support from no other source. Branded Provider
agrees to pay Epoch for such support services $* per hour, in * (*) minute
increments, and a * (*) minute minimum, subject to the following guidelines
with respect to the application of such rate:
<TABLE>
<CAPTION>
<S> <C>
Charges Commence When: Charges Terminate When:
. Epoch Provisioning is required to call . Upon receipt of required information
Branded Provider's customer to obtain
necessary information
. Epoch Provisioning is required to . Upon resolution of such provisioning
troubleshoot problems at Branded Provider's problem
customers end
. Epoch Provisioning is requested by Branded . Upon completion of such provisioning
Provider's Operations Desk to assist with a assistance
customer ordered circuit
</TABLE>
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
2
<PAGE>
In the case of customer provided, LEC circuits, shall charge Branded Provider
cross-connect fees in an amount equal to cost plus *% for TI connections and for
DS3 connections connections."
3. Attachment A is hereby amended by adding after the caption "Web Hosting and
Server Co-Location" the following new section:
"Cancellation:
-------------
Branded Provider shall notify the Business Operations Manager ("BOM")
assigned to it at Epoch of the cancellation of any order for Internet access
services resold by Branded Provider within * (*) hours of receipt of such
order by Epoch, and Epoch shall have * (*) hours to execute such
cancellation. Branded Provider agrees to pay Epoch a fee of $* for each
cancellation. In addition, if Branded Provider notifies Epoch of cancellation
more than * (*) hours after receipt of such order by Epoch, Branded Provider
shall pay Epoch (i) the LEC installation fees and monthly charges incurred by
Epoch, (ii) Epoch activation fees and * (*) month of Epoch's monthly
recurring charge for the services being cancelled and (iii) any shipping
charges actually incurred by Epoch.
4. The terms and provisions of the Agreement shall remain in full force and
effect, except as expressly modified or amended by this Amendment.
This Amendment shall be attached to and become part of the Agreement.
IN WITNESS WHEREOF, the parties have set their hands to this Amendment as
of the date first above written.
<TABLE>
<CAPTION>
EPOCH NETWORKS, INC. NET-tel CORPORATION
<S> <C>
By: /s/ Scott Purcell By: /s/ James F. Kenefick
------------------------ -----------------------------
Name: Scott Purcell Name: James F. Kenefick
------------------------ -----------------------------
Its: President Its: President
------------------------ -----------------------------
18201 Von Karman Avenue, 5th Floor 1023 31st Street, NW
Irvine, CA 92612 Washington, DC 20007
Tel: 949-474-4950 Tel: Tel: 202-736-5100
Fax: 949-955-3229 Fax: Fax: 202-736-1680
</TABLE>
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
3
<PAGE>
[*] IMPORTANT NOTICE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
[EPOCH INTERNET LOGO APPEARS HERE]
Exhibit 10.5.4
Branded Services Agreement
Amendment
This Amendment, entered into as of January 20, 2000, amends that
certain Branded Services Agreement, dated August 25, 1998, as amended by certain
amendments thereto (as amended from time to time, "Agreement"), between NET-tel
Corporation ("Company") and Epoch Networks, Inc., d.b.a. Epoch Internet
("Epoch").
WHEREAS, Company and Epoch desire to amend various provisions of the
Agreement, including Attachment A to the Agreement (as amended from time to
time, "Attachment A");
NOW, THEREFORE, in consideration of the mutual promises provided
herein, the parties hereto agree as follows:
1. Notwithstanding the terms of any other Amendment to the Agreement
or Attachment A, the terms, including the prices for Services, set
forth herein shall be in effect with respect to agreements from
customers of Company received by Epoch after January 1, 2000, until
such terms or prices are changed as provided herein.
2. Attachment A to the Agreement is hereby amended to provide that the
following services may be sold to Company at the following prices:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------
SelectPro T-1/1, 2/
- ----------------------------------------------------------------
Term of Agreement One Year Two or More Years
- ----------------------------------------------------------------
<S> <C> <C>
Monthly Fee * *
- ----------------------------------------------------------------
Usage * *
- ----------------------------------------------------------------
Monthly Cap * *
- ----------------------------------------------------------------
Activation Fee * *
- ----------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------
Commerce Metered T-1/2/
- ----------------------------------------------------------------
Monthly Fee *
- ----------------------------------------------------------------
<S> <C>
Usage *
- ----------------------------------------------------------------
Monthly Cap *
- ----------------------------------------------------------------
Activation Fee *
- ----------------------------------------------------------------
</TABLE>
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
1
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Flat Rate T-1/2/
- ------------------------------------------------------------------------
Service Monthly Fee Activation Fee
- ------------------------------------------------------------------------
<S> <C> <C>
128K * *
- ------------------------------------------------------------------------
256K * *
- ------------------------------------------------------------------------
512K * *
- ------------------------------------------------------------------------
T-1 * *
- ------------------------------------------------------------------------
</TABLE>
Footnotes:
1. SelectPro service is designed for "routine" business use of the
Internet. Users of this service may not operate as Internet Service
Providers or other second level networks or use other high bandwidth
applications, including using border Gateway Protocol; hosting streaming
servers; or operating subscription or membership services (whether or
not users are required to pay for access); hosting sites for the public
distribution of software; or operating similar Web-centered businesses.
Use of the SelectPro service in any such manner may result in the
conversion of the service, upon * (*) days' notice to Company, to a
dedicated connectivity product that does allow such uses.
2. The "Activation Fee," "Monthly Fee" and "Usage" shall be for Epoch
Internet set-up and access only, and do not include Local Exchange
Carrier ("LEC") or InterXchange Carrier ("IXC") installation or monthly
fees. In the case of permitted Customer Provided Access ("CPA"), Epoch
shall charge Company an amount equal to Epoch's cost for the required
cross-connect, plus * percent (*%). (CPA is not permitted for Internet
access service at greater than T-1 bandwidths.) LEC monthly; cross-
connect and installation charges shall be quoted separately and charged
in addition to all Epoch fees and charges. Start-up requires payment of
all Epoch and LEC installation and activation fees and all Epoch and LEC
monthly access fees for the first and last months of service.
- ------------------------------------------------------------------------------
Dial-Up Internet Access/1/
- ------------------------------------------------------------------------------
$* per Month per User for * Hours, plus $* per Minute Thereafter
- ------------------------------------------------------------------------------
Footnotes:
1. 56K analog service, where available, is standardized on Rockwell
chip sets and V.90 technology. Includes Epoch customer care and
Epoch's extended network, which currently includes Epoch and GTE
points of presence. Dial-up access is available in the contiguous
United States and the District of Columbia only. Dial-up access is
subject to control of abusive network users as defined by the Epoch
Acceptable Use Policy.
3. Prices for the Services set forth herein are the current prices at which
Epoch agrees to sell the Services to Company. Epoch reserves the right
at any time and from time to time to modify the list of Services, modify
the terms on which the Services are provided or modify the prices for
the Services, or any combination of the foregoing. Epoch shall notify
Company thirty (30) days in advance of the effective date of any such
modifications, which modifications shall apply to all access agreements
entered into on and after such effective date.
4. Epoch agrees to sell, but not to rent, Netopia routers for use with the
Services at a price equal to Epoch's cost, as determined by Epoch, for
such equipment plus * percent (*%).
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
2
<PAGE>
5. DS-3 Internet access may be sold to Company at a price equal to Epoch's
cost, as determined by Epoch, plus * percent (*%). All agreements for
DS-3 Internet access are subject, as to availability and price, to prior
approval in writing by Keith Pinter (or his successor or designee). Such
approval shall be subject to a variety of factors in Epoch's sole
discretion, including, but not limited to, geography, relative
percentage of inbound/outbound traffic and amount of bandwidth required.
Any increase in bandwidth greater than 10Mbps under any existing
agreement is also subject to receipt of written approval by Keith Pinter
(or his successor or designee), which may be withheld in Epoch's sole
discretion.
6. The terms and provisions of the Agreement shall remain in full force and
effect, except as expressly modified or amended by this Amendment
7. This Amendment shall be attached to and become a part of the Agreement.
IN WITNESS WHEREOF, the parties have set their hands to this Amendment as of
the date first above written.
EPOCH NETWORKS, INC. NET-tel CORPORATION
By: /s/ Karen Muller By: /s/ Craig Bandes
------------------------ -------------------------
Name: Karen Muller Name: Craig Bandes
------------------------ -------------------------
Its: Vice President Its: Chief Financial Officer
------------------------ -------------------------
18201 Von Karman Avenue, 5th Floor 1023 31st Street, NW
Irvine, CA 92612 Washington, DC 20007
Tel: 949-474-4950 Tel: 202-736-5100
Fax: 949-955-3229 Fax: 202-736-1680
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
3
<PAGE>
Exhibit 10.6
NET-TEL COMMUNICATIONS, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
(As Adopted Effective April 7, 1999)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. PURPOSE OF THE PLAN......................................................................... 1
SECTION 2. ADMINISTRATION OF THE PLAN.................................................................. 1
(a) Committee Composition..................................................................... 1
(b) Committee Responsibilities................................................................ 1
SECTION 3. ENROLLMENT AND PARTICIPATION................................................................ 1
(a) Offering Periods.......................................................................... 1
(b) Enrollment................................................................................ 1
(c) Duration of Participation................................................................. 2
SECTION 4. EMPLOYEE CONTRIBUTIONS...................................................................... 2
(a) Frequency of Payroll Deductions........................................................... 2
(b) Amount of Payroll Deductions.............................................................. 2
(c) Changing Withholding Rate................................................................. 2
(d) Discontinuing Payroll Deductions.......................................................... 2
(e) Limit on Number of Elections.............................................................. 2
SECTION 5. WITHDRAWAL FROM THE PLAN.................................................................... 3
(a) Withdrawal................................................................................ 3
(b) Re-Enrollment After Withdrawal............................................................ 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS................................................................. 3
(a) Termination of Employment................................................................. 3
(b) Leave of Absence.......................................................................... 3
(c) Death..................................................................................... 3
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES........................................................ 3
(a) Plan Accounts............................................................................. 3
(b) Purchase Price............................................................................ 3
(c) Withholding Tax........................................................................... 4
(d) Number of Shares Purchased................................................................ 4
(e) Available Shares Insufficient............................................................. 4
(f) Issuance of Stock......................................................................... 4
(g) Unused Cash Balances...................................................................... 4
(h) Shareholder Approval...................................................................... 5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.............................................................. 5
(a) Five Percent Limit........................................................................ 5
(b) Dollar Limit.............................................................................. 5
</TABLE>
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<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 9. RIGHTS NOT TRANSFERABLE..................................................................... 5
SECTION 10. NO RIGHTS AS AN EMPLOYEE................................................................... 6
SECTION 11. NO RIGHTS AS A SHAREHOLDER................................................................. 6
SECTION 12. STOCK OFFERED UNDER THE PLAN............................................................... 6
(a) Authorized Shares......................................................................... 6
(b) Anti-Dilution Adjustments................................................................. 6
(c) Reorganizations........................................................................... 6
SECTION 13. SECURITIES LAW REQUIREMENTS................................................................ 6
(a) General................................................................................... 6
(b) Financial Reports......................................................................... 7
SECTION 14. REPORTS.................................................................................... 7
SECTION 15. AMENDMENT OR DISCONTINUANCE................................................................ 7
SECTION 16. DEFINITIONS................................................................................ 7
(a) "Board"................................................................................... 7
(b) "Change in Control"....................................................................... 8
(c) "Code".................................................................................... 8
(d) "Committee"............................................................................... 8
(e) "Company"................................................................................. 8
(f) "Compensation"............................................................................ 8
(g) "Eligible Employee"....................................................................... 8
(h) "Exchange Act"............................................................................ 8
(i) "Fair Market Value"....................................................................... 8
(j) "NET-tel Communications, Inc."............................................................ 9
(k) "Offering Period"......................................................................... 9
(l) "Participant"............................................................................. 9
(m) "Plan".................................................................................... 9
(n) "Plan Account"............................................................................ 9
(o) "Purchase Price".......................................................................... 9
(p) "Stock"................................................................................... 9
(q) "Subsidiary".............................................................................. 9
SECTION 17. EXECUTION.................................................................................. 10
</TABLE>
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<PAGE>
NET-tel Communications, Inc.
1999 Employee Stock Purchase Plan
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted effective as of April 7, 1999. The adoption of the
Plan is subject to the approval of the Company's shareholders. The purpose of
the Plan is to provide Eligible Employees with an opportunity to increase their
proprietary interest in the success of the Company by purchasing Stock from the
Company on favorable terms and to pay for such purchases through payroll
deductions. The Plan is intended to qualify under section 423 of the Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) Committee Composition. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board.
(b) Committee Responsibilities. The Committee shall interpret the Plan and
make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms, as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) Offering Periods. While the Plan is in effect, two Offering Periods
shall commence in each calendar year. The Offering Periods shall consist of the
six-month periods commencing on each January 1 and July 1.
(b) Enrollment. Any individual who, on the day preceding the first day of
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than 5 days prior
to the commencement of such Offering Period.
<PAGE>
(c) Duration of Participation. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Offering Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who discontinued employee
contributions under Section 4(d) or withdrew from the Plan under Section 5(a)
may again become a Participant, if he or she then is an Eligible Employee, by
following the procedure described in Subsection (b) above. A Participant whose
employee contributions were discontinued automatically under Section 8(b) shall
automatically resume participation at the beginning of the earliest Offering
Period ending in the next calendar year, if he or she then is an Eligible
Employee.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) Frequency of Payroll Deductions. A Participant may purchase shares of
Stock under the Plan solely by means of payroll deductions. Payroll deductions,
as designated by the Participant pursuant to Subsection (b) below, shall occur
on each payday during participation in the Plan.
(b) Amount of Payroll Deductions. An Eligible Employee shall designate on
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% or more
than 15%.
(c) Changing Withholding Rate. If a Participant wishes to change the rate
of payroll withholding, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. The new withholding rate
shall be effective as soon as reasonably practicable after the Company has
received such form. The new withholding rate shall be a whole percentage of the
Eligible Employee's Compensation, but not less than 1% or more than 15%.
(d) Discontinuing Payroll Deductions. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after the Company has
received such form. (In addition, employee contributions may be discontinued
automatically pursuant to Section 8(b).) A Participant who has discontinued
employee contributions may resume such contributions by filing a new enrollment
form with the Company at the prescribed location. Payroll withholding shall
resume as soon as reasonably practicable after the Company has received such
form.
(e) Limit on Number of Elections. No Participant shall make more than 1
election under Subsection (c) or (d) above during any Offering Period.
2
<PAGE>
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) Withdrawal. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Offering Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) Re-Enrollment After Withdrawal. A former Participant who has withdrawn
from the Plan shall not be a Participant until he or she re-enrolls in the Plan
under Section 3(c). Re-enrollment may be effective only at the commencement of
an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) Termination of Employment. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a).
(b) Leave of Absence. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) Death. In the event of the Participant's death, the amount credited to
his or her Plan Account shall be paid to a beneficiary designated by him or her
for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) Plan Accounts. The Company shall maintain a Plan Account on its books
in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) Purchase Price. The Purchase Price for each share of Stock purchased
at the close of an Offering Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Offering Period; or
(ii) 85% of the Fair Market Value of such share on the first trading
day in such Offering Period.
3
<PAGE>
(c) Withholding Tax. At the time the shares of Stock are purchased, in
whole or in part, or at the time some or all of the Company's Stock issued under
the Plan is disposed of, the Participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the purchase of shares of Stock or the disposition of the Stock. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Stock by the Eligible Employee.
(d) Number of Shares Purchased. As of the last day of each Offering
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (d), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 2,500 shares of Stock
with respect to any Offering Period nor more than the amounts of Stock set forth
in Sections 8(b) and 12(a). The Committee may determine with respect to all
Participants that any fractional share, as calculated under this Subsection (d),
shall be rounded down to the next lower whole share.
(e) Available Shares Insufficient. In the event that the aggregate number
of shares that all Participants elect to purchase during an Offering Period
exceeds the maximum number of shares remaining available for issuance under
Section 12(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(f) Issuance of Stock. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Offering Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(g) Unused Cash Balances. Any amount remaining in the Participant's Plan
Account that represents the Purchase Price for a fractional share shall be
carried over in the Participant's Plan Account to the next Offering Period. Any
amount remaining in the Participant's Plan Account that represents the Purchase
Price for whole shares that could not be purchased by reason of Subsection (d)
above, Section 8(b) or Section 12(a) shall be refunded to the Participant in
cash, without interest.
(h) Shareholder Approval. Any other provision of the Plan notwithstanding,
no shares of Stock shall be purchased under the Plan unless and until the
Company's shareholders have approved the adoption of the Plan.
4
<PAGE>
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) Five Percent Limit. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase 2,500 shares of Stock under this Plan with respect to each
Offering Period.
(b) Dollar Limit. Anything in the Plan to the contrary notwithstanding, no
Participant may be granted rights to purchase Stock under all employee stock
purchase plans of the Company and its parent and subsidiary companies (if any)
to accrue at a rate which exceeds $25,000 of the Fair Market Value of such Stock
for each calendar year in which such rights are outstanding at any time. For
purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Offering Period ending in the next calendar year
(if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's interest
in any Stock or moneys to which he or she may be entitled under the Plan, shall
not be transferable by voluntary or involuntary assignment or by operation of
law, or in any other manner other than by beneficiary designation or the laws of
descent and distribution. If a Participant in any manner attempts to transfer,
assign or otherwise encumber his or her rights or interest under the Plan, other
than by beneficiary designation or the laws of descent and distribution, then
such act shall be treated as an election by the Participant to withdraw from the
Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a NET-tel
Communications, Inc. for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the
5
<PAGE>
Participating Companies or of the Participant, which rights are hereby expressly
reserved by each, to terminate his or her employment at any time and for any
reason, with or without cause.
SECTION 11. NO RIGHTS AS A SHAREHOLDER.
A Participant shall have no rights as a shareholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Offering
Period.
SECTION 12. STOCK OFFERED UNDER THE PLAN.
(a) Authorized Shares. The aggregate number of shares of Stock available
for purchase under the Plan shall be ___________, subject to adjustment pursuant
to this Section 12.
(b) Anti-Dilution Adjustments. The aggregate number of shares of Stock
offered under the Plan, the 5,000 share limitation described in Section 7(d) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
shareholders or a similar event.
(c) Reorganizations. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Change in Control, the Offering
Period then in progress shall terminate and shares shall be purchased pursuant
to Section 7. In the event of a merger or consolidation to which the Company is
a constituent corporation and which does not constitute a Change in Control, the
Plan shall continue unless the plan of merger or consolidation provides
otherwise. The Plan shall in no event be construed to restrict in any way the
Company's right to undertake a dissolution, liquidation, merger, consolidation
or other reorganization.
SECTION 13. SECURITIES LAW REQUIREMENTS.
(a) General. Shares of Stock shall not be issued under the Plan unless the
issuance and delivery of such shares comply with (or are exempt from) all
applicable requirements of law, including (without limitation) the Securities
Act of 1933, as amended, the rules and regulations promulgated thereunder, state
securities laws and regulations, and the regulations of any stock exchange or
other securities market on which the Company's securities may then be traded.
(b) Financial Reports. Upon receipt of written request from any
Participant or shareholder who has received stock under the Plan, the Company,
once each year shall furnish to such Participant or shareholder its balance
sheet and income statement, unless such Participant or shareholder are key
employees whose duties with the Company assure them access to equivalent
information. Such balance sheet and income statement need not be audited.
6
<PAGE>
SECTION 14. REPORTS.
Individual accounts shall be maintained for each Participant in the Plan.
Statements of account shall be given to each Participant at least annually,
which statements shall set forth the amounts of payroll deduction, the Purchase
Price, the number of shares purchased and the remaining cash balance, if any.
SECTION 15. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 12, any increase in
the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the shareholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
shareholders of the Company to the extent required by an applicable law or
regulation. The Plan shall in any event terminate on the 10th anniversary of
the date of its adoption by the Board.
SECTION 16. DEFINITIONS.
(a) "Board" means the Board of Directors of the Company, as constituted
from time to time.
(b) "Change in Control" means:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if more
than 50% of the combined voting power of the continuing or surviving
entity's securities outstanding immediately after such merger,
consolidation or other reorganization is owned by persons who were not
shareholders of the Company immediately prior to such merger, consolidation
or other reorganization;
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets or the complete liquidation or dissolution of
the Company; or
(iii) The dissolution or liquidation of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a committee of the Board, as described in Section 2.
(e) "Company" means NET-tel Communications, Inc., a Delaware corporation.
7
<PAGE>
(f) "Compensation" means regular straight-time earnings, commission and
bonuses plus any pre-tax contributions made by the Participant under section
401(k) or 125 of the Code. Compensation excludes payments for overtime, shift
premiums, other marketing incentive payments, special payments, moving or
relocation allowances, car allowances, imputed income attributable to cars or
life insurance, fringe benefits, contributions to employee benefit plans and
similar items. The Committee shall determine whether a particular item is
included in Compensation.
(g) "Eligible Employee" means any employee of a NET-tel Communications,
Inc. who meets both of the following requirements:
(i) His or her customary employment is for more than five months per
calendar year and for more than 20 hours per week; and
(ii) He or she has been an employee of a NET-tel Communications, Inc.
for not less than six (6) months.
The foregoing notwithstanding, an individual shall not be considered an Eligible
Employee if his or her participation in the Plan is prohibited by the law of any
country which has jurisdiction over him or her or if he or she is subject to a
collective bargaining agreement that does not provide for participation in the
Plan.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(i) "Fair Market Value" means the market price of Stock, determined by
the Committee as follows:
(i) If Stock was traded over-the-counter on the date in question but
was not traded on The Nasdaq Stock Market or The Nasdaq National Market,
then the Fair Market Value shall be equal to the mean between the last
reported representative bid and asked prices quoted for such date by the
principal automated inter-dealer quotation system on which Stock is quoted
or, if the Stock is not quoted on any such system, by the "Pink Sheets"
published by the National Quotation Bureau, Inc.;
(ii) If Stock was traded over-the-counter on the date in question
and was traded on The Nasdaq Stock Market or The Nasdaq National Market,
then the Fair Market Value shall be equal to the last-transaction price
quoted for such date by The Nasdaq Stock Market or The Nasdaq National
Market;
(iii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and
(iv) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
8
<PAGE>
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
-----------------------
directly to the Company by Nasdaq or a comparable exchange. Such determination
shall be conclusive and binding on all persons.
(j) "NET-tel Communications, Inc." means (i) the Company and (ii) each
present or future Subsidiary designated by the Committee as a NET-tel
Communications, Inc.
(k) "Offering Period" means a six-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(l) "Participant" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 3(b).
(m) "Plan" means this NET-tel Communications, Inc. 1999 Employee Stock
Purchase Plan, as it may be amended from time to time.
(n) "Plan Account" means the account established for each Participant
pursuant to Section 7(a).
(o) "Purchase Price" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(p) "Stock" means the Common Stock of the Company.
(q) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
SECTION 17. EXECUTION.
To record the adoption of the Plan by the Board effective April 7, 1999,
the Company has caused its authorized officer to execute the same.
NET-tel Communications, Inc.
By: /s/ James F. Kenefick
-------------------------
Title: President
---------------------
9
<PAGE>
Exhibit 10.7
[*] IMPORTANT NOTICE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
CAPACITY PURCHASE AGREEMENT
Agreement No. _______________
This Capacity Purchase Agreement (this "Agreement") is made this ______ day of
_______________, 1999, (the "Effective Date") by and between Williams Network, a
division of Williams Communications, Inc., a Delaware corporation ("Grantor"),
with its principal place of business at One Williams Center, 26/th/ Floor,
Tulsa, Oklahoma 74172, and NET-Tel Corporation, a Florida corporation
("Purchaser"), with its principal place of business at 1023 31/st/ Street, N.W.,
Washington D.C. 20007, for the provision of telecommunications services, subject
to this Agreement and as set forth in this Agreement.
1.0 Exhibits
--------
Exhibit I - Grantor's Network Pricing Schedule
Exhibit II - Grantor's Network Technical Specifications
Exhibit III - Grantor's Network Collocation Service Terms and Conditions
Exhibit IV - Grantors Cities and Location of Grantor's POPs
Exhibit V - Special Financing Payment Terms
1.1 Definitions
-----------
Additional Capacity: Capacity ordered by Purchaser and provided by Grantor
pursuant to this Agreement which is in addition to and beyond the Purchased
Capacity and will be paid for by Purchaser separately from the IRU Purchase
Price.
Agreement Services: all Capacity, and Other Services to be provided
pursuant to this Agreement.
Ancillary Services: as defined in Section 4.3.
Capacity: capacity on the Grantor's Network for telecommunications in DS-
3, OC-3, OC-12 and OC-48 interexchange carrier services which may be either
Purchased Capacity or Additional Capacity, but not Other Services, as
provided by Grantor to Purchaser pursuant to this Agreement.
Circuit: a dedicated communications path with a specified bandwidth and
which is a component of Capacity
Collocation Services: the services described in Section 4.3
Due Date: as defined in Section 9.1.
Page 1 of 56
<PAGE>
Grantor's Network: the telecommunications facilities owned by Grantor and
used to provide Capacity between the cities listed on Exhibit IV which
updated list will be provided upon request.
IP Transit: as defined in Section 4.3.
IP Transport: as defined in Section 4.3
Local Access: as defined in Section 4.3.
Off-Net Services: any services provided or arranged by Grantor for
Purchaser not on Grantor's Network which services are provided to Purchaser
on an individual case basis.
On-Net: Agreement Services which are provided on Grantor's Network.
Other Services: Off-Net Services, Local Access Services, Interconnection
Services, Ancillary Services, Collocation Services, IP Transit Services.
Purchased Capacity: the amount of Capacity in which Purchaser is acquiring
an IRU from Grantor in return for the Purchase Price, which Capacity is
provided on Grantor's Network and which may be utilized for Private Line
Service, ATM Service, Frame Relay Service, or IP Transport Service.
Purchased Capacity may not be utilized for IP Transit Service and does not
include Collocate Service, Third Party Service or Ancillary Services. The
dollar amount of the Purchased Capacity is equivalent to the dollar amount
of the Purchase Price.
Purchase Price: The Purchase Price for the 20 year IRU in the Purchased
Capacity is $*, for which NET-Tel will pay the net present value
of $* ("Net Present Value of the Purchase Price") in accordance
with Section 3.0.
Third Party Provider: A provider of telecommunications services other than
Grantor.
Third Party Services: Local Access Services, Off-Net InterLATA Services,
Non-collocated Facilities and Ancillary Services which are provided by a
Third Party Provider.
2.0 IRU for Capacity
----------------
Effective on the Initial Payment date, and provided that Purchaser's parent
company, NET-Tel Communications , Inc. guarantees Purchaser's payment
obligations as set forth on the signature page of the Agreement , the
Grantor grants to the Purchaser, for the term of this Agreement, an
Indefeasible Right of Use ("IRU") in the Purchased Capacity for which
payment has been made and shall be made in accordance with Sections 3.1 and
3.2 of this Agreement. The Purchased Capacity may be utilized by Purchaser
subject to the terms of this Agreement and provided that (i) Purchaser
utilizes no more than $* worth of Capacity as determined by Exhibit
1 and Section 7.0 in any given fiscal year
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
Page 2 of 56
<PAGE>
during the term of this Agreement(other than as permitted under Section
3.4) with the first fiscal year beginning on the first day of the month
following the Effective Date of this Agreement, and each following fiscal
year beginning on the anniversary thereof.
3.0 Payment for Capacity
--------------------
3.1 Initial Payment. Upon the execution and delivery of this Agreement and in
exchange for the IRU interest in the Purchased Capacity granted pursuant to
this Agreement, the Purchaser shall make an initial payment of $* (the
"Initial Payment") toward the Net Present Value of the Purchase Price. The
Initial Payment will be made by the Purchaser by applying the $* Network
Credits issued by the Grantor to the Purchaser on the date hereof pursuant
to Section 2.4(b) of the Securities Purchase Agreement.
3.2 Installment Payments. The balance of the Net Present Value of the Purchase
Price, $*, shall be financed for * (*) years at an annual interest rate
equal to * percent (*%), which may be prepaid by NET-Tel without
penalty. Such principal and interest shall be payable in eighty-four (84)
equal consecutive monthly installments of $*, each due on the ____
day of each month commencing ___________, provided, however, that if any
such date is not a day on which banks in New York are open for business
("Business Day"), the payment due thereon shall be paid on the next
Business Day.
3.3 Filings and Special Financing Payment Provisions. This Agreement and the
grant of the IRU hereunder shall be subject to the Special Financing
Payment Provisions attached hereto as Exhibit V.
3.4 Payments for Other Services and Additional Capacity. The Purchaser shall
be required to make, at the request of the Grantor, additional payments for
Additional Capacity and Other Services requested by the Purchaser in
accordance with the terms of this Agreement.
3.5 Payments Generally. All payments under this Agreement shall be made in
accordance with the provisions of Section 9.
4.0 Description of Purchased Capacity, Services and Pricing
-------------------------------------------------------
4.1 Purchaser may provision its Purchased Capacity and may order from Grantor
the Agreement Services in accordance with the terms and conditions set forth in
this Agreement. The Grantor's Network Pricing Schedule which is applicable to
orders for Capacity on Grantor's Network is attached to this Agreement and
incorporated herein by reference and may be amended by mutual written agreement
of the Parties. Other Services will be provided at the rates and at the service
levels to be mutually agreed to by the parties on an individual case basis to be
determined at the time of the order.
4.2 The Purchased Capacity may be ordered in the following formats: (1) Private
Line Services; (2) ATM Services; (3) Frame Relay Service; and (4) IP Transport
Service.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
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(1) Private Line Service: Grantor's Network Private Line Service (the
"Private Line Service") provides domestic DS-1, DS-3 and optical SONET (OC-N)
circuits which are specifically dedicated to Purchaser's use between two (2)
points specified by the parties in a Service Order and meeting the technical
requirements as defined in the "Grantor's Network Technical Specifications for
Private Line Service" attached hereto as Exhibit II.
(2) ATM Service: Grantor's Network Asynchronous Transfer Mode Service (the
"ATM Service") is technology that provides integration of disparate networks
onto a single communications infrastructure. ATM technology takes voice, data
and video packets and divides them into equally sized, 53-byte cells and
transmits them over Grantor's ATM network. Grantor's ATM Service is designed for
two (2) primary applications. These applications include ATM transport and
backbone connectivity. ATM transport provides multimedia and video transmission.
Multimedia transmission is suited for transporting voice, data and video while
video transmission is best designed for point-to-point video services. Backbone
connectivity provides for the interconnection of local area networks ("LAN(s)")
as well as interconnection of existing network access points ("NAP(s)") or
private peering backbones.
(3) Frame Relay Service: Grantor's Frame Relay Service is a technology
that allows commercial end-users to use a network of shared private lines to
send and receive data from geographically distant locations. Frame Relay can be
defined as packet-switched, multiplexed data networking technology supporting
connectivity between user equipment, such as routers, and a carrier's frame
relay network equipment.
(4) IP Transport Service: Dedicated access connectivity at the IP layer to
connect two or more associated customer sites on the provider network. Access
to external networks is not provided as IP packets between customer sites
traverse only the provider network. Routing may or may not be used in this
case.
4.3 In addition to Third Party Services(which Grantor shall provide to
Purchaser at Grantor's cost) Purchaser may order, and Grantor may provide, the
following Other Services which do not qualify as part of the Purchased Capacity:
(1) Collocate Service: In the event the Purchaser should desire to place
Purchaser owned equipment in a facility owned (or leased) and operated by
Grantor for the purpose of interconnecting the Purchaser owned equipment with
Grantor's network ("Collocation Service"), the Purchaser shall complete a
Collocate Request Form. Upon agreement between Purchaser and Grantor of the
Collocation Services to be provided, the parties shall complete a Collocation
Service Order. Grantor's agreement to Purchaser's request for Collocation
Service shall not be unreasonably withheld. The terms and conditions relating
to Collocation Service and the forms required from Purchaser are attached hereto
as Exhibit III and are a part of this Agreement and incorporated herein by
reference.
(2) IP Transit Service: Dedicated access connectivity at the IP layer to
provide full internet access to the customer service provider. IP packets
exchanged between the customer network and external networks traverse the
provider network, using Border Gateway Protocol (BGP) or a similar routing
protocol to establish the appropriate routing.
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<PAGE>
(3) Local Access Services.
(a) Unless the parties otherwise agree pursuant to Section 8.3 below, if
Purchaser so requests, Grantor shall obtain "Local Access Services" for
Purchaser, which are defined as the telecommunications facilities connecting a
Purchaser-designated termination point to a Grantor Point of Presence ("POP").
Purchaser shall execute a Letter of Agency, on such form as provided by Grantor,
authorizing Grantor to interact directly with the Local Access provider(s) to
obtain the Local Access Services. Purchaser shall request all Local Access
Services in writing to Grantor. Purchaser shall be responsible for all charges,
including without limitation, monthly charges, usage charges, installation
charges, non-recurring charges, or applicable termination/cancellation
liabilities, of the Local Access provider(s). Terms and conditions of Local
Access Service are those of the Local Access Provider.
(b) In obtaining Local Access Services requested by Purchaser, Grantor
shall be responsible for provisioning and the initial testing of an
interconnection between the interexchange Service set forth in a Service Order
and the Local Access Services. Grantor will coordinate the installation of the
Local Access Services with the interexchange Service being provided by Grantor.
Charges to Purchaser for Local Access Service administered by Grantor on behalf
of Purchaser shall be billed to Purchaser at the tariff rate of the Local Access
service provider which is charged to Grantor. If the tariff rate for Local
Access Services which is charged to Grantor is changed by the Local Access
service provider, such changes will be passed through to Purchaser. Local Access
service provider invoices will be made available to Purchaser upon request.
(c) Purchaser may, upon Grantor's prior written approval through the
Service Order acceptance process, order its own Local Access Services. In such
event, Purchaser shall be billed directly by the provider of such services and
Grantor shall not be responsible for billing any such charges. If Purchaser
orders its own Local Access Services, Purchaser shall be responsible for
ensuring that such services are turned up at the same time as any related
Services being provided by Grantor. In the event the Purchaser-ordered Local
Access Services are not ready at such time as the Services being provided by
Grantor, Grantor shall nevertheless have the right to begin billing for such
Agreement Services as of the Actual Start Date and Purchaser shall be liable for
payment for such Agreement Services as of such date.
(4) Description of Ancillary Services.
(a) Grantor may provide to or arrange through Third Party Providers
extraordinary service for Purchaser for reasons including but not limited to:
(a) Purchaser's request to expedite availability of Capacity to a date earlier
than Grantor's published installation interval or a previously accepted start
date; (b) Substitute Circuit redesign or other activity occasioned by receipt of
inaccurate information from Purchaser; (c) Purchaser's request for
reinstallation services following any suspension by
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<PAGE>
Grantor of the Agreement Services for cause; (d) Purchaser's request for
use of routes or facilities other than those selected by Grantor for
provision of the Agreement Services; and (e) other circumstances in which
extraordinary costs and expenses are generated as a result of a breach by
Purchaser of Section 11.5 (services under this subsection are collectively
referred to herein as "Ancillary Services"). Purchaser shall be liable for
all reasonable charges for any Ancillary Services provided by Grantor.
(b) If Purchaser desires to change the date on which Purchaser has
requested that Capacity or Other Services be available, other than a
request to expedite as set forth above, Purchaser will be charged for any
charges incurred by Grantor from Third Party Providers as a result of
Purchaser's request for Change of Service Date. Any changes with respect
to a Third Party Service are at the discretion of such Third Party Provider
and subject to changes of such Third Party Provider.
(c) If Purchaser requests a modification to the information contained
in a Service Order (other than a Change of Service Date) prior to
completion of installation or provision of the Agreement Services,
Purchaser may incur a Change of Service Order Charge. No charge will be
incurred if the change is administrative in nature (i.e. billing address,
contact information, etc.). A charge will be incurred if the
administrative change relates to Local Access Services or Off-Net Services
ordered under this Agreement.
(d) If Purchaser requests a change to the Agreement Services after
installation, Purchaser may incur a Change of Service Charge. If such
Change of Service is administrative in nature, Purchaser will not incur a
charge, unless such administrative change applies to Local Access Services
or Off-Net Services which have been ordered by Grantor as agent for
Purchaser. In addition to the Change of Service Charge, Purchaser will be
responsible for any charges due to re-engineering which is required as a
result of Purchaser's request for Change of Service. This Change of
Service Charge will be waived for two (2) single On-Net circuit changes per
twelve (12) month period during the first twenty-four (24) contract months
(for a total of four (4) free single On-net Changes of Service).
(e) If Purchaser desires to cancel a Service Order prior to
installation and acceptance of the Service, Purchaser will incur a
Cancellation Charge.
(f) All charges referred to in this Section shall be established as
of Grantor's acceptance of the Service Order to which they apply unless
they are otherwise specifically set forth in the Grantor's Network Pricing
Schedule as non-recurring charges, or have not yet been provided- by a
Third Party Provider of Local Access Services or Off-Net Services. Such
non-recurring charges will be set forth in Exhibit 1 for each type of
Capacity available under this Agreement.
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5.0 Effective Date and Term
-----------------------
This Agreement shall become effective on the date on which Grantor signs the
Agreement ("Effective Date") and shall continue for a term of twenty (20) years
(the "Term"). Each Service Order placed under this Agreement shall have its own
term, as indicated on such Service Order. This Agreement shall automatically
renew for successive one-year periods (the "Renewal Term(s)") unless canceled by
either party by giving written notice of such cancellation not less than sixty
(60) days before the end of the current Term, or any Renewal Term. Unless
Purchaser is in default, any Capacity being provided at the time of termination
shall continue until specified in the applicable Service Order upon the terms
and conditions of this Agreement; provided, however, that Purchaser may not
order any new Circuits or Agreement Services until Purchaser and Grantor have
entered into a new agreement or mutually agreed in writing to extend this
Agreement. The charges for any Capacity or Other Services during any such
extension shall be the then current Grantor charges.
6.0 Preferred Provider
------------------
Notwithstanding anything to the contrary herein, Purchaser and its Affiliates
shall give Grantor a right of "first offer" with respect to all of Purchaser's
Private Line Service requirements for which Grantor or its Affiliates then
offers such services or products ("Offered Services"). Any time Purchaser
requires Offered Services, it shall solicit an offer from Grantor as to the
rates and terms and conditions upon which Grantor is willing to provide the
Offered Services prior to soliciting offers from Third Party Providers.
7.0 *
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
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<PAGE>
8.0 Service Orders and Provisioning of Circuits
-------------------------------------------
8.1 Purchased Capacity, Additional Capacity and Other Services requested by
Purchaser hereunder shall be requested on Grantor's Service Order forms in
effect from time to time or on Purchaser's forms accepted in writing by Grantor
("Service Order(s)"). Additional Capacity and Other Services are subject to
availability. Each Service Order shall reference this Agreement and its
respective Agreement number. Grantor reserves the right not to accept a Service
Order under this Agreement at any time if the Service Order is incomplete or
the ordered service is unavailable. Grantor will notify Purchaser of its
acceptance or rejection of any Service Order within forty-eight (48) hours. The
minimum term for any Service Order is one year.
8.2 When a Service Order is placed, the Purchaser will indicate a requested
start date (the "Requested Start Date") for the Circuits, the desired term of
the grant of Capacity or term of the Circuit, the specific city pairs, the
applicable bandwidth and any other information necessary for Grantor to provide
the Capacity. Grantor will make reasonable efforts to meet Purchaser's
Requested Start Date. In the event that a Requested Start Date is altered
following both parties' acceptance of the Requested Start Date, Purchaser's
Requested Start Date will be changed to reflect the number of days of delay or
advance, as appropriate (the "Actual Start Date"). Beginning on the sixth day
following an accepted Requested Start Date one (1) free day of On-Net Service
will be accrued for each one (1) day the service is delayed up to a maximum of
thirty (30) free days. Beginning on the fifteenth (15th) day following an
accepted Requested Start Date Purchaser will have the right to cancel the
Service Order without incurring the Cancellation Charge.
8.3 Except as otherwise specifically noted including but not limited to Section
4.0 and Section 8.0, this Agreement shall apply to all Agreement Services
provided by Grantor to the Purchaser whether pursuant to a Service Order or
otherwise. The general provisions of this Agreement including limitation of
liability, and indemnity shall apply to all Agreement Services.
8.4 Grantor's standard service implementation interval for DS-3 Circuits
provided on Grantor's owned and operated network is forty-five (45) calendar
days from acceptance of a Service Order by Grantor's Purchaser Care department.
Such acceptance shall be indicated by the signature of a representative of such
department on the Service Order. The standard service implementation interval
for OC-N Capacity, Circuits, Other Services or Off-Net Services provided by a
third party and either partially or wholly off of Grantor's owned and operated
network shall be determined on an individual case basis. Grantor assumes no
responsibility for delays of Third Party Providers. Grantor shall make
reasonable efforts to provide Circuits within its standard service
implementation interval or on Purchaser's Requested Start Date. Failure of
Grantor to deliver by such date shall not constitute a default under this
Agreement and Grantor shall not be liable to pay to Purchaser any penalties or
damages for Grantor's failure to meet such standard service implementation
intervals.
8.5 Services shall begin on the date Grantor issues notice that Circuits are
available (the "Start of Service Notice" or "SOSN"), indicating, (1) that any
On-Net Circuits have been tested by Grantor in accordance with the Technical
Specifications set forth in Exhibit II attached hereto and that the Circuits
meet or exceed those Technical Specifications; or (2) that any Off-Net
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<PAGE>
Circuits are deemed ready and available by the Third Party Service Provider. If
Purchaser fails to give written notice that the Circuits are in material non-
compliance with the applicable Technical Specifications within ten (10) business
days for On-Net Services and three (3) business days for Off-Net Services after
Grantor issues the SOSN, Purchaser shall be deemed to have accepted such
Circuits and Grantor shall begin billing for Additional Capacity as of the
Actual Start Date.
8.6 Purchaser may request a delay in the Actual Start Date of an Order for
Capacity provided that (i) it provides the Grantor a written delay request no
later than five (5) business days prior to the Requested Start Date or the
delayed Requested Start Date, as the case may be, and (ii) the aggregate number
of the days requested by such delay request or requests do not exceed forty-five
(45) calendar days for On-Net Services and thirty (30) calendar days for Off-Net
Services from the Service Order's original Requested Start Date. At the
expiration of such thirty (30) day On-Net and forty-five (45) day Off-Net period
the Purchaser may no longer delay the Actual Start Date of such Order and
Grantor may begin billing as of such date. Any delay for Other Services is at
the discretion of the Third Party Service Provider.
8.7 Any conflicting, different or additional terms and conditions contained in
Purchaser's acknowledgement or Service Order or elsewhere are objected to by
Grantor and shall not constitute part of this Agreement. No action by Grantor
(including, without limitation, provision of Capacity, Other Services, or Off-
Net Services to Purchaser pursuant to such Service Order) shall be construed as
binding or estopping Grantor with respect to such term or condition.
8.8 Once the Actual Start Date has passed and Purchaser has accepted the
Additional Capacity, or Other Services, Purchaser must pay for the Additional
Capacity and Other Services as indicated on the Service Order through the term
indicated on such Service Order, regardless of whether Purchaser is actually
using the Circuits and Services.
9.0 Payment Terms
-------------
9.1 Due Date and Invoice. All amounts stated on each monthly invoice are due
--------------------
and payable upon Purchaser's receipt of the invoice. Purchaser agrees to
remit payment to Grantor at the remittance address. In the event Purchaser
fails to make full payment to the proper address within thirty (30) days of
the date of the invoice,("the Due Date") Purchaser shall also pay a late
fee in the amount of the lesser of one and one-half percent (1 1/2%) of
the unpaid balance per month or the maximum lawful rate under applicable
state law which shall accrue from the Due Date. Purchaser acknowledges and
understands that all charges are computed exclusive of any applicable
federal, state or local use, excise, valued added, gross receipts, sales
and privilege taxes, duties, fees or similar liabilities (other than
general income or property taxes imposed on Grantor), whether charged to or
against Grantor, its suppliers or affiliates or Purchaser associated with
the Agreement Services provided to Purchaser ("Additional Charges"). Such
Additional Charges shall be paid by Purchaser in addition to all other
charges provided for herein.
9.2 Except for payment for Capacity and Third Party Provider's monthly
recurring charges, all prorated monthly recurring charges, installation and
other non-recurring charges shall be
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<PAGE>
billed following the receipt of any such Agreement Services. Payment for
all monthly recurring charges for full months during which Service or Local
Access Service are to be provided shall be due in advance. [e.g. OC-3
circuit installed and accepted in the first week of July. Purchaser will
receive an invoice dated July 20/th/ which will include Installation
Charges (non-recurring) for the period June 16/th/ through July 15/th/ PLUS
Service, Local Access and Ancillary Charges (recurring) for the period July
16/th/ through August 15/th/.]
9.3 If Purchaser in good faith disputes any portion of an invoice for Third
Party or Off-Net Charges, it must pay the entire amount of the invoice on
or before its Due Date and provide written notice to Grantor of the billing
dispute within ninety (90) calendar days thereafter. If Purchaser in good
faith disputes any portion of an invoice for On-Net charges it must pay the
undisputed amount of the invoice on or before its Due Date and provide
written notice of the dispute within ninety (90) calendar days
thereafter. Such notice must include documentation substantiating the
dispute. Purchaser's failure to notify Grantor of a dispute shall be
deemed to be Purchaser's acceptance of such charges. The parties will make
a good faith effort to resolve billing disputes as expeditiously as
possible, in any event within ninety (90) calendar days. If a dispute is
resolved in favor of Purchaser, Purchaser shall receive an adjustment on
its next bill or in the event Purchaser has no balance, Grantor will
provide a cash refund to Purchaser in the next billing cycle when the
accrued refund exceeds $500.00.
9.4 Suspension of Service.
---------------------
(a) In the event payment in full is not received from Purchaser on or
before sixty (60) days following the date of the invoice, Grantor
shall have the right to suspend all or any portion of the Agreement
Services, except that in such cases Grantor will not suspend Purchased
Capacity for which payment has already been received by Grantor.
Grantor shall exercise this suspension right by providing Purchaser
with a minimum of ten (10) days' written notice specifying the past
due amount and the Agreement Services to be suspended. If Grantor
receives the entire specified past due amount within the ten (10) day
notice period, then Purchaser's Agreement Services shall not be
suspended.
(b) If only a portion of the Agreement Services is initially suspended
pursuant to Grantor's written notice, and Purchaser fails to pay the
specified past due amount within an additional ten (10) days after the
partial suspension, then after the additional ten (10) day period,
Grantor may suspend all or any additional portion of the Agreement
Services to Purchaser with no additional written notice except that in
such cases Grantor will not suspend Purchased Capacity for which
payment has already been received by Grantor. Further, after the
additional ten (10) day period, Grantor may continue suspension until
such time as Purchaser has paid in full all charges then due,
including any late fees as specified herein. Following such payment,
Grantor shall reinstate Purchaser's Capacity, Off-Net Services or
Other Services, subject to Grantor's Right to Assurance as provided in
Paragraph 10.5 below.
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<PAGE>
(c) Suspension of Agreement Services as set forth in this Paragraph shall
not affect Purchaser's obligation to pay for the Agreement Services.
9.5 Grantor's Right to Assurance.
----------------------------
(a) If at any time there is a material adverse change in Purchaser's
creditworthiness then in addition to any other remedies available to
Grantor, Grantor may elect, in its sole discretion, to demand
reasonable assurance of payment from Purchaser. An adverse material
change in Purchaser's creditworthiness shall include, but not be
limited to: (a) Purchaser's default of its obligations to Grantor
under this or any other agreement with Grantor; (b) failure of
Purchaser to make full payment of charges due hereunder on or before
the Due Date on three (3) or more occasions during any period of
twelve (12) or fewer months or Purchaser's failure to make such
payment on or before the Due Date in any two (2) consecutive months;
(c) acquisition of Purchaser (whether in whole or by majority or
controlling interest) by an entity which is insolvent, which is
subject to bankruptcy or insolvency proceedings, which owes past due
amounts to Grantor or any entity affiliated with Grantor greater than
sixty (60) calendar days or which is a materially greater credit risk
than Purchaser; or (d) Purchaser's being subject to or having filed
for bankruptcy or insolvency proceedings or the legal insolvency of
Purchaser. If Purchaser's financial statements are not public
information, upon Grantor's demand for reasonable assurance of payment
as permitted above, Purchaser shall be required to provide financial
statements. After receipt of Purchaser's financial information,
Grantor may require a deposit or other similar means to establish
reasonable assurance of payment.
(b) If Purchaser has not provided Grantor with its financial information
and with reassurance satisfactory to Grantor within thirty (30) days
of Grantor's notice of demand for reassurance as permitted above,
then, in addition to any other remedies available to Grantor, Grantor
shall have the option, in its sole discretion, to exercise one or more
of the following remedies: (i) cause the start of the Additional
Services described in a previously executed Service Order to be
delayed pending satisfactory reassurance; or (ii) decline to accept a
Service Order or other requests from Purchaser to provide Additional
Services.
9.6 Taxes. If any sales taxes, valued added taxes or similar charges or
-----
impositions are asserted against Grantor after, or as a result of,
Purchaser's use of Capacity or Off-Net Services or Other Services by any
local, state, national, international, public or quasi-public governmental
entity or foreign government or its political subdivision, including
without limitation, any tax or charge levied to support the federal
Universal Service Fund contemplated by the Telecommunications Act of 1996,
or any state equivalent, Purchaser shall be solely responsible for such
taxes, charges or impositions. Purchaser agrees to pay any such taxes,
charges or impositions and hold Grantor harmless from any liability or
expense associated with such taxes, charges or impositions.
9.7 Adjustments. Grantor may make billing adjustments for a period of ninety
-----------
(90) days after the due date of an invoice or ninety (90) days after the
date a service is rendered,
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whichever is later, for both On-Net and Off-Net services after the due date
of an invoice, provided, however, that Grantor may pass through LEC
generated billing and collections adjustments for the term permitted by
Grantor's agreement with the applicable LEC (which shall not exceed two (2)
years from the date that service is rendered). Grantor shall use all
reasonable efforts to notify Purchaser in writing of any change in pass-
through charges for any third party service provider engaged by Grantor to
provide Off-Net Services hereunder within thirty (30) days after Grantor's
receipt of notice of such change from the applicable Off-Net Service
provider.
10.0 General Agreement
-----------------
10.1 Outage Credits.
--------------
(a) Purchaser acknowledges the possibility of an unscheduled, continuous
and/or interrupted period of time when Capacity may be "unavailable"
(as defined in the Technical Specifications attached hereto as Exhibit
II) for a continuous period of two (2) hours (hereafter an "Outage")
(excluding planned maintenance outages). An Outage shall begin upon
the earlier of Grantor's actual knowledge of the Outage or Grantor's
receipt of notice from the Purchaser of the Outage. In the event of
an Outage, Purchaser shall be entitled to a credit (the "Outage
Credit") upon Grantor's receipt of Purchaser's written request for
such Outage Credit, (i) for ATM or Frame Relay Service in the amount
of ten percent (10%) of the monthly Port, PVC and/or usage charges (as
stated on the applicable Service Order) regardless of the length of
such Outage, or (ii) for Private Line Service in the amount of 1/720
of the monthly recurring charge for the interexchange portion of the
Service for each hour in excess of the first two (2) consecutive hours
that the affected Service fails to conform to the Technical
Specifications. Credit for interruption of Off-Net Services or Local
Access Services is at the discretion of such Third Party Provider.
(b) In the event that Customer experiences one or more Outages in any two
(2) months of any period consisting of three (3) consecutive months
(the "Excessive Outage"), Customer shall be entitled, in addition to
the applicable Outage Credit, if any, to terminate such circuits as
are affected by the Excessive Outage without liability for a
disconnection fee or a reinstallation fee.
(c) Purchaser shall not receive an Outage Credit if the interruptions are
(i) of a duration of less than two (2) consecutive hours, (ii) caused
by Purchaser or others authorized by Purchaser to use the Capacity or
services under this Agreement, (iii) due to the failure of power,
facilities, equipment, systems or connections not provided by Grantor,
(iv) caused by the failure of Local Access to Grantor's fiber optic
network, (v) the result of scheduled maintenance where Purchaser has
been notified of scheduled maintenance in advance, (vi) due to a Force
Majeure event as defined in Section 10.6 of this Agreement, or (vii)
due to an interruption of Off-Net Agreement Services or Third Party
Provided Services except that Grantor will pass through the
proportionate credit if any it receives for such interruption of
Purchases of Off-Net Agreement Services to Purchaser. Grantor agrees
to request in writing any such
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<PAGE>
applicable credit it is entitled to for an interruption of Off-Net
Agreement Services or Third Party Provided Services.
(d) All Outage Credits shall be credited against Purchaser's outstanding
account balance first or in the event of no balance, the Outage Credit
will be refunded in cash in the next billing cycle when the accrued
outage credit exceeds $500.00..
(e) The Outage Credit and termination of a circuit for Excessive Outages
as set forth in this Section shall be the sole and exclusive remedies
of Purchaser in the event of any Outage and under no circumstances
shall an Outage be deemed a default under this Agreement.
10.2 Warranty and Disclaimer of Warranty. Grantor warrants that Capacity shall
-----------------------------------
be provided to Purchaser in accordance with the applicable Technical
Specifications set forth in Exhibit II. Grantor shall use commercially
reasonable efforts under the circumstances to remedy any delays,
interruptions, omissions, mistakes, accidents or errors in such Services
and restore such Services to comply with the terms hereof. THE FOREGOING
WARRANTY IS THE SOLE AND EXCLUSIVE WARRANTY AND IS PROVIDED IN LIEU OF ALL
OTHER WARRANTIES WHETHER EXPRESS OR IMPLIED INCLUDING WITHOUT LIMITATION
THE IMPLIED WARRANTY OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. THE OUTAGE CREDITS REMEDY PROVIDED TO PURCHASER AS SET FORTH IN
SECTION 10.1 IS THE SOLE AND EXCLUSIVE REMEDY PROVIDED TO PURCHASER AND IS
IN LIEU OF ALL OTHER REMEDIES, REGARDLESS OF WHETHER THIS WARRANTY FAILS OF
ITS ESSENTIAL PURPOSE. NO WARRANTY IS MADE WITH RESPECT TO THIRD PARTY
SERVICES.
10.3 Limitation of Liability. IN THE EVENT OF ANY BREACH OF THIS AGREEMENT OR
-----------------------
ANY FAILURE OF THE AGREEMENT SERVICES, WHATSOEVER, NO PROVIDER (AS DEFINED
IN SECTION 10.4) SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, CONSEQUENTIAL,
SPECIAL, ACTUAL, INCIDENTAL, PUNITIVE OR ANY OTHER DAMAGES, OR FOR ANY LOST
PROFITS OF ANY KIND OR NATURE WHATSOEVER, EVEN IF THE PROVIDER HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE OR LOSS.
10.4 Purchaser Content and Indemnity. Purchaser shall make all arrangements with
-------------------------------
copyright holders, music licensing organizations, performers'
representatives or other parties for necessary authorizations, clearances
or consents with respect to transmission contents ("Consents"). Purchaser
shall indemnify and hold harmless Providers (as defined below) against and
from any court, administrative or agency action, suit or similar
proceeding, whether civil or criminal, private or public, brought against
Providers arising out of or related to the contents transmitted hereunder
(over Grantor's network or otherwise) including, but not limited to,
claims, actual or alleged, relating to any violation of copyright law,
export control laws, failure to procure Consents, failure to meet
governmental or other technical broadcast standards, or that such
transmission contents are libelous, slanderous, an
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invasion of privacy, pornographic, or otherwise unauthorized or illegal.
Providers shall be defined to include Grantor, any third party or
affiliated provider, operator or maintenance/repair contractor of
facilities employed in connection with the provision of the Agreement
Services pursuant to this Agreement. Grantor may terminate or restrict any
transmissions if, in its judgment, (a) such actions are reasonably
appropriate to avoid violation of applicable law; or (b) there is a
reasonable risk that criminal, civil or administrative proceedings or
investigations based upon the transmission contents shall be instituted
against Providers. Purchaser agrees not to use Agreement Services for any
unlawful purpose, including without limitation any use which constitutes or
may constitute a violation of any local, state or federal obscenity law.
10.5 General Indemnity.
-----------------
(a) Purchaser and Grantor shall defend, indemnify and hold harmless the
other against and from any and all claims for physical property
damage, physical personal injury or wrongful death to the extent that
such arises out of the negligence or willful misconduct of the
respective indemnifying party, its employees, agents, or contractors
in connection with this Agreement.
(b) With respect to third parties that use the Agreement Services through
Purchaser, Purchaser shall defend, indemnify and hold harmless
Providers against any claims by such third parties for damages arising
or resulting from any defect in or failure to provide the Agreement
Services.
(c) The indemnifying party agrees to defend the other against the claims
as set forth above and to pay all reasonable litigation costs,
attorneys' fees, court costs, settlement payments, and any damages
awarded or resulting from any such claims. The indemnified party shall
promptly notify the indemnifying party in writing of any such claims.
10.6 Force Majeure. If either party's performance of this Agreement or any
-------------
obligation (other than the obligation to make payments) hereunder is
prevented, restricted or interfered with by causes beyond its reasonable
control including, but not limited to, acts of God, fire, explosion,
vandalism, cable cut, power outage, storm or other similar occurrence
including other atmospheric conditions, any law, order, regulation,
direction, action or request of the United States Government or national,
state or local governments, or of any department, agency, commission,
court, bureau, corporation or other instrumentality of any one or more of
said governments, or of any civil or military authority, or by national
emergencies, insurrections, riots, wars, acts of terrorism, strikes,
lockouts or work stoppages or other labor difficulties, supplier failures,
shortages, breaches or delays, then the affected party shall be excused
from such performance on a day-to-day basis to the extent of such
prevention, restriction or interference. The affected party shall use
commercially reasonable efforts under the circumstances to avoid and remove
such causes of non-performance and shall proceed to perform with reasonable
dispatch whenever such causes cease.
Page 14 of 56
<PAGE>
10.7 Events of Default. Either party may terminate this Agreement if the other
-----------------
is in default of any material obligation contained herein, which default
has not been cured within thirty (30) days following the receipt of notice
of such default setting forth the specifics of such default except that in
the case of Purchaser's default, Grantor will not suspend Purchased
Capacity for which Payment has already been received by Grantor.
Termination and receipt of any applicable refund are Purchaser's sole
remedies in the event of any such Grantor's default. Notwithstanding the
foregoing, the failure of any particular ATM, Frame Relay or Private Line
Service to comply with the Technical Specifications (as set forth in
Exhibit II) shall not be deemed a default by Grantor, but may obligate
Grantor to provide Purchaser with Outage Credits, as provided in Section
10.1 hereof.
10.8 Use of Services. Grantor's obligation to provide Agreement Services to
---------------
Purchaser is subject to the following conditions: (a) Agreement Services
shall not be used for any unlawful purpose, (b) at least ten percent (10%)
of the transmissions shall be interstate transmissions. Purchaser
represents that this Agreement, to the extent it is subject to FCC
regulation, is an inter-carrier agreement not subject to the filing
requirements of Section 211(a) of the Communications Act of 1934, as
amended.
10.9 Proprietary Information. Purchaser understands and agrees that the terms
-----------------------
and conditions of this Agreement and all documents referenced herein
(including invoices to Purchaser provided hereunder) are confidential as
between Purchaser, Grantor and its affiliates and shall not be disclosed
by Purchaser to any party other than the directors, officers, and
employees or agents of Purchaser who have specifically agreed to
nondisclosure of the terms and conditions hereof. Violation by Purchaser
or its agents of the foregoing provision shall entitle Grantor, at its
option, to discontinue the Agreement Services to Purchaser without further
obligation or liability to Purchaser. Purchaser further agrees that any
Purchaser generated press release, advertisement or publication regarding
this Agreement, or in which Grantor, or its affiliates are to be
mentioned, will be submitted to Grantor for its written approval prior to
publication. Purchaser understands and agrees that Grantor may disclose
such information as may be required under applicable law including,
without limitation, filing of tariffs.
10.10 Intrastate Interexchange Services. Purchaser may use any Capacity or
---------------------------------
interexchange Off-Net Services provided under this Agreement only if such
is used for carrying interstate telecommunications (i.e.,
telecommunications subject to the jurisdiction of the Federal
Communications Commission). Grantor and its affiliates shall not be
obligated to make available Capacity or interexchange Off-Net Services on
a circuit with end points within a single state or service on a circuit
which originates/terminates at points both of which are situated within a
single state unless Purchaser represents in writing that such
interexchange circuits shall be used to carry at least 10% interstate
telecommunications. If it is determined at any time that such
interexchange circuit is subject to state regulation, the interexchange
circuit may be provided by Grantor or its affiliates pursuant to
applicable state laws, regulations and applicable tariffs, or Grantor and
its affiliates may discontinue provision of the affected interexchange
circuit.
Page 15 of 56
<PAGE>
10.11 Tariff. Based on Purchaser's representation to Grantor that Purchaser is
------
a telecommunications carrier, to the best of Grantor's knowledge, this
Agreement is not subject to and does not require the filling of a tariff
with the Federal Communications Commission (the "FCC"), because this
Agreement is subject to the inter-carrier exemption provided in 47 U.S.C.
Sec. 211(a), or is otherwise provided on a private carriage basis. In the
event that due to a court or agency ruling, or change in applicable law or
regulation, this Agreement becomes subject to a requirement of an FCC
tariff, then Grantor will file a contract tariff with the FCC
incorporating all of the material terms and conditions of this Agreement,
including pricing, and the parties agree to abide by that contract tariff.
10.12 Purchaser Responsibilities. Purchaser has sole responsibility for
--------------------------
installation, testing and operation of facilities, services and equipment
("Purchaser Facilities") other than those specifically provided by Grantor
as part of the Agreement Services. In no event will the untimely
installation or non-operation of Purchaser Facilities relieve Purchaser of
its obligation to pay charges for the Agreement Services after the Actual
Start Date except when such untimely installation or non-operation is
caused by an event of Force Majeure.
During the Term of this Agreement, Purchaser shall provide Grantor, on a
semiannual basis, a universal service exemption certificate within thirty
(30) days of the Purchaser's filing of the universal service filing made
with the appropriate federal agency, evidencing that the Purchaser is
required to contribute to the federal Universal Service Fund. Purchaser
agrees that failure to provide such an exemption authorized Grantor to
begin billing Purchaser prospectively for Universal Service Fund
contributions pursuant to the applicable contribution factor (revised
quarterly), plus an administrative charge of 1%.
11.0 Miscellaneous Provisions
------------------------
11.1 Title to Equipment. This Agreement shall not, and shall not be deemed to,
------------------
convey to Purchaser title of any kind to any of the transmission
facilities, digital encoder/decoders, telephone lines, microwave
facilities or other facilities utilized in connection with the Agreement
Services. Any equipment provided by Purchaser must be itemized on a
schedule listing all such Purchaser-provided equipment and appended to the
Service Order to which use of that equipment relates ("Purchaser Equipment
Inventory"). Grantor shall not be obligated to provide any Agreement
Services for Purchaser if Purchaser will be providing any of its own
equipment unless and until such equipment is itemized on the applicable
Purchaser Equipment Inventory.
11.2 Notices. All notices to be sent to a party pursuant to this Agreement
-------
shall be in writing and deemed to be effective upon (i) personal delivery,
(ii) three days after mailing certified mail return receipt requested,
(iii) on the day when the notice has been sent by facsimile if during
business hours and followed by express mail priority next-day delivery, or
(iv) in the case of invoices, upon the Due Date. In each case, the notice
shall be sent to the person identified in this Section at the Full
Business Addresses of the parties as they appear herein. The effective
date for any notice under this Agreement shall be the date of delivery of
such notice, not the date of mailing.
Page 16 of 56
<PAGE>
The Full Business Address for purposes of notice under this Section as
well as telephone voice and facsimile numbers shall be:
GRANTOR: PURCHASER:
Williams Network, a division of Net-Tel Corporation
Williams Communications, Inc. 1023 31/st/ Street, N. W.
One Williams Center, 26/th/ Floor Washington D. C. 20007
Tulsa, Oklahoma 74172 Telephone (202)295-6600
Telephone: (918) 573-6000 Fax (202) 625-0693
Fax: (918) 573-6578 Attention CEO/CFO
Attention: Contract Administration
11.3 Merger/Integration. This Agreement (including the attached Exhibits, as
------------------
they may be modified from time to time) consists of all the terms and
conditions contained herein and in documents incorporated herein
specifically by reference. This Agreement constitutes the complete and
exclusive statement of the understanding between the parties and
supersedes all proposals and prior agreements (oral or written) between
the parties relating to subject matter hereunder.
11.4 Written Amendment. Any addition, deletion or modification to this
-----------------
Agreement shall not be binding on either party except by written amendment
executed by both parties.
11.5 No Venture. The provision of Capacity, Off-Net Services or Other Services
----------
shall not create a partnership or joint venture between the parties and
neither party shall obligate or bind the other party. Notwithstanding,
Purchaser shall not cause Grantor to directly incur any Third Party costs
or expenses.
11.6 Suspension. In addition to the nonpayment of any sum due hereunder,
----------
Grantor may immediately suspend the individual Agreement Services if
Grantor deter mines that such individual Agreement Services violate the
Communications Act of 1934, as amended (including the Telecommunications
Act of 1996), or that the imposition of any state or federal statute, or
promulgation of any rule, regulation, or order of the Federal
Communications Commission ("FCC") or other governing body makes Grantor's
performance commercially impracticable.
11.7 Effect of Change in Law. Upon thirty (30) day's prior written notice to
-----------------------
the other party, either Purchaser or Grantor shall have the right, without
disconnection charge or other liability to the other party, to cancel the
affected portion of any Agreement Service, if Grantor is prohibited by
governmental authority from furnishing or Purchaser is prohibited from
using such portion, or if any material rate or term contained herein and
relevant to the affected portion of any Agreement Service is substantially
changed by order of the highest court of competent jurisdiction to
adjudicate the matter, the Federal Communications Commission, or other
local, state or federal government authority.
11.8 Assignment. Purchaser shall not assign or otherwise transfer this
----------
Agreement without the prior written consent of Grantor, which shall not be
unreasonably withheld, except that no
Page 17 of 56
<PAGE>
prior written consent shall be required for an assignment or transfer to a
third party due to a Change in Control in which the party assuming control
of Purchaser agrees to assume all rights, liabilities or obligations of
Purchaser under this Agreement and provided that in the event of such
Change in Control, Section 6.0 (Preferred Provider) and Section 7.0 (Most
Favored Nations) shall terminate unless Grantor and Purchaser's successor
otherwise agree.) A Change in Control shall be deemed to be a merger of a
Party resulting in a transfer of a controlling interest in the Party, sale
of a controlling interest, or other transfer of a controlling ownership
interest. In the event of a "Change-in-Control" of Grantor, Purchaser
shall have the right, for a period of thirty (30) days from notice of such
Change in Control of Grantor, to elect to continue or terminate, together,
Section 6.0 (Preferred Provider) and Section 7.0 (Most Favored Nations).
Purchaser may not elect to terminate one section and continue the other
section.
11.9 Choice of Law. This Agreement shall be governed by the laws of the State
-------------
of Oklahoma without regard to choice of law principles. Purchaser hereby
consents to the jurisdiction of the federal and state courts having a
situs in Tulsa County, Oklahoma over any proceeding initiated with respect
to the enforcement or interpretation of this Agreement.
11.10 Interpretation. No rule of construction requiring interpretation against
--------------
the draftsman hereof shall apply in the interpretation of this Agreement.
11.11 No Third Party Beneficiary. The provisions of this Agreement are for the
--------------------------
benefit only of the parties hereto, and no third party may seek to enforce
or benefit from these provisions.
11.12 Attorneys' Fees. If a proceeding is brought for the enforcement of this
---------------
Agreement or because of any alleged or actual dispute, breach, default or
misrepresentation in connection with any of the provisions of this
Agreement, the prevailing party shall be entitled to recover reasonable
attorneys' fees and other reasonable costs and expenses incurred in such
action or proceeding in addition to any other relief to which such party
may be entitled.
11.13 Severability. In the event any provision of this Agreement conflicts
------------
with any statute, rule or order of any governmental unit or regulatory
body, or tariff then, if required by law, such statute, rule, order or
tariff shall control.
11.14 No Waiver. The failure of either party to enforce any provision hereof
---------
shall not constitute the permanent waiver of such provision.
12. DISPUTE RESOLUTION
------------------
12.1 Disputes. The Parties shall attempt in good faith to resolve any
controversy, dispute or claim arising out of or relating to the Agreement
or the breach, termination, enforceability or validity thereof
(collectively, a "Dispute") promptly by negotiation between officers of
the Parties, who shall have authority to settle the Dispute. Either Party
may give the other a written notice (a "Dispute Notice") setting forth
with reasonable specificity the nature of the Dispute and the identity of
any representative in addition to an officer who will attend and
participate in the meetings at which the Parties
Page 18 of 56
<PAGE>
will attempt to settle the Dispute. Following the receipt of a Dispute
Notice, the representatives of both Parties shall meet as soon as is
practicable at a mutually acceptable time and place to negotiate in good
faith a settlement of the Dispute, and shall meet thereafter as they
reasonably deem necessary.
12.2 Referral to President. If the Dispute has not been resolved within 30 days
after receipt of the Dispute Notice, then the Dispute shall be referred to
the President of each Party to the Dispute. The Presidents shall promptly
undertake good faith negotiations to settle the Dispute, including
meetings in person or by teleconference as the Presidents may reasonably
agree.
12.3 Confidentiality of Negotiations. All negotiations pursuant to Sections
12.1 and 12.2 shall be confidential and shall be treated as compromise and
settlement negotiations. Nothing said or disclosed, nor any document
produced, in the course of such negotiations which is not otherwise
independently discoverable shall be offered or received as evidence or
used for impeachment or for any other purpose in any current or future
arbitration or litigation.
12.4 Arbitration. If the Dispute has not been resolved within 45 days after the
receipt of a dispute Notice through negotiation or referral to the
Presidents as provided above, then the Dispute shall be finally settled by
binding arbitration in accordance with the commercial arbitration rules of
the American Arbitration Association ("AAA") then in effect. However, in
all events, the Arbitration provisions in this Section shall govern over
any conflicting rules that may now or hereafter be contained in the AAA
rules. The arbitration shall be held in New York, New York, unless the
Parties mutually agree to have the arbitration held elsewhere, and
judgment upon any award made therein may be entered by any court having
jurisdiction in the United States; provided, however, that nothing
contained in this Section shall be construed to limit or preclude a Party
from bringing any action in any court of competent jurisdiction for
injunctive or other provisional relief to compel the other Party to comply
with its obligations under this Agreement during the pendency of the
arbitration proceedings. The arbitrator shall have the authority to grant
any equitable and legal remedies that would be available in any judicial
proceeding instituted to resolve any Dispute hereunder.
12.5 Arbitrators. Any such arbitration will be conducted before three (3)
arbitrators, one of which shall be chosen by Grantor, one of which shall
be chosen by Purchaser, and the third shall be chosen by the other two
arbitrators. Each person chosen to serve as an arbitrator shall be a
neutral and impartial attorney who has had training and experience as an
arbitrator. The decision of a majority of the Arbitrators will be the
decision of the Arbitrators. The Arbitrators shall permit such discovery
of information related to the Dispute in arbitration as they shall
determine is appropriate in the circumstances, taking into account the
needs of the Parties and the desirability of making discovery expeditious
and cost-effective.
12.6 Cost and Fees. All fees and expenses of the arbitrators, expenses for
hearing facilities and other expenses of the arbitration shall be borne
equally by the Parties unless the arbitrators in the award assess such
fees and expenses other than equally against the
Page 19 of 56
<PAGE>
Parties. Each Party shall bear the fees and expenses of its own attorneys
and witnesses except to the extent otherwise provided in this Agreement or
by law; provided, that if the arbitrators determine that the claim or
defense of any Party was frivolous or lacked a reasonable basis in fact or
law, the arbitrators may assess against such Party all or part of the fees
and expenses of attorneys and witnesses of the other Party.
12.7 Burden of Proof. For any Dispute submitted to arbitration, the burden of
proof will be as it would be if the claim were litigated in a judicial
proceeding.
12.8 Award. Upon the conclusion of any arbitration proceedings hereunder, the
arbitrators will render findings of fact and conclusions of law and a
written opinion setting forth the basis and reasons for any decision
reached and will deliver such documents to each Party to this Agreement
along with a signed copy of the award.
12.9 Agreement Controls. The arbitrators chosen in accordance with these
provisions will not have the power to alter, amend or otherwise affect the
terms of these arbitration provisions or the provisions of the Agreement.
NET-Tel Corporation WILIAMS NETWORK, a division of
WILLIAMS COMMUNICATIONS, INC.
By: /s/ James F. Kenefick By: /s/ Frank Semple
------------------------------ ---------------------------------
Name: James F. Kenefick Name: Frank Semple
---------------------------- -------------------------------
Title: President Title: President
--------------------------- ------------------------------
Date: 6/28/99 Date: 6/28/99
---------------------------- -------------------------------
The undersigned, for good and valuable consideration, hereby guarantees the
performance by NET-tel Corporation of its obligations set forth in this Capacity
Purchase Agreement and agrees to cause NET-tel Corporation to comply with each
and every provision thereof.
NET-TEL COMMUNICATIONS, INC.
BY: /s/ James F. Kenefick
------------------------------
NAME: James F. Kenefick
------------------------------
ITS: President
------------------------------
Page 20 of 56
<PAGE>
Exhibit 10.7.1
[*] IMPORTANT NOTICE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
AMENDMENT NO. 1
TO
CAPACITY PURCHASE AGREEMENT
This Amendment No. 1, effective June 28, 1999, amends the Capacity Purchase
Agreement ("Agreement") dated June 28, 1999, by and between Williams Network, a
division of Williams Communications, Inc., a Delaware corporation, and NET-Tel
Corporation, a Florida corporation.
This Amendment is made for the purpose of documenting the Agreement with
respect to the due date of the Installment Payments. Except for the
modifications to Paragraph 3.2 below the terms and conditions of the Agreement
shall remain in effect. Paragraph 3.2 of the Agreement is amended to read:
3.2 Installment Payments. The balance of the Net Present Value of the Purchase
Price, *, shall be financed for *(*) years at an annual interest rate
equal to * percent ( %), which may be prepaid by NET-Tel without penalty.
Such principal and interest shall be payable in * (*) equal consecutive
monthly installments of $* each due on the first day of each month
commencing August 2, 1999, provided, however, that if any such date is not
a day on which banks in New York are open for business ("Business Day"),
the payment due thereon shall be paid on the next Business Day.
NET-Tel Corporation WILLIAMS NETWORK, a division of
WILLIAMS COMMUNICATIONS, INC.
By: /s/ Craig R. Bandes By: /s/ Frank Semple
------------------------------- ---------------------------------
Name: Craig R. Bandes Name: Frank Semple
------------------------------ -------------------------------
Title: Senior Vice President Title: President, Williams Network
----------------------------- ------------------------------
Date: Date: 9/1/99
------------------------------ --------------------------------
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
<PAGE>
Exhibit 10.7.2
AMENDMENT NO. 2
TO
CAPACITY PURCHASE AGREEMENT
This Amendment No. 2, effective April 20, 2000 (the "Effective Date"),
amends the Capacity Purchase Agreement ("Agreement") dated June 28, 1999 and
amended September 1, 1999, by and between Williams Network, a division of
Williams Communications, Inc., a Delaware corporation, ("Williams") and NET-tel
Corporation, a Florida corporation ("NET-tel").
NET-tel Communications, a Delaware corporation ("Parent"), the parent
company of NET-tel, has entered into a Securities Purchase Agreement, of even
date herewith ("Series C Securities Purchase Agreement"), with Williams and
certain other investors. This Amendment No. 2 is being executed and delivered at
the closing of the transactions contemplated by the Securities Purchase
Agreement. On the Effective Date, concurrently with the execution and delivery
of this Amendment No. 2, and in consideration of the receipt of the Credits (as
defined below) Parent is issuing 227,015 shares of its Series C Convertible
Preferred Stock, par value $.0001 per share, (the "Series C Stock") to Williams.
This Amendment is made for the purpose of documenting the Agreement with
respect to certain of the Installment Payments. Except for the modifications to
Paragraph 3.2 below, the terms and conditions of the Agreement shall remain in
effect. Paragraph 3.2 of the Agreement is amended to add the following
paragraph at the end:
"As full payment of the purchase price for receipt of the Series C Stock,
NET-tel has received a credit in the amount of $2,000,002.15 (the "Credit") to
be applied to the Purchase Price. The Credit shall be applied, in accordance
with this Section, to the monthly installment payments (each in an amount of
$350,399) immediately following the date of this Credit and due on May 2, 2000,
June 2, 2000, July 2, 2000, August 2, 2000 and September 2, 2000, and the
balance of the Credit shall be applied to the first $248,007.15 of the
installment payment, due on October 2, 2000."
All capitalized terms used herein and not defined herein shall have the
meanings given them in the Agreement.
[Signature page follows.]
<PAGE>
NET-tel Corporation WILLIAMS NETWORK, a division of
WILLIAMS COMMUNICATIONS, INC.
By: /s/ Craig Bandes By: /s/ Gordon C. Martin
--------------------------------- -------------------------------
Name: Craig Bandes Name: Gordon C. Martin
-------------------------------- ------------------------------
Title: Sr. Vice President Title: Sr. Vice President
------------------------------- -----------------------------
Global Networks Svc.
-----------------------------------
Date: April 20, 2000 Date: April 20, 2000
--------------------------------- -----------------------------
<PAGE>
Exhibit 10.8
[*] IMPORTANT NOTE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
================================================================================
CREDIT AGREEMENT
dated as of July 28, 1999
by and among
NET-TEL CORPORATION
as Borrower
and
NORTEL NETWORKS INC.
as Administrative Agent
and
THE LENDERS NAMED HEREIN
$120,000,000 ADVANCING TERM LOAN A FACILITY
$10,000,000 TERM LOAN B FACILITY
and
$10,000,000 REVOLVING CREDIT FACILITY
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 - Definitions........................................................1
Section 1.1 Definitions, etc.........................................1
Section 1.2 Other Definitional Provisions...........................27
Section 1.3 Accounting Terms and Determinations.....................27
Section 1.4 Financial Covenants and Reporting.......................28
ARTICLE 2 - Loans.............................................................28
Section 2.1 Commitments.............................................28
Section 2.2 Notes...................................................30
Section 2.3 Repayment of Loans......................................30
Section 2.4 Interest................................................32
Section 2.5 Borrowing Procedure.....................................33
Section 2.6 Optional Prepayments, Conversions and
Continuations of Loans..................................34
Section 2.7 Mandatory Prepayments...................................34
Section 2.8 Minimum Amounts.........................................36
Section 2.9 Certain Notices.........................................36
Section 2.10 Use of Proceeds.........................................37
Section 2.11 Fees....................................................38
Section 2.12 Computations............................................38
Section 2.13 Termination or Reduction of Commitments.................38
ARTICLE 3 - Payments..........................................................39
Section 3.1 Method of Payment.......................................39
Section 3.2 Pro Rata Treatment......................................39
Section 3.3 Sharing of Payments, Etc................................39
Section 3.4 Non-Receipt of Funds by the Administrative Agent........40
Section 3.5 Taxes...................................................40
Section 3.6 Withholding Tax Exemption...............................41
Section 3.7 Reinstatement of Obligations............................42
Section 3.8 No Force Majeure, Disputes..............................42
Section 3.9 Return of Notes upon Payment in Full....................43
ARTICLE 4 - Yield Protection and Illegality...................................43
Section 4.1 Additional Costs........................................43
Section 4.2 Limitation on Types of Loans............................44
Section 4.3 Illegality..............................................45
Section 4.4 Treatment of Affected Loans.............................45
Section 4.5 Compensation............................................45
Section 4.6 Capital Adequacy........................................46
Section 4.7 Additional Interest on Eurodollar Loans.................46
Section 4.8 Replacement of Lenders..................................47
ARTICLE 5 - Security..........................................................47
Section 5.1 Collateral..............................................47
Section 5.2 Guaranties..............................................48
CREDIT AGREEMENT - Page i
<PAGE>
Section 5.3 New Subsidiaries; Additional Capital Stock..............48
Section 5.4 Mortgaged Properties; Landlord Waivers..................49
Section 5.5 Further Assurances......................................50
Section 5.6 Setoff..................................................50
ARTICLE 6 - Conditions Precedent..............................................50
Section 6.1 Initial Extension of Credit.............................50
Section 6.2 All Extensions of Credit................................54
Section 6.3 Closing Certificates....................................55
ARTICLE 7 - Representations and Warranties....................................56
Section 7.1 Existence...............................................56
Section 7.2 Financial Statements....................................56
Section 7.3 Corporate Action; No Breach.............................57
Section 7.4 Operation of Business; Licenses.........................57
Section 7.5 Intellectual Property...................................58
Section 7.6 Litigation and Judgments................................58
Section 7.7 Rights in Properties; Liens.............................58
Section 7.8 Enforceability..........................................58
Section 7.9 Approvals...............................................59
Section 7.10 Debt....................................................59
Section 7.11 Taxes...................................................59
Section 7.12 Margin Securities.......................................59
Section 7.13 ERISA...................................................59
Section 7.14 Disclosure..............................................60
Section 7.15 Loan Parties; Capitalization............................60
Section 7.16 Compliance with Laws....................................61
Section 7.17 Investment Company Act..................................61
Section 7.18 Public Utility Holding Company Act......................61
Section 7.19 Environmental Matters...................................61
Section 7.20 Year 2000 Compliance....................................62
Section 7.21 Labor Disputes and Acts of God..........................62
Section 7.22 Material Contracts......................................62
Section 7.23 Bank Accounts...........................................63
Section 7.24 Outstanding Securities..................................63
Section 7.25 Solvency................................................63
Section 7.26 Employee Matters........................................63
Section 7.27 Insurance...............................................63
Section 7.28 Common Enterprise.......................................63
ARTICLE 8 - Affirmative Covenants.............................................64
Section 8.1 Reporting Requirements..................................64
Section 8.2 Maintenance of Existence; Conduct of Business...........67
Section 8.3 Maintenance of Properties and Licenses..................67
Section 8.4 Taxes and Claims........................................68
Section 8.5 Insurance...............................................68
Section 8.6 Inspection Rights.......................................69
Section 8.7 Keeping Books and Records...............................70
CREDIT AGREEMENT - Page ii
<PAGE>
Section 8.8 Compliance with Laws....................................70
Section 8.9 Compliance with Agreements..............................70
Section 8.10 Further Assurances......................................70
Section 8.11 ERISA...................................................71
Section 8.12 Non-Consolidation.......................................71
Section 8.13 Year 2000 Compliance....................................71
Section 8.14 Delivery of Certain Amendments, Material Contracts
and Subordinated Debt Documents.........................71
Section 8.15 Interest Rate Protection................................71
Section 8.16 Ownership of Telecommunications Assets and
Telecommunications Business; Holdings to Remain
a Holding Company.......................................72
Section 8.17 Unified Cash Management System..........................72
Section 8.18 Termination of RFC Agreement............................72
ARTICLE 9 - Negative Covenants................................................72
Section 9.1 Debt. .................................................73
Section 9.2 Limitation on Liens.....................................73
Section 9.3 Mergers, Etc............................................74
Section 9.4 Restricted Payments.....................................74
Section 9.5 Investments.............................................74
Section 9.6 Limitation on Issuance of Capital Stock.................76
Section 9.7 Transactions with Affiliates............................76
Section 9.8 Disposition of Property.................................76
Section 9.9 Sale and Leaseback......................................77
Section 9.10 Lines of Business.......................................77
Section 9.11 Environmental Protection................................77
Section 9.12 Intercompany Transactions...............................77
Section 9.13 Management Fees.........................................78
Section 9.14 Master Purchase Agreement...............................78
Section 9.15 Modification of Certain Agreements......................78
Section 9.16 ERISA...................................................78
Section 9.17 No Prepayment of Debt, Etc..............................78
Section 9.18 RFC Agreement...........................................79
ARTICLE 10 - Financial Covenants..............................................79
Section 10.1 Total Debt to Total Capitalization......................79
Section 10.2 Senior Debt to Total Capitalization.....................79
Section 10.3 Total Debt to Annualized EBITDA.........................80
Section 10.4 Senior Debt to Annualized EBITDA........................80
Section 10.5 Annualized EBITDA.......................................80
Section 10.6 Fixed Charge Coverage...................................80
Section 10.7 Capital Expenditures....................................80
Section 10.8 Gross Revenues..........................................80
Section 10.9 EBITDA..................................................80
Section 10.10 Gross Margin Percentage.................................80
Section 10.11 Minimum Average Monthly Gross Revenues Per Customer.....80
Section 10.12 Minimum Average Monthly Gross Revenues Per
Sales Representative...................................81
CREDIT AGREEMENT - Page iii
<PAGE>
Section 10.13 Operating Leases........................................81
ARTICLE 11 - Default..........................................................81
Section 11.1 Events of Default.......................................81
Section 11.2 Remedies................................................84
Section 11.3 Performance by the Administrative Agent, etc............85
ARTICLE 12 - The Administrative Agent.........................................85
Section 12.1 Appointment, Powers and Immunities......................85
Section 12.2 Rights of Administrative Agent as a Lender..............86
Section 12.3 Defaults................................................86
Section 12.4 INDEMNIFICATION.........................................86
Section 12.5 Independent Credit Decisions............................87
Section 12.6 Several Commitments.....................................88
Section 12.7 Successor Administrative Agent..........................88
ARTICLE 13 - Miscellaneous....................................................88
Section 13.1 Expenses................................................88
Section 13.2 INDEMNIFICATION.........................................89
Section 13.3 Limitation of Liability.................................90
Section 13.4 No Duty.................................................90
Section 13.5 No Fiduciary Relationship...............................90
Section 13.6 Equitable Relief........................................91
Section 13.7 No Waiver; Cumulative Remedies..........................91
Section 13.8 Successors and Assigns..................................91
Section 13.9 Survival................................................95
Section 13.10 ENTIRE AGREEMENT........................................95
Section 13.11 Amendments..............................................95
Section 13.12 Maximum Interest Rate...................................96
Section 13.13 Notices.................................................97
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION;
SERVICE OF PROCESS.............................................97
Section 13.15 Counterparts............................................98
Section 13.16 Severability............................................98
Section 13.17 Headings................................................98
Section 13.18 Construction............................................98
Section 13.19 Independence of Covenants...............................98
Section 13.20 Confidentiality.........................................98
Section 13.21 WAIVER OF JURY TRIAL....................................98
Section 13.22 Approvals and Consent...................................99
Section 13.23 Service of Process......................................99
CREDIT AGREEMENT - Page iv
<PAGE>
INDEX TO EXHIBITS
Exhibit A - Form of Assignment and Acceptance
Exhibit B-1 - Form of Term Note A
Exhibit B-2 - Form of Term Note B
Exhibit B-3 - Form of Revolving Note
Exhibit C - Form of Notice of Borrowings, Conversions, Continuations
and Prepayments
Exhibit D - Form of Compliance Certificate
Exhibit E - Form of Borrowing Base Report
INDEX TO SCHEDULES
Schedule 1.1(a) - Certain Permitted Holders
Schedule 1.1(b) - Certain Permitted Liens
Schedule 7.4 - Licenses required by Governmental Requirements or issued by
Governmental Authorities
Schedule 7.5 - Intellectual Property
Schedule 7.6 - Litigation, Etc.
Schedule 7.7 - Real Property
Schedule 7.9 - Authorizations, Approvals or Consents of State Governmental
Authorities
Schedule 7.10 - Existing Debt
Schedule 7.13 - Plans
Schedule 7.15 - Loan Parties; Capitalization
Schedule 7.22 - Material Contracts
Schedule 7.23 - Bank Accounts
Schedule 7.26 - Employee Matters
Schedule 7.27 - Insurance
Schedule 8.13 - Year 2000 Compliance
Schedule 8.16 - Telecommunications Assets Not Owned by the Borrower and its
Subsidiaries
Schedule 9.5 - Certain Investments
Schedule 10.1 - Total Debt to Total Capitalization
Schedule 10.2 - Senior Debt to Total Capitalization
Schedule 10.3 - Total Debt to Annualized EBITDA
Schedule 10.4 - Senior Debt to Annualized EBITDA
Schedule 10.5 - Annualized EBITDA
Schedule 10.6 - Fixed Charge Coverage
Schedule 10.7 - Capital Expenditures
Schedule 10.8 - Gross Revenues
Schedule 10.9 - EBITDA
Schedule 10.10 - Gross Margin Percentage
Schedule 10.11 - Minimum Average Monthly Gross Revenues Per Customer
Schedule 10.12 - Minimum Average Monthly Gross Revenues Per Sales
Representative
CREDIT AGREEMENT - Page viii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of July 28, 1999, is by and among NET-TEL
CORPORATION (the "Borrower"), a Florida corporation, each of the lending
entities which is a party hereto (as evidenced by the signature pages of this
Agreement) or which may from time to time become a party hereto as a lender or
any successor or assignee thereof (individually, a "Lender" and, collectively,
the "Lenders"), and NORTEL NETWORKS INC., a Delaware corporation, as
administrative agent for itself and the other Lenders (in such capacity,
together with its successors in such capacity, the "Administrative Agent").
RECITALS:
A. The Borrower desires to obtain (i) a $120,000,000 advancing term loan
facility to finance a portion of its costs to purchase Nortel Networks Goods and
Services (as defined herein) and to finance certain Eligible Third-Party
Expenses (as defined herein), (ii) a $10,000,000 term loan facility to finance
certain of its working capital needs and for general corporate purposes, and
(iii) a $10,000,000 revolving loan facility to finance certain of its working
capital needs and for general corporate purposes and in the ordinary course of
business.
B. The Lender(s) identified on the signature pages of this Agreement
desire to provide such credit facilities with the assistance of the
Administrative Agent upon and subject to the terms and provisions contained in
this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions, etc. As used in this Agreement, the following
terms shall have the following meanings:
"Additional Costs" means as specified in Section 4.1(a).
"Adjusted Eurodollar Rate" means, for any Eurodollar Loan for any Interest
Period therefor, the rate per annum (rounded upwards, if necessary, to the
nearest 1/16 of one percent) determined by the Administrative Agent to be equal
to (a) the Eurodollar Rate for such Eurodollar Loan for such Interest Period
divided by (b) one minus the Reserve Requirement for such Eurodollar Loan for
such Interest Period.
"Adjusted Net Income" means, as to any Person (the "subject Person") and
its Consolidated Subsidiaries and for any period, Consolidated Net Income less
the following (without duplication) to the extent that any of the following
shall have been included in Consolidated Net Income for such period: (a) any net
gain or loss arising from the sale of any property, plant or equipment; (b) any
net gain or loss arising from any write-up or write-down of assets; (c) earnings
or
CREDIT AGREEMENT - Page 1
<PAGE>
losses of any other Person, substantially all of the assets of which have been
acquired by the subject Person or a Consolidated Subsidiary of the subject
Person in any manner, to the extent that such earnings or losses were realized
by such other Person prior to the date of such acquisition; (d) earnings or
losses of any Person (other than a Consolidated Subsidiary of the subject
Person) in which the subject Person or a Consolidated Subsidiary of the subject
Person has an ownership interest, unless such earnings have actually been
received by the subject Person or such Consolidated Subsidiary in the form of
cash distributions; and (e) any net gain or loss arising from the acquisition of
any securities of the subject Person or a Consolidated Subsidiary of the subject
Person.
"Administrative Agent" means as specified in the introductory paragraph of
this Agreement.
"Administrative Agent's Letter" means the letter agreement dated as of
July 28, 1999 between the Administrative Agent and the Borrower.
"Affiliate" means, as to any Person, any other Person (a) that directly or
indirectly through one or more intermediaries controls or is controlled by, or
is under direct or indirect common control with, such first Person, (b) that
directly or indirectly beneficially owns or holds ten percent or more of any
class of voting Capital Stock of such first Person, or (c) ten percent or more
of the voting Capital Stock of which is directly or indirectly beneficially
owned or held by such first Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the Loan Documents, neither the Administrative Agent nor any Lender
shall be deemed to be an Affiliate of the Borrower or any Loan Party.
"Agent Sales Managers" means full-time employees of the Borrower who are
engaged in the recruitment and management of agents that sell services related
to the Telecommunications Business.
"Aggregate Commitments" means, as to all Lenders, the Term Loans
Commitments and the Revolving Loans Commitments.
"Agreement" means this Agreement and any and all amendments,
modifications, supplements, renewals, extensions or restatements hereof.
"Amortization Commencement Date" means the Quarterly Date falling in the
calendar quarter immediately succeeding the calendar quarter in which the Term
Loans A Commitment Termination Date or the Revolving Loans Commitment
Termination Date (as applicable) occurs.
"Annualized EBITDA" means, as to any Person and its Consolidated
Subsidiaries and for the applicable period, EBITDA for the two most recently
completed fiscal quarters multiplied by two.
"Applicable Lending Office" means, for each Lender and each Type of Loan,
the lending office of such Lender (or an Affiliate of such Lender) designated
for such Type of Loan below its name on the signature pages hereof (or, with
respect to a Lender that becomes a party to this Agreement pursuant to an
assignment made in accordance with Section 13.8, in the Assignment and
Acceptance executed by it) or such other office of such Lender (or an Affiliate
of such Lender) as such Lender may from time to time specify to the Borrower and
the Administrative Agent as the office by which its Loans of such Type are to be
made and maintained.
CREDIT AGREEMENT - Page 2
<PAGE>
"Applicable Margin" means the rate per annum equal to (a) with respect to
each Base Rate Loan, * percent (*%) and (b) with respect to each Eurodollar
Loan, * percent (*%).
"Asset Disposition" means the disposition of any or all of the Property of
the Borrower or any of its Subsidiaries, whether by sale, lease, transfer,
assignment, condemnation or otherwise, but excluding (a) sales of inventory in
the ordinary course of business, (b) the grant of a Lien as security, (c) any
involuntary disposition resulting from casualty damage to Property, and (d)
dispositions of equipment if and to the extent that the equipment disposed of
is, concurrently therewith, exchanged or replaced by equipment of equal or
greater value.
"Assignee" means as specified in Section 13.8(b).
"Assigning Lender" means as specified in Section 13.8(b).
"Assignment and Acceptance" means an assignment and acceptance entered
into by a Lender and its Assignee and accepted by the Administrative Agent
pursuant to Section 13.8(e), in substantially the form of Exhibit A hereto.
"Average Customer Count" means, as of the last day of any calendar
quarter, the quotient obtained by dividing (a) the sum of the number of
customers of the Borrower and its Consolidated Subsidiaries as of the last day
of each of the three months during such calendar quarter by (b) three.
"Average Gross Revenues" means, for any calendar quarter, the quotient
obtained by dividing (a) Gross Revenues for such calendar quarter by (b) three.
"Average Monthly Gross Revenues Per Customer" means, as to the Borrower
and its Consolidated Subsidiaries and with respect to any calendar quarter, the
quotient obtained by dividing (a) the Average Gross Revenues for such calendar
quarter by (b) the Average Customer Count as of the last day of such calender
quarter.
"Average Monthly Gross Revenues Per Sales Representative" means, as to the
Borrower and its Consolidated Subsidiaries and with respect to any calendar
quarter, the quotient obtained by dividing (a) the Average Gross Revenues for
such calendar quarter by (b) the Average Sales Representative Count as of the
last day of such calendar quarter.
"Average Sales Representative Count" means, as of the last day of any
calendar quarter, the quotient obtained by dividing (a) the sum of the number of
Sales Representatives of the Borrower and its Consolidated Subsidiaries as of
the last day of each of the three months during such calendar quarter by (b)
three.
"Bankruptcy Code" means as specified in Section 11.1(e).
"Base Rate" means, at any time, the greater of (a) the rate of interest
per annum then most recently announced or established by the Reference Bank at
its principal office in New York City as its highest commercial prime or base
rate then in effect, or (b) the Federal Funds Rate then in effect plus one-half
of one percent (0.50%). The Base Rate may not necessarily be the lowest rate of
interest charged by the Reference Bank to its commercial borrowers. Each change
in any interest rate provided for herein based upon the prime or base rate or
the Federal Funds Rate resulting from
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 3
<PAGE>
a change in the prime or base rate or the Federal Funds Rate, respectively,
shall take effect without notice to the Borrower at the time of such change in
the prime or base rate or the Federal Funds Rate, respectively.
"Base Rate Loans" means Loans that bear interest at rates based upon the
Base Rate.
"Basle Accord" means the proposals for risk-based capital framework
described by the Basle Committee on Banking Regulations and Supervisory
Practices in its paper entitled "International Convergence of Capital
Measurement and Capital Standards" dated July 1988, as amended, supplemented and
otherwise modified and in effect from time to time, or any replacement thereof.
"Board of Directors" means the board of directors of the Borrower or other
Person (as applicable).
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Borrower or other Person (as applicable) to
have been duly adopted by its Board of Directors and to be in full force and
effect on the date of such certification.
"Borrower" means as specified in the initial paragraph of this Agreement.
"Borrower's Knowledge" means the actual knowledge of any Responsible
Officer of the Borrower.
"Borrowing Base Report" means a report in substantially the form of
Exhibit E attached hereto properly completed and certified by a Responsible
Officer of the Borrower to the satisfaction of the Administrative Agent which
specifies the Revolving Loans Borrowing Base as calculated as of the date of the
report.
"Branchisees" means certain independently owned and operated business
entities that have a contractual relationship with the Borrower whereby such
entities exclusively sell the Borrower's services related to the
Telecommunications Business and, in connection therewith, receive operational
support from the Borrower.
"Business Day" means (a) any day other than a Saturday, Sunday or other
day on which commercial banks are authorized or required by law to close in New
York, New York or Dallas, Texas, and (b) with respect to all borrowings,
payments, Conversions, Continuations, Interest Periods and notices in connection
with Eurodollar Loans, any day which is a Business Day described in clause (a)
above and which is also a day on which dealings in Dollar deposits are carried
out in the London interbank market.
"Business Plan" means the Borrower's marketing and Network build-out
plans, budget and schedule as submitted to the Administrative Agent from time to
time, including financial projections of Holdings, the Borrower and the
Consolidated Subsidiaries of the Borrower for the seven year period beginning on
the Closing Date, certified by the chief financial officer of the Borrower as
being prepared generally in accordance with GAAP (except for the absence of
footnotes), such projections giving effect to the Debt to be incurred under this
Agreement as well as the other Debt to be incurred by Holdings, the Borrower and
the Consolidated Subsidiaries of the Borrower during such period.
CREDIT AGREEMENT - Page 4
<PAGE>
"Capital Expenditures" means, as to any Person and its Consolidated
Subsidiaries, amounts paid or Debt incurred by such Persons in connection with
the purchase or lease by such Persons of Property that would be required to be
capitalized and shown on the balance sheet of such Persons in accordance with
GAAP.
"Capital Lease Obligations" means, as to any Person and its Consolidated
Subsidiaries, the obligations of such Persons to pay rent or other amounts under
a lease of (or other agreement conveying the right to use) real and/or personal
Property, which obligations are classified as a capital lease on a balance sheet
of such Persons under GAAP. For purposes of this Agreement, the amount of such
Capital Lease Obligations shall be the capitalized amount thereof, determined in
accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities, shares,
partnership interests (whether general, limited, special or other partnership
interests), limited liability company interests, membership interests, equity
interests, participations, rights or other equivalents (however designated) of
corporate stock or any of the foregoing issued by any entity (whether a
corporation, a partnership, a limited liability company or another entity) and
includes, without limitation, securities convertible into Capital Stock and
rights, warrants or options to acquire Capital Stock.
"Change in Control" means the existence or occurrence of any of the
following: (a) any of the Capital Stock of the Borrower is owned by any Person
other than Holdings; (b) any Capital Stock of any Subsidiary of the Borrower is
owned by any Person other than the Borrower or any Wholly- Owned Subsidiary of
the Borrower, (c) any Person or two or more Persons (other than the Permitted
Holders) acting as a group (as defined in Section 13d-3 of the Exchange Act)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of
the Securities and Exchange Commission under the Exchange Act) of *% or more of
the outstanding shares of Voting Stock of Holdings; (d) individuals who, as of
the Closing Date, constitute the Board of Directors of Holdings (the "Holdings
Incumbent Board") cease for any reason to constitute at least a majority of the
Board of Directors of Holdings; provided, however, that any individual becoming
a director of Holdings subsequent to the Closing Date whose election or
nomination for election by Holdings' shareholders was approved by a vote of at
least a majority of the directors then comprising the Holdings Incumbent Board
shall be considered as though such individual were a member of the Holdings
Incumbent Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies or contest by or on behalf of a Person other than the
Board of Directors of Holdings; or (e) the consummation of any transaction the
result of which is that any Person or group beneficially owns more of the Voting
Stock of Holdings than is beneficially owned, in the aggregate, by the Permitted
Holders.
"Closing Date" means July 28, 1999, the date of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the
regulations promulgated and rulings issued thereunder.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 5
<PAGE>
"Collateral" means all Property of any Person of any nature whatsoever
upon which a Lien is created or purported to be created by any Loan Document as
security for the Obligations or any portion thereof.
"Commitment" means, as to any Lender, such Lender's Term Loans A
Commitment, Term Loans B Commitment or Revolving Loans Commitment (as applicable
based upon the context in which such term is used), and "Commitments" means, as
to any Lender, such Lender's Term Loans A Commitment, Term Loans B Commitment
and Revolving Loans Commitment (if any).
"Commitment Percentage" means, as to any Lender and as to the Term Loans A
Commitments, Term Loans B Commitments, Revolving Loans Commitments or Aggregate
Commitments (as applicable based upon the context in which such term is used),
the percentage equivalent of a fraction, the numerator of which is the amount of
the outstanding Term Loans A Commitment, Term Loans B Commitment, Revolving
Loans Commitment or Aggregate Commitment (as applicable) of such Lender (or, if
such applicable commitment has terminated or expired, the outstanding principal
amount of the Term Loans A, Term Loans B or Revolving Loans, respectively, of
such Lender) and the denominator of which is the aggregate amount of the
outstanding Term Loans A Commitments, Term Loans B Commitments, Revolving Loans
Commitments or Aggregate Commitments (as applicable) of all Lenders (or, if such
applicable commitments have terminated or expired, the aggregate outstanding
principal amount of the Term Loans A, Term Loans B or Revolving Loans,
respectively, of all Lenders), as adjusted from time to time in accordance with
Section 13.8.
"Communications Act" means the Communications Act of 1934, and any similar
or successor federal statute, and the rules and regulations of the FCC
thereunder, all as amended and as the same may be in effect from time to time.
"Consolidated Fixed Charges" means, as to any Person and its Consolidated
Subsidiaries and for any period, the sum of (without duplication) (a)
Consolidated Interest Expense of such Persons paid or payable in cash during
such period, plus (b) all scheduled payments (as such scheduled payments are
reduced by application of any prepayments) of principal with respect to the
Loans and other outstanding Debt during such period, plus (c) taxes of such
Persons paid or payable in cash during such period, plus (d) the aggregate
amount paid or payable by such Persons in cash during such period on account of
Capital Expenditures.
"Consolidated Interest Expense" means, as to any Person and its
Consolidated Subsidiaries and for any period, and without duplication, all
interest on Debt of such Persons paid or payable in cash during such period,
including the interest portion of payments under Capital Lease Obligations.
"Consolidated Net Income" means, as to any Person and its Consolidated
Subsidiaries and for any period, the net income (or loss) of such Persons for
such period, determined on a consolidated basis in accordance with GAAP.
"Consolidated Subsidiary" means, with respect to any Person, any
Subsidiary the financial attributes of which are or would be consolidated with
those of such Person in the consolidated financial statements of such Person in
accordance with GAAP.
CREDIT AGREEMENT - Page 6
<PAGE>
"Continue", "Continuation" and "Continued" shall refer to the continuation
pursuant to Section 2.6 of a Eurodollar Loan as a Eurodollar Loan of the same
Type from one Interest Period to the next Interest Period.
"Contract Rate" means as specified in Section 13.12(a).
"Contributed Capital" means, as to any Person and its Consolidated
Subsidiaries and as of any date of determination, the sum of (without
duplication) (a) equity contributions made to such Persons as of such date
(including equity contributed on or before the Closing Date), plus (b) the
amount of cash proceeds of Subordinated Debt received by such Persons as of such
date, minus (c) the aggregate amount of any cash dividends or distributions paid
or made by such Persons as of such date minus (d) the aggregate amount of cash
interest paid on Subordinated Debt of such Persons as of such date.
"Convert", "Conversion" and "Converted" shall refer to a conversion
pursuant to Section 2.6 or Article 4 of one Type of Loan into the other Type of
Loan.
"Current Date" means (a) a date occurring no more than 30 days prior to
the Closing Date or other relevant date as may be specified herein (as
applicable) or (b) such earlier date which is acceptable to the Administrative
Agent.
"Debt" means as to any Person at any time (without duplication): (a) all
indebtedness, liabilities and obligations of such Person for borrowed money; (b)
all indebtedness, liabilities and obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments; (c) all indebtedness,
liabilities and obligations of such Person to pay the deferred purchase price of
Property or services, except trade accounts payable of such Person arising in
the ordinary course of business that are not past due by more than 90 days; (d)
all Capital Lease Obligations of such Person; (e) all Debt of others Guaranteed
by such Person; (f) all indebtedness, liabilities and obligations secured by a
Lien existing on Property owned by such Person, whether or not the indebtedness,
liabilities or obligations secured thereby have been assumed by such Person or
are non-recourse to such Person; (g) all reimbursement obligations of such
Person (whether contingent or otherwise) in respect of letters of credit,
bankers' acceptances, surety or other bonds and similar instruments; (h) all
indebtedness, liabilities and obligations of such Person to redeem or retire
shares of Capital Stock of such Person; (i) all indebtedness, liabilities and
obligations of such Person under Interest Rate Protection Agreements; and (j)
all indebtedness, liabilities and obligations of such Person in respect of
unfunded vested benefits under any pension plans.
"Default" means an Event of Default or the occurrence of an event or
condition which with notice or lapse of time or both would become an Event of
Default.
"Default Rate" means, in respect of any principal of any Loan at all times
during which any Default has occurred and is continuing or in respect of any
other amount payable by the Borrower under this Agreement or any other Loan
Document which is not paid when due (whether at stated maturity, by acceleration
or otherwise), a rate per annum during the period of such Default or during the
period commencing on the due date of such other amount until such other amount
is paid in full equal to the lesser of (a) the sum of * percent (*%) plus the
Base Rate as in effect from time to time plus the Applicable Margin for Base
Rate Loans or, with respect to the Term Loans B, the sum of * percent (*%) plus
the interest rate applicable to the Term Loans B pursuant to Section 2.4(a) or
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 7
<PAGE>
(b) the Maximum Rate; provided, however, that if such amount in default is
principal of a Eurodollar Loan and the due date is a day other than the last day
of an Interest Period therefor, the "Default Rate" for such principal shall be,
for the period from and including the due date and to but excluding the last day
of the Interest Period therefor, the lesser of the rate per annum equal to (i)
the sum of * percent (*%) plus the interest rate for such Eurodollar Loan for
such Interest Period as provided in clause (ii) of Section 2.4(a) hereof or (ii)
the Maximum Rate and, thereafter, the rate provided for above in this
definition.
"Direct Sales Representatives" means full-time employees of the Borrower
who are engaged in the direct solicitation of customers of Telecommunications
Business services on the Borrower's behalf.
"Dollars" and "$" mean lawful money of the U.S.
"EBITDA" means, as to any Person and its Consolidated Subsidiaries and for
any period, without duplication, the sum of the following for such Persons for
such period determined on a consolidated basis in accordance with GAAP: (a)
Adjusted Net Income, plus (b) Consolidated Interest Expense, plus (c) income,
franchise and other taxes to the extent deducted in determining Adjusted Net
Income, plus (d) depreciation and amortization expense and other non-cash,
non-tax items to the extent deducted in determining Adjusted Net Income, minus
(e) non-cash income (or losses) to the extent included in determining Adjusted
Net Income.
"Eligible Assignee" means (a) any Lender or Affiliate of a Lender, (b) any
commercial bank, savings and loan association, savings bank, finance company,
insurance company, pension fund, mutual fund or other financial institution
(whether a corporation, partnership, limited liability company or other entity)
which has been approved by the Administrative Agent as a Lender under this
Agreement or (c) any other entity approved by the Administrative Agent which is
(or which is managed by a manager which manages funds which are) primarily
engaged in making, purchasing or otherwise investing in commercial loans or
extending, or investing in extensions of, credit for its own account in the
ordinary course of its business; provided, however, that (i) Eligible Assignee
shall not include any Affiliate of the Borrower and (ii) Eligible Assignee shall
not include any business competitor of the Borrower engaged in the same line of
business as the Borrower except after the occurrence and during the continuance
of an Event of Default.
"Eligible Receivables" means, as to the Borrower and its Subsidiaries at
any date of determination, without duplication, the aggregate of each Receivable
owned by and owed to the Borrower or its Subsidiary which satisfies each of the
following conditions: (a) such Receivable, at the date of issuance of its
invoice, was payable not more than 90 days after the original date of issuance
of the invoice therefor; (b) such Receivable has not been outstanding for more
than 60 days past the due date thereof; (c) such Receivable is not owed by an
account debtor as to which any other Receivable has been outstanding for more
than 60 days past the due date thereof or, in the event such other Receivable is
in dispute, 90 days past the due date thereof; (d) such Receivable was created
in connection with the performance of services by the Borrower in the ordinary
course of business; (e) such Receivable represents a legal, valid and binding
payment obligation of the account debtor enforceable in accordance with its
terms; (f) the Borrower has good and indefeasible title to such Receivable, and
the Administrative Agent holds a perfected first priority Lien on and security
interest in such Receivable subject to no equal or prior Liens; (g) the amount
of such Receivable is net of any setoff, counterclaim, defense, dispute,
recoupment or adjustment other than normal
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 8
<PAGE>
discounts for prompt payment; (h) the account debtor with respect to such
Receivable is not insolvent or the subject of any bankruptcy, insolvency,
receivership or similar proceedings or dissolved, liquidated or no longer in
existence; (i) such Receivable is not owed by an Affiliate of the Borrower
(unless (i) such Person is an Affiliate of the Borrower solely because such
Person is an Affiliate of Gold & Appel Transfer, S.A., and (ii) the
Receivable(s) owed by such Person are generated pursuant to an arrangement that
complies with Section 9.7); (j) such Receivable is payable in U.S. dollars; and
(k) the account debtor with respect to such Receivable is (i) domiciled in the
U.S. and organized under the laws of the U.S. or a State thereof or (ii)
domiciled in Canada and organized under the laws of the U.S. or a State thereof
or the laws of Canada or a Province thereof, provided, however, that the
aggregate amount of Eligible Receivables owed by all account debtors referred to
in this clause (ii) shall not at any time exceed the lesser of $1,500,000 or 15%
of the amount of the Revolving Loans Borrowing Base then in effect.
"Eligible Third-Party Expenses" means, as of any date of determination,
(a) amounts paid (either prior to such date or concurrently with such date,
including concurrently with the making of any Loan on such date) to vendors of
hardware, software and equipment (including fixtures), including Nortel
Networks, for the construction of the Network, (b) Network site acquisition
costs excluding any lease costs, and (c) amounts paid (either prior to such date
or concurrently with such date, including concurrently with the making of any
Loan on such date) for working capital and general corporate purposes of the
Borrower and its Subsidiaries, exclusive of any such amounts paid to purchase
any hardware, software or equipment that is not manufactured by Nortel Networks
which competes with any hardware, software or equipment manufactured by Nortel
Networks.
"Employee Stock" means common stock of Holdings, and/or options, warrants
or other rights to purchase such common stock, which are (a) issued or granted
to officers, directors, employees or agents of Holdings or any Subsidiary of
Holdings pursuant to any employee stock option plan or arrangement, employee
stock purchase plan or arrangement or other equity incentive, bonus or similar
plan or arrangement approved by the Board of Directors of Holdings, provided
that the total thereof does not exceed *% of the shares of such common stock
then outstanding and/or issuable upon conversion of the outstanding convertible
securities, options, warrants or other rights to acquire such common stock (the
"Fully Diluted Common Stock"), or (b) issued or granted pursuant to written
agreements with "branchisees" or similar agreements with "branchisees" or
similar agents of Holdings or any Subsidiary of Holdings, provided that any
options, warrants or other rights granted thereunder with respect to such common
stock shall be exercisable at not less than fair market value (as determined by
the Board of Directors of Holdings) as of the date of grant, and provided,
further, that the total shares of such common stock issuable upon the exercise
of all such options, warrants or other rights shall not exceed five percent of
the Fully Diluted Common Stock as of any such grant date.
"Environmental Law" means any federal, state, provincial, local or foreign
law, statute, code or ordinance, principle of common law, rule or regulation, as
well as any License, order, decree, judgment or injunction issued, promulgated,
approved or entered thereunder, relating to pollution or the protection, cleanup
or restoration of the environment or natural resources, or to the public health
or safety, or otherwise governing the generation, use, handling, collection,
treatment, storage, transportation, recovery, recycling, discharge or disposal
of Hazardous Materials, including, without limitation as to U.S. laws, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C.ss.9601 et seq., the Superfund Amendment and Reauthorization Act of 1986,
99-499, 100 Stat. 1613, the Resource Conservation and Recovery Act of
1976, 42 U. S. C.ss.6901
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 9
<PAGE>
et seq., the Occupational Safety and Health Act, 29 U S.C.ss.651 et seq., the
Clean Air Act, 42 U.S.C.ss.7401 et seq., the Clean Water Act, 33 U. S. C.ss.1251
et seq., the Emergency Planning and Community Right to Know Act, 42 U. S.
C.ss.11001 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.S.C.ss.136 et seq., and the Toxic Substances Control Act, 15 U.S.C.ss.2601 et
seq., and any state or local counterparts.
"Environmental Liabilities" means, as to any Person, all liabilities,
obligations, responsibilities, Remedial Actions, losses, damages, punitive
damages, consequential damages, treble damages, costs and expenses (including,
without limitation, all reasonable fees, disbursements and expenses of counsel,
expert and consulting fees and costs of investigation and feasibility studies),
fines, penalties, sanctions and interest incurred as a result of any claim or
demand, by any Person, whether based in contract, tort, implied or express
warranty, strict liability or criminal, penal or civil statute, including,
without limitation, any Environmental Law, License, order or agreement with any
Governmental Authority or other Person, arising from environmental, health or
safety conditions or the Release or threatened Release of a Hazardous Material
into the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations and published interpretations
thereunder.
"ERISA Affiliate" means any corporation or trade or business which is a
member of a group of entities, organizations or employers of which a Loan Party
is also a member and which is treated as a single employer within the meaning of
Sections 414(b), (c), (m) or (o) of the Code.
"Eurodollar Loans" means Loans that bear interest at rates based upon the
Eurodollar Rate or the Adjusted Eurodollar Rate.
"Eurodollar Rate" means, for any Eurodollar Loan for any Interest Period
therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/16
of 1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars in the approximate amount of the
proposed Eurodollar Loan at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If such rate ceases to be available from Telerate News
Service, the Eurodollar Rate shall be determined by the Administrative Agent in
good faith from another financial reporting service, which service shall be
reasonably acceptable to the Borrower.
"Event of Default" has the meaning specified in Section 11.1.
"Excess Cash Flow" means, as to any Person and its Consolidated
Subsidiaries and for any fiscal year, and without duplication, the remainder of
(a) EBITDA for such fiscal year minus (b) the sum of (i) taxes payable in cash
for such fiscal year, plus (ii) all principal and cash interest payments on Debt
made during such fiscal year, whether optional, mandatory or scheduled payments,
plus (iii) Capital Expenditures (but only to the extent paid in cash and not
financed) made during such fiscal year.
"Excess Proceeds Amount" means as specified in Section 2.7(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended (or
any successor act), and the rules and regulations thereunder (or respective
successors thereto).
CREDIT AGREEMENT - Page 10
<PAGE>
"FCC" means the Federal Communications Commission and any successor
agency.
"FCC Licenses" means all Licenses issued by the FCC.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upwards, if necessary, to the nearest one-sixteenth of one percent (1/16 of 1%))
equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published by the Federal Reserve Bank of New York
on the Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal Funds
Rate for such day shall be such rate on such transactions on the next preceding
Business Day as so published on the next succeeding Business Day and (b) if such
rate is not so published on such next succeeding Business Day, the Federal Funds
Rate for any day shall be the average rate which would be charged to the
Reference Bank on such day on such transactions as determined by the
Administrative Agent.
"GAAP" means generally accepted accounting principles, applied on a
consistent basis, as set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their respective successors and
which are applicable in the circumstances as of the date in question. Accounting
principles are applied on a "consistent basis" when the accounting principles
applied in a current period are comparable in all material respects to those
accounting principles applied in a preceding period.
"Governmental Authority" means any nation or government, any state,
provincial or political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Governmental Requirement" means any law, statute, code, ordinance, order,
rule, regulation, judgment, decree, injunction, License or other directive or
requirement of any federal, state, county, municipal, parish, provincial or
other Governmental Authority or any department, commission, board, court, agency
or any other instrumentality of any of them.
"Gross Margin Percentage" means, as to any Person and its Consolidated
Subsidiaries and for any period, the quotient of (a) the remainder of (i) Gross
Revenues for such period minus (ii) Network Costs, divided by (b) Gross Revenues
for such period, expressed as a percentage.
"Gross Revenues" means, as to the Borrower and its Consolidated
Subsidiaries and for any period, gross revenues of such Persons determined on a
consolidated basis in accordance with GAAP.
"Gross Up Lender" means any Lender which requests a payment from the
Borrower pursuant to Section 3.5, 4.1 or 4.6.
"Guarantee" by any Person means any obligation, contingent or otherwise,
of such Person directly or indirectly guaranteeing any Debt or other obligation
of any other Person and, without limiting the generality of the foregoing, any
indebtedness, liability or obligation, direct or indirect, contingent or
otherwise, of such Person (a) to purchase or pay (or advance or supply funds for
the
CREDIT AGREEMENT - Page 11
<PAGE>
purchase or payment of) such Debt or other obligation (whether arising by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, to take- or-pay or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Debt or other indebtedness,
liability or obligation as to the payment thereof or to protect the obligee
against loss in respect thereof (in whole or in part), provided that the term
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made or, if not stated or determinable, the
maximum anticipated liability in respect thereof (assuming such Person is
required to perform thereunder).
"Guarantors" means Holdings, each Subsidiary of the Borrower at any time
existing and each other Person which has executed a Guaranty, and "Guarantor"
means any of such Persons.
"Guaranty" means a guaranty agreement guaranteeing payment and performance
of the Obligations in form and substance satisfactory to the Administrative
Agent executed by a Guarantor in favor of the Administrative Agent and the
Lenders, and any and all amendments, modifications, supplements, renewals,
extensions or restatements thereof.
"Hazardous Material" means any substance, product, liquid, waste,
pollutant, chemical, contaminant, insecticide, pesticide, gaseous or solid
matter, organic or inorganic matter, fuel, micro- organisms, ray, odor,
radiation, energy, vector, plasma, constituent or material which (a) is or
becomes listed, regulated or addressed under any Environmental Law or (b) is, or
is deemed to be, alone or in any combination, hazardous, hazardous waste, toxic,
a pollutant, a deleterious substance, a contaminant or a source of pollution or
contamination under any Environmental Law, including, without limitation,
asbestos, petroleum, underground storage tanks (whether empty or containing any
substance) and polychlorinated biphenyls.
"Holdings" means NET-tel Communications, Inc., a Delaware corporation.
"Initial Funding Date" means the date of the making of the initial Loan
under this Agreement.
"Insurance Recovery" means, with respect to any Property of the Borrower
or any of its Subsidiaries and any single occurrence or related occurrences with
respect thereto, the receipt or constructive receipt by such Loan Party, or the
payment by an insurance company to the Administrative Agent, of proceeds of any
such Property or casualty insurance.
"Intellectual Property" means any U.S. or foreign patents, patent
applications, trademarks, trade names, service marks, brand names, logos and
other trade designations (including unregistered names and marks), trademark and
service mark registrations and applications, copyrights and copyright
registrations and applications, inventions, invention disclosures, protected
formulae, formulations, processes, methods, trade secrets, computer software,
computer programs and source codes, manufacturing research and similar technical
information, engineering know-how, customer and supplier information, assembly
and test data drawings or royalty rights.
CREDIT AGREEMENT - Page 12
<PAGE>
"Interest Period" means, with respect to any Eurodollar Loan, each period
commencing on the date such Loan is made or Converted from a Base Rate Loan or
(if Continued) the last day of the next preceding Interest Period with respect
to such Loan, and ending on the numerically corresponding day in the first,
second, third or sixth calendar month thereafter, as the Borrower may select as
provided in Section 2.9 hereof, except that each such Interest Period which
commences on the last Business Day of a calendar month (or on any day for which
there is no numerically corresponding day in the appropriate subsequent calendar
month) shall end on the last Business Day of the appropriate subsequent calendar
month. Notwithstanding the foregoing: (a) each Interest Period which would
otherwise end on a day which is not a Business Day shall end on the next
succeeding Business Day (or, if such succeeding Business Day falls in the next
succeeding calendar month, on the next preceding Business Day); (b) any Interest
Period which would otherwise extend beyond the Maturity Date shall end on the
Maturity Date; (c) no more than five Interest Periods for Eurodollar Loans shall
be in effect at the same time; (d) no Interest Period shall have a duration of
less than one month and, if the Interest Period for any Eurodollar Loans would
otherwise be a shorter period, such Loans shall not be available hereunder; and
(e) no Interest Period for a Loan may commence before, and end after, any
principal payment date unless, after giving effect thereto, the aggregate
principal amount of the Eurodollar Loans having Interest Periods that end after
such principal payment date shall be equal to or less than the amount of the
applicable Loans scheduled to be outstanding hereunder after such principal
payment date.
"Interest Rate Protection Agreement" means, with respect to the Borrower,
an interest rate swap, cap or collar agreement or similar arrangement between
the Borrower and one or more Lenders or other counterparties rated as specified
in, and otherwise meeting the requirements of, Section 8.15 providing for the
transfer or mitigation of interest rate risks either generally or under
specified contingencies.
"Investments" means as specified in Section 9.5.
"Lender" and "Lenders" means as specified in the initial paragraph of this
Agreement.
"License" means any consent, permit, franchise, certificate, approval,
order, license, right-of- way (whether an easement, contract or agreement in any
form) or other authorization, including, without limitation, any FCC License.
"Lien" means, with respect to any Property, any mortgage or deed of trust,
pledge, hypothecation, assignment, deposit arrangement, security interest, tax
lien, financing statement, pledge, charge, hypothecation or other lien, charge,
easement (other than any easement not materially impairing usefulness),
encumbrance, preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever on or with respect to such Property
(including, without limitation, any conditional sale or other title retention
agreement having substantially the same economic effect as any of the
foregoing).
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the Administrative Agent's Letter and all other agreements, documents,
instruments and certificates now or hereafter executed and/or delivered pursuant
to or in connection with any of the foregoing, and any and all amendments,
modifications, supplements, renewals, extensions or restatements thereof.
CREDIT AGREEMENT - Page 13
<PAGE>
"Loan Party" means the Borrower, Holdings, any Guarantor or any Person who
grants a Lien on any Property to secure the payment or performance of the
Obligations or any portion thereof, and "Loan Parties" means all of such
Persons.
"Loans" means the Term Loans A, the Term Loans B and the Revolving Loans,
and "Loan" means any of such loans.
"Master Purchase Agreement" means that certain Master Purchase Agreement
dated as of September 24, 1998, and amended as of November __, 1998 and June 23,
1999, by and between the Borrower and Nortel Networks, as amended, supplemented
or restated from time to time.
"Material Adverse Effect" means any event, development or circumstance
that has had or could reasonably be expected to have a material adverse effect
on (a) the business, assets, financial condition or results of operations of
Holdings and its Subsidiaries taken as a whole, (b) the business, assets,
financial condition or results of operations of the Borrower individually or of
the Borrower and its Subsidiaries taken as a whole, (c) the validity or
enforceability of any of the Loan Documents or the Liens, rights and/or remedies
of the Administrative Agent and/or the Lenders thereunder, (d) the ability of
any Loan Party to pay and perform its indebtedness, liabilities and/or
obligations under any of the Loan Documents, or (e) the value of Collateral
available to the Administrative Agent and the Lenders after giving effect to
Liens in favor of other Persons.
"Material Contracts" means, as to any Loan Party, any supply, purchase,
service, employment, tax, indemnity, shareholder or other agreement or contract
for which the aggregate amount or value of services performed or to be performed
for or by, or funds or other Property transferred or to be transferred to or by,
any Loan Party to such agreement or contract, or by which any Loan Party or any
of its Properties is otherwise bound, during any fiscal year of such Loan Party
exceeds $1,000,000 (or the equivalent amount in any currency) and any and all
amendments, modifications, supplements, renewals or restatements thereof.
"Maturity Date" means the earlier to occur of (a) July 30, 2006 or (b) the
fifth anniversary of the Term Loans A Commitment Termination Date.
"Maximum Financed Amount of Eligible Third-Party Expenses" means, as of
any date of determination, the lesser of (a) an amount equal to the aggregate
amount of Eligible Third-Party Expenses or (b) *% of the aggregate amount paid
by the Borrower to Nortel Networks and/or Nortel Networks Corporation to
purchase Nortel Networks Goods and Services for the Network.
"Maximum Rate" means, with respect to any Lender, the maximum non-usurious
interest rate or an amount computed in reference to such rate (as applicable),
if any, that any time or from time to time may be contracted for, taken,
reserved, charged or received with respect to the particular Obligations as to
which such rate is to be determined, payable to such Lender pursuant to this
Agreement or any other Loan Document, under laws applicable to such Lender which
are presently in effect or, to the extent allowed by law, under such applicable
laws which may hereafter be in effect and which allow a higher maximum
non-usurious interest rate than applicable laws now allow. The Maximum Rate
shall be calculated in a manner that takes into account any and all fees,
payments and other charges in respect of the Loan Documents that constitute
interest under applicable law. Each change in any interest rate provided for
herein based upon the Maximum Rate
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 14
<PAGE>
resulting from a change in the Maximum Rate shall take effect without notice to
the Borrower at the time of such change in the Maximum Rate.
"Monthly Date" means the last day of each month of each year, the first of
which shall be August 31, 1999.
"Mortgage" means a mortgage, deed of trust or other agreement, document or
instrument evidencing or creating a Lien on any fee real Property or leasehold
interest therein (and any related personal Property) as security for the
Obligations or any portion thereof in form and substance satisfactory to the
Administrative Agent executed by any Loan Party in favor of the Administrative
Agent for the benefit of the Administrative Agent and the Lenders, and any and
all amendments, modifications, supplements, renewals, extensions or restatements
thereof.
"Mortgaged Properties" means Properties in which a Lien has been granted
or purported to be granted pursuant to a Mortgage.
"Multiemployer Plan" means a multiemployer plan defined as such in Section
3(37) of ERISA to which contributions have been made by or are required from the
Borrower or any ERISA Affiliate since 1974 and which is covered by Title IV of
ERISA.
"Net Proceeds" means, with respect to any Asset Disposition, (a) the gross
amount of cash received by the Borrower or any of its Subsidiaries from such
Asset Disposition, minus (b) the amount, if any, of all taxes paid or payable by
the Borrower or any of its Subsidiaries directly resulting from such Asset
Disposition (including the amount, if any, estimated by the Borrower in good
faith at the time of such Asset Disposition for taxes payable by the Borrower or
any of its Subsidiaries on or measured by net income or gain resulting from such
Asset Disposition), minus (c) the reasonable out-of-pocket costs and expenses
incurred by the Borrower or such Subsidiary in connection with such Asset
Disposition (including reasonable brokerage fees paid to a Person other than an
Affiliate of the Borrower) excluding any fees or expenses paid to an Affiliate
of the Borrower, minus (d) amounts applied to the repayment of indebtedness
(other than the Obligations) secured by any Permitted Lien (if any) on the
Property subject to the Asset Disposition. "Net Proceeds" with respect to any
Asset Disposition shall also include proceeds (after deducting any amounts
specified in clauses (b), (c) and (d) of the preceding sentence) of insurance
with respect to any actual or constructive loss of Property, an agreed or
compromised loss of Property or the taking of any Property under the power of
eminent domain and condemnation awards and awards in lieu of condemnation for
the taking of Property under the power of eminent domain.
"Network" means the Borrower's integrated communications network for the
provision of high speed data and voice services in the U.S. as described in the
Business Plan.
"Network Costs" means, for any period, all direct costs, other than
depreciation and amortization, associated with the provision of
telecommunications services (including resold services, switching, transport,
peripheral equipment components and all facilities costs) to customers of the
Borrower and its Subsidiaries.
"Nortel Networks" means Nortel Networks Inc., a Delaware corporation.
"Nortel Networks Equipment" means all hardware, software and equipment
(including fixtures) manufactured, sold or otherwise provided to the Borrower or
any other Loan Party by
CREDIT AGREEMENT - Page 15
<PAGE>
Nortel Networks and/or Nortel Networks Corporation, including, without
limitation, all equipment sold to the Borrower pursuant to the Master Purchase
Agreement.
"Nortel Networks Goods and Services" means sales, installation and
commissioning of Nortel Networks Equipment and related software (including
Nortel Networks Software), and project management, system design and services
performed by personnel of Nortel Networks and/or Nortel Networks Corporation.
"Nortel Networks Software" means any and all software sold or licensed by
Nortel Networks and/or Nortel Networks Corporation to the Borrower or any other
Loan Party, including, without limitation, all source code and object code and
all manuals and other documentation relating thereto and each copy thereof
regardless of the media in which they are stored.
"Notes" means the Term Notes A, the Term Notes B and the Revolving Notes,
and "Note" means any of such Promissory Notes.
"Notice of Borrowing" means as specified in Section 2.9.
"Obligations" means any and all (a) indebtedness, liabilities and
obligations of the Borrower or any other Loan Party to the Administrative Agent
and the Lenders, or any of them, evidenced by and/or arising pursuant to any of
the Loan Documents (including, without limitation, this Agreement and the
Notes), now existing or hereafter arising, whether direct, indirect, related,
unrelated, fixed, contingent, liquidated, unliquidated, joint, several or joint
and several, including, without limitation, (i) the obligations of the Borrower
or any other Loan Party to repay the Loans, to pay interest on the Loans
(including, without limitation, interest accruing after any, if any, bankruptcy,
insolvency, reorganization or other similar filing) and to pay all fees,
indemnities, costs and expenses (including attorneys' fees) provided for in the
Loan Documents and (ii) the indebtedness constituting the Loans and such
interest, fees, indemnities, costs and expenses, and (b) indebtedness,
liabilities and obligations of the Borrower or any other Loan Party under any
and all Interest Rate Protection Agreements that it may enter into with any
Lender with the written consent of the Administrative Agent and the Required
Lenders.
"Payor" means as specified in Section 3.4.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to all or any of its functions under ERISA.
"Pension Plan" means an employee pension benefit plan as defined in
Section 3(2) of ERISA (including a Multiemployer Plan) which is subject to the
funding requirements under Section 302 of ERISA or Section 412 of the Code, in
whole or in part, and which is maintained or contributed to currently or at any
time within the six years immediately preceding the Closing Date or, in the case
of a Multiemployer Plan, at any time since September 2, 1974, by any Borrower or
any ERISA Affiliate for employees of any Borrower or any ERISA Affiliate.
"Permitted Holders" means (a) the Persons identified on Schedule 1.1(a)
hereto who are shareholders of Holdings as of the Closing Date and (b) any
spouse, parent, sibling, child or grandchild of any of the aforesaid individuals
(in each case, whether such relationship arises from birth or adoption or
through marriage) or any trust established for the benefit of any such
individuals
CREDIT AGREEMENT - Page 16
<PAGE>
or any spouse, parent, sibling, child or grandchild of any such individuals (in
each case whether such relationship arises from birth or adoption or through
marriage).
"Permitted Liens" mean:
(a) Liens disclosed on Schedule 1.1(b) hereto;
(b) Liens securing the Obligations in favor of the Administrative
Agent (for the benefit of the Administrative Agent and the Lenders)
pursuant to the Loan Documents;
(c) encumbrances consisting of easements, rights-of-way, zoning
restrictions or other restrictions on the use of real Property or
imperfections to title that do not (individually or in the aggregate)
materially affect the value of the Property encumbered thereby or
materially impair the ability of the Borrower or any of its Subsidiaries
to use such Property in its businesses, and none of which is violated in
any material respect by existing or proposed structures or land use;
(d) Liens for taxes, assessments or other governmental charges that
are not delinquent or which are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the Property subject to such Liens, and for
which adequate reserves (as determined under GAAP) have been established;
(e) Liens of mechanics, materialmen, warehousemen, carriers,
landlords or other similar statutory Liens securing obligations that are
not yet due and are incurred in the ordinary course of business or which
are being contested in good faith by appropriate proceedings, which
proceedings have the effect of preventing the forfeiture or sale of the
Property subject to such Liens, and for which adequate reserves (as
determined under GAAP) have been established;
(f) Liens resulting from good faith deposits to secure payment of
worker's compensation or other social security programs or to secure the
performance of tenders, statutory obligations, surety and appeal bonds,
bids, contracts (other than for payment of Debt) or leases, all in the
ordinary course of business;
(g) purchase-money Liens on any Property acquired after the Closing
Date or the assumption after the Closing Date of any Lien on Property
existing at the time of such acquisition (and not created in contemplation
of such acquisition), or a Lien incurred after the Closing Date in
connection with any conditional sale or other title retention agreement or
Capital Lease Obligation; provided that:
(i) any Property subject to the foregoing is acquired by the
Borrower or any of its Subsidiaries in the ordinary course of its
respective business and the Lien on the Property attaches
concurrently or within 90 days after the acquisition thereof;
(ii) the Debt secured by any Lien so created, assumed or
existing shall not exceed the lesser of the cost or fair market
value at the time of acquisition of the Property covered thereby
(inclusive of the cost of engineering, furnishing and
CREDIT AGREEMENT - Page 17
<PAGE>
installation services directly relating to such Property) and
shall not be less than 75% of the amortized value of the Property
acquired with the proceeds of such Debt;
(iii) each such Lien shall attach only to the Property so
acquired and the proceeds thereof; and
(iv) the Debt secured by all such Liens, when aggregated with
the Debt secured by all purchase-money Liens at any time outstanding
(whenever incurred or created) and all Liens in connection with any
conditional sale or other title retention agreement or Capital Lease
Obligation existing as of the Closing Date or at any other time,
shall not exceed $* at any time outstanding in the
aggregate;
(h) Liens attaching to the accounts of the Borrower and its
Subsidiaries which secure only the Debt permitted to be incurred and to
exist in accordance with clause (g) of Section 9.1; provided, however,
that (i) such Liens may not be granted unless and until all Revolving
Loans have been repaid in full and all Revolving Loans Commitments have
fully terminated or expired and (ii) such Liens may not be granted at any
time when a Default has occurred and is continuing; and
(i) any extension, renewal or replacement of any of the foregoing
Permitted Liens, provided that Liens permitted under this clause (i) shall
not be extended or spread to cover any additional indebtedness or
Property;
provided, however, that (A) none of the Permitted Liens (except those in favor
of the Administrative Agent) may attach or relate to the Capital Stock of or any
other ownership interest in the Borrower or any of its Subsidiaries and (B)
except for the Liens disclosed on Schedule 1.1(b) which are expressly identified
as constituting purchase money Liens, none of the Permitted Liens referred to in
clause (a) preceding may have a priority equal or prior to the Liens in favor of
the Administrative Agent as security for the Obligations.
"Person" means any individual, corporation, trust, association, company,
partnership, joint venture, limited liability company, joint stock company,
Governmental Authority or other entity.
"Plan" means any employee benefit plan as defined in Section 3(3) of ERISA
established or maintained or contributed to by any Loan Party or any ERISA
Affiliate, including any Pension Plan.
"Principal Office" means the principal office of the Administrative Agent
in Richardson, Texas, presently located at 2221 Lakeside Blvd., Richardson,
Texas 75082.
"Prohibited Transaction" means any transaction set forth in Section 406 of
ERISA or Section 4975 of the Code.
"Property" means property and assets of all kinds, whether real, personal
or mixed, tangible or intangible (including, without limitation, all rights
relating thereto), whether owned or acquired on or after the Closing Date.
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
CREDIT AGREEMENT - Page 18
<PAGE>
"Qualified Offering" means a "Qualified Offering" as such term is defined
in the Certificate of Designations, Preferences and Rights of Series B
Convertible Preferred Stock of Holdings as on file with the Secretary of State
of Delaware as of the Closing Date.
"Qualified Telecommunications Acquisitions" means acquisitions of
Telecommunications Assets or all of the issued and outstanding Capital Stock of
Telecommunications Businesses by the Borrower which either (a) are made using
Capital Stock of Holdings in lieu of cash paid or Debt assumed or incurred, (b)
to the extent made with cash paid or Debt assumed or incurred, (i) are made only
in an aggregate amount (as to all such acquisitions at any time made on or after
the Closing Date) not to exceed the greater of (A) $* or (B) * percent (*%) of
the aggregate principal amount of the Loans then previously made and (ii) if
made with Debt assumed or incurred, are made solely with Subordinated Debt, or
(c) are approved in writing by the Required Lenders. Unless otherwise agreed in
writing by the Required Lenders, no acquisition or investment by the Borrower
will qualify as a Qualified Telecommunications Acquisition unless (1) the
Borrower would have been in compliance with the financial and operating
covenants contained in Article 10 of this Agreement as of the end of the last
two fiscal quarters, giving pro forma effect to the EBITDA gains and losses and
other financial attributes of the acquired company (or portion thereof) or
associated with the acquired assets, (2) the projections for the Borrower, after
giving effect to the acquisition, show compliance with such financial and
operating covenants as of the end of the next two fiscal quarters, (3) EBITDA,
giving pro forma effect to the acquisition, for the Borrower (on a consolidated
basis) is not negatively affected, (4) the net worth of the Borrower (on a
consolidated basis) is not reduced after giving effect to the acquisition, and
(5) in the event that such acquisition is an acquisition of Capital Stock, the
acquired entity shall become a Subsidiary of the Borrower as a result of such
acquisition (or may be merged with and into the Borrower in accordance with
Section 9.3).
"Quarterly Date" means the last day of each March, June, September and
December of each year, the first of which shall be September 30, 1999.
"Receivables" means, as at any date of determination thereof, each and
every "account" as such term is defined in the UCC and includes, without
limitation, the unpaid portion of the obligation, as stated on the respective
invoice, or, if there is no invoice, other writing, of a customer of the
Borrower or any of its Subsidiaries in respect of services rendered by the
Borrower or any of its Subsidiaries.
"Reference Bank" means Citibank, N.A.
"Register" means as specified in Section 13.8(d).
"Registered Note" means as specified in Section 2.2(b).
"Registered Note Register" means as specified in Section 13.8(h).
"Regulation D" means Regulation D of the Board of Governors of the Federal
Reserve System as the same may be amended or supplemented from time to time.
"Regulatory Change" means, with respect to any Lender, any change after
the Closing Date in any U.S. federal or state or foreign laws or regulations
(including Regulation D) or the adoption or making after such date of any
interpretations, directives, guidelines or requests applying to a class
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 19
<PAGE>
of lenders including such Lender of or under any U.S. federal or state or
foreign laws or regulations (whether or not having the force of law) by any
Governmental Authority charged with the interpretation or administration
thereof.
"Release" means, as to any Person, any release, spill, emission, leaking,
pumping, injection, deposit, discharge, disposal, dispersement, leaching or
migration of Hazardous Materials into the indoor or outdoor environment or into
or out of Property owned by such Person, including, without limitation, the
movement of Hazardous Materials through or in the air, soil, surface water or
ground water.
"Remedial Action" means all actions required to (a) cleanup, remove,
respond to, treat or otherwise address Hazardous Materials in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release of Hazardous Materials so that they do not migrate or
endanger or threaten to endanger public health or welfare or the indoor or
outdoor environment, (c) perform studies and investigations on the extent and
nature of any actual or suspected contamination, the remedy or remedies to be
used or health effects or risks of such contamination, or (d) perform
post-remedial monitoring, care or remedy of a contaminated site.
"Reportable Event" means any of the events set forth in Section 4043(b) of
ERISA other than any such event for which the 30-day notice requirement has been
waived in regulations issued by the PBGC.
"Required Lenders" means, at any date of determination, Lenders holding at
least two-thirds (in Dollar amount) of the sum of (a) the aggregate outstanding
principal amount of the Loans, plus (b) the aggregate amount of the outstanding
Commitments.
"Required Payment" means as specified in Section 3.4.
"Reserve Requirement" means, for any Eurodollar Loan of any Lender for any
Interest Period therefor, the maximum rate at which reserves (including any
marginal, supplemental or emergency reserves) are required to be maintained
during such Interest Period under any regulations of the Board of Governors of
the Federal Reserve System (or any successor) by such Lender for deposits
exceeding $1,000,000 against "Eurocurrency Liabilities" as such term is used in
Regulation D. Without limiting the effect of the foregoing, the Reserve
Requirement shall reflect any other reserves required to be maintained by such
Lenders by reason of any Regulatory Change against (a) any category of
liabilities which includes deposits by reference to which the Eurodollar Rate or
the Adjusted Eurodollar Rate is to be determined or (b) any category of
extensions of credit or other assets which include Eurodollar Loans.
"Responsible Officer" means, as to any Loan Party, the chief executive
officer, the president, any vice president, the chief financial officer, the
chief operating officer or the treasurer of such Person.
"Restricted Payment" means (a) any dividend or other distribution (whether
in cash, Property or obligations), direct or indirect, on account of (or the
setting apart of money for a sinking or other analogous fund for) any shares of
any class of Capital Stock of the Borrower or any of its Subsidiaries now or
hereafter outstanding, except a dividend payable solely in shares of that class
of stock to the holders of that class; (b) any redemption, conversion, exchange,
retirement, sinking fund or similar payment, purchase or other acquisition for
value, direct or indirect, of any shares of
CREDIT AGREEMENT - Page 20
<PAGE>
any class of Capital Stock of the Borrower or any of its Subsidiaries now or
hereafter outstanding; (c) any payment or prepayment of principal of, premium,
if any, or interest on, or any redemption, conversion, exchange, purchase,
retirement or defeasance of, or payment with respect to, any subordinated debt
(including, without limitation, Subordinated Debt); (d) any loan, advance or
payment to any officer, director or shareholder of the Borrower or any of its
Subsidiaries (other than a shareholder consisting of the Borrower or a
Wholly-Owned Subsidiary of the Borrower), exclusive of reasonable compensation
paid to officers or directors paid in the ordinary course of business and
exclusive of payments made for goods sold or services rendered which comply with
Section 9.7; and (e) any payment made to retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire shares of any class
of Capital Stock of the Borrower or any of its Subsidiaries now or hereafter
outstanding.
"Revolving Loans" means as such term is defined in Section 2.1(b).
--------------- --------------
"Revolving Loans Borrowing Base" means, at any time as determined by the
------------------------------
Administrative Agent in accordance with Section 2.1(e), an amount determined by
--------------
the Administrative Agent equal to * percent (*%) of Eligible Receivables.
"Revolving Loans Commitment" means, as to any Lender, the obligation (if
--------------------------
any) of such Lender to make or continue Revolving Loans hereunder in an
aggregate principal amount up to but not exceeding the amount set forth opposite
the name of such Lender on the signature pages hereto under the heading
"Revolving Loans Commitment" or, if such Lender is a party to an Assignment and
Acceptance, the amount of the "Revolving Loans Commitment" set forth in the most
recent Assignment and Acceptance of such Lender, as the same may be reduced or
terminated pursuant to Section 2.13 or 11.2, and "Revolving Loans Commitments"
------------ ---- ---------------------------
means such obligations of all Lenders. As of the Closing Date, the aggregate
principal amount of the Revolving Loans Commitments is $10,000,000.
"Revolving Loans Commitment Termination Date" means the Term Loans A
-------------------------------------------
Commitment Termination Date or such later date to which the Revolving Loans
Lenders may (on the Term Loans A Commitment Termination Date or any anniversary
thereof), in their sole discretion, unanimously agree to extend the Revolving
Loans Commitment Termination Date in one-year increments from time to time, but
in no event shall the Revolving Loans Commitment Termination Date be later than
the Maturity Date.
"Revolving Loans Lenders" means the Lenders who hold Revolving Loans or
-----------------------
who have Revolving Loans Commitments.
"RFC" means RFC Capital Corporation, a Delaware corporation.
---
"RFC Agreement" means that certain Receivables Sale Agreement dated as of
-------------
March 8, 1999, by and between the Borrower and RFC.
"Sales Representatives" means the Direct Sales Representatives,
---------------------
Branchisees and Agent Sales Managers of the Borrower.
"Secured Debt" means, as of any date of determination, the sum of (a) the
------------
aggregate outstanding principal amount of the Loans plus (b) the aggregate
outstanding principal amount of all other Debt of the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 21
<PAGE>
in accordance with GAAP, which is secured or assured by any Lien or negative
pledge or other similar preferential treatment.
"Security Agreements" means security agreements, pledge agreements,
-------------------
securities pledge agreements and other agreements, documents or instruments
evidencing or creating a Lien as security for the Obligations or any portion
thereof in form and substance satisfactory to the Administrative Agent executed
by any Loan Party, in favor of the Administrative Agent for the benefit of the
Administrative Agent and the Lenders, and any such agreement, document or
instrument subsequently executed in accordance or connection with this Agreement
or any other Loan Document, and any and all amendments, modifications,
supplements, renewals, extensions or restatements thereof.
"Security Documents" means the Security Agreements and the Mortgages, as
------------------
they may be amended, modified, supplemented, renewed, extended or restated from
time to time, and any and all other agreements, deeds of trust, mortgages,
chattel mortgages, security agreements, pledges, guaranties, assignments of
proceeds, assignments of income, assignments of contract rights, assignments of
partnership interests, assignments of royalty interests, assignments of
performance or other collateral assignments, subordination agreements,
undertakings and other agreements, documents, instruments and financing
statements now or hereafter executed and/or delivered by any Person in
connection with or as security or assurance for the payment or performance of
the Obligations or any part thereof.
"Senior Debt" means, as of any date of determination, the remainder of (a)
-----------
Total Debt minus (b) the aggregate principal amount of Subordinated Debt then
-----
outstanding.
"Solvent" means, with respect to any Person as of the date of any
-------
determination, that on such date (a) the fair value of the Property of such
Person (both at fair valuation and at present fair saleable value) is greater
than the total liabilities, including, without limitation, contingent
liabilities, of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) 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 (e) 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 unreasonably
small capital after giving due consideration to current and anticipated future
capital requirements and current and anticipated future business conduct and the
prevailing practice in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, such liabilities
shall be computed at the amount which, in light of the facts and circumstances
existing at such time, represents the amount that can reasonably be expected to
become an actual or matured liability.
"Subordinated Debt" means unsecured Debt of the Borrower the payment of
-----------------
which is contractually subordinated to the payment of the Loans on terms
satisfactory to the Administrative Agent and the Required Lenders and as to
which the payment of principal of (and premium, if any) and interest and other
payment obligations in respect of such Debt shall be subordinate to the prior
payment in full of the Obligations to at least the following extent: (a) no
payments of principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be permitted for so
CREDIT AGREEMENT - Page 22
<PAGE>
long as any Default in the payment of principal (or premium, if any) or interest
on the Obligations exists; and (b) such Debt and the Subordinated Debt Documents
governing such Debt may not (i) require or otherwise provide for any payment or
prepayment of principal of such Debt on or before or after the stated maturity
thereof or by way of a sinking fund applicable thereto or by way of any
mandatory redemption, defeasance, retirement or repurchase thereof (including,
without limitation, any redemption, retirement or repurchase which is contingent
upon events of circumstances but excluding any retirement required by virtue of
acceleration of such Debt upon any event of default thereunder), in each case
prior to six months after the Maturity Date of the Loans or (ii) permit any
payment or prepayment, redemption or other retirement (including, without
limitation, pursuant to an offer to purchase made by any obligor thereon) of
such Debt at the option of the holder thereof prior to the Maturity Date of the
Loans, other than payment of interest accrued with respect to such Debt on or
after the due dates therefor as specified in the applicable Subordinated Debt
Documents governing such Debt which are in effect as of the Closing Date.
"Subordinated Debt Documents" means any and all agreements, documents and
---------------------------
instruments now or hereafter evidencing or governing any Subordinated Debt.
"Subsidiary" means, with respect to any Person, any corporation or other
----------
entity of which at least a majority of the outstanding shares of stock or other
ownership interests having by the terms thereof ordinary voting power to elect a
majority of the board of directors (or Persons performing similar functions) of
such corporation or entity (irrespective of whether or not at the time, in the
case of a corporation, stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening of any
contingency) is at the time directly or indirectly owned or controlled by such
Person or one or more of its Subsidiaries or by such Person and one or more of
its Subsidiaries.
"Telecommunications Assets" means all assets, rights (contractual or
-------------------------
otherwise) and Properties, whether tangible or intangible, used or intended for
use in connection with a Telecommunications Business.
"Telecommunications Business" means the business of (a) transmitting, or
---------------------------
providing services relating to the transmission of, voice, data or video through
owned or leased transmission facilities, (b) constructing, creating, developing
or marketing communications related network equipment, software and other
devices for use in, or performing, creating, developing or marketing services
relating thereto, a telecommunications business or (c) evaluating, participating
or pursuing any other activity or opportunity that is primarily related to those
referred to in clause (a) or (b) preceding.
---------- ---
"Term Loans" means the Term Loans A and the Term Loans B.
----------
"Term Loans A" means as such term is defined in Section 2.1(a).
------------ --------------
"Term Loans B" means as such term is defined in Section 2.1(b).
------------ --------------
"Term Loans A Commitment" means, as to any Lender, the obligation (if any)
-----------------------
of such Lender to make or continue Term Loans A hereunder in an aggregate
principal amount up to but not exceeding the amount set forth opposite the name
of such Lender on the signature pages hereto under the heading "Term Loans A
Commitment" or, if such Lender is a party to an Assignment and Acceptance, the
amount of the "Term Loans A Commitment" set forth in the most recent
CREDIT AGREEMENT - Page 23
<PAGE>
Assignment and Acceptance of such Lender, as the same may be reduced or
terminated pursuant to Section 2.13 or 11.2, and "Term Loans A Commitments"
------------ ---- ------------------------
means such obligations of all Lenders. As of the Closing Date, the aggregate
principal amount of the Terms Loans A Commitments is $120,000,000.
-------------------------
"Term Loans A Commitment Termination Date" means the earlier to occur of
----------------------------------------
(a) July 30, 2001 or (b) July 30, 2000, if less than $* in aggregate principal
amount of the Term Loans A and the Revolving Loans has been advanced as of such
date.
"Term Loans B Commitment" means, as to any Lender, the obligation (if any)
-----------------------
of such Lender to make or continue Term Loans B hereunder in an aggregate
principal amount up to but not exceeding the amount set forth opposite the name
of such Lender on the signature pages hereto under the heading "Term Loans B
Commitment" or, if such Lender is a party to an Assignment and Acceptance, the
amount of the "Term Loans B Commitment" set forth in the most recent Assignment
and Acceptance of such Lender, as the same may be reduced or terminated pursuant
to Section 2.13 or 11.2, and "Term Loans B Commitments" means such obligations
------------ ---- ------------------------
of all Lenders. As of the Closing Date, the aggregate principal amount of the
Terms Loans B Commitments is $10,000,000.
"Term Loans A Lenders" means the Lenders who hold any Term Loans A or who
--------------------
have any Term Loans A Commitments.
"Term Loans B Lenders" means the Lenders who hold any Term Loans B or who
--------------------
have any Term Loans B Commitments.
"Term Loans Commitments" means the Term Loans A Commitments and the Term
----------------------
Loans B Commitments.
"Term Loans Lenders" means the Term Loans A Lenders and the Term Loans B
------------------
Lenders.
"Term Notes A" means the promissory notes in the form of Exhibit B-1
------------ -----------
hereto made by the Borrower evidencing the Term Loans A and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof and all substitutions therefor (including promissory notes issued by the
Borrower pursuant to Section 13.8), and "Term Note A" means any of such
------------- -----------
promissory notes.
"Term Notes B" means the promissory notes in the form of Exhibit B-2
------------ -----------
hereto made by the Borrower evidencing the Term Loans B and any and all
amendments, modifications, supplements, renewals, extensions or restatements
thereof and all substitutions therefor (including promissory notes issued by the
Borrower pursuant to Section 13.8), and "Term Note B" means any of such
------------- -----------
promissory notes.
"Total Capitalization" means, as to any Person and its Consolidated
--------------------
Subsidiaries and as of any date of determination, the sum of (a) Total Debt of
such Persons as of such date plus (b) the remainder of (i) Contributed Capital
of such Persons as of such date minus (ii) the aggregate principal amount of
-----
Subordinated Debt of such Persons outstanding as of such date, determined on a
consolidated basis in accordance with GAAP.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 24
<PAGE>
"Total Debt" means, as to any Person and its Consolidated Subsidiaries and
----------
as of any date of determination, the aggregate principal amount of all Debt of
such Persons outstanding, determined on a consolidated basis in accordance with
GAAP.
"Type" means any type of Loan (i.e., a Base Rate Loan or Eurodollar Loan).
----
"UCC" means the Uniform Commercial Code as in effect in the State of New
---
York and/or any other jurisdiction, the laws of which may be applicable to the
creation, perfection or priority of any Lien on any Property created pursuant to
any Security Document.
"U.S." means the United States of America.
---
"U.S. Person" means a citizen or resident of the U.S., a corporation,
-----------
partnership, limited liability company or other entity created or organized in
or under any laws of the U.S. or any estate or trust that is subject to U.S.
Federal income taxation regardless of the source of its income.
"U.S. Taxes" means any present or future tax, assessment or other charge
----------
or levy imposed by or on behalf of the U.S. or any taxing authority thereof.
"Vendor" means Nortel Networks in its capacity as vendor under the Master
------
Purchase Agreement.
"Voting Stock" of any Person means Capital Stock of such Person which
------------
ordinarily has voting power for the election of directors, managers or general
partners (or persons performing similar functions) of such Person, whether at
all times or only for so long as no senior class of securities has such voting
power by reason of any contingency.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary
-----------------------
of such Person all of whose outstanding Capital Stock (other than directors'
qualifying shares, if any) shall at the time be owned by such Person and/or one
or more of its Wholly-Owned Subsidiaries .
"Year 2000 Compliant" means that (a) the services, products or other
-------------------
item(s) at issue accurately process, provide and/or receive all date/time data
(including calculating, comparing, sequencing, processing and outputting)
within, from, into and between centuries (including the twentieth and
twenty-first centuries and the years 1999 and 2000), including leap year
calculations, and (b) neither the performance nor the functionality nor the
business' provision of the services, products and other item(s) at issue will be
affected by any dates/times prior to, on, after or spanning January 1, 2000. The
design of the services, products and other item(s) at issue to ensure compliance
with the "year 2000" representations and warranties and covenants contained in
this Agreement includes proper date/time data century recognition and
recognition of 1999 and 2000, calculations that accommodate single century and
multi-century formulae and date/time values before, on, after and spanning
January 1, 2000, and date/time data interface values that reflect the century,
1999 and 2000. In particular, but without limitation, such design means that (i)
no value for current date/time will cause any error, interruption or decreased
performance in or for such services, products and other item(s), (ii) all
manipulations of date and time related data (including calculating, comparing,
sequencing processing and outputting) will produce correct results for all valid
dates and times when used independently or in combination with other services,
products and/or items, (iii) date/time elements in interfaces and data storage
will specify the century to eliminate date ambiguity without human intervention,
including leap year calculations, (iv) where any date/time element is
represented
CREDIT AGREEMENT - Page 25
<PAGE>
without a century, the correct century will be unambiguous for all manipulations
involving that element, (v) authorization codes, passwords and zaps (purge
functions) will function normally and in the same manner during, prior to, on
and after January 1, 2000, including the manner in which they function with
respect to expiration dates and CPU serial numbers, and (vi) the business'
supply of the services, products and other item(s) will not be interrupted,
delayed, decreased or otherwise affected by the advent of the year 2000.
Section 1.2 Other Definitional Provisions. All definitions contained in
-----------------------------
this Agreement are equally applicable to the singular and plural forms of the
terms defined. The words "hereof", "herein" and "hereunder" and words of similar
import referring to this Agreement refer to this Agreement as a whole and not to
any particular provision of this Agreement. The term "continuing",
"continuation" or "continuance" means, in reference to any Default or Event of
Default that has occurred, that such Default or Event of Default has not been
either cured to the reasonable satisfaction of the Administrative Agent within
the applicable grace period (if any) specified in this Agreement or the other
Loan Documents (as applicable) or waived in writing by the requisite Lenders in
accordance with Section 13.11. The term "pro rata" as it relates to the
-------------
application of payments to the Term Loans A, the Term Loans B and/or the
Revolving Loans means pro rata based upon the relative outstanding principal
amounts of such Loans. Unless otherwise specified, all Article and Section
references pertain to this Agreement. Terms used herein that are defined in the
UCC, unless otherwise defined herein, shall have the meanings specified in the
UCC. All references in this Agreement to any agreement shall be deemed to mean
and refer to such agreement as it may be amended, modified or supplemented from
time to time if (but only if) such amendment, modification or supplement has
been approved by the Administrative Agent and the Required Lenders, is expressly
referred to in such reference or is otherwise expressly permitted by the terms
of this Agreement.
Section 1.3 Accounting Terms and Determinations.
-----------------------------------
(a) Except as may be expressly provided herein to the contrary, (i) all
accounting terms (whether or not specifically defined herein) shall be construed
in accordance with GAAP (subject to year end adjustments, if applicable)
consistent with such accounting principles applied in the preparation of the
audited financial statements referred to in Section 7.2(a), (ii) all financial
--------------
information delivered to the Administrative Agent pursuant to Section 8.1 shall
-----------
be prepared in accordance with GAAP (subject to year end adjustments, if
applicable) applied on a basis consistent with such accounting principles
applied in the preparation of the audited financial statements of the applicable
Person referred to in Section 7.2 or in accordance with Section 8.7, and (iii)
----------- -----------
with respect to accounting terms or financial information defined or described
in reference to a Person and its Consolidated Subsidiaries, all such terms and
information shall be construed as applying to such Person and its Consolidated
Subsidiaries on a consolidated basis in accordance with GAAP.
(b) The Borrower shall deliver to the Administrative Agent and the
Lenders, at the same time as the delivery of any annual or quarterly financial
statement under Section 8.1, (i) a description, in reasonable detail, of any
-----------
material variation between the application of GAAP employed in the preparation
of the next preceding annual or quarterly financial statements prepared in
accordance with the last sentence of Section 1.3(a) preceding as to which no
--------------
objection has been made by the Administrative Agent and (ii) reasonable
estimates of the difference between such statements arising as a consequence
thereof.
CREDIT AGREEMENT - Page 26
<PAGE>
(c) To enable the ready and consistent determination of compliance with
the covenants set forth in this Agreement, the Borrower will not change the last
day of its fiscal year from December 31 or the last days of the first three
fiscal quarters of the Borrower in each of its fiscal years from March 31, June
30 and September 30, respectively.
(d) Unless otherwise expressly provided herein to the contrary, all
references herein to the Closing Date and the Initial Funding Date shall be
deemed to mean and refer to the Closing Date and the Initial Funding Date,
respectively, after giving effect to all transactions which occur on or before
such date.
Section 1.4 Financial Covenants and Reporting. All financial statements
---------------------------------
and reports required to be delivered pursuant to this Agreement and the other
Loan Documents, and all financial covenants (if any) contained in this
Agreement, shall be prepared or determined (as applicable) in accordance with
GAAP (except as may be expressly provided to the contrary herein) and, if and to
the extent that such statements, reports or covenants are to be prepared or
determined on a consolidated basis, shall be prepared or determined on a
consolidated basis for the Borrower and its Consolidated Subsidiaries except as
may be expressly provided to the contrary herein.
ARTICLE 2
Loans
-----
Section 2.1 Commitments.
------------
(a) Term Loans A. Subject to the terms and conditions of this Agreement
------------
(including, without limitation, Section 2.13(a), each Lender severally agrees
---------------
to make one or more loans to the Borrower from time to time from and including
the Initial Funding Date to but excluding the Term Loans A Commitment
Termination Date up to but not exceeding the amount (if any) of such Lender's
Term Loans A Commitment as then in effect. (Such loans referred to in this
Section 2.1(a) now or hereafter made by the Lenders to the Borrower, including,
- --------------
without limitation, such loans which remain outstanding after the Term Loans A
Commitment Termination Date, are hereinafter collectively called the "Term Loans
A".) The Borrower may not reborrow the Term Loans A which have been repaid.
(b) Term Loans B. Subject to the terms and conditions of this Agreement
------------
(including, without limitation, Section 2.13(a), each Lender severally agrees
--------------
to make one or more loans to the Borrower on the Initial Funding Date up to but
not exceeding the amount (if any) of such Lender's Term Loans B Commitment as
then in effect. (Such loans referred to in this Section 2.1(b) now or hereafter
-------------
made by the Lenders to the Borrower, including, without limitation, such loans
which remain outstanding after the Initial Funding Date, are hereinafter
collectively called the "Term Loans B".) The Borrower may not reborrow the Term
Loans B which have been repaid.
(c) Revolving Loans. Subject to the terms and conditions of this Agreement
---------------
(including, without limitation, Section 2.13(a), each Lender severally agrees
---------------
to make one or more loans to the Borrower from time to time from and including
the Initial Funding Date to but excluding the Revolving Loans Commitment
Termination Date (as such date may be extended from time to time as provided in
the definition of such term) up to but not exceeding the amount (if any) of such
Lender's Revolving Loans Commitment as then in effect; provided, however, that
-------- -------
the aggregate
CREDIT AGREEMENT - Page 27
<PAGE>
outstanding principal amount of the Revolving Loans shall not at any time exceed
the Revolving Loans Borrowing Base. (Such loans referred to in this Section
-------
2.1(c) now or hereafter made by the Lenders to the Borrower, including, without
- ------
limitation, such Loans which remain outstanding after the Revolving Loans
Commitment Termination Date, are hereinafter collectively called the "Revolving
Loans.") Subject to the foregoing limitations and the other terms and conditions
of this Agreement, the Borrower may borrow, repay and reborrow the Revolving
---------
Loans at any time prior to (but not on or after) the Revolving Loans Commitment
- -----
Termination Date.
(d) Continuation and Conversion of Loans. Subject to the terms and
------------------------------------
conditions of this Agreement, the Borrower may borrow the Loans as Base Rate
Loans or Eurodollar Loans and, until the Maturity Date, the Borrower may
Continue Eurodollar Loans or Convert Loans of one Type into Loans of the other
Type.
(e) Lending Offices. Loans of each Type made by each Lender shall be made
---------------
and maintained at such Lender's Applicable Lending Office for Loans of such
Type.
(f) Determinations of the Revolving Loans Borrowing Base. The Revolving
----------------------------------------------------
Loans Borrowing Base shall be determined in good faith by the Administrative
Agent as of the Initial Funding Date and will be redetermined in good faith by
the Administrative Agent thereafter promptly after the delivery, or required
delivery, of a Borrowing Base Report in accordance with Section 8.1(s), in each
--------------
case as of the applicable date (i.e., as of the date of the Notice of Borrowing,
if applicable, or as of the last day of the immediately preceding fiscal
quarter). In addition, the Revolving Loans Borrowing Base shall be determined in
good faith by the Administrative Agent prior to and in connection with each new
Revolving Loan and may be redetermined in good faith by the Administrative Agent
at any time and from time to time upon the occurrence and during the
continuation of a Default.
Section 2.2 Notes.
-----
(a) Notes. Each of the Term Loans A, the Term Loans B and the Revolving
-----
Loans made by each Lender shall be evidenced by a single promissory note of the
Borrower in substantially the form of Exhibit B-1, Exhibit B-2 and Exhibit B-3,
----------- ----------- -----------
respectively, hereto dated the Closing Date (or such later date on which such
Lender becomes a party to this Agreement), payable to the order of such Lender
in a principal amount equal to (i) with respect to the Term Loans A, the sum of
(A) the aggregate principal amount of the Term Loans A of such Lender plus (B)
----
the aggregate principal amount of the unfunded Term Loans A Commitment of such
Lender, (ii) with respect to the Term Loans B, the sum of (A) the aggregate
principal amount of the Term Loans B of such Lender plus (B) the aggregate
principal amount of the unfunded Term Loans B Commitment of such Lender, and
(iii) with respect to the Revolving Loans, the aggregate principal amount of the
Revolving Loans Commitment of such Lender, respectively, as originally in effect
and otherwise duly completed. Each Lender is hereby authorized by the Borrower
to endorse on the schedule (or a continuation thereof) attached to the Note of
such Lender, to the extent applicable, the date, amount and Type of and the
Interest Period for each applicable Loan made by such Lender to the Borrower and
the amount of each payment or prepayment of principal of such Loan received by
such Lender, provided that any failure by such Lender to make any such
endorsement shall not affect the obligations of the Borrower under any such Note
or this Agreement in respect of any such Loan.
(b) Registered Notes. Any Lender that is not a U.S. Person and that could
----------------
become completely exempt from withholding of U.S. Taxes in respect of payment of
any Obligations due
CREDIT AGREEMENT - Page 28
<PAGE>
to such Lender hereunder relating to any of its Term Loans or Revolving Loans if
such Loans were in registered form for U.S. Federal income tax purposes may
request the Borrower (through the Administrative Agent), and the Borrower agrees
thereupon, to exchange such Lender's Note evidencing its Term Loans or Revolving
Loans for a promissory note registered as provided in Section 13.8(h) hereof (a
--------------
"Registered Note"). Registered Notes may not be exchanged for Notes that are not
---------------
in registered form.
Section 2.3 Repayment of Loans.
------------------
(a) Repayment of Term Loans A. The Borrower shall pay to the
-------------------------
Administrative Agent for the account of each Term Loans A Lender the principal
amount of the Term Loans A outstanding as of the Term Loans A Commitment
Termination Date (and the principal amount of such Term Loans A outstanding as
of such date shall be due and payable) in 20 quarterly installments, commencing
on the Amortization Commencement Date and continuing on each Quarterly Date
thereafter through and including the Maturity Date, each of which installments
shall be in an amount equal to the percentage of the aggregate principal amount
of the Term Loans A outstanding as of the Term Loans A Commitment Termination
Date specified opposite such installment in the following table:
- --------------------------------------------------------------------------------
Percentage of the Aggregate Principal Amount of
Principal Installment the Term Loans A Due and Payable
1 *%
- --------------------------------------------------------------------------------
2 *%
- --------------------------------------------------------------------------------
3 *%
- --------------------------------------------------------------------------------
4 *%
- --------------------------------------------------------------------------------
5 *%
- --------------------------------------------------------------------------------
6 *%
- --------------------------------------------------------------------------------
7 *%
- --------------------------------------------------------------------------------
8 *%
- --------------------------------------------------------------------------------
9 *%
- --------------------------------------------------------------------------------
10 *%
- --------------------------------------------------------------------------------
11 *%
- --------------------------------------------------------------------------------
12 *%
13 *%
14 *%
15 *%
16 *%
17 *%
18 *%
19 *%
20 *%
- --------------------------------------------------------------------------------
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 29
<PAGE>
In addition, the Borrower shall pay to the Administrative Agent for the account
of each Term Loans A Lender all outstanding principal of the Term Loans A (and
all outstanding principal of the Term Loans A shall be due and payable) on the
Maturity Date.
(b) Repayment of Term Loans B. The Borrower shall pay to the
-------------------------
Administrative Agent for the account of each Term Loans B Lender all outstanding
principal of the Term Loans B (and all outstanding principal of the Term Loans B
shall be due and payable) on the Maturity Date.
(c) Repayment of Revolving Loans. The Borrower shall pay to the
----------------------------
Administrative Agent for the account of each Revolving Loans Lender the
principal of the Revolving Loans outstanding as of the Revolving Loans
Commitment Termination Date (and the principal of the Revolving Loans
outstanding as of such date shall be due and payable) in 20 quarterly
installments, commencing on the Amortization Commencement Date and continuing on
each Quarterly Date thereafter through and including the Maturity Date, each of
which installments shall be in an amount equal to the percentage of the
aggregate principal amount of the Revolving Loans outstanding as of the
Revolving Loans Commitment Termination Date specified opposite such installment
in the following table:
- --------------------------------------------------------------------------------
Percentage of the Aggregate Principal Amount of
Principal Installment the Revolving Loans Due and Payable
1 *%
- --------------------------------------------------------------------------------
2 *%
- --------------------------------------------------------------------------------
3 *%
- --------------------------------------------------------------------------------
4 *%
- --------------------------------------------------------------------------------
5 *%
- --------------------------------------------------------------------------------
6 *%
- --------------------------------------------------------------------------------
7 *%
- --------------------------------------------------------------------------------
8 *%
- --------------------------------------------------------------------------------
9 *%
- --------------------------------------------------------------------------------
10 *%
- --------------------------------------------------------------------------------
11 *%
- --------------------------------------------------------------------------------
12 *%
13 *%
14 *%
15 *%
16 *%
17 *%
18 *%
19 *%
20 *%
- --------------------------------------------------------------------------------
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 30
<PAGE>
In addition, the Borrower shall pay to the Administrative Agent for the account
of each Revolving Loans Lender all outstanding principal of the Revolving Loans
(and all outstanding principal of the Revolving Loans shall be due and payable)
on the Maturity Date. To the extent that the Revolving Loans Commitment
Termination Date is extended in accordance with the definition of such term, the
installments otherwise due during such period shall be not required to be paid
on the dates set forth in the table, but shall be added to and shall be due and
payable concurrently with the due date for payment of the principal installment
no. 20 of the Revolving Loans in the preceding table.
Section 2.4 Interest.
--------
(a) Interest Rate. The Borrower shall pay to the Administrative Agent
-------------
for the account of each Lender interest on the unpaid principal amount of
each Loan made by such Lender (or deemed made by such Lender with respect to
a Loan assigned to such Lender after the making of such Loan) to the Borrower
for the period commencing on the date of such Loan to, but excluding, the
date such Loan shall be paid in full, at the following rates per annum:
(i) during the periods such Loan is a Base Rate Loan, the lesser of
(A) the Base Rate plus the Applicable Margin or (B) the Maximum Rate; and
----
(ii) during the periods such Loan is a Eurodollar Loan, the lesser
of (A) the Adjusted Eurodollar Rate plus the Applicable Margin or (B) the
----
Maximum Rate.
;provided, however, that, notwithstanding anything to the contrary contained in
-------- ------- ----
this Agreement, the outstanding principal amount of the Term Loans B shall bear
interest at the rate per annum equal to the lesser of (1) * percent (*%) or (2)
the Maximum Rate.
(b) Payment Dates. Accrued interest on the Loans shall be due and
-------------
payable as follows:
(i) in the case of Base Rate Loans and Term Loans B, on each Monthly
Date;
(ii) in the case of each Eurodollar Loan, on the last day of the
Interest Period with respect thereto and, in the case of an Interest
Period greater than three months, at three- month intervals after the
first day of such Interest Period;
(iii) upon the payment or prepayment (whether mandatory or optional)
of any Loan or the Conversion of any Loan to a Loan of the other Type (but
only on the principal amount so paid, prepaid or Converted); and
(iv) with respect to all Loans, on the Maturity Date.
(c) Default Interest. Notwithstanding the foregoing, the Borrower shall
----------------
pay to the Administrative Agent for the account of each Lender interest at the
applicable Default Rate (i) at all times during which any Default has occurred
and is continuing, on any principal of any Loan outstanding, and (ii) to the
fullest extent permitted by law, any other amount payable by the Borrower under
this Agreement or any other Loan Document to or for the account of such Lender
which is not paid in full when due (whether at stated maturity, by acceleration
or otherwise) for the period from and including the due date thereof to but
excluding the date the same is paid in full.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 31
<PAGE>
Interest payable at the Default Rate shall be payable from time to time (A) on
demand by the Administrative Agent if an Event of Default has then occurred and
is continuing and (B) in any event (whether or not an Event of Default has
occurred or is continuing) on the dates for payment of interest specified in
Section 2.4(b).
- --------------
Section 2.5 Borrowing Procedure. The Borrower shall give the
-------------------
Administrative Agent notice of each borrowing hereunder in accordance with
Section 2.9. Not later than 1:00 p.m. (New York, New York time) on the date
- -----------
specified for each borrowing hereunder, each Lender will make available the
amount of the Loan to be made by it on such date to the Administrative Agent, at
the Principal Office, in immediately available funds, for the account of the
Borrower. The amount of each borrowing hereunder so received by the
Administrative Agent shall, subject to the terms and conditions of this
Agreement, be made available, for and on behalf of the Borrower, in immediately
available funds by no later than 1:00 p.m. (New York, New York time); provided,
--------
however, that the Administrative Agent may, in its discretion, cause such amount
- -------
to be made available directly to or for the benefit of the Person who is to
receive the proceeds of such Loan in accordance with Section 2.10 (e.g., the
------------
Vendor if and to the extent that proceeds of such borrowing are used to pay for
Nortel Networks Goods and Services). Notwithstanding anything to the contrary
contained in this Agreement, if and to the extent that Nortel Networks is a
Lender under this Agreement, the Borrower further hereby irrevocably agrees that
each Loan to be advanced by Nortel Networks to the Borrower in accordance with
this Agreement (and only in accordance with this Agreement and after the
Administrative Agent's receipt of a Notice of Borrowing executed by the
Borrower) may (in the discretion of Nortel Networks and if and to the extent
that the proceeds of such Loan are to be paid to Nortel Networks) be effectively
disbursed on the date set forth in the Notice of Borrowing for such disbursement
to the Borrower by virtue of a credit in the amount of such Loan given to the
Borrower under the Master Purchase Agreement.
Section 2.6 Optional Prepayments, Conversions and Continuations of Loans.
------------------------------------------------------------
Subject to Section 2.8, the Borrower shall have the right from time to time to
prepay the Loans in whole or in part, to Convert all or part of a Loan of one
Type into a Loan of another Type or to Continue Eurodollar Loans; provided that:
-------------
(a) the Borrower shall give the Administrative Agent notice of each such
prepayment, Conversion or Continuation as provided in Section 2.9, (b)
-----------
Eurodollar Loans may only be Converted on the last day of the Interest Period
and any prepayment of Eurodollar Loans on any day other than the last day of the
Interest Period shall be subject to payment of the additional compensation
specified in Section 4.5, (c) except for Conversions of Eurodollar Loans into
-----------
Base Rate Loans, no Conversions or Continuations shall be made while a Default
has occurred and is continuing, (d) optional prepayments of the Loans shall be
applied first to the principal of the Term Loans A (until such Loans are paid in
full) and shall be applied to the then remaining installments of the principal
of the Term Loans A pro rata and then to the principal of the Revolving Loans
and, on and after the Revolving Loans Commitment Termination Date, shall be
applied to the then remaining installments of the principal of the Revolving
Loans pro rata. The Borrower shall have the right to prepay the Terms Loans B in
whole or in part at any time after the consummation of a Qualified Offering.
Notwithstanding anything to the contrary contained in this Agreement, except as
provided in the immediately preceding sentence, the Borrower shall not have the
right to prepay (and the Term Loans B Lenders shall not have any right to
receive or retain any prepayment of) the Term Loans B unless and until (i) all
Term Loans A have been paid in full and all Term Loans A Commitments have
terminated or expired and (ii) all Revolving Loans have been paid in full and
all Revolving Loans Commitments have terminated or expired. Except for
prepayments of the Revolving Loans prior to the Revolving Loans Commitment
Termination Date which may be
CREDIT AGREEMENT - Page 32
<PAGE>
reborrowed in accordance with this Agreement, no amounts prepaid pursuant to
this Section 2.6 may be reborrowed.
-----------
Section 2.7 Mandatory Prepayments.
---------------------
(a) Asset Dispositions, etc. The Borrower shall, within two Business Days
-----------------------
after it receives any Net Proceeds of any Asset Disposition, proceeds of any
Insurance Recovery or proceeds of condemnation awards aggregating in excess of
$500,000 during any period of 12 consecutive months or less (the amount of such
Net Proceeds or proceeds exceeding $500,000 received during any such period are
herein called the "Excess Proceeds Amount"), pay to the Administrative Agent, as
----------------------
a prepayment of the Loans, an aggregate amount equal to the Excess Proceeds
Amount; provided, that no such prepayment will be required if and to the extent
--------
that the Excess Proceeds Amount is fully re-invested in productive assets used
in the ordinary course of Borrower's or its Subsidiary's (as applicable)
business within * days of the receipt of such Excess Proceeds Amount; provided,
--------
further, however, that the Excess Proceeds Amount shall be deposited into a cash
- ------- -------
collateral account held by the Administrative Agent pursuant to an agreement in
form and substance reasonably satisfactory to the Administrative Agent until
such time as such amount (exclusive of any interest accrued thereon) is either
re-invested within such * day period or applied to the Loans or other
Obligations as provided in this Section 2.7.
(b) Excess Cash Flow. The Borrower shall, commencing on the first March 31
----------------
following the Term Loans A Commitment Termination Date and continuing on each
anniversary thereafter, pay (or cause to be paid) to the Administrative Agent,
as a prepayment of the Loans and other Obligations then outstanding, an
aggregate amount equal to * percent (*%) of Excess Cash Flow for the fiscal year
then most recently ended; provided, however, that no prepayment shall be
-------- -------
required pursuant to this Section 2.7(b) for any fiscal year in which * percent
-------------
(*%) of Excess Cash Flow is less than $1,000,000.
(c) Sale of the Network. The Borrower shall, concurrently with any sale or
-------------------
transfer of the Network or any material portion thereof, prepay in full (i) the
outstanding principal amount of all Loans, (ii) all interest accrued and unpaid
with respect to all Loans and (iii) all other outstanding Obligations.
(d) Revolving Loans Borrowing Base. If at any time the outstanding
------------------------------
principal amount of the Revolving Loans exceeds an amount equal to the lesser of
(i) the Revolving Loans Borrowing Base then in effect (as determined from time
to time in accordance with Section 2.1(e) or (ii) the aggregate amount of the
-------------
Revolving Loans Commitments, then, within one Business Day thereafter, the
Borrower shall pay to the Administrative Agent the amount of such excess as a
prepayment of the Revolving Loans.
(e) Application of Mandatory Prepayments. All prepayments pursuant to
------------------------------------
Section 2.7(a) and Section 2.7(b) shall be (i) if required to be made prior to
- ------------- -------------
the Revolving Loans Commitment Termination Date, applied (A) first to the
principal of the Term Loans A (until such Loans are paid in full) and shall be
applied to the then remaining installments of the principal of the Term Loans A
in the inverse order of the maturities of such installments, (B) then to the
principal of the Revolving Loans and, on and after the Revolving Loans
Commitment Termination Date, shall be applied to the then remaining installments
of the principal of the Revolving Loans in the inverse order of the maturities
of such installments, and (C) then to the remaining outstanding Obligations
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 33
<PAGE>
in such order as the Administrative Agent may determine, and (ii) if required to
be made on or after the Revolving Loans Commitment Termination Date, applied (A)
pro rata to the principal of the Term Loans A and the Revolving Loans (until
such Loans are paid in full) in the inverse order of the maturities of the then
remaining installments of such Loans and (B) then to the remaining outstanding
Obligations in such order as the Administrative Agent may determine. All
prepayments pursuant to Section 2.7(c) shall be applied pro rata to the
--------------
principal of the Term Loans A, the Term Loans B and the Revolving Loans (until
such Loans are paid in full) in the inverse order of the maturities of the then
remaining installments (if any) of such Loans and then to the remaining
outstanding Obligations in such order as the Administrative Agent may determine.
All prepayments pursuant to Section 2.7(d) shall be applied to the principal of
--------------
the Revolving Loans (until such Loans are paid in full) and, on and after the
Revolving Loans Commitment Termination Date, shall be applied to the
then-remaining installments of the principal of the Revolving Loans in the
inverse order of the maturities of such installments, shall then be applied to
the Term Loans A (until such Loans are paid in full) and shall then be applied
to the remaining outstanding Obligations in such order as the Administrative
Agent may determine.
(f) No Reborrowing. No amounts of the Term Loans prepaid pursuant to this
--------------
Section 2.7, and no amounts of the Revolving Loans prepaid after the Revolving
- -----------
Loans Commitment Termination Date, may be reborrowed.
Section 2.8 Minimum Amounts. Except for Conversions and prepayments
---------------
pursuant to Section 2.7 and Article 4, each borrowing, each Conversion and each
optional prepayment of principal of the Loans shall be in an amount at least
equal to $1,000,000 (or $500,000 with respect to borrowings, Conversions and
optional prepayments of the Revolving Loans) or an integral multiple of $100,000
in excess thereof (borrowings, prepayments or Conversions of or into Loans of
different Types or, in the case of Eurodollar Loans, having different Interest
Periods at the same time hereunder shall be deemed separate borrowings,
prepayments and Conversions for purposes of the foregoing, one for each Type or
Interest Period); provided, however, that a prepayment of the Revolving Loans
made in connection with a termination of the Revolving Loans Commitments may be
in the aggregate principal amount of the Revolving Loans then outstanding.
Section 2.9 Certain Notices. Notices by the Borrower to the Administrative
---------------
Agent of terminations or reductions of Commitments, of borrowings, Conversions,
Continuations and prepayments of Loans and of the duration of Interest Periods
shall be irrevocable and shall be effective only if received by the
Administrative Agent not later than 11:00 a.m. (New York, New York, time) on the
applicable Business Day prior to the date of the relevant termination,
reduction, borrowing, Conversion, Continuation or prepayment or the first day of
such Interest Period specified below:
- --------------------------------------------------------------------------------
Number of
Notice Business Days Prior
- --------------------------------------------------------------------------------
Borrowings of Term Loans B 0 (same day)
- --------------------------------------------------------------------------------
Terminations or Reductions of Commitments 1
- --------------------------------------------------------------------------------
Borrowings of Loans which are Base Rate Loans 2
- --------------------------------------------------------------------------------
CREDIT AGREEMENT - Page 34
<PAGE>
- --------------------------------------------------------------------------------
Borrowings of Loans which are Eurodollar Loans 3
- --------------------------------------------------------------------------------
Prepayments of Loans 3
- --------------------------------------------------------------------------------
Each such notice of termination or reduction shall specify the amount of the
Commitments to be terminated or reduced. Each such notice of borrowing,
Conversion, Continuation or prepayment shall specify the Loans to be borrowed,
Converted, Continued or prepaid and the amount (subject to Section 2.8 hereof)
-----------
and Type of the Loans to be borrowed, Converted, Continued or prepaid (and, in
the case of a Conversion, the Type of Loans to result from such Conversion) and
the date of borrowing, Conversion, Continuation or prepayment (which shall be a
Business Day). Each such notice of termination, reduction, borrowing,
Conversion, Continuation or prepayment shall be in the form of Exhibit C hereto,
---------
appropriately completed as applicable. Each notice of borrowing (a "Notice of
---------
Borrowing") (a) shall certify that all proceeds of the requested Loans are,
- ---------
concurrently with the making of such Loans, being used by the Borrower for the
purpose specified in Section 2.10 and (b) shall be accompanied by such other
------------
evidence as to use of the proceeds of such borrowing, as the Administrative
Agent may reasonably request from time to time. Each notice which includes
reference to the duration of an Interest Period shall specify the Loans to which
such Interest Period is to relate. The Administrative Agent shall promptly
notify the Lenders of the contents of each such notice. In the event the
Borrower fails to select the Type of Loan, or the duration of any Interest
Period for any Eurodollar Loan, within the time period and otherwise as provided
in this Section 2.9, such Loan (if outstanding as Eurodollar Loan) will be
-----------
automatically Converted into a Base Rate Loan on the last day of preceding
Interest Period for such Loan or (if outstanding as a Base Rate Loan) will
remain as, or (if not then outstanding) will be made as, a Base Rate Loan. The
Borrower may not borrow any Eurodollar Loans, Convert any Loans into Eurodollar
Loans or Continue any Loans as Eurodollar Loans if the interest rate for such
Eurodollar Loans would exceed the Maximum Rate.
Section 2.10 Use of Proceeds.
---------------
(a) Loans. The Borrower agrees that (i) all proceeds of the Term Loans A
-----
shall be used (A) to finance the purchase price for Nortel Networks Goods and
Services provided by Nortel Networks under the Master Purchase Agreement,
excluding sales and use taxes and freight charges, which Nortel Networks Goods
and Services shall be used in the construction and operation of the Network and
(B) to pay (or reimburse the Borrower for its prior payment of) Eligible
Third-Party Expenses up to an amount not to exceed the Maximum Financed Amount
of Eligible Third-Party Expenses, provided, however, that proceeds of Loans may
--------- -------
not be used to reimburse the prior payment of any Eligible Third-Party Expenses
initially paid more than three months prior to the date of the making of such
Loans, (ii) all proceeds of the Term Loans B shall be used to provide working
capital to the Borrower and for general corporate purposes of the Borrower, and
(iii) all proceeds of the Revolving Loans shall be used to provide working
capital to the Borrower and for general corporate purposes of the Borrower, in
each case in the ordinary course of its business.
(b) Maximum Financed Amount of Eligible Third-Party Expenses. The Maximum
--------------------------------------------------------
Financed Amount of Eligible Third-Party Expenses shall be determined by the
Administrative Agent in good faith as of the Initial Funding Date and will be
redetermined in good faith by the Administrative Agent thereafter immediately
prior to the proposed borrowing date of any Loan, the proceeds of which (in
whole or in part) are proposed to be used to pay Eligible Third Party Expenses.
CREDIT AGREEMENT - Page 35
<PAGE>
(c) Margin Stock. None of the proceeds of any Loan may be used to acquire
------------
any security in any transaction that is subject to Section 13 or 14 of the
Exchange Act or to purchase or carry any margin stock (within the meaning of
Regulations T, U or X of the Board of Governors of the Federal Reserve System).
Section 2.11 Fees.
----
(a) Subject to Section 13.12, the Borrower shall, commencing on *
-------------
and for all periods thereafter, pay to the Administrative Agent for the
account of each applicable Lender a commitment fee on the daily average
unused or unfunded amount of each of such Lender's Term Loans A Commitments and
Revolving Loans Commitments (as the same may be terminated or reduced pursuant
to Section 2.13), for the period from and including the date on which such
------------
Lender (or its predecessor in interest with respect to such Commitments assigned
to such Lender as to which a commitment fee has not previously been paid during
the applicable period) became a party hereto to but excluding the Term Loans A
Commitment Termination Date or the Revolving Loans Commitment Termination Date,
as the case may be, at the rate of * percent (*%) per annum based on a 360 day
year and the actual number of days elapsed, which accrued commitment fees shall
be payable in arrears on each Quarterly Date and on the Term Loans A Commitment
Termination Date or the Revolving Loans Commitment Termination Date, as the case
may be.
(b) Subject to Section 13.12, the Borrower agrees to pay to the
-------------
Administrative Agent and Nortel Networks such additional fees as are specified
in the Administrative Agent's Letter, which fees shall be payable in such
amounts and on such dates as are specified therein.
Section 2.12 Computations. Interest and fees payable by the Borrower
------------
hereunder and under the other Loan Documents on all Loans shall be computed on
the basis of a year of 360 days and the actual number of days elapsed (including
the first day but excluding the last day) occurring in the period for which
payable unless, in the case of interest, such calculation would result in a
usurious rate, in which case interest shall be calculated on the basis of a year
of 365 or 366 days, as the case may be.
Section 2.13 Termination or Reduction of Commitments.
---------------------------------------
(a) Notwithstanding anything to the contrary contained in this Agreement,
each of the Commitments shall automatically terminate upon the earlier to occur
of (i) the occurrence of any Change in Control, or (ii) any sale or transfer of
the Network or any material portion thereof.
(b) The Borrower shall have the right to terminate or reduce in part the
unused portion of the Term Loans A Commitments and the Revolving Loans
Commitments at any time and from time to time prior to the Term Loans A
Commitment Termination Date and the Revolving Loans Commitment Termination Date,
respectively; provided, however, that (i) no such termination or reduction shall
-------- -------
be effective unless the Borrower shall have given notice of each such
termination or reduction as provided in Section 2.9 and (ii) each partial
-----------
reduction of any such Commitment shall be in an aggregate amount at least equal
to $1,000,000 or an integral multiple of $100,000 in excess thereof.
(c) The Commitments may not be reinstated after they have been terminated
or increased after they have been reduced.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 36
<PAGE>
ARTICLE 3
Payments
--------
Section 3.1 Method of Payment. All payments of principal, interest, fees
-----------------
and other amounts to be made by the Borrower under this Agreement and the other
Loan Documents shall be made to the Administrative Agent at the Principal Office
for the account of each Lender's Applicable Lending Office in Dollars and in
immediately available funds, without setoff, deduction or counterclaim, not
later than 1:00 p.m. (New York, New York time) on the date on which such payment
shall become due (each such payment made after such time on such due date to be
deemed to have been made on the next succeeding Business Day). The Borrower
shall, at the time of making each such payment, specify to the Administrative
Agent the sums payable by the Borrower under this Agreement and the other Loan
Documents to which such payment is to be applied (and in the event that the
Borrower fails to so specify, or if an Event of Default has occurred and is
continuing, the Administrative Agent may apply such payment to the Obligations
in such order and manner as the Administrative Agent may elect, subject to
Section 3.2). Upon the occurrence and during the continuation of an Event of
- ------------
Default, all proceeds of any Collateral and all other funds of the Borrower in
the possession of the Administrative Agent or any Lender may be applied by the
Administrative Agent to the Obligations in such order and manner as the
Administrative Agent may elect, subject to Section 3.2. Each payment received by
-----------
the Administrative Agent under this Agreement or any other Loan Document for the
account of a Lender shall be paid promptly to such Lender, in immediately
available funds, for the account of such Lender's Applicable Lending Office.
Whenever any payment under this Agreement or any other Loan Document shall be
stated to be due on a day that is not a Business Day, such payment may be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of the payment of interest and commitment
fee, as the case may be.
Section 3.2 Pro Rata Treatment. Except to the extent otherwise provided in
------------------
this Agreement: (a) each Loan shall be made by the Lenders under Section 2.1,
-----------
each payment of commitment fees under Section 2.11(a) shall be made for the
---------------
account of the Lenders, and each termination or reduction of the Commitments
under Section 2.13 shall be applied to the Commitments of the Lenders, pro rata
------------
according to the respective unused Commitments; (b) the making, Conversion and
Continuation of Loans of a particular Type (other than Conversions provided for
by Section 4.4) shall be made pro rata among the Lenders holding Loans of such
------------
Type according to the amounts of their respective Commitments; (c) each payment
and prepayment by the Borrower of principal of or interest on Loans of a
particular Type shall be made to the Administrative Agent for the account of the
Lenders holding Loans of such Type pro rata in accordance with the respective
unpaid principal amounts of such Loans held by such Lenders; and (d) Interest
Periods for Loans of a particular Type shall be allocated among the Lenders
holding Loans of such Type pro rata according to the respective principal
amounts held by such Lenders.
Section 3.3 Sharing of Payments, Etc.
------------------------
(a) Setoff, Etc. If a Lender shall obtain payment of any principal of or
-----------
interest on any of the Obligations due to such Lender hereunder through the
exercise of any right of setoff, banker's lien, counterclaim or similar right,
or otherwise, it shall promptly purchase from the other Lenders participations
in the Obligations held by the other Lenders in such amounts, and make such
CREDIT AGREEMENT - Page 37
<PAGE>
adjustments from time to time, as shall be equitable to the end that all the
Lenders shall share pro rata in accordance with the unpaid principal and
interest on the Obligations then due to each of them. To such end, all of the
Lenders shall make appropriate adjustments among themselves (by the resale of
participations sold or otherwise) if all or any portion of such excess payment
is thereafter rescinded or must otherwise be restored. The Borrower agrees, to
the fullest extent it may effectively do so under applicable law, that any
Lender so purchasing a participation in the Obligations by the other Lenders may
exercise all rights of setoff, banker's lien, counterclaim or similar rights
with respect to such participation as fully as if such Lender were a direct
holder of Obligations in the amount of such participation. Nothing contained
herein shall require any Lender to exercise any such right or shall affect the
right of any Lender to exercise, and retain the benefits of exercising, any such
right with respect to any other indebtedness, liability or obligation of the
Borrower.
(b) Sale or Liquidation of Collateral, Etc. In the event of any sale or
--------------------------------------
liquidation of the Collateral or any portion thereof as a result of or in
connection with the occurrence of an Event of Default and receipt by the
Administrative Agent of any proceeds thereof, or in the event of any bankruptcy
or similar proceedings involving the Borrower or any of its Subsidiaries and
receipt by the Administrative Agent of any payments with respect to the
Obligations in connection therewith, all proceeds thereof shall be applied by
the Administrative Agent as follows: (i) first, to reimburse the Administrative
Agent for all fees, costs and expenses relating to such sale or liquidation or
proceedings, (ii) second, pro rata to the accrued and unpaid interest with
respect to the Terms Loans A, the Term Loans B and the Revolving Loans, (iii)
third, pro rata to the principal of the Term Loans A, the Term Loans B and the
Revolving Loans (until such Loans are paid in full), and (iv) fourth, to the
then remaining outstanding Obligations in such order as the Administrative Agent
may determine.
Section 3.4 Non-Receipt of Funds by the Administrative Agent. Unless the
------------------------------------------------
Administrative Agent shall have been notified by a Lender or the Borrower (the
"Payor") prior to the date on which such Lender is to make payment to the
-----
Administrative Agent of the proceeds of a Loan to be made by it hereunder or the
Borrower is to make a payment to the Administrative Agent for the account of one
or more of the Lenders, as the case may be (such payment being herein called the
"Required Payment"), which notice shall be effective upon receipt, that the
----------------
Payor does not intend to make the Required Payment to the Administrative Agent,
the Administrative Agent may assume that the Required Payment has been made and
may, in reliance upon such assumption (but shall not be required to), make the
amount thereof available to the intended recipient on such date and, if the
Payor has not in fact made the Required Payment to the Administrative Agent, the
recipient of such payment shall, on demand, pay to the Administrative Agent the
amount made available to it together with interest thereon in respect of the
period commencing on the date such amount was so made available by the
Administrative Agent until the date the Administrative Agent recovers such
amount at a rate per annum equal to the Federal Funds Rate for such period.
Section 3.5 Taxes.
-----
(a) All payments by the Borrower of principal of and interest on the Loans
and of all fees and other amounts payable under the Loan Documents shall be made
free and clear of, and without withholding or deduction by reason of, any
present or future taxes, levies, duties, imposts, assessments or other charges
levied or imposed by any Governmental Authority (other than franchise taxes and
taxes on the overall net income of any Lender). If any such taxes, levies,
duties, imposts, assessments or other charges are so levied or imposed, the
Borrower will (i) make additional
CREDIT AGREEMENT - Page 38
<PAGE>
payments in such amounts so that every net payment of principal of and interest
on the Loans and of all other amounts payable by it under the Loan Documents,
after withholding or deduction for or on account of any such present or future
taxes, levies, duties, imposts, assessments or other charges (including any tax
imposed on or measured by net income of a Lender attributable to payments made
to or on behalf of a Lender pursuant to this Section 3.5 and any penalties or
-----------
interest attributable to such payments), will not be less than the amount
provided for herein or therein absent such withholding or deduction (provided
--------
that the Borrower shall not have any obligation to pay such additional amounts
to any Lender to the extent that such taxes, levies, duties, imposts,
assessments or other charges are levied or imposed by reason of the failure of
such Lender to comply with the provisions of Section 3.6), (ii) make such
------------
withholding or deduction and (iii) remit the full amount deducted or withheld to
the relevant Governmental Authority in accordance with applicable law. Without
limiting the generality of the foregoing, the Borrower will, upon written
request of any Lender, reimburse each such Lender for the amount of (A) such
taxes, levies, duties, imports, assessments or other charges so levied or
imposed by any Governmental Authority and paid by such Lender as a result of
payments made by the Borrower under or with respect to the Loans other than such
taxes, levies, duties, imports, assessments and other charges previously
withheld or deducted by the Borrower which have previously resulted in the
payment of the required additional amount to such Lender, and (B) such taxes,
levies, duties, assessments and other charges so levied or imposed with respect
to any Lender reimbursement under the foregoing clause (A), so that the net
----------
amount received by such Lender (net of payments made under or with respect to
the Loans) after such reimbursement will not be less than the net amount such
Lender would have received if such taxes, levies, duties, assessments and other
charges on such reimbursement had not been levied or imposed. The Borrower shall
furnish promptly to the Administrative Agent for distribution to each affected
Lender, as the case may be, upon request of such Lender, official receipts
evidencing any such payment, withholding or reduction.
(b) The Borrower will indemnify the Administrative Agent and each Lender
(without duplication) against, and reimburse the Administrative Agent and each
Lender for, all present and future taxes, levies, duties, imposts, assessments
or other charges (including interest and penalties) levied or collected (whether
or not legally or correctly imposed, assessed, levied or collected), excluding,
however, any taxes imposed on the overall net income of the Administrative Agent
or such Lender or any lending office of the Administrative Agent or such Lender
by any jurisdiction in which the Administrative Agent or such Lender or any such
lending office is located, on or in respect of this Agreement, any of the Loan
Documents or the Obligations or any portion thereof (the "reimbursable taxes").
--------------------
Any such indemnification shall be on an after-tax basis, taking into account any
such reimbursable taxes imposed on the amounts paid as indemnity.
(c) Without prejudice to the survival of any other term or provision of
this Agreement, the obligations of the Borrower under this Section 3.5 shall
------------
survive the payment of the Loans and the other Obligations and termination of
the Commitments.
Section 3.6 Withholding Tax Exemption. Each Lender that is not
-------------------------
incorporated or otherwise formed under the laws of the U.S. or a state thereof
agrees that it will, prior to or on or about the Initial Funding Date or the
date upon which it initially becomes a party to this Agreement and if it is
legally able to do so, deliver to the Borrower and the Administrative Agent, two
duly completed copies of U.S. Internal Revenue Service Form 1001, 4224 or W-8 or
other equivalent documents, as appropriate, certifying in any case that such
Lender is entitled to receive payments from the Borrower under any Loan Document
without deduction or withholding of any U.S. federal income taxes. Each Lender
which so delivers a Form 1001, 4224 or W-8 or other equivalent
CREDIT AGREEMENT - Page 39
<PAGE>
documents, as appropriate, further undertakes to deliver to the Borrower and the
Administrative Agent, two additional copies of such form (or a successor form)
on or before the date such form expires or becomes obsolete or after the
occurrence of any event requiring a change in the most recent form so delivered
by it, and such amendments thereto or extensions or renewals thereof as may be
reasonably requested by the Borrower or the Administrative Agent, in each case
certifying that such Lender is entitled to receive payments from the Borrower
under any Loan Document without deduction or withholding of any U.S. federal
income taxes, unless an event (including without limitation any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the
Administrative Agent that it is not capable of receiving such payments without
any deduction or withholding of U.S. federal income tax.
Section 3.7 Reinstatement of Obligations. Notwithstanding anything to the
----------------------------
contrary contained in this Agreement or any other Loan Document, if the payment
of any amount of principal of or interest with respect to the Loans or any other
amount of the Obligations, or any portion thereof, is rescinded, voided or must
otherwise be refunded by the Administrative Agent or any Lender upon the
insolvency, bankruptcy or reorganization of the Borrower or otherwise for any
reason whatsoever, then each of (a) the Obligations, (b) the Loan Documents
(including, without limitation, this Agreement, the Notes and the Security
Documents), (c) the indebtedness, liabilities and obligations of the Borrower
and any other Loan Parties, and (d) all Liens for the benefit of the
Administrative Agent and the Lenders created under or evidenced by the Loan
Documents, will be automatically reinstated and become automatically effective
and in full force and effect, all to the extent that and as though such payment
so rescinded, voided or otherwise refunded had never been made.
Section 3.8 No Force Majeure, Disputes. The Borrower's obligation to pay
--------------------------
all amounts due under the Loans and the other Obligations shall not be affected
by (a) any set-off, counterclaim, recoupment, deduction, abatement, suspension,
diminution, reduction, defense or other right which the Borrower may have
against the Vendor for any reason whatsoever arising under or pursuant to the
Master Purchase Agreement or otherwise relating to the purchase of goods or
services from the Vendor, (b) 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 or service provided by the Vendor, (c) any insolvency, bankruptcy,
reorganization or similar proceedings by or against the Borrower or affecting
any of its Properties, (d) any action of any Governmental Authority or any
damage to or destruction of or any taking of the Borrower's Property or any part
thereof, (e) any change, waiver, extension, indulgence or failure to perform or
comply with, or other action or omission herein or in the other Loan Documents
(except for express written modifications to this Agreement or other Loan
Documents as and in the manner permitted under this Agreement or the other Loan
Documents), (f) any dissolution of the Borrower, (g) any inability or illegality
with respect to the use or ownership of the Borrower's Property, (h) any failure
to obtain, or expiration, suspension or other termination of, or interruption
to, any required licenses, permits, consents, authorizations, approvals or other
legal requirements, (i) the invalidity or unenforceability of any of the Loan
Documents or any other infirmity therein or any lack of power or authority of
the Administrative Agent or any Lender or the Borrower, or (j) any other event
or circumstance whatsoever, whether or not similar to any of the foregoing and
whether or not the Borrower shall have notice or knowledge of any of the
foregoing, it being the intention of the Administrative Agent and the Lenders
and the Borrower that the Obligations of the Borrower shall be absolute and
unconditional and shall be separate and
CREDIT AGREEMENT - Page 40
<PAGE>
independent covenants and agreements and shall continue unaffected unless the
requirements to pay or perform the same shall have been terminated pursuant to
an express provision thereof or of any of the other Loan Documents.
Section 3.9 Return of Notes upon Payment in Full. Upon the payment in full
------------------------------------
of all Obligations and the termination of all Commitments, each Lender shall
either (a) mark the Note(s) held by it as "Paid in Full" and return such Note(s)
to the Borrower or (b) provide the Borrower with other reasonable evidence of
payment of such Note(s).
ARTICLE 4
Yield Protection and Illegality
-------------------------------
Section 4.1 Additional Costs.
----------------
(a) The Borrower shall pay directly to each Lender from time to time,
promptly upon the request of such Lender, the costs incurred by such Lender
which such Lender determines are attributable to its making or maintaining of
any Eurodollar Loans or its obligation to make any of such Loans, or any
reduction in any amount receivable by such Lender hereunder in respect of any
such Loans or obligations (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
----------------
Regulatory Change which:
(i) changes the basis of taxation of any amounts payable to such
Lender under this Agreement or its Notes in respect of any of such Loans
(other than taxes imposed on the overall net income of such Lender or its
Applicable Lending Office for any of such Loans by the jurisdiction in
which such Lender has its principal office or such Applicable Lending
Office);
(ii) imposes or modifies any reserve, special deposit, minimum
capital, capital ratio or similar requirement relating to any extensions
of credit or other assets of, or any deposits with or other liabilities or
commitments of, such Lender (including any of such Loans or any deposits
referred to in the definition of "Eurodollar Rate" in Section 1.1 hereof,
-----------
but excluding the Reserve Requirement to the extent it is included in the
calculation of the Adjusted Eurodollar Rate); or
(iii) imposes any other condition affecting this Agreement or the
Notes or any extensions of credit or liabilities or commitments
contemplated hereunder or thereunder.
Each Lender will notify the Borrower (with a copy to the Administrative Agent)
of any event occurring after the Closing Date which will entitle such Lender to
compensation pursuant to this Section 4.1(a) as promptly as practicable after it
--------------
obtains knowledge thereof and determines to request such compensation, and (if
so requested by the Borrower) will designate a different Applicable Lending
Office for the Eurodollar Loans of such Lender if such designation will avoid
the need for, or reduce the amount of, such compensation and will not, in the
sole opinion of such Lender, violate any law, rule or regulation or be in any
way disadvantageous to such Lender, provided that such Lender shall have no
--------
obligation to so designate an Applicable Lending Office located in the U.S. Each
Lender will furnish the Borrower with a certificate setting forth the basis and
the amount of each request of such Lender for compensation under this Section
-------
4.1(a). If any Lender requests
- ------
CREDIT AGREEMENT - Page 41
<PAGE>
compensation from the Borrower under this Section 4.1(a), the Borrower may, by
--------------
notice to such Lender (with a copy to the Administrative Agent), suspend the
obligation of such Lender to make or Continue making, or Convert Base Rate Loans
into, Eurodollar Loans until the Regulatory Change giving rise to such request
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
-----------
be applicable).
(b) Without limiting the effect of the foregoing provisions of this
Section 4.1, in the event that, by reason of any Regulatory Change, any Lender
- -----------
either (i) incurs Additional Costs based on or measured by the excess above a
specified level of the amount of a category of deposits or other liabilities of
such Lender which includes deposits by reference to which the interest rate on
Eurodollar Loans is determined as provided in this Agreement or a category of
extensions of credit or other assets of such Lender which includes Eurodollar
Loans or (ii) becomes subject to restrictions on the amount of such a category
of liabilities or assets which it may hold, then, if such Lender so elects by
notice to the Borrower (with a copy to the Administrative Agent), the obligation
of such Lender to make or Continue making, or Convert Base Rate Loans into,
Eurodollar Loans hereunder shall be suspended until such Regulatory Change
ceases to be in effect (in which case the provisions of Section 4.4 hereof shall
-----------
be applicable).
(c) Determinations and allocations by any Lender for purposes of this
Section 4.1 of the effect of any Regulatory Change on its costs of maintaining
- -----------
its obligation to make Loans or of making or maintaining Loans or on amounts
receivable by it in respect of Loans and of the additional amounts required to
compensate such Lender in respect of any Additional Costs, shall be conclusive
in the absence of manifest error, provided that such determinations and
allocations are made on a reasonable basis.
Section 4.2 Limitation on Types of Loans. Anything herein to the contrary
----------------------------
notwithstanding, if with respect to any Eurodollar Loans for any Interest Period
therefor:
(a) the Administrative Agent determines (which determination shall be
conclusive absent manifest error) that quotations of interest rates for the
relevant deposits referred to in the definition of "Eurodollar Rate" in Section
-------
1.1 hereof are not being provided in the relative amounts or for the relative
- ---
maturities for purposes of determining the rate of interest for such Loans as
provided in this Agreement; or
(b) the Required Lenders determine (which determination shall be
conclusive absent manifest error) and notify the Administrative Agent that the
relevant rates of interest referred to in the definition of "Eurodollar Rate" or
"Adjusted Eurodollar Rate" in Section 1.1 hereof on the basis of which the rate
-----------
of interest for such Loans for such Interest Period is to be determined do not
accurately reflect the cost to the Lenders of making or maintaining such Loans
for such Interest Period;
then the Administrative Agent shall give the Borrower prompt notice thereof and,
so long as such condition remains in effect, the Lenders shall be under no
obligation to make Eurodollar Loans or to Convert Base Rate Loans into
Eurodollar Loans and the Borrower shall, on the last day(s) of the then current
Interest Period(s) for the outstanding Eurodollar Loans, either prepay such
Loans or Convert such Loans into Base Rate Loans in accordance with the terms of
this Agreement.
CREDIT AGREEMENT - Page 42
<PAGE>
Section 4.3 Illegality. Notwithstanding any other provision of this
----------
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make Eurodollar Loans
or (b) maintain Eurodollar Loans, then such Lender shall promptly notify the
Borrower (with a copy to the Administrative Agent) thereof and such Lender's
obligation to make or maintain Eurodollar Loans and to Convert Base Rate Loans
into Eurodollar Loans hereunder shall be suspended until such time as such
Lender may again make and maintain Eurodollar Loans (in which case the
provisions of Section 4.4 hereof shall be applicable).
-----------
Section 4.4 Treatment of Affected Loans. If the obligation of any Lender
---------------------------
to make or Continue, or to Convert Base Rate Loans into, Eurodollar Loans is
suspended pursuant to Section 4.1 or 4.3 hereof, such Lender's Eurodollar Loans
----------- ---
shall be automatically Converted into Base Rate Loans on the last day(s) of the
then current Interest Period(s) for the Eurodollar Loans (or, in the case of a
Conversion required by Section 4.1(b) or 4.3 hereof, on such earlier date as
-------------- ---
such Lender may specify to the Borrower with a copy to the Administrative Agent)
and, unless and until such Lender gives notice as provided below that the
circumstances specified in Section 4.1 or 4.3 hereof which gave rise to such
----------- ---
Conversion no longer exist:
(a) to the extent that such Lender's Eurodollar Loans have been so
Converted, all payments and prepayments of principal which would otherwise be
applied to such Lender's Eurodollar Loans shall be applied instead to its Base
Rate Loans; and
(b) all Loans which would otherwise be made or Continued by such Lender as
Eurodollar Loans shall be made as or Converted into Base Rate Loans and all
Loans of such Lender which would otherwise be Converted into Eurodollar Loans
shall be Converted instead into (or shall remain as) Base Rate Loans.
If such Lender gives notice to the Borrower that the circumstances specified in
Section 4.1 or 4.3 hereof which gave rise to the Conversion of such Lender's
- ----------- ---
Eurodollar Loans pursuant to this Section 4.4 no longer exist (which such Lender
-----------
agrees to do promptly upon such circumstances ceasing to exist) at a time when
Eurodollar Loans are outstanding, such Lender's Base Rate Loans shall be
automatically Converted, on the first day(s) of the next succeeding Interest
Period(s) for such outstanding Eurodollar Loans, to the extent necessary so
that, after giving effect thereto, all Loans held by the Lenders holding
Eurodollar Loans and by such Lender are held pro rata (as to principal amounts,
Types and Interest Periods) in accordance with their respective Commitments.
Section 4.5 Compensation. The Borrower shall pay to the Administrative
------------
Agent for the account of each Lender, promptly upon the request of such Lender
through the Administrative Agent, such amount or amounts as shall be sufficient
(in the reasonable opinion of such Lender) to compensate it for any loss, cost
or expense incurred by it as a result of:
(a) Any payment, prepayment or Conversion of a Eurodollar Loan for any
reason (including, without limitation, the acceleration of the outstanding Loans
pursuant to Section 11.2) on a date other than the last day of an Interest
------------
Period for such Loan; or
(b) Any failure by the Borrower for any reason (including, without
limitation, the failure of any conditions precedent specified in Article 6 to be
-------
satisfied) to borrow, Convert or prepay a Eurodollar Loan on the date for such
borrowing, Conversion or prepayment specified in the relevant notice of
borrowing, prepayment or Conversion under this Agreement.
CREDIT AGREEMENT - Page 43
<PAGE>
Section 4.6 Capital Adequacy. If, after the Closing Date, any Lender shall
----------------
have determined that the adoption or implementation of any applicable law, rule
or regulation regarding capital adequacy (including, without limitation, any
law, rule or regulation implementing the Basle Accord), or any change therein,
or any change in the interpretation or administration thereof by any central
bank or other Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender (or its parent) with any
guideline, request or directive regarding capital adequacy (whether or not
having the force of law) of any central bank or other Governmental Authority
(including, without limitation, any guideline or other requirement implementing
the Basle Accord), has or would have the effect of reducing the rate of return
on such Lender's (or its parent's) capital as a consequence of its obligations
hereunder or the transactions contemplated hereby to a level below that which
such Lender (or its parent) could have achieved but for such adoption,
implementation, change or compliance (taking into consideration such Lender's
policies with respect to capital adequacy) by an amount deemed by such Lender to
be material, then from time to time, within ten Business Days after demand by
such Lender (with a copy to the Administrative Agent), the Borrower shall pay to
such Lender such additional amount or amounts as will compensate such Lender (or
its parent) for such reduction. A certificate of such Lender claiming
compensation under this Section 4.6 and setting forth the additional amount or
-----------
amounts to be paid to it hereunder shall be conclusive absent manifest error,
provided that the determination thereof is made on a reasonable basis. In
determining such amount or amounts, such Lender may use any reasonable averaging
and attribution methods.
Section 4.7 Additional Interest on Eurodollar Loans. Without duplication
---------------------------------------
of Section 2.4 or amounts directly included in the definition of the term
-----------
"Adjusted Eurodollar Rate", the Borrower shall pay, directly to each Lender from
time to time, additional interest on the unpaid principal amount of each
Eurodollar Loan held by such Lender, from the date of the making of such
Eurodollar Loan until such principal amount is paid in full, at an interest rate
per annum determined by such Lender in good faith equal to the positive
remainder (if any) of (a) the Adjusted Eurodollar Rate applicable to such
Eurodollar Loan minus (b) the Eurodollar Rate applicable to such Eurodollar
Loan. Each payment of additional interest pursuant to this Section 4.7 shall be
-----------
payable by the Borrower on each date upon which interest is payable on such
Eurodollar Loan pursuant to Section 2.4(b); provided, however, that the Borrower
-------------- -------- -------
shall not be obligated to make any such payment of additional interest until the
first Business Day after the date when the Borrower has been informed (i) that
such Lender is subject to a Reserve Requirement and (ii) of the amount of such
Reserve Requirement (after which time the Borrower shall be obligated to make
all such payments of additional interest, including, without limitation, such
payment of additional interest that otherwise would have been payable by the
Borrower on or prior to such time had the Borrower been earlier informed).
Section 4.8 Replacement of Lenders. If at any time a Lender, other than
----------------------
Nortel Networks, becomes a Gross Up Lender, the Borrower shall have the right to
replace such Lender with another Person; provided that (a) such other Person
--------
shall be an Eligible Assignee and such other Person shall execute an Assignment
and Acceptance, (b) neither the Administrative Agent nor any Lender shall have
any obligation to the Borrower to find such other Person, (c) in the event of a
replacement of a Gross Up Lender, in order for the Borrower to be entitled to
replace such Lender, such replacement must take place no later than 180 days
after the date the Gross Up Lender shall notify the Borrower and the
Administrative Agent of its desire to be paid any amounts pursuant to Section
-------
3.5, 4.1 or 4.6, and (d) if the Borrower replaces one Gross Up Lender, it must
- --- --- ---
replace all Gross Up Lenders or
CREDIT AGREEMENT - Page 44
<PAGE>
replace all Gross Up Lenders on a pro rata basis. Each Lender, other than Nortel
Networks, agrees to its replacement at the option of the Borrower pursuant to
this Section 4.8 and in accordance with Section 13.8; provided that the
----------- ------------ --------
successor Lender shall purchase without recourse such Lender's interest in the
Obligations of the Borrower to such Lender for cash in an aggregate amount equal
to the aggregate unpaid principal thereof, all unpaid interest accrued thereon,
all unpaid commitment fees accrued for the account of such Lender, any breakage
costs incurred by the selling Lender because of the prepayment of any Eurodollar
Loans, all other fees (if any) applicable thereto and all other amounts
(including any amounts under this Article 4) then owing to such Lender hereunder
---------
or under any other Loan Document and the Borrower shall execute a release
addressed to such Lender releasing such Lender from all claims arising in
connection with the Loan Documents.
ARTICLE 5
Security
--------
Section 5.1 Collateral. To secure the full and complete payment and
----------
performance of the Obligations, the Borrower will, and will cause Holdings and
each of the Subsidiaries of the Borrower to, grant to the Administrative Agent
for the benefit of the Administrative Agent and the Lenders a perfected, first
priority Lien on all of the right, title and interest of the Borrower and its
Subsidiaries in and to all Property (as more specifically described in the
Security Documents) and on all of the right, title and interest of Holdings in
and to all Capital Stock of the Borrower (as more specifically described in the
Security Documents), whether now owned or hereafter acquired, pursuant to the
Security Documents, including, without limitation, the following:
(a) all Capital Stock of the Borrower and each of the Subsidiaries of the
Borrower;
(b) all of the Property (as such Property is more specifically described
in the Security Documents) of the Borrower and each of the Subsidiaries of the
Borrower, including, without limitation, the following: Investments (including
certificates of deposit); accounts; inventory (including, without limitation,
work in process); equipment; deposit accounts (including cash collateral
accounts); brokerage accounts; instruments; contract rights (including, without
limitation, all contracts relating to the construction or operation of the
Network, including rights of way, easements, leases and all related contracts,
and all consents and waivers necessary or appropriate from all parties to such
contracts); customer deposits in connection with purchase orders; general
intangibles; real Property and interests therein (if and to the extent required
pursuant to Section 5.4); instruments; chattel paper; Licenses; Intellectual
-----------
Property; and intercompany Debt;
(c) all Debt owed by the Borrower or any Subsidiary of the Borrower to
Holdings; and
(d) all cash and non-cash proceeds and products of any of the foregoing.
Section 5.2 Guaranties. The Borrower will cause Holdings and each of the
----------
Subsidiaries of the Borrower (whether owned as of the Closing Date or thereafter
organized or created) to Guarantee the payment and performance of the
Obligations pursuant to the Guaranties.
Section 5.3 New Subsidiaries; Additional Capital Stock. Contemporaneously
------------------------------------------
with the creation or acquisition of any Subsidiary of the Borrower after the
Closing Date, the Borrower shall:
CREDIT AGREEMENT - Page 45
<PAGE>
(a) grant or cause to be granted to the Administrative Agent, for the
benefit of itself and the Lenders, a perfected, first priority security interest
in all Capital Stock of such Subsidiary owned by the Borrower or any Subsidiary
of the Borrower (to the extent such Capital Stock was not previously pledged to
the Administrative Agent);
(b) cause each such Subsidiary to Guarantee the payment and performance of
the Obligations by executing and delivering to the Administrative Agent a
Guaranty or a joinder therein acceptable to the Administrative Agent; and
(c) cause each such Subsidiary to execute and deliver to the
Administrative Agent a Security Agreement and such other Security Documents, in
form and substance acceptable to the Administrative Agent, as the Administrative
Agent may request to grant the Administrative Agent, for the benefit of itself
and the Lenders, a perfected, first priority Lien on all Property of such
Subsidiary.
Contemporaneously with the issuance of any additional Capital Stock of the
Borrower or any of the Subsidiaries of the Borrower after the Closing Date, the
Borrower shall, and shall cause Holdings and each of the Subsidiaries of the
Borrower to, grant or cause to be granted to the Administrative Agent, for the
benefit of the Administrative Agent and the Lenders, a perfected, first priority
security interest in all Capital Stock or other ownership interests in the
Borrower or such Subsidiary of the Borrower owned by Holdings, the Borrower or
any Subsidiary of the Borrower (to the extent such Capital Stock or other
ownership interests are not already so pledged to the Administrative Agent). The
Borrower covenants that none of the Capital Stock to be pledged in accordance
with this Section 5.3 shall be subject to any transfer restriction,
-----------
shareholders' agreement or other restriction except for such restrictions under
applicable securities laws or under applicable federal or state laws or
regulations governing telecommunications providers, such restrictions existing
as of the Closing Date which have been disclosed to the Administrative Agent in
the Security Documents and such restrictions, if any, as may be reasonably
acceptable to the Administrative Agent. In connection with and in addition to
the foregoing, the Borrower shall, and shall cause Holdings and each of the
Subsidiaries of the Borrower and other appropriate Persons (as applicable) to,
execute and/or deliver such further agreements, documents and instruments
(including, without limitation, stock certificates, stock powers and financing
statements) as the Administrative Agent may reasonably request in order for it
to obtain and maintain the perfected, first priority Liens to be granted in
accordance with this Section 5.3.
-----------
Section 5.4 Mortgaged Properties; Landlord Waivers. Without limiting the
--------------------------------------
generality of the other terms and provisions of this Article 5, the Borrower
---------
shall, and shall cause each of the Subsidiaries of the Borrower to, on the
Closing Date (with respect to any fee real Property or leasehold interest
therein owned as of the Closing Date) or contemporaneously with the acquisition
of any fee real Property or leasehold interest therein (with respect to any fee
real Property or leasehold interest therein acquired after the Closing Date),
execute, acknowledge and deliver to the Administrative Agent a Mortgage or an
amendment or modification to an existing Mortgage covering all fee real Property
and all leasehold interests therein owned by any such Loan Party, together with
evidence in form and substance reasonably satisfactory to the Administrative
Agent and its counsel that the Mortgage creates a valid, first priority Lien on
the fee estate or leasehold estate (as applicable), in favor of the
Administrative Agent for the benefit of the Administrative Agent and the Lenders
securing the payment and performance of the Obligations (including, without
limitation and if requested by the Administrative Agent and with respect to fee
real Property, a
CREDIT AGREEMENT - Page 46
<PAGE>
commitment for a mortgagee policy of title insurance insuring the Administrative
Agent's first priority Lien status created by such Mortgage or a title opinion
in favor of the Administrative Agent), and together with current appraisals
complying with all applicable regulatory requirements and surveys certified to
the Administrative Agent and the Lenders if requested by the Administrative
Agent, all of which shall be in form and substance reasonably satisfactory to
the Administrative Agent; provided, however, that, with respect to any
-------- -------
particular parcel of fee real Property, the Borrower and its Subsidiaries shall
not be required to execute a Mortgage or Mortgages in favor of the
Administrative Agent unless and until the Borrower and/or its Subsidiaries own
fee real Properties having an aggregate fair market value (inclusive of
fixtures) of $250,000 or more (at which time all fee real Property owned by the
Borrower and/or its Subsidiaries shall be mortgaged in favor of the
Administrative Agent); provided, further, however, that, with respect to any
-------- ------- -------
particular leasehold interest in real Property, the Borrower and its
Subsidiaries shall not be required to execute a Mortgage or Mortgages in favor
of the Administrative Agent unless and until the Borrower and/or its
Subsidiaries own leasehold interests having an aggregate fair market value of
$250,000 or more (based upon the intrinsic value of such leasehold interests in
excess of the rental payable thereunder) (at which time all leasehold interests
owned by the Borrower and/or its Subsidiaries shall be mortgaged in favor of the
Administrative Agent). In addition, if requested by the Administrative Agent,
the Borrower shall, and shall cause each of its Subsidiaries with an interest in
such Property to, provide the Administrative Agent with a current environmental
assessment of such Property in form and substance reasonably satisfactory to the
Administrative Agent. In addition, with respect to each lease of real Property
executed by the Borrower or any of its Subsidiaries, the Borrower will, and will
cause each of its Subsidiaries to, obtain waivers or subordinations of
landlord's Liens from each lessor and other agreements from such lessor and its
lenders necessary or appropriate to ensure Administrative Agent's perfected,
first priority Lien on the Collateral or Property affected thereby, the
Administrative Agent's access to such Collateral or Property and the right of
the Administrative Agent, the Lenders or their designee to succeed to the rights
of such Loan Party that is the lessee under the lease, in each case in form and
substance reasonably satisfactory to the Administrative Agent; provided,
--------
however, that such waivers or subordinations need not be obtained for individual
- -------
leases where inventory or equipment of a Loan Party having an aggregate value,
based upon original invoice cost, of less than $500,000 is located; provided,
--------
further, however, that the aggregate value, based upon original invoice cost, of
- ------- -------
inventory or equipment that is located on leaseholds for which waivers or
subordinations have not been obtained shall not at any time exceed the lesser of
(a) $* or (b) *% of the aggregate amount of the Loans made under this Agreement.
Section 5.5 Further Assurances. In addition to the foregoing, the Borrower
------------------
shall, and shall cause each of the other Loan Parties to, execute and/or deliver
such further agreements, documents and instruments (including, without
limitation, financing statements) as the Administrative Agent may reasonably
request in order for it to obtain and maintain the perfected, first priority
Liens to be granted in accordance with this Article 5.
---------
Section 5.6 Setoff. If an Event of Default shall have occurred and be
------
continuing, each Lender is hereby authorized at any time and from time to time,
without notice to the Borrower (any such notice being hereby expressly waived by
the Borrower), to set off and apply any and all deposits (general or special,
time or demand, provisional or final excluding any trust accounts) at any time
held and other indebtedness at any time owing by such Lender 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, such Lender's Note
or any other Loan Document, irrespective of whether or not the
Administrative Agent or such Lender shall have made any demand under this
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 47
<PAGE>
Agreement, such Lender's Note or any such other Loan Document and although such
Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
(with a copy to the Administrative Agent) after any such setoff and application,
provided that the failure to give such notice shall not affect the validity of
- --------
such setoff and application. The rights and remedies of each Lender hereunder
are in addition to other rights and remedies (including, without limitation,
other rights of setoff) which such Lender may have.
ARTICLE 6
Conditions Precedent
--------------------
Section 6.1 Initial Extension of Credit. The obligation of each Lender to
---------------------------
make its initial Loan under this Agreement is subject to the receipt by the
Administrative Agent, on or before the Initial Funding Date, of all of the
following in form and substance satisfactory to the Administrative Agent and the
Lenders and, in the case of actions to be taken, the taking of the following
required actions and evidence that such actions have been taken to the
satisfaction of the Administrative Agent:
(a) Resolutions. Resolutions of the board of directors or equivalent
-----------
governing body (as applicable) certified by the Secretary or an Assistant
Secretary or equivalent officer or representative of each Loan Party which
authorize the execution, delivery and performance by such Loan Party of the Loan
Documents to which it is or is to be a party;
(b) Incumbency Certificate. A certificate of incumbency certified by the
----------------------
Secretary or an Assistant Secretary (or other analogous officer) of each Loan
Party certifying as to the name of each officer or other representative of such
Loan Party (i) who is authorized to sign the Loan Documents to which it is or is
to be a party (including any certificates contemplated therein), together with
specimen signatures of each such officer or other representative, and (ii) who
will, until replaced by other officers or representatives duly authorized for
that purpose, act as its representative for the purposes of signing documents
and giving notices and other communications in connection with the Loan
Documents and the transactions contemplated thereby;
(c) Articles of Incorporation. The articles of incorporation or other
-------------------------
analogous constitutional documents of each Loan Party certified by the Secretary
of State or other applicable Governmental Authority of the state of
incorporation or organization of such entity and dated as of a Current Date;
(d) Bylaws. The bylaws or other analogous constitutional documents of each
------
Loan Party certified by its Secretary or an Assistant Secretary (or other
analogous officer or representative);
(e) Governmental Certificates. Certificates of appropriate officials as to
-------------------------
the existence and good standing of each of the Loan Parties in its jurisdiction
of incorporation or organization and in all jurisdictions in which such Loan
Party is qualified or is required to qualify to do business as a foreign entity,
each such certificate to be dated as of a Current Date;
(f) Notes. The Notes duly completed and executed by the Borrower (one
-----
payable to the order of each Lender with respect to each of its Term Loans A
Commitment, Term Loans B Commitment and Revolving Loans Commitment);
CREDIT AGREEMENT - Page 48
<PAGE>
(g) Security Agreements and Other Security Documents. Security Agreements
------------------------------------------------
and other Security Documents executed by each of the Loan Parties pertaining to
the Collateral owned by such Loan Party or in which such Loan Party has rights
sufficient to create a Lien (one such Security Agreement executed by each such
Loan Party) together with all related financing statements and other filings,
consents to collateral assignments from all parties to all Material Contracts
included as part of the Collateral in form and substance acceptable to the
Administrative Agent, delivery of all pledged Capital Stock and instruments
constituting Collateral, together with appropriate stock powers and endorsements
thereto and, with respect to each existing lease of real Property where
Collateral is located and if and to the extent required by Section 5.4, waivers
-----------
or subordinations of landlord's Liens from each lessor and other agreements from
such lessor and its lenders necessary or appropriate to ensure Administrative
Agent's perfected, first priority Lien on the Collateral or Property affected
thereby, the Administrative Agent's access to such Collateral or Property and
the right of the Administrative Agent, the Lenders or their designee to succeed
to the rights of the Loan Party that is the lessee under the lease, in each case
in form and substance satisfactory to the Administrative Agent;
(h) Mortgages, etc. If and to the extent required by Section 5.4,
--------------- -----------
Mortgages executed by the Borrower and/or its Subsidiaries (as applicable)
pertaining to the real Property Collateral owned or leased by such Loan Party
(one Mortgage executed by each such Loan Party) and, with respect to each tract
of such real Property, a mortgagee policy of title insurance insuring the
Administrative Agent's first priority Lien status of each such Mortgage, a
current survey certified to the Administrative Agent and the Lenders, an
appraisal complying with all applicable regulatory requirements and an
environmental survey acceptable to the Administrative Agent;
(i) Insurance Certificates and Policies. Certificates evidencing all
-----------------------------------
insurance policies required by this Agreement and the other Loan Documents and,
if requested by the Administrative Agent, copies of all such insurance policies;
(j) Lien Searches. Lien searches in the name of each of the Loan Parties
-------------
(and in all names under which any of them has done business within the last five
years) in each jurisdiction where such Loan Party maintains an office or has
Property, showing no financing statements or other Lien instruments of record
affecting the Collateral except for Permitted Liens and Liens being released
prior to or concurrently with the making of the initial Loan;
(k) Master Purchase Agreement. The Master Purchase Agreement shall have
-------------------------
been executed and delivered by all parties thereto, and the Administrative Agent
shall have received a photocopy of the Master Purchase Agreement as so executed
and delivered, certified by a Responsible Officer of the Borrower as being a
true and correct copy of such document;
(l) Payment of Fees and Expenses. The Borrower shall have paid all fees
----------------------------
due on or before the Initial Funding Date as specified in this Agreement or in
the Administrative Agent's Letter and all reasonable fees, costs and expenses of
or incurred by the Administrative Agent and its counsel to the extent billed on
or before the Initial Funding Date and payable pursuant to this Agreement;
(m) Compliance with Laws. The Borrower and the other Loan Parties shall
--------------------
have complied in all material respects with all Governmental Requirements
necessary to execute and
CREDIT AGREEMENT - Page 49
<PAGE>
deliver this Agreement and the other Loan Documents and to perform and
consummate the transactions contemplated by this Agreement and the other Loan
Documents;
(n) No Prohibitions. No Governmental Requirement shall prohibit the
---------------
execution or delivery of this Agreement or any other Loan Document or the
performance or consummation of the transactions contemplated by this Agreement
or any other Loan Document, and no order, judgment or decree of any Governmental
Authority or arbitrator shall, and no litigation or other proceeding shall be
pending or to the Borrower's knowledge, threatened which would, enjoin,
prohibit, restrain or otherwise adversely affect in any material manner the
execution or delivery of this Agreement or any other Loan Document or the
performance or consummation of the transactions contemplated by this Agreement
or any other Loan Document or otherwise have a Material Adverse Effect;
(o) Financial Statements. Copies of each of the financial statements
--------------------
referred to in Section 7.2, in each case as certified by a Responsible Officer
-----------
of the applicable Loan Party as having been prepared in accordance with GAAP and
as fairly presenting the financial condition of the applicable Loan Party as of
the respective dates indicated therein and results of operations for the
respective periods indicated therein;
(p) Opinions of Counsel. Favorable legal opinions of Swidler Berlin
-------------------
Shereff Friedman, LLP (counsel for the Loan Parties), in form and substance
satisfactory to the Administrative Agent, with respect to the Loan Parties and
with respect to the Loan Documents and a favorable legal opinion of regulatory
counsel to the Borrower and its Subsidiaries in form and substance satisfactory
to the Administrative Agent;
(q) Legal Matters and Loan Documents. All matters of a legal nature
--------------------------------
relating to the Borrower and the other Loan Parties and this Agreement and the
other Loan Documents shall be reasonably satisfactory to the Administrative
Agent and its counsel, and the Administrative Agent shall have received all such
other agreements, documents and instruments, each in form and substance and
executed and delivered by all parties, as the Administrative Agent may have
reasonably requested to receive;
(r) Business Plan. A copy of the Business Plan in form and substance
-------------
satisfactory to the Administrative Agent;
(s) Material Contracts. A true and correct and fully executed copy of each
------------------
of the Material Contracts in existence as of the Initial Funding Date, in form
and substance satisfactory to the Administrative Agent;
(t) Licenses. Copies of all material Licenses affecting any Loan Party in
--------
connection with its businesses or any of the Properties owned or leased by it
and in connection with its businesses to be conducted and Properties to be owned
or leased as contemplated by the Business Plan, and evidence satisfactory to the
Administrative Agent that the Borrower and each other Loan Party is able to
conduct its businesses as currently conducted and as to be conducted as
contemplated by the Business Plan with the use of such Licenses in full force
and effect; and the Administrative Agent shall be satisfied that (i) the
Borrower and each other Loan Party has the exclusive, unrestricted right to use
each of such Licenses pursuant to license agreements or other agreements,
documents or instruments in form and substance reasonably satisfactory to the
Administrative Agent, which rights, other than rights relating to FCC Licenses
and other Licenses issued by Governmental
CREDIT AGREEMENT - Page 50
<PAGE>
Authorities which are not assignable in accordance with applicable Governmental
Requirements, shall be assignable to the Administrative Agent and by the
Administrative Agent to its transferees upon the occurrence of an Event of
Default, and (ii) the Borrower and each other Loan Party has complied with all
initial and on-going conditions of the issuance and use of all such Licenses and
all other terms and provisions thereof;
(u) Waivers and Consents. To the extent not referred to in clause (g)
preceding, copies of all material waivers and consents necessary for the
execution, delivery and performance by each of the Loan Parties of the Loan
Documents to which it is a party, including, without limitation, the grant of a
security interest in each Material Contract of each Loan Party, which waivers
and consents shall be certified by a Responsible Officer of the Borrower as true
and correct copies of such consents as of the Initial Funding Date;
(v) Regulatory Approvals. Evidence satisfactory to the Administrative
Agent that all filings, consents or approvals with or of Governmental
Authorities necessary or appropriate to execute and deliver this Agreement and
the other Loan Documents and to perform and consummate the transactions
contemplated by the Loan Documents have been made and obtained, as applicable,
other than such filings, consents or approvals not made or obtained that do not
(individually or in the aggregate) adversely affect in any material manner the
execution or delivery of this Agreement or any other Loan Document or the
performance or consummation of the transactions contemplated thereby or
otherwise have a Material Adverse Effect;
(w) No Material Adverse Change. As of the Initial Funding Date, (i) no
material adverse change shall have occurred with respect to the businesses,
assets, financial condition, results of operations, operations, capitalization,
indebtedness, liabilities, obligations, profitability or prospects or Properties
or of the general affairs or management of Holdings and its Subsidiaries, taken
as a whole, or of the Borrower individually or of the Borrower and its
Subsidiaries taken as a whole, in each case since June 30, 1999, (ii) no
disruption or adverse change in the capital markets generally or in the market
for loan syndications in particular shall have occurred since June 30, 1999,
which disruption or adverse change is deemed material in the judgment of the
Administrative Agent, and (iii) the Administrative Agent shall be satisfied that
the financial performance of Holdings and its Subsidiaries and of the Borrower
to the Initial Funding Date is not materially different from the financial
projections for such Person(s) through the Initial Funding Date that were
previously submitted to the Administrative Agent;
(x) Accountant's Letter. A letter from the Borrower authorizing the
independent public accountants of the Borrower and its Subsidiaries to
communicate with the Administrative Agent and the Lenders and requesting that
such accountants acknowledge reliance by the Administrative Agent and the
Lenders on past, present and future financial statements; and
(y) Solvency. A certificate from each of the Loan Parties certifying that
each of the Loan Parties is Solvent.
(z) Conversion of Certain Debt to Equity. The Borrower shall have caused
the entirety of the Debt owed by the Borrower to Gold & Appel Transfer, S.A. to
be converted to equity of Holdings (exclusive of interest accrued with respect
to such Debt prior to the Initial Funding Date).
CREDIT AGREEMENT - Page 51
<PAGE>
In addition to the foregoing, the obligations of the Term Loans A Lenders and
the Revolving Loans Lenders to make Term Loans A and Revolving Loans,
respectively, shall be subject to the condition precedent that $10,000,000 in
principal amount of the Term Loans B shall have been advanced by the Term Loans
B Lenders to the Borrower prior to or concurrently with the advance of any Term
Loans A or Revolving Loans. The Borrower shall deliver, or cause to be
delivered, to the Administrative Agent sufficient counterparts of each
agreement, document or instrument to be received by the Administrative Agent
under this Section 6. 1 to permit the Administrative Agent to distribute a copy
of the same to each of the Lenders. After the request of the Borrower, the
Administrative Agent shall inform the Borrower in writing as to the status of
satisfaction of the conditions precedent set forth in this Section 6.1.
Section 6.2 All Extensions of Credit. The obligation of each Lender to
make any Loan (including the initial Loan) under this Agreement is subject to
the continued satisfaction of each of the conditions precedent set forth in
Section 6.1 and each of the following additional conditions precedent:
(a) No Default or Material Adverse Effect. No Default or Material Adverse
Effect shall have occurred and be continuing, or would result from such Loan;
(b) Representations and Warranties. All of the representations and
warranties of the Borrower and the other Loan Parties contained in this
Agreement and in the other Loan Documents shall be true and correct on and as of
the date of such Loan with the same force and effect as if such representations
and warranties had been made on and as of such date unless they relate solely to
an earlier date;
(c) Debt Ratio. After giving effect to the requested Loan, the ratio of
Secured Debt to Contributed Capital for the Borrower and its Consolidated
Subsidiaries does not exceed (i) * to * for the first $* of Secured Debt, and
(ii) * to * with respect to Secured Debt in excess of $* excluding, for purposes
of compliance with the ratio referred to in this clause (ii), $* of Contributed
Capital;
(d) Use of Proceeds. The Borrower shall have certified to the
Administrative Agent that all proceeds of the Loans then being made by the
Lenders are, concurrently with the making of such Loans, being used by the
Borrower for the purposes specified in Section 2.10, and the Borrower shall have
delivered to the Administrative Agent a current calculation (in reasonable
detail) of the Maximum Financed Amount of Eligible Third-Party Expenses (if any
of the proceeds of the requested Loans are to be used to pay any Eligible
Third-Party Expenses) and such further evidence thereof (if any) as the
Administrative Agent may reasonably request;
(e) Master Purchase Agreement. The Master Purchase Agreement shall not
have been terminated by the Borrower;
(f) Eligible Receivables. If the requested Loan is a Revolving Loan, then,
after giving effect to the requested Loan, the aggregate amount of Revolving
Loans does not exceed the Revolving Loans Borrowing Base;
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 52
<PAGE>
(g) Borrowing Base Report. If the requested Loan is a Revolving Loan, the
Administrative Agent shall have received a current Borrowing Base Report dated
as of the date of the Notice of Borrowing;
(h) Full Disclosure. Neither the Borrower nor any other Loan Party shall
have failed to disclose to the Administrative Agent or any Lender any material
fact which is known or should have been known by or to a Responsible Officer of
the Borrower or another Loan Party with respect to the Network or its business
or its financial condition (including any contingent liabilities), or shall have
failed to disclose any information which is known or should have been known by
or to a Responsible Officer of the Borrower or another Loan Party, the absence
of which makes any information previously disclosed to the Administrative Agent
or any Lender materially misleading; and
(i) Additional Documentation. The Administrative Agent shall have received
such additional approvals, agreements, documents and instruments as the
Administrative Agent may reasonably request.
Each notice of borrowing by the Borrower hereunder shall constitute a
representation and warranty by the Borrower that the conditions precedent set
forth in this Section 6.2 have been satisfied (both as of the date of such
notice and, unless the Borrower otherwise notifies the Administrative Agent
prior to the date of such borrowing, as of the date of such borrowing).
Section 6.3 Closing Certificates. The Borrower shall, concurrently with
the Initial Funding Date (with respect to the conditions precedent set forth in
Section 6.1) and concurrently with the date of the making of each other Loan if
requested by the Administrative Agent, execute and deliver to the Administrative
Agent a certificate in form and substance satisfactory to the Administrative
Agent certifying as to the satisfaction of each of the conditions precedent set
forth in this Article 6 which are required to be satisfied on or before such
date (without regard to whether such matters are, in fact, satisfactory to the
Administrative Agent to the extent that such satisfaction is required
hereunder).
ARTICLE 7
Representations and Warranties
The Borrower represents and warrants to the Administrative Agent and the
Lenders that the following statements are and, after giving effect to the
funding of the initial Loans on the Initial Funding Date, will be true, correct
and complete:
Section 7.1 Existence. Each Loan Party (a) is a corporation (or other
entity) duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation (or organization), (b) has all requisite
corporate (or other entity) power and authority to own its Properties and carry
on its business as now conducted, and (c) is qualified to do business in all
jurisdictions in which the nature of its business makes such qualification
necessary and where failure to so qualify would have a Material Adverse Effect.
Each of the Loan Parties has the power and authority and legal right to execute,
deliver and perform its obligations under the Loan Documents to which it is or
may become a party.
CREDIT AGREEMENT - Page 53
<PAGE>
Section 7.2 Financial Statements.
(a) The Borrower has delivered to the Administrative Agent and the Lenders
(i) the audited consolidated and consolidating financial statements (including
balance sheet and statements of income or operations, shareholders' equity and
cash flows) of Holdings and its Consolidated Subsidiaries (including the
Borrower) as of and for the fiscal year ended December 31, 1998, (ii) the
unaudited financial statements (including balance sheet and statements of income
or operations, shareholders' equity and cash flows) of Holdings and its
Consolidated Subsidiaries (including the Borrower) as of and for the fiscal
quarters ended March 31, 1999, and June 30, 1999, and (iii) an unaudited pro
forma balance sheet of the Borrower dated as of the Initial Funding Date which
gives effect to the initial Loans made on the Initial Funding Date and the other
transactions to occur on such date. All financial statements required to be
delivered to the Administrative Agent in accordance with this Agreement
(including, without limitation, those referred to in the immediately preceding
sentence) are or will be when delivered (as applicable) true and correct, have
been or will be (as applicable) prepared in accordance with GAAP (except for
year-end adjustments and the absence of financial statement footnotes required
by GAAP) and fairly and accurately present or will fairly and accurately present
(as applicable), on a consolidated and consolidating (where applicable) basis,
the financial condition of the Borrower and its Consolidated Subsidiaries as of
such dates and the results of operations for the respective periods indicated
therein. There has not been, as of the Initial Funding Date, any material
adverse change in the financial condition, results of operations, businesses,
operations, Properties, capitalization, assets or liabilities of Holdings and
its Subsidiaries taken as a whole, or of the Borrower on an individual basis or
of the Borrower and its Subsidiaries taken as a whole, since June 30, 1999.
(b) The Business Plan (including, without limitation, the financial
projections contained therein) represents, as of the Closing Date, the good
faith estimate of the Borrower and its senior management concerning the
projected financial condition and performance of the Borrower and its
Subsidiaries for the time period covered thereunder based upon the assumptions
believed by the Borrower's senior management to be reasonable at the time made;
provided, however, that the Administrative Agent and Lenders acknowledge that
the projections do not constitute a guaranty or other assurance of future
performance.
Section 7.3 Corporate Action; No Breach. The execution, delivery and
performance by each of the Loan Parties of the Loan Documents to which it is or
may become a party and compliance with the terms and provisions hereof and
thereof have been duly authorized by all requisite entity action and do not and
will not (a) violate or conflict with, or result in a breach of, or require any
consent under (i) the articles of incorporation, articles of organization,
bylaws, regulations or other constitutional documents of such Loan Party, (ii)
any Governmental Requirement (including, without limitation, the Communications
Act, any rule or regulation of the FCC or any rule or regulation of any federal
or state public utility commission or other Governmental Authority) or any
order, writ, injunction or decree of any Governmental Authority or arbitrator,
except for (A) such consents as have been validly obtained and are in full force
and effect or (B) such violations, conflicts or breaches which are not, or such
consents as to which the failure to obtain is not, individually or in the
aggregate, material, or (iii) any material agreement, document or instrument to
which any Loan Party is a party or by which any Loan Party or any of its
Property is bound or subject, or (b) constitute a default under any such
material agreement, document or instrument, or result in the creation or
imposition of any Lien (except a Lien in favor of the
CREDIT AGREEMENT - Page 54
<PAGE>
Administrative Agent for and on behalf of the Lenders under the Security
Documents as provided in Article 5) upon any of the revenues or Property of any
Loan Party.
Section 7.4 Operation of Business; Licenses. Each Loan Party (a) possesses
all material Licenses necessary or appropriate to conduct its businesses
substantially as conducted from time to time, and (b) has complied with all
initial and on-going conditions to the issuance and use of all such Licenses
except where failure to comply could not reasonably be expected to have a
Material Adverse Effect. None of such Persons is in violation of any such
material Licenses which could reasonably be expected to result in any
termination or cessation thereof. All of such material Licenses required by any
Governmental Requirement (including, without limitation, the Communications Act,
any rule or regulation of the FCC or any state public utility commission) or
issued by any Governmental Authority as of the Initial Funding Date are
summarized by category or type, as relevant to the operation of each Loan Party,
on Schedule 7.4. Such Licenses set forth on Schedule 7.4 have been duly issued
by the appropriate Governmental Authority (as applicable) and are in full force
and effect, and all provisions of such Licenses set forth on Schedule 7.4 have
been complied with in all material respects. As of the Initial Funding Date, no
such License set forth on Schedule 7.4 is subject to any pending or, to the
knowledge of the Borrower, threatened revocation or termination proceeding or
action.
Section 7.5 Intellectual Property. All Intellectual Property owned or used
by each Loan Party in the operation of its business which is registered or
recorded with or issued by any Governmental Authority is set forth on Schedule
7.5. Each Loan Party owns or possesses (or will be licensed or have the full
right to use) all Intellectual Property which is necessary or appropriate for
the operation of its businesses as conducted from time to time, without any
known conflict with the rights of others, except to the extent that failure to
own or possess the same could not reasonably be expected to adversely affect in
any material manner the execution or delivery of this Agreement or any other
Loan Document or the performance or consummation of the transactions
contemplated thereby or otherwise have a Material Adverse Effect. The
consummation of the transactions contemplated by this Agreement and the other
Loan Documents will not materially alter or impair, individually or in the
aggregate, any of such rights of such Loan Parties. No product or service of any
Loan Party infringes upon any Intellectual Property of any other Person, and no
claim or litigation is pending or, to the knowledge of the Borrower, threatened
against any Loan Party contesting its right to sell or otherwise use any product
or material or service which could reasonably be expected to have a Material
Adverse Effect. There is no violation by any Loan Party of any right of such
Person with respect to any material Intellectual Property owned or used by such
Person.
Section 7.6 Litigation and Judgments. Each material action, suit,
investigation or proceeding before or by any Governmental Authority or
arbitrator pending or, to the knowledge of the Borrower, threatened against or
affecting any Loan Party, or that relates to any of the Loan Documents as of the
Initial Funding Date, is disclosed on Schedule 7.6. None of such actions, suits,
investigations or proceedings could, if adversely determined, reasonably be
expected to have a Material Adverse Effect. Except as may be disclosed on
Schedule 7.6, as of the Initial Funding Date, there are no outstanding judgments
against any Loan Party. As of the Initial Funding Date, no Loan Party has
received any opinion or memorandum or legal advice from legal counsel to the
effect that it is exposed to any liability or disadvantage that could reasonably
be expected to have a Material Adverse Effect.
CREDIT AGREEMENT - Page 55
<PAGE>
Section 7.7 Rights in Properties; Liens. Except as disclosed on Schedule
7.7, none of the Loan Parties owns any right, title or interest in any real
Property. Each Loan Party has good and marketable title to or, with respect to
leasehold interests, valid leasehold interests in all of its material Properties
and assets, real and personal, including the material Properties, assets and
leasehold interests reflected in the financial statements described in Section
7.2(a), except where failure to have good and marketable title or valid
leasehold interests could not reasonably be expected to have a Material Adverse
Effect, and none of the Properties or leasehold interests of any of the Loan
Parties is subject to any Lien, except Permitted Liens. No Loan Party has
granted or voluntarily allowed or permitted to exist any Lien to or in favor of
any Person (other than the Administrative Agent for and on behalf of the Lenders
as security for the Obligations) which attaches or relates to any of the
Collateral and the Liens on the Collateral in favor of the Administrative Agent
are perfected, first priority Liens.
Section 7.8 Enforceability. The Loan Documents have been duly and validly
executed and delivered by each of the Loan Parties that is a party thereto, and
such Loan Documents constitute the legal, valid and binding obligations of such
Persons, enforceable against each such Person in accordance with their
respective terms, except as limited by bankruptcy, insolvency or other laws of
general application relating to the enforcement of creditors' rights and general
principles of equity.
Section 7.9 Approvals. No authorization, approval or consent of, and no
filing or registration with or notice to, any Governmental Authority (including
the FCC) or third party is or will be necessary for the execution, delivery or
performance by any Loan Party of any of the Loan Documents or any of the
Material Contracts to which it is or will be a party or for the validity or
enforceability thereof, except for such consents, approvals and filings (a) as
have been validly obtained or made and are in full force and effect or (b) as to
which the failure to obtain or make is not, individually or in the aggregate,
material. Except as disclosed on Schedule 7.9 with respect to certain
authorizations, approvals or consents of state Governmental Authorities, all
such authorizations, approvals, consents, filings, registrations and notices
referred to in the immediately preceding sentence have been validly obtained or
made and are in full force and effect. The consummation of the transactions
contemplated by the Loan Documents and the Material Contracts does not require
the consent or approval of any other Person, except such consents and approvals
(i) as have been validly obtained and are in full force and effect or (ii) as to
which the failure to obtain is not, individually or in the aggregate, material.
No Loan Party has failed to obtain any material License of any Governmental
Authority (including the FCC) necessary for the ownership or use of any of its
Properties, conduct of its business and performance of the Business Plan.
Section 7.10 Debt. As of the Initial Funding Date, (a) the Borrower and
its Subsidiaries do not have any Debt other than (i) the Obligations, and (ii)
the Debt disclosed in Part 1 of Schedule 7.10 hereto, and (b) the Borrower and
its Subsidiaries do not have any indebtedness, liabilities or obligations owed
or owing to RFC other than those disclosed in Part 2 of Schedule 7.10 hereto.
Section 7.11 Taxes. Each of the Loan Parties has filed (a) all tax returns
(federal, state and local) and reports required to be filed, including, without
limitation, all income, franchise, employment, Property and sales tax returns,
and (b) all other material tax returns and reports required to be filed except
where failure to file could not reasonably be expected to have a Material
Adverse Effect, and has paid all federal and other material taxes (shown on such
returns or reports to be due and payable), assessments, fees and other
governmental charges levied or imposed upon it or its Properties, income or
assets otherwise due and payable before they become delinquent, except those
CREDIT AGREEMENT - Page 56
<PAGE>
which are being contested in good faith by appropriate proceedings and for which
adequate reserves have been provided in accordance with GAAP and no notice of
Lien has been filed or recorded. There is no proposed tax assessment against any
Loan Party which could, if the assessment were made, reasonably be expected to
have a Material Adverse Effect.
Section 7.12 Margin Securities. None of the Loan Parties is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations T, U or X of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying margin stock.
Section 7.13 ERISA. None of the Loan Parties or any ERISA Affiliate
maintains or contributes to, or has any obligation under, any Pension Plan other
than the Pension Plans identified on Schedule 7.13. Each Plan of the Loan
Parties is in compliance in all material respects with all applicable provisions
of ERISA and the Code. Neither a Reportable Event nor a Prohibited Transaction
has occurred within the last 60 months with respect to any Plan that could
reasonably be expected have a Material Adverse Effect. No notice of intent to
terminate a Pension Plan has been filed, nor has any Pension Plan been
terminated. No circumstances exist which constitute grounds entitling the PBGC
to institute proceedings to terminate, or appoint a trustee to administer, a
Pension Plan, nor has the PBGC instituted any such proceedings. None of the Loan
Parties or any ERISA Affiliate has completely or partially withdrawn from a
Multiemployer Plan. Each Loan Party and each ERISA Affiliate have met their
minimum funding requirements under ERISA and the Code or with respect to all of
their Pension Plans subject to such requirements, and, as of the Initial Funding
Date except as specified on Schedule 7.13, the present value of all vested
benefits under each funded Plan (exclusive of any Multiemployer Plan) does not
and will not exceed the fair market value of all such Plan assets allocable to
such benefits, as determined on the most recent valuation date of such Plan and
in accordance with ERISA. None of the Loan Parties or any ERISA Affiliate has
incurred any liability to the PBGC under ERISA. No litigation is pending or, to
the Borrower's knowledge, threatened concerning or involving any Plan that could
reasonably be expected to have a Material Adverse Effect. There are no unfunded
or unreserved liabilities (on either a going-concern basis or a wind-up basis)
relating to any Plan that could, individually or in the aggregate, have a
Material Adverse Effect if the Borrower were required to fund or reserve such
liability in full. As of the Initial Funding Date, no funding waivers have been
or will have been requested or granted under Section 412 of the Code with
respect to any Plan. No unfunded or unreserved liability for benefits under any
Plan or Plans (exclusive of any Multiemployer Plans) exceeds $100,000, with
respect to any such Plan, or $200,000 with respect to all such Plans, in the
aggregate as of the Initial Funding Date, on either a going-concern basis or a
wind-up basis.
Section 7.14 Disclosure. (a) No written statement, information, report,
representation or warranty made by any Loan Party in any Loan Document or
furnished to the Administrative Agent or any Lender by or on behalf of any Loan
Party in connection with the Loan Documents or any transaction contemplated
hereby or thereby contains any untrue statement of a material fact or omits to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances in which made, not misleading, (b) there is no fact
which has had a Material Adverse Effect, and (c) as of the Initial Funding Date,
there is no fact which could reasonably be expected to in the future have a
Material Adverse Effect except as may have been disclosed in writing to the
Administrative Agent; provided, however, that the foregoing representations and
warranties
CREDIT AGREEMENT - Page 57
<PAGE>
contained in this Section 7.14 are made only to the Borrower's Knowledge thereof
or, with respect to clauses (a) and (b) preceding, to the extent that a
Responsible Officer of the Borrower should have had actual knowledge thereof.
Section 7.15 Loan Parties; Capitalization. Schedule 7.15 attached hereto
contains, as of the Initial Funding Date, complete and accurate information
regarding (a) the identities of each of the Subsidiaries of the Borrower, (b)
the number of issued and outstanding shares of each class of Capital Stock
issued by the Borrower and each of its Subsidiaries and the identities of, and
number and percentage of each of such shares held by, the owner(s) (both of
record and beneficially) of such Capital Stock and (c) the jurisdiction of
incorporation or other organization of each Loan Party. Holdings owns,
beneficially and of record, all of the issued and outstanding shares of Capital
Stock of the Borrower.
Section 7.16 Compliance with Laws. None of the Loan Parties is in
violation of any Governmental Requirement (including, without limitation, the
Communications Act, any rule or regulation of the FCC or any rule or regulation
of any federal or state public utility commission or other Governmental
Authority), except for instances of non-compliance that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 7.17 Investment Company Act. No Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 7.18 Public Utility Holding Company Act. No Loan Party is a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or a "public utility" within the meaning of
the Public Utility Holding Company Act of 1935, as amended.
Section 7.19 Environmental Matters.
(a) Except for instances of noncompliance with or exceptions to any of the
following representations and warranties that could not have, individually or in
the aggregate, a Material Adverse Effect:
(i) Each Loan Party and all of its respective Properties and
operations are in full compliance with all Environmental Laws. The
Borrower is not aware of, and no Loan Party has received written notice
of, any past, present or future conditions, events, activities, practices
or incidents which may interfere with or prevent the compliance or
continued compliance by such Loan Party with all Environmental Laws;
(ii) Each Loan Party has obtained all Licenses that are required
under applicable Environmental Laws, and all such Licenses are in good
standing and all such Persons are in compliance with all of the terms and
conditions thereof;
(iii) No Hazardous Materials exist on, about or within or have been
(to the knowledge of the Borrower) or are being used, generated, stored,
transported, disposed of on or Released from any of the Properties of any
Loan Party except in compliance with applicable Environmental Laws. The
use which each Loan Party makes and intends to make of its respective
Properties will not result in the use, generation, storage,
transportation, accumulation, disposal or Release of any Hazardous
Material on, in or from any of their currently owned Properties except in
compliance with applicable Environmental Laws;
CREDIT AGREEMENT - Page 58
<PAGE>
(iv) There are no conditions or circumstances associated with the
currently owned or leased Properties or operations of any Loan Party that
could reasonably be expected to give rise to any Environmental Liabilities
or claims resulting in any Environmental Liabilities;
(v) None of the Loan Parties and none of their respective currently
or previously owned or leased Properties or operations are subject to any
outstanding or, to the knowledge of the Borrower, threatened order from or
agreement with any Governmental Authority or other Person or subject to
any judicial or administrative proceeding with respect to (A) any failure
to comply with Environmental Laws, (B) any Remedial Action, or (C) any
Environmental Liabilities;
(vi) None of the Loan Parties is subject to, or has received written
notice of any claim from any Person alleging that it is or will be subject
to, any Environmental Liabilities;
(vii) None of the Properties of any of the Loan Parties is a
treatment facility (except for the recycling of Hazardous Materials
generated on-site and the treatment of liquid wastes subject to the Clean
Water Act or other applicable Environmental Law for temporary storage of
Hazardous Materials generated on-site prior to their disposal off-site) or
disposal facility requiring a permit under the Resource Conservation and
Recovery Act, 42 U.S.C. ss. 6901 et seq., regulations thereunder or any
comparable provision of state law. The Loan Parties are in compliance with
all applicable financial responsibility requirements of all Environmental
Laws; and
(viii) None of the Loan Parties has failed to file any notice
required under applicable Environmental Law reporting a Release.
(b) No Lien arising under any Environmental Law that could have,
individually or in the aggregate, a Material Adverse Effect has attached to any
Property or revenues of any of the Loan Parties.
Section 7.20 Year 2000 Compliance. Each Loan Party has (a) initiated a
review and assessment of all areas within its business and operations (including
those affected by suppliers and vendors) that could reasonably be expected to be
relevant to whether such Loan Party is Year 2000 Compliant, (b) developed a plan
and timeline for ensuring that it is Year 2000 Compliant on a timely basis, and
(c) to date, implemented that plan in accordance with that timetable. Based upon
the foregoing, each Loan Party believes that it is Year 2000 Compliant as of the
Initial Funding Date except to the extent described in Schedule 8.13.
Section 7.21 Labor Disputes and Acts of God. Neither the business nor the
Properties of any of the Loan Parties are affected by any fire, explosion,
accident, strike, lockout or other labor dispute, drought, storm, hail,
earthquake, embargo, act of God or of the public enemy or other casualty
(whether or not covered by insurance) that is having or could reasonably be
expected to have a Material Adverse Effect.
Section 7.22 Material Contracts. Attached hereto as Schedule 7.22 is a
complete list, as of the Initial Funding Date, of all Material Contracts of each
Loan Party, other than the Loan
CREDIT AGREEMENT - Page 59
<PAGE>
Documents. All of the Material Contracts are in full force and effect and no
Loan Party is in default under any Material Contract and, to the Borrower's
Knowledge, no other Person that is a party thereto is in default under any of
the Material Contracts. None of the Material Contracts prohibits the
transactions contemplated under the Loan Documents. Except as may be provided on
Schedule 7.22, (a) each of the Material Contracts is currently in the name of a
Loan Party and (b) each of the Material Contracts (other than agreements
relating to other Debt of the Loan Parties) is assignable to the Administrative
Agent as collateral and is assignable by the Administrative Agent to a
transferee if an Event of Default were to occur. The Borrower has delivered to
the Administrative Agent a complete and current copy of each Material Contract
(other than purchase orders entered into in the ordinary course of business)
existing on the Initial Funding Date.
Section 7.23 Bank Accounts. As of the Initial Funding Date, Schedule 7.23
sets forth the account numbers and location of all bank accounts (including lock
box and special deposit accounts) of the Borrower and its Subsidiaries.
Section 7.24 Outstanding Securities. All outstanding securities (as
defined in the Securities Act of 1933, as amended, or any successor thereto, and
the rules and regulations of the Securities and Exchange Commission thereunder)
of the Loan Parties have been offered, issued, sold and delivered in compliance
with all applicable Governmental Requirements.
Section 7.25 Solvency. Each of the Loan Parties, as a separate entity, is
Solvent, both before and after giving effect to the Loans.
Section 7.26 Employee Matters. Except as set forth on Schedule 7.26, as of
the Initial Funding Date (a) neither any Loan Party nor any of its employees is
subject to any collective bargaining agreement, and (b) no petition for
certification or union election is pending with respect to the employees of any
Loan Party, and no union or collective bargaining unit has sought such
certification or recognition with respect to the employees of any such Person.
There are no strikes, slowdowns, work stoppages or controversies pending or, to
the Borrower's Knowledge after due inquiry, threatened against, any Loan Party
or its respective employees which could have, either individually or in the
aggregate, a Material Adverse Effect. Except as set forth on Schedule 7.26, as
of the Initial Funding Date, none of the Loan Parties is subject to an
employment contract.
Section 7.27 Insurance. Schedule 7.27 sets forth a complete and accurate
description of all policies of insurance that are in effect as of the Initial
Funding Date for the Loan Parties and their Properties. No notice of
cancellation has been received for such policies and the Borrower and the owner
and holder of each such policy are in compliance in all material respects with
all of the terms and conditions of such policies.
Section 7.28 Common Enterprise. The Borrower and each Loan Party are
members of an affiliated group with each other such Person and are collectively
engaged in a common enterprise with one another. Each of the Loan Parties
expects to derive substantial benefit (and may reasonably be expected to derive
substantial benefit), directly and indirectly, from the Loans contemplated by
this Agreement, both in its separate capacity and as a member of an affiliated
and integrated group.
ARTICLE 8
Affirmative Covenants
CREDIT AGREEMENT - Page 60
<PAGE>
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 8.1 Reporting Requirements. The Borrower will furnish (or will
----------------------
cause to be furnished) to the Administrative Agent and each Lender at their
addresses for notices specified herein:
(a) Annual Financial Statements. As soon as available, and in any event
---------------------------
within 90 days after the end of each fiscal year of the Borrower, beginning with
the fiscal year ending *, either (i) a copy of the Form 10-K (including all
financial statements contained therein) filed by Holdings as of the end of and
for such fiscal year then ended, together with consolidating schedules for each
of Holdings and its Subsidiaries (including, without limitation, the Borrower)
with respect to the financial statements contained therein, or (ii) a copy of
the annual audit report (including the consolidated balance sheet) of the
Borrower and its Subsidiaries as of the end of such year and the related
consolidated statements of income or operations, shareholders' equity and cash
flows for such fiscal year, together with consolidating schedules for the
Borrower and its Subsidiaries with respect to each of such financial statements,
in each case setting forth in comparative form the figures for the previous
fiscal year, and accompanied by the opinion of independent certified public
accountants of recognized standing reasonably acceptable to the Administrative
Agent (for purposes hereof, any of the "Big 5" firms is acceptable to the
Administrative Agent), which opinion shall state that such consolidated
financial statements present fairly the financial position and results of
operations for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years and which opinion shall not be qualified or limited
because of a restricted or limited examination by such accountant of any
material portion of such Person's records;
(b) Quarterly Financial Statements. As soon as available, and in any event
------------------------------
within 45 days after the end of each of the quarters of each fiscal year of the
Borrower, beginning with the fiscal quarter ending June 30, 1999, either (i) a
copy of the Form 10-Q (including all financial statements contained therein)
filed by Holdings as of the end of and for such fiscal quarter then ended,
together with consolidating schedules for each of Holdings and its Subsidiaries
(including, without limitation, the Borrower) with respect to each of the
financial statements contained therein, or (ii) a copy of the unaudited
consolidated balance sheet of the Borrower and its Subsidiaries as of the end of
such quarter and the related consolidated statements of income or operations,
shareholders' equity and cash flows and quarterly operating budgets for the
period commencing on the first day and ending on the last day of such quarter,
together with unaudited consolidating schedules for the Borrower and its
Subsidiaries with respect to each of such financial statements and quarterly
operating budgets, in each case setting forth in comparative form the
information or figures and quarterly operating budget figures, respectively, for
the corresponding period of the preceding fiscal year, and certified by an
appropriate Responsible Officer of the Borrower as fairly presenting, in
accordance with GAAP, the financial position and the results of operations of
the Borrower and its Subsidiaries (except for year- end adjustments and the
absence of financial statement footnotes required by GAAP);
(c) Compliance Certificate. Concurrently with the delivery of each of the
----------------------
financial statements referred to in Sections 8.1(a) and 8.1(b), a Compliance
--------------- ------
Certificate of a Responsible
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
CREDIT AGREEMENT - Page 61
<PAGE>
Officer of the Borrower substantially in the form of Exhibit D hereto,
---------
appropriately completed, stating that, to the best of such officer's knowledge,
no Default has occurred and is continuing or, if a Default has occurred and is
continuing, stating the nature thereof and the action that has been taken and is
proposed to be taken with respect thereto;
(d) Notice of Actions, Suits or Proceedings. Promptly after the
---------------------------------------
commencement thereof, notice of all actions, suits and proceedings before any
Governmental Authority (including the FCC) or arbitrator affecting any Loan
Party or any License, which, if determined adversely to any Loan Party, could
reasonably be expected to have a Material Adverse Effect;
(e) Notice of Default, etc.. Promptly upon the Borrower's knowledge of the
-----------------------
occurrence of any Default, a written notice setting forth the details of such
Default and the action that the Borrower has taken and, if and to the extent
known, proposes to take with respect thereto;
(f) ERISA Plan Reports. Promptly after the filing or receipt thereof,
------------------
copies of all reports, including annual reports, and notices which the Borrower
or any of its ERISA Affiliates files with or receives from the PBGC or the U.S.
Department of Labor under ERISA with respect to a Pension Plan or for which the
Borrower has any potential liability; and as soon as possible and in any event
within five days after the Borrower knows or has reason to know that any Pension
Plan is insolvent, or that any Reportable Event or Prohibited Transaction has
occurred with respect to any Plan or Multiemployer Plan, or that the PBGC, or
the Borrower or any ERISA Affiliate has instituted or will institute proceedings
under ERISA to terminate or withdraw from or reorganize any Pension Plan, a
certificate of a Responsible Officer of the Borrower setting forth the details
as to such insolvency, withdrawal, Reportable Event, Prohibited Transaction or
termination and the action that the Borrower has taken and proposes to take with
respect thereto;
(g) Proxy Statements, Etc. As soon as available, one copy of each (if any)
---------------------
financial statement, report, notice or proxy statement sent by Holdings or the
Borrower to its stockholders or other security holders generally and one copy of
each (if any) regular, periodic or special report (including, without
limitation, reports on forms 10-K, 10-Q and 8-K), registration statement or
prospectus filed by Holdings with any securities exchange or the Securities and
Exchange Commission or any successor agency;
(h) Insurance. Within 60 days prior to the end of each fiscal year of the
---------
Borrower, a report in form and substance reasonably satisfactory to the
Administrative Agent summarizing all material insurance coverage maintained by
the Borrower and its Subsidiaries as of the date of such report and all material
insurance coverage planned to be maintained by such Persons in the subsequent
fiscal year;
(i) Plan Information. From time to time, as reasonably requested by the
----------------
Administrative Agent or any Lender, such books, records and other documents
relating to any Pension Plan as the Administrative Agent or any Lender shall
specify; prior to any termination, partial termination or merger of a Pension
Plan covering employees of the Borrower or any ERISA Affiliate, or a transfer of
assets of a Pension Plan covering employees of the Borrower or any ERISA
Affiliate, written notification thereof; promptly upon Holdings' or the
Borrower's receipt thereof, a copy of any determination letter or advisory
opinion regarding any Pension Plan received from any Governmental Authority and
any amendment or modification thereto as may be necessary as a condition to
obtaining a favorable determination letter or advisory opinion; and promptly
upon the
CREDIT AGREEMENT - Page 62
<PAGE>
occurrence thereof, written notification of any action requested by any
Governmental Authority to be taken as a condition to any such determination
letter or advisory opinion;
(j) Business Plan, etc. Not later than 15 days prior to the end of each
------------------
fiscal year, an update of the Business Plan for the immediately succeeding
fiscal year in reasonable detail generally consistent with the form and
substance of the Business Plan provided to the Administrative Agent on or before
the Initial Funding Date, which update shall reflect the corresponding
information for the prior year; and, promptly upon the Borrower's preparation
thereof, any proposed amendment, modification or supplement to the Business
Plan;
(k) Management Letters. Promptly upon each receipt thereof by any Loan
------------------
Party, a copy of any management letter or other written report submitted to such
Loan Party by independent certified public accountants with respect to the
business, condition (financial or otherwise), operations, prospects or
Properties of any Loan Party;
(l) Reports to Other Creditors. Promptly after the furnishing thereof, a
--------------------------
copy of any financial or other material statement or report furnished by any
Loan Party to any other party pursuant to the terms of any indenture, loan,
stock purchase or credit or similar agreement and not otherwise required to be
furnished to the Administrative Agent and the Lenders pursuant to any other
clause of this Section 8.1;
-----------
(m) Notice of Material Adverse Effect. Within two Business Days after the
---------------------------------
Borrower becomes aware thereof, written notice of any matter that could
reasonably be expected to have a Material Adverse Effect;
(n) Environmental Assessments and Notices. Promptly after the receipt
-------------------------------------
thereof, a copy of each environmental assessment (including any analysis
relating thereto) prepared with respect to any Property of any Loan Party and
each notice sent by any Governmental Authority to any Loan Party relating to any
failure or alleged failure to comply with any Environmental Law or any liability
with respect thereto;
(o) Notices Under Material Contracts. Promptly after the receipt thereof
--------------------------------
by the Borrower or any other Loan Party and promptly after the delivery thereof
by the Borrower or any other Loan Party, a copy of each written notice delivered
under any Material Contract or real Property lease as to which the Borrower is
obligated to cause a landlord's waiver or subordination to be provided in
accordance with Section 5.4, which notice (i) relates to any alleged default
-----------
under or noncompliance with or proposed termination of such Material Contract or
lease or (ii) otherwise relates to any matter under any Material Contract or
real Property lease which could reasonably be expected to have a Material
Adverse Effect;
(p) Accounts Receivable and Payable. As soon as available and in any event
-------------------------------
within 45 days after the end of each fiscal quarter, an aged trial balance of
all then-existing Receivables and all then existing accounts payable of the
Borrower and its Subsidiaries;
(q) Material Contracts and Leases. In a reasonably prompt fashion after
-----------------------------
the creation thereof, a true and correct copy of each Material Contract to which
the Borrower or any of its Subsidiaries is a party or (directly or indirectly)
subject and of each lease of real Property to which the Borrower or any of its
Subsidiaries is a party or (directly or indirectly) subject and as to which
CREDIT AGREEMENT - Page 63
<PAGE>
a waiver or subordination of landlord's Lien is required to be provided in
accordance with Section 5.4;
-----------
(r) Quarterly Report as to Key Business Statistics. As soon as available
----------------------------------------------
and in any event within 45 days after the end of each fiscal quarter, reports as
to key business and operational statistics of the Borrower and its Subsidiaries,
including, without limitation, reports as to the number of customers, number of
Sales Representatives and such related information as the Administrative Agent
may reasonably request from time to time;
(s) Borrowing Base Reports and Agings. As soon as available and in any
---------------------------------
event within 15 days after the end of each fiscal quarter, and, in any event
concurrently with the making of each Revolving Loan hereunder and from time to
time upon the request of the Administrative Agent after the occurrence of a
Default, (i) a Borrowing Base Report duly completed and (ii) an aged trial
balance of all then-existing Receivables and all then existing accounts payable
of the Borrower and its Subsidiaries; and
(t) General Information. Promptly, such other business, financial,
-------------------
corporate affairs and other similar information concerning the Loan Parties
and/or the Collateral as the Administrative Agent or any Lender may from time to
time reasonably request.
Section 8.2 Maintenance of Existence; Conduct of Business. The Borrower
------------------------
will, and will cause each Loan Party to, preserve and maintain its entity
existence and all of its leases, privileges, Licenses, qualifications,
Intellectual Property, intangible Property and contract and other rights that
are necessary or appropriate in the ordinary conduct of its business except to
the extent that failure to so preserve and maintain the same could not
reasonably be expected to adversely affect in any material manner the execution
or delivery of this Agreement or any other Loan Document or the performance or
consummation of the transactions contemplated thereby or otherwise have a
Material Adverse Effect. Without limiting the generality of the foregoing, each
of the Loan Parties has entered into, or will timely enter into, such
long-distance carrier and interconnection agreements as are, at any time of
determination, then necessary to the conduct of its business in accordance with
the Business Plan except to the extent that the failure to do so could not
reasonably be expected to cause a Material Adverse Effect. The Borrower will,
and will cause each Loan Party to, conduct its business in an orderly and
efficient manner in accordance with good business practices and the Business
Plan.
Section 8.3 Maintenance of Properties and Licenses. The Borrower will, and
--------------------------------------
will cause each Loan Party to, maintain, keep and preserve all of its Properties
and Licenses necessary in the proper conduct of its businesses in good repair,
working order and condition (ordinary wear and tear excepted) and make all
necessary repairs, renewals and replacements and improvements thereof.
Section 8.4 Taxes and Claims. The Borrower will, and will cause each Loan
----------------
Party to, pay or discharge before becoming delinquent (a) all taxes, levies,
assessments and governmental charges imposed on it or its income or profits or
any of its Property and (b) all lawful claims for labor, material and supplies,
which, if unpaid, might become a Lien upon any of its Property; provided,
--------
however, that neither the Borrower nor any Loan Party shall be required to pay
- -------
or discharge any tax, levy, assessment or governmental charge, or claim for
labor, material or supplies, whose amount, applicability or validity is being
contested in good faith by appropriate proceedings being diligently pursued and
for which adequate reserves have been established under GAAP.
CREDIT AGREEMENT - Page 64
<PAGE>
Section 8.5 Insurance.
---------
(a) The Borrower will, and will cause each Loan Party to, keep insured by
financially sound and reputable insurers all Property of a character usually
insured by responsible entities engaged in the same or a similar business
similarly situated against loss or damage of the kinds and in the amounts
customarily insured against by such corporations or entities and carry such
other insurance as is usually carried by such corporations or entities, provided
--------
that in any event the Borrower and the other Loan Parties will maintain:
(i) Property Insurance. Insurance against loss or damage covering
------------------
substantially all of the insurable tangible real and personal Property
(including, without limitation, the Nortel Networks Equipment and other
equipment related to the Network) and improvements of such Person by
reason of any Peril (as defined below) in such amounts (subject to any
deductibles as shall be satisfactory to the Administrative Agent) as shall
be reasonable and customary and sufficient to avoid the insured named
therein from becoming a co-insurer of any loss under such policy, but in
any event in such amounts as are reasonably available as determined by the
Borrower's independent insurance broker reasonably acceptable to the
Administrative Agent.
(ii) Automobile Liability Insurance for Bodily Injury and Property
-------------------------------------------------------------
Damage. Insurance in respect of all vehicles (whether owned, hired or
------
rented by such Person) at any time located at, or used in connection with,
its Properties or operations against liabilities for bodily injury and
Property damage in such amounts as are then customary for vehicles used in
connection with similar Properties and businesses, but in any event to the
extent required by applicable law.
(iii) Comprehensive General Liability Insurance. Insurance against
-----------------------------------------
claims for bodily injury, death or Property damage occurring on, in or
about the Property (and adjoining streets, sidewalks and waterways) of
such Person, in such amounts as are then customary for Property similar in
use in the jurisdictions where such Properties are located.
(iv) Worker's Compensation Insurance. Worker's compensation
-------------------------------
insurance (including employers' liability insurance) to the extent
required by applicable law, which may be self-insurance to the extent
permitted by applicable law.
Without limiting the generality of the foregoing, the Borrower shall purchase
and maintain in effect all-risk, property and casualty insurance (including
casualty insurance covering earthquake and flood damage) reasonably acceptable
and in amounts reasonably acceptable to the Administrative Agent covering all
Nortel Networks Equipment and other equipment related to the Network and
liability insurance covering the operations of the Borrower and its
Subsidiaries. All insurance shall be written by financially responsible
companies selected by the applicable Loan Party and having an A.M. Best
Rating of "A-" or better and being in a financial size category of "VI" or
larger, or by other companies reasonably acceptable to the Administrative Agent.
Each policy referred to in this Section 8.5 shall name the Administrative Agent
-----------
(for the benefit of itself and the other Lenders) as loss payee (with respect to
casualty insurance policies) and additional insured (with respect to liability
insurance policies) and shall provide that it will not be canceled, amended or
reduced except after not less than 30 days' prior written notice to the
Administrative Agent and shall also provide
CREDIT AGREEMENT - Page 65
<PAGE>
that the interests of the Administrative Agent and the Lenders shall not be
invalidated or reduced by any act, omission or negligence of any Loan Party. The
Borrower will advise the Administrative Agent promptly of any policy
cancellation, reduction or amendment. For purposes hereof, the term "Peril"
-----
shall mean, collectively, fire, lightning, flood, windstorm, hail, explosion,
riot and civil commotion, vandalism and malicious mischief, damage from
aircraft, vehicles and smoke and other perils covered by the "all- risk"
endorsement then in use in the jurisdictions where the Properties of the Loan
Parties are located.
(b) The Borrower will cause each Insurance Recovery (other than any
portion of an Insurance Recovery payable to a landlord to repair or replace
Property leased by the Borrower or any of its Subsidiaries) payable by any
insurance company to be deposited promptly with the Administrative Agent as
security for the Obligations if a Default has then occurred and is continuing,
and will promptly pay all Insurance Recoveries to the Administrative Agent for
application against the Obligations if and to the extent required in accordance
with Section 2.7(a).
--------------
(c) If a Default shall have occurred and be continuing, the Borrower will
cause all proceeds of insurance paid on account of the loss of or damage to any
Property of the Borrower or any of its Subsidiaries and all awards of
compensation for any Property of the Borrower or any of its Subsidiaries taken
by condemnation or eminent domain to be promptly paid directly to the
Administrative Agent to be applied against or held as security for the
Obligations, at the election of the Administrative Agent and the Required
Lenders.
Section 8.6 Inspection Rights. The Borrower will, and will cause each of
-----------------
the Loan Parties to, permit representatives and agents of the Administrative
Agent and the Lenders, during normal business hours and upon reasonable notice
to the Borrower, to examine, copy and make extracts from its books and records,
to visit and inspect its Properties and to discuss its business, operations and
financial condition with its officers and independent certified public
accountants. The Borrower will authorize, and will cause each of the Loan
Parties to authorize, its accountants in writing (with a copy to the
Administrative Agent) to comply with this Section 8.6. The Administrative Agent
-----------
and/or its representatives may, at any time and from time to time at the
Borrower's expense, conduct field exams to verify the Revolving Loans Borrowing
Base and for such other purposes as the Administrative Agent may reasonably
request; provided, however, that no more than one of such field exams conducted
-------- -------
during any calendar year shall be at the Borrower's expense unless a Default has
occurred and is continuing, in which case all of such field exams shall be at
the Borrower's expense. Without limiting the generality of the foregoing, the
Administrative Agent may retain outside auditors to evaluate and monitor
Borrowing Base Reports and other matters relevant to the determination of the
Revolving Loans Borrowing Base.
Section 8.7 Keeping Books and Records. The Borrower will, and will cause
-------------------------
each of the Loan Parties to, maintain appropriate books of record and account in
accordance with GAAP consistently applied in which true, full and correct
entries will be made of all their respective dealings and business affairs. If
any changes in accounting principles from those used in the preparation of the
financial statements referenced in Section 8.1 are hereafter required or
-----------
permitted by GAAP and are adopted by Holdings or the Borrower (as applicable)
with the concurrence of its independent certified public accountants and such
changes in GAAP result in a change in the method of calculation or the
interpretation of any of the covenants, standards or terms contained in this
Agreement, the Borrower and the Required Lenders agree to amend any such
affected terms and provisions so as to reflect such changes in GAAP with the
result that the criteria for evaluating the
CREDIT AGREEMENT - Page 66
<PAGE>
financial condition or performance of the Loan Parties shall be the same after
such changes in GAAP as if such changes in GAAP had not been made.
Section 8.8 Compliance with Laws. The Borrower will, and will cause each
-----------
of the Loan Parties to, comply with all Governmental Requirements applicable to
the operation of its business (including, without limitation, the Communications
Act, any rule or regulation of the FCC or any rule or regulation of any federal
or state public utility commission or other Governmental Authority), except for
instances of noncompliance that could not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. The Borrower will,
on or before September 30, 1999, validly obtain and maintain in full force and
effect all authorizations, approvals and/or consents of state Governmental
Authorities disclosed on Schedule 7.9 which have not been obtained as of the
------------
Initial Funding Date, and the Borrower will deliver evidence thereof to the
Administrative Agent promptly after such authorizations, approvals and/or
consents have been obtained.
Section 8.9 Compliance with Agreements. The Borrower will, and will cause
--------------------------
each of the Loan Parties to, comply with all agreements, documents and
instruments binding on it or affecting its Properties or business, including,
without limitation, all Material Contracts, except for instances of
noncompliance that could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect.
Section 8.10 Further Assurances. The Borrower will execute and deliver and
------------------
will cause each of the Loan Parties to execute and deliver such further
agreements, documents and instruments (including, without limitation, financing
statements and amendments to financing statements specifying each item of the
Collateral and the serial number therefor) and take such further actions as may
be reasonably requested by the Administrative Agent to carry out the terms and
provisions and purposes of this Agreement and the other Loan Documents, to
evidence the Obligations and to create, preserve, maintain and perfect the Liens
of the Administrative Agent for the benefit of itself and the Lenders in and to
the Collateral and the required priority of such Liens.
Section 8.11 ERISA. The Borrower will, and will cause each of its ERISA
-----
Affiliates to, comply with all minimum funding requirements and all other
material requirements of ERISA so as not to give rise to any material liability
thereunder.
Section 8.12 Non-Consolidation. The Borrower will, and will cause each
-----------------
other Loan Party to: (a) maintain entity records and books of account separate
from those of any other entity which is an Affiliate of such Loan Party; (b) not
commingle its funds or assets with those of any other entity which is an
Affiliate of such Loan Party; and (c) provide that its board of directors or
other analogous governing body will hold all appropriate meetings to authorize
and approve such Person's entity actions, which meetings will be separate from
those of other Loan Parties.
Section 8.13 Year 2000 Compliance. Except as set forth in Schedule 8.13
-------------------- -------------
and except for such instances as individually or in the aggregate could not
reasonably be expected to have a Material Adverse Effect, all of the material
computer software, computer hardware (whether general or special purpose) and
other similar or related items of automated, computerized or software systems
that are used or relied upon by the Borrower or any Loan Party in the conduct of
its business are and will continue to be Year 2000 Compliant and, without
limiting the generality of the foregoing, will not malfunction, will not cease
to function, will not generate incorrect data and will not produce incorrect
results when processing, providing or receiving (a) date-related data into and
CREDIT AGREEMENT - Page 67
<PAGE>
between the twentieth and twenty-first centuries and (b) date-related data in
connection with any valid date in the twentieth and twenty-first centuries. The
Borrower will promptly notify the Administrative Agent in the event the Borrower
discovers or determines that any computer application (including those of its
suppliers and vendors) that is material to its or any Loan Party's business and
operations will not be Year 2000 Compliant on a timely basis.
Section 8.14 Delivery of Certain Amendments, Material Contracts and
------------------------------------------------------
Subordinated Debt Documents. The Borrower will, and will cause each other Loan
- ---------------------------
Party to, promptly deliver to the Administrative Agent any amendment,
modification or supplement to (a) the articles of incorporation, articles of
organization, bylaws, regulations or other constitutional documents of the
Borrower or any other Loan Party, (b) any Material Contract to which it is a
party, (c) any material License which it possesses, and (d) any Subordinated
Debt Document; provided, however, that any such amendment, modification or
-------- -------
supplement shall be subject to the provisions of Section 9.15. The Borrower
------------
will, and will cause each of its Subsidiaries to, deliver to the Administrative
Agent, promptly after such Material Contract or Subordinated Debt Document comes
into existence, a true and correct copy of each Material Contract or
Subordinated Debt Document in existence which is not identified on Schedule
--------
7.22.
- ----
Section 8.15 Interest Rate Protection. The Borrower will, commencing on or
------------------------
before the 30th day after the Closing Date, maintain in full force and effect
through the Maturity Date one or more Interest Rate Protection Agreements, in
form and substance reasonably satisfactory to the Administrative Agent, with one
or more counterparties rated in one of the three of the highest rating
categories of Standard & Poors Corporation or Moody's Investors Services, Inc.
and otherwise reasonably acceptable to the Administrative Agent, that enable the
Borrower to fix or place a limit upon a rate of interest with respect to not
less than an aggregate notional amount (not less than zero) equal to fifty
percent (50%) of the remainder of the aggregate amount of Total Debt minus the
aggregate amount of such Total Debt with a fixed interest rate. The maximum
amount for which interest may be fixed or limited under all such Interest Rate
Protection Agreements shall not exceed one hundred percent (100%) of the Total
Debt of the Borrower and its Subsidiaries bearing interest at a variable rate.
Section 8.16 Ownership of Telecommunications Assets and Telecommunications
-------------------------------------------------------------
Business; Holdings to Remain a Holding Company. The Borrower shall, at all times
- ----------------------------------------------
and except as may be set forth on Schedule 8.16, own all Telecommunication
-------------
Assets used or useful in the operation of the Telecommunications Business of the
Borrower and its Subsidiaries. Holdings shall, at all times and except as may be
set forth on Schedule 8.16, be a holding company and shall not own
-------------
Telecommunications Assets used or useful in the operation of the
Telecommunications Business.
Section 8.17 Unified Cash Management System. The Borrower will, and will
------------------------------
cause each of its Subsidiaries to, on and after September 30, 1999, maintain a
unified cash management system and the Borrower will ensure, and will cause each
of its Subsidiaries to ensure, that all cash proceeds (including, without
limitation, proceeds of all Collateral) are (a) deposited directly, as received,
into a lockbox or collection account of the Borrower or such Subsidiary (as
applicable) and (b) on a daily basis after such deposit, transferred into a
lockbox or concentration account of the Borrower or such Subsidiary (as
applicable); provided, however, that the lockbox arrangement governed by Section
-------- -------
2.4 of the RFC Agreement for the benefit of RFC shall be permitted so long as
the RFC Agreement is permitted to be in effect pursuant to Section 8.18 if and
------------
to the extent that all collections and proceeds of accounts deposited therein
shall be, promptly upon the release or distribution thereof from such
CREDIT AGREEMENT - Page 68
<PAGE>
lockbox, which release or distribution must occur promptly upon the making of
the determination by RFC that it shall not purchase such accounts, deposited
directly into a lockbox, collection or concentration account of the Borrower or
such Subsidiary in accordance with this Section 8.17. The Borrower will, and
------------
will cause each of its Subsidiaries to, maintain in effect an agreement
governing each of its lockbox accounts, collection accounts and/or concentration
accounts and collaterally assigning such accounts to the Administrative Agent,
all of which shall be in a form approved by the Administrative Agent and shall
be with a depository bank satisfactory to the Administrative Agent.
Section 8.18 Termination of RFC Agreement. The Borrower will cause (a) the
----------------------------
RFC Agreement to be terminated and (b) all Liens securing any indebtedness,
liabilities or obligations of the Borrower or any of its Subsidiaries relating
thereto to be fully released, in each case on or before *.
ARTICLE 9
Negative Covenants
------------------
The Borrower covenants and agrees that, as long as the Obligations or any
part thereof are outstanding or any Lender has any Commitment hereunder, it will
perform and observe, or cause to be performed and observed, the following
covenants:
Section 9.1 Debt. The Borrower will not, and will not permit any
----
Subsidiary of the Borrower to, incur, create, assume or permit to exist any
Debt, except:
(a) Debt to the Lenders pursuant to the Loan Documents;
(b) unsecured Debt under Interest Rate Protection Agreements entered into
in compliance with Section 8.16; provided, however, that Debt thereunder may be
------------ -------- -------
secured if such Debt constitutes a part of the Obligations;
(c) existing Debt in the principal amounts and as otherwise described on
Schedule 7.10 hereto and renewals, extensions or refinancings of such Debt which
- -------------
do not increase the outstanding principal amount of such Debt, which do not
shorten the maturity of any principal of such Debt and the terms and provisions
of which are not materially more onerous than the terms and conditions of such
Debt on the Closing Date;
(d) purchase money Debt (including Capital Lease Obligations) secured by
purchase money Liens, which Debt and Liens are permitted under and meet all of
the requirements of clause (g) of the definition of Permitted Liens contained in
----------
Section 1.1;
- -----------
(e) unsecured Subordinated Debt of the Borrower (i) payable to Holdings
consisting of subordinated loans made by Holdings to the Borrower, which
Subordinated Debt (A) shall be incurred by the Borrower substantially
concurrently with the incurring of Debt by Holdings in an aggregate amount equal
to or greater than the aggregate amount of such Subordinated Debt and (B) shall
accrue interest at a rate not to exceed the lesser of *% per annum or the rate
payable by Holdings with respect to the corresponding Debt of Holdings and (ii)
payable to third parties in connection with the consummation of Qualified
Telecommunications Acquisitions, which
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 69
<PAGE>
Subordinated Debt shall not exceed an aggregate amount in excess of the greater
of (A) $* or (B) * percent (*%) of the aggregate principal amount of the Loans
then previously made;
(f) liabilities of the Borrower in respect of unfunded vested benefits
under any Plan if and to the extent that the existence of such liabilities will
not constitute, cause or result in a Default; and
(g) if but only if all Revolving Loans have been paid in full and all
Revolving Loans Commitments have terminated or expired, Debt of the Borrower in
the form of a revolving credit facility not to exceed $* in aggregate principal
amount at any time outstanding which is either unsecured or is secured only by
accounts of the Borrower and its Subsidiaries (as referred to in clause (h) of
----------
the definition of the term "Permitted Liens") and as to which the advance rate
for advances made thereunder does not exceed *% of eligible accounts; provided,
--------
however, that such Lien attaching to accounts may not be granted at any time
- -------
when a Default has occurred and is continuing.
Section 9.2 Limitation on Liens. The Borrower will not, and will not
-------------------
permit any Subsidiary of the Borrower to, incur, create, assume or permit to
exist any Lien upon any of its Property or revenues, whether now owned or
hereafter acquired, except Permitted Liens and will not enter into any negative
pledge or similar arrangement in favor of other creditors (other than such
negative pledge or similar arrangement under purchase money Debts and Capital
Lease Obligations with respect to the assets financed or secured thereby).
Section 9.3 Mergers, Etc. The Borrower will not, and will not permit any
------------
of its Subsidiaries to, (a) become a party to a merger or consolidation, (b)
wind-up, dissolve or liquidate itself, or (c) purchase or acquire all or a
material or substantial part of the business or Properties of any Person;
provided, however, that (i) any Subsidiary of the Borrower may merge with and
- -------- -------
into the Borrower or a Wholly-Owned Subsidiary of the Borrower if the Borrower
or a Wholly-Owned Subsidiary of the Borrower is the surviving entity in such
merger, provided that no consideration is given by the surviving entity in such
--------
merger other than the issuance of any Capital Stock of the surviving entity and
such Capital Stock is pledged to the Administrative Agent, for and on behalf of
the Administrative Agent and the Lenders, as security for the Obligations
pursuant to Section 9.6 and (ii) the Borrower may make Qualified
-----------
Telecommunications Acquisitions. In the event of any such merger, the surviving
entity in such merger shall ratify the Guaranty, the Security Documents and
other indebtedness, liabilities and obligations of the non-surviving entity
under the Loan Documents.
Section 9.4 Restricted Payments. The Borrower will not, and will not
-------------------
permit any Subsidiary of the Borrower to, make any Restricted Payments, except:
(a) subject to the subordination provisions relating thereto, the Borrower
may make regularly scheduled payments of interest accrued on any Subordinated
Debt if and to the extent (but only if and to the extent) permitted by the
express terms of the Subordinated Debt Documents governing such Subordinated
Debt, which subordination provisions shall have been expressly approved in
writing by the Administrative Agent, which approval shall not be unreasonably
withheld;
(b) Subsidiaries of the Borrower may make Restricted Payments to the
Borrower;
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 70
<PAGE>
(c) the Borrower and its Subsidiaries may make temporary loans or advances
to employees, officers and directors of the Loan Parties in the ordinary course
of business that do not exceed $* in aggregate amount at any time outstanding;
and
(d) the Borrower may declare and pay dividends to Holdings in an amount
not to exceed the lesser of (i) the amount necessary to permit Holdings to
repurchase Employee Stock as approved by a majority of the Board of Directors of
Holdings or (ii) $* per year;
provided, however, that no Restricted Payments may be made pursuant to clause
- -------- ------- ------
(a), (b) or (d) preceding if a Default exists at the time of such Restricted
- --- --- ---
Payment or would result therefrom.
Section 9.5 Investments. The Borrower will not, and will not permit any
-----------
Subsidiary of the Borrower to, make or permit to remain outstanding any advance,
loan, extension of credit or capital contribution to or investment in any
Person, or purchase or own any stock, bonds, notes, debentures or other
securities of any Person, or be or become a joint venturer with or partner of
any Person (all such transactions being herein called "Investments"), except:
-----------
(a) Investments in obligations or securities received in settlement of
debts (created in the ordinary course of business) owing to the Borrower or
another Loan Party;
(b) existing Investments identified on Schedule 9.5 hereto;
------------
(c) Investments in securities issued or guaranteed by the U.S. or any
agency thereof with maturities of one year or less from the date of acquisition;
(d) Investments in certificates of deposit and Eurodollar time deposits
with maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000;
(e) Investments in repurchase obligations with a term of not more than
seven days for securities of the types described in clause (c) or (d) preceding
---------- ---
with any Lender or with any domestic commercial bank having capital and surplus
in excess of $500,000,000;
(f) Investments in commercial paper of a domestic issuer rated A-1 or
better or P-1 or better by Standard & Poor's Corporation or Moody's Investors
Services, Inc., respectively, maturing not more than 270 days from the date of
acquisition;
(g) (i) Investments (other than intercompany Debt referred to in clause
------
(h) below) by the Borrower in its Subsidiaries existing on the Closing Date or
- ---
required to occur in accordance with this Agreement, and (ii) additional
Investments by the Borrower in its Subsidiaries made after the Closing Date
which, together with intercompany Debt referred to in clause (h) below, does not
----------
exceed $1,000,000 in aggregate amount at any time outstanding;
(h) intercompany Debt permitted by clause (e) of Section 9.1 which,
---------- -----------
together with Investments referred to in clause (g)(ii) above, does not exceed
--------------
$1,000,000 in aggregate amount at
CREDIT AGREEMENT - Page 71
<PAGE>
any time outstanding, provided that payment of such Debt shall be fully
subordinated to the Obligations pursuant to terms and provisions approved by the
Administrative Agent in writing;
(i) Interest Rate Protection Agreements entered into in compliance with
Section 8.16;
- ------------
(j) temporary loans or advances to employees, officers and directors of
the Loan Parties in the ordinary course of business that do not exceed
$1,000,000 in aggregate amount at any time outstanding;
(k) Investments not to exceed $* in aggregate amount at any time
outstanding; and
(l) Investments constituting Qualified Telecommunications Acquisitions;
provided, however, that no Investments may be made by the Borrower pursuant to
- -------- -------
clauses (g), (h), (k) or (l) preceding if a Default exists at the time of such
- ----------- --- --- ---
Investment or would result therefrom.
Section 9.6 Limitation on Issuance of Capital Stock. The Borrower will
---------------------------------------
not, and will not permit any of its Subsidiaries to, at any time issue, sell,
assign or otherwise dispose of (a) any of its Capital Stock, (b) any securities
exchangeable for or convertible into or carrying any rights to acquire any of
its Capital Stock, or (c) any option, warrant or other right to acquire any of
its Capital Stock, in each case to any Person other than Holdings (with respect
to Capital Stock of the Borrower) or the Borrower (with respect to Capital Stock
of the Subsidiaries of the Borrower). All such Capital Stock, securities,
options, warrants and other rights issued, sold, assigned or disposed of shall
be, and shall continue to be, subject to a first priority Lien in favor of the
Administrative Agent as security for the payment and performance of the
Obligations.
Section 9.7 Transactions with Affiliates. The Borrower will not, and will
----------------------------
not permit any Subsidiary of the Borrower to, enter into any transaction,
including, without limitation, the purchase, sale or exchange of Property or the
rendering of any service, with any Affiliate of the Borrower except in the
ordinary course of and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary than would be obtained in a
comparable arms-length transaction with a Person not an Affiliate of the
Borrower; provided, however, that transactions between or among the Borrower and
-------- -------
its Subsidiaries and Affiliates may be on terms more favorable to the Borrower
than would be obtained in a comparable arms-length transaction with a Person not
an Affiliate of the Borrower.
Section 9.8 Disposition of Property. The Borrower will not, and will not
-----------------------
permit any Subsidiary of the Borrower to, sell, lease, assign, transfer or
otherwise dispose of any of its Property (including, without limitation, the
Nortel Networks Equipment and the Nortel Networks Software, except (subject to
the succeeding proviso):
(a) dispositions of Inventory (other than equipment) in the ordinary
course of business, and expenditures of money (including, without limitation,
money held in deposit accounts) made in the ordinary course of business or for
the purpose of making Restricted Payments expressly permitted in accordance with
this Agreement or Investments expressly permitted in accordance with this
Agreement;
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 72
<PAGE>
(b) Asset Dispositions of Property, other than accounts and Receivables,
by the Borrower made in the ordinary course of business if each of the following
conditions have been satisfied: (i)(A) the Net Proceeds from any single Asset
Disposition or series of related Asset Dispositions in any fiscal year do not
exceed $500,000 and (B) the Borrower or its Subsidiary (as applicable) receives
fair consideration (as reasonably determined by the Board of Directors of the
Borrower) for such assets and (ii) no Default exists at the time of or will
result from such Asset Disposition;
(c) Asset Dispositions of Property, other than equipment, accounts and
Receivables, by the Borrower or its Subsidiary to any Wholly-Owned Subsidiary of
the Borrower if each of the following conditions have been satisfied: (i) the
assets sold, disposed of or otherwise transferred to a Wholly-Owned Subsidiary
of the Borrower shall continue to be subject to a perfected, first priority Lien
(except for Permitted Liens, if any, which are expressly permitted by the Loan
Documents to have priority over the Liens in favor of the Administrative Agent)
in favor of the Administrative Agent and the Lenders, and (ii) no Default exists
at the time of or will result from such Asset Disposition; and
(d) dispositions of Property no longer used or useful in the ordinary
course of business, including, without limitation, dispositions of equipment
being exchanged or replaced with comparable or better equipment;
provided, however, that the Borrower will not, and will not permit any
- -------- -------
Subsidiary of the Borrower to, sell, lease, assign, transfer or otherwise
dispose of any of the Nortel Networks Equipment without the prior written
consent of the Required Lenders and Nortel Networks.
Section 9.9 Sale and Leaseback. The Borrower will not, and will not permit
------------------
any Subsidiary of the Borrower to, enter into any arrangement with any Person
pursuant to which it leases from such Person real or personal Property that has
been or is to be sold or transferred, directly or indirectly, by it to such
Person.
Section 9.10 Lines of Business. The Borrower will not, and will not permit
-----------------
any Subsidiary of the Borrower to, (a) engage in any business other than the
build-out, implementation and operation of the Network and other
Telecommunications Businesses in the U.S. and Canada and the conduct of related
Telecommunications Businesses and matters incidental thereto or (b) discontinue
any line or lines of business which provide material revenues to the Borrower in
which it is engaged on the Closing Date.
Section 9.11 Environmental Protection. The Borrower will not, and will not
------------------------
permit any Loan Party to, (a) use (or permit any tenant to use) any of its
Properties for the handling, processing, storage, transportation or disposal of
any Hazardous Material except in compliance with applicable Environmental Laws,
(b) generate any Hazardous Material except in compliance with applicable
Environmental Laws, (c) conduct any activity that is likely to cause a Release
or threatened Release of any Hazardous Material in violation of any
Environmental Law, or (d) otherwise conduct any activity or use any of its
Properties in any manner, that violates or is likely to violate any
Environmental Law or create any Environmental Liabilities for which the Borrower
or any Loan Party would be responsible, except for circumstances or events
described in clauses (a) through (d) preceding that could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect.
CREDIT AGREEMENT - Page 73
<PAGE>
Section 9.12 Intercompany Transactions. Except as may be expressly
-------------------------
permitted or required by the Loan Documents, the Borrower will not, and will not
permit any Loan Party to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Loan Party to (a) pay dividends or make any other distribution to the
Borrower or any of its Subsidiaries in respect of such Subsidiary's Capital
Stock or with respect to any other interest or participation in, or measured by,
its profits, (b) pay any indebtedness owed to the Borrower or any of its
Subsidiaries, (c) make any loan or advance or capital contribution to the
Borrower or any of its Subsidiaries, (d) sell, lease or transfer any of its
Property to the Borrower or any of its Subsidiaries, or (e) grant any Lien on
any of its Properties.
Section 9.13 Management Fees. The Borrower and its Subsidiaries shall not
---------------
pay any management fees.
Section 9.14 Master Purchase Agreement. The Borrower will not terminate
-------------------------
the Master Purchase Agreement prior to the later to occur of the Amortization
Commencement Date or the satisfaction in full of the Borrower's purchase
commitments under the Master Purchase Agreement; provided, however, that, if and
to the extent expressly permitted by the Master Purchase Agreement, the Borrower
may terminate the Master Purchase Agreement in the event of any material breach
thereunder by Nortel Networks.
Section 9.15 Modification of Certain Agreements. The Borrower will not,
----------------------------------
and will not permit any Loan Party to, consent to or implement any termination,
amendment, modification, supplement or waiver of (a) the articles of
incorporation, articles of organization, bylaws, regulations or other
constitutional documents of the Borrower or any other Loan Party, (b) any
Material Contract to which it is a party or any License which it possesses, or
(c) any Subordinated Debt Documents; provided, however, that the Loan Parties
-------- -------
may amend or modify the documents referred to in clause (a) preceding, the
----------
Material Contracts referred to in clause (b) preceding and the Subordinated Debt
----------
Documents referred to in clause (c) preceding if and to the extent that such
----------
amendment or modification (i) could not reasonably be expected to adversely
affect in any material manner the execution or delivery of this Agreement or any
other Loan Document or the performance or consummation of the transactions
contemplated thereby or otherwise have a Material Adverse Effect and (ii) with
respect to any Subordinated Debt Documents, does not result in the Debt
evidenced or governed thereby not being "Subordinated Debt" as such term is
defined herein.
Section 9.16 ERISA. The Borrower will not, and will not permit any Loan
-----
Party to:
(a) allow, or take (or permit any ERISA Affiliate to take) any action
which would cause, any unfunded or unreserved liability for benefits under any
Plan (exclusive of any Multiemployer Plan) to exist or to be created that
exceeds $100,000 with respect to any such Plan or $200,000 with respect to all
such Plans in the aggregate on either a going concern or a wind-up basis; or
(b) with respect to any Multiemployer Plan, allow, or take (or permit any
ERISA Affiliate to take) any action which would cause, any unfunded or
unreserved liability for benefits under any Multiemployer Plan to exist or to be
created, either individually as to any such Plan or in the aggregate as to all
such Plans, that could, upon any partial or complete withdrawal from or
termination of any such Multiemployer Plan or Plans, have a Material Adverse
Effect.
CREDIT AGREEMENT - Page 74
<PAGE>
Section 9.17 No Prepayment of Debt, Etc. The Borrower will not, and will
---------------------------
not permit any Subsidiary of the Borrower to, directly or indirectly, make any
optional prepayment or distribution on account of, or voluntarily purchase,
acquire, redeem or retire, any Debt, prior to 30 days before its originally
stated maturity (or its stated maturity as of the Closing Date in the case of
Debt outstanding on the Closing Date), or in the case of interest, its stated
due date, or directly or indirectly become obligated to do any of the foregoing
by amending the terms thereof or otherwise, except for:
(a) prepayments of the Loans or other Obligations pursuant to or as
permitted by the Loan Documents;
(b) prepayments made with the proceeds of new Debt incurred for the
purpose of refinancing the Debt being prepaid, provided that (i) no portion of
such new Debt matures or is required to be prepaid, purchased or otherwise
retired earlier than the corresponding portion of the Debt being prepaid
(including as a result of any prepayment or redemption upon the occurrence of a
condition), (ii) such new Debt (A) is subordinated to the Obligations to at
least the same extent as the Debt being refinanced if such Debt is subordinated
debt or (B) is permitted in accordance with this Agreement, and (iii) no Default
or Event of Default then exists or would result from such prepayment or
refinancing;
(c) prepayments of purchase money Debt permitted to be incurred in
accordance with Section 9.1(d); and
-------------
(d) prepayments of trade payables incurred in the ordinary course of the
Borrower's or any Subsidiary's business.
In addition, the Borrower will not, and will not permit any Subsidiary of the
Borrower to, prepay any rent or other obligations under any operating lease or
any other Material Contract prior to 90 days before the originally stated due
date therefor (or the due date therefor as of the Closing Date in the case of
operating leases or Material Contracts in existence on the Closing Date).
Section 9.18 RFC Agreement. The Borrower will not, and will not permit any
-------------
Subsidiary of the Borrower to, sell any additional accounts to RFC or otherwise
incur any additional indebtedness, liabilities or obligations to RFC, in each
case on or after the Closing Date.
ARTICLE 10
Financial Covenants
-------------------
Section 10.1 Total Debt to Total Capitalization. The Borrower will not
----------------------------------
permit the ratio of (a) Total Debt of the Borrower and its Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
Schedule 10.1 to (b) Total Capitalization of the Borrower and its Consolidated
- -------------
Subsidiaries on such date, to exceed the ratio set forth opposite such date on
such Schedule.
Section 10.2 Senior Debt to Total Capitalization. The Borrower will not
------------------------------------
permit the ratio of (a) Senior Debt of the Borrower and its Consolidated
Subsidiaries outstanding at the end of any
CREDIT AGREEMENT - Page 75
<PAGE>
of the calendar quarters set forth on Schedule 10.2 to (b) Total Capitalization
-------------
of the Borrower and its Consolidated Subsidiaries on such date, to exceed the
ratio set forth opposite such date on such Schedule.
Section 10.3 Total Debt to Annualized EBITDA. The Borrower will not permit
-------------------------------
the ratio of (a) Total Debt of the Borrower and its Consolidated Subsidiaries
outstanding at the end of any of the calendar quarters set forth on Schedule
10.3 to (b) Annualized EBITDA of the Borrower and its Consolidated Subsidiaries
for the period ending on such date, to exceed the ratio set forth opposite such
date on such Schedule.
Section 10.4 Senior Debt to Annualized EBITDA. The Borrower will not
--------------------------------
permit the ratio of (a) Senior Debt of the Borrower and its Consolidated
Subsidiaries outstanding at the end of any of the calendar quarters set forth on
Schedule 10.4 to (b) Annualized EBITDA of the Borrower and its Consolidated
Subsidiaries for the period ending on such date, to exceed the ratio set forth
opposite such date on such Schedule.
Section 10.5 Annualized EBITDA. The Borrower will not permit Annualized
-----------------
EBITDA of the Borrower and its Consolidated Subsidiaries at the end of any of
the calendar quarters set forth on Schedule 10.5 to be less than the amount set
forth opposite such date on such Schedule.
Section 10.6 Fixed Charge Coverage. The Borrower will not permit the ratio
---------------------
of (a) Annualized EBITDA of the Borrower and its Consolidated Subsidiaries
during any of the calendar quarters ending on any of the dates set forth on
Schedule 10.6 plus cash balances on such date to (b) Consolidated Fixed Charges
- -------------
of the Borrower and its Consolidated Subsidiaries for the four calendar quarter
period ending on such date, to be less than the ratio set forth opposite such
date on such Schedule.
Section 10.7 Capital Expenditures. The Borrower will not permit the
--------------------
cumulative Capital Expenditures of the Borrower and its Consolidated
Subsidiaries for any of the periods set forth on Schedule 10.7 to exceed the
amount set forth opposite such period on such Schedule.
Section 10.8 Gross Revenues. The Borrower will not permit the Gross
--------------
Revenues of the Borrower and its Consolidated Subsidiaries for any of the
calendar quarters ending on any of the dates set forth on Schedule 10.8 to be
-------------
less than the amount set forth opposite such date on such Schedule.
Section 10.9 EBITDA. The Borrower will not permit the EBITDA of the
------
Borrower and its Consolidated Subsidiaries for any of the calendar quarters
ending on any of the dates set forth on Schedule 10.9 to be less than the amount
-------------
set forth opposite such date on such Schedule.
Section 10.10 Gross Margin Percentage. The Borrower will not permit the
-----------------------
Gross Margin Percentage of the Borrower and its Consolidated Subsidiaries for
any of the calendar quarters ending on any of the dates set forth on Schedule
10.10 to be less than the amount set forth opposite such date on such Schedule.
Section 10.11 Minimum Average Monthly Gross Revenues Per Customer. The
---------------------------------------------------
Borrower will not permit the Average Monthly Gross Revenues Per Customer of the
Borrower and its
CREDIT AGREEMENT - Page 76
<PAGE>
Consolidated Subsidiaries at the end of any of the calender quarters ending on
any of the dates set forth on Schedule 10.11 to be less than the amount set
--------------
forth opposite such date on such Schedule.
Section 10.12 Minimum Average Monthly Gross Revenues Per Sales
-------------------------------------------------
Representative. The Borrower will not permit the Average Monthly Gross Revenues
- --------------
Per Sales Representative of the Borrower and its Consolidated Subsidiaries at
the end of any of the calendar quarters ending on any of the dates set forth on
Schedule 10.12 to be less than the amount set forth opposite such date on such
- --------------
Schedule.
Section 10.13 Operating Leases. The Borrower will not, and will not permit
----------------
any Subsidiary of the Borrower to, at any time enter into or be a party to
operating leases that in the aggregate obligate the Borrower and/or its
Subsidiaries to make annual payments in excess of $*.
ARTICLE 11
Default
-------
Section 11.1 Events of Default. Each of the following shall be deemed an
-----------------
"Event of Default":
----------------
(a) The Borrower shall fail to pay, repay or prepay, within two Business
Days after the due date thereof, any amount of principal or interest owing to
the Administrative Agent or any Lender pursuant to this Agreement or any other
Loan Document or any fee, expense or other amount or other Obligation owing to
the Administrative Agent or any Lender pursuant to this Agreement or any other
Loan Document.
(b) Any representation or warranty made or deemed made by or on behalf of
any Loan Party in any Loan Document or in any certificate, report, notice or
financial statement furnished at any time in connection with this Agreement or
any other Loan Document shall be false, misleading or erroneous in any material
respect when made or deemed to have been made.
(c) Any Loan Party shall fail to perform, observe or comply with any
covenant, agreement or term contained in Section 5.1, 8.1(e), 8.2 (as Section
----------- ------ --- -------
8.2 relates to preservation and maintenance of entity existence) or 8.18,
- --- ----
Article 9 or Article 10; any Loan Party shall fail to perform, observe or comply
- --------- ----------
with any covenant, agreement or term contained in Article 5 or Section 8.1, 8.2
--------- ----------- ---
(except as Section 8.2 relates to preservation and maintenance of entity
-----------
existence), 8.3, 8.5, 8.6, 8.7, 8.8, 8.9, 8.10, 8.13 or 8.15, and such failure
--- --- --- --- --- --- ---- ---- ----
is not remedied or waived within ten days after such failure commenced; or any
Loan Party shall fail to perform, observe or comply with any other covenant,
agreement or term contained in this Agreement or any other Loan Document (other
than covenants to pay the Obligations) and such failure is not remedied or
waived within the earlier to occur of 30 days after such failure commenced or,
if a different grace period is expressly made applicable in such other Loan
Documents, such applicable grace period.
(d) Any Loan Party ceases to be Solvent or shall admit in writing its
inability to, or be generally unable to, pay its debts as such debts become due.
(e) Any Loan Party shall (i) apply for or consent to the appointment of,
or the taking of possession by, a receiver, custodian, trustee, liquidator or
administrator of itself or of all or a
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 77
<PAGE>
substantial part of its Property, (ii) admit in writing its inability to, or be
generally unable to, pay its debts as such debts become due, subject to any
applicable grace periods, (iii) make a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the United States Bankruptcy
Code (as now or hereafter in effect, the "Bankruptcy Code"), (v) file a petition
---------------
seeking to take advantage of any other law providing for the relief of debtors
or relating to bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding up, or composition or readjustment of debts, (vi) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code or
other applicable Governmental Requirement, (vii) dissolve, or (viii) take any
entity action for the purpose of effecting any of the foregoing.
(f) A proceeding or case shall be commenced, without the application or
consent of any Loan Party, in any court of competent jurisdiction, seeking (i)
the liquidation, reorganization, dissolution, arrangement, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, examiner, liquidator, administrator or the like of it or of
all or any substantial part of its Property, or (iii) similar relief in respect
of it, under any law providing for the relief of debtors or relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding up, or composition or readjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief shall be entered
in an involuntary case under the Bankruptcy Code against any Loan Party and
shall continue unstayed and in effect for any period of 60 consecutive days.
(g) Any Loan Party shall fail to discharge, on or before the earlier to
occur of (i) 60 days after the initial commencement of any such attachment,
sequestration, forfeiture or similar proceeding or proceedings or (ii) the
initial date upon which any such attachment, sequestration, forfeiture or
similar proceeding or proceedings results in any forfeiture or other loss of
such Property, any attachment, sequestration, forfeiture or similar proceeding
or proceedings involving an aggregate amount in excess of $100,000 against any
of its Properties.
(h) A final judgment or judgments for the payment of money in excess of
$100,000 in the aggregate shall be rendered by a court or courts against any
Loan Party on claims not covered by insurance and the same shall not be
discharged or bonded or a stay of execution thereof shall not be procured on or
before the earlier to occur of (i) 60 days from the date of the initial entry
thereof and any Loan Party shall not, within said period of 60 days, or such
longer period during which execution of the same shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal or
(ii) the initial date upon which any such judgment or judgments is satisfied in
whole or in part in an aggregate amount of $100,000 or more.
(i) Any Loan Party shall fail to pay when due any principal of or interest
on any Debt of such Loan Party (other than the Obligations) having (either
individually or in the aggregate) a principal amount of at least $* or the
maturity of any such Debt shall have been accelerated, or any such Debt shall
have been required to be prepaid prior to the stated maturity thereof, or any
event shall have occurred (and shall not have been waived or otherwise cured)
that permits (or, with the giving of notice or lapse of time or both, would
permit) any holder or holders of such Debt or any Person acting on behalf of
such holder or holders to accelerate the maturity thereof or require any such
prepayment.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Eschange Commission.
CREDIT AGREEMENT - Page 78
<PAGE>
(j) This Agreement or any other Loan Document shall cease to be in full
force and effect or shall be declared null and void or the validity or
enforceability thereof shall be contested or challenged by any Loan Party or any
Loan Party shall deny that it has further liability or obligation under any of
the Loan Documents; or any Lien created or purported to be created by the Loan
Documents shall for any reason cease to be or fail to be a valid, first priority
perfected Lien upon any of the Collateral purported to be covered thereby.
(k) Any of the following events shall occur or exist with respect to any
Loan Party or any ERISA Affiliate: (i) any Prohibited Transaction involving any
Plan; (ii) any Reportable Event with respect to any Pension Plan; (iii) the
filing under Section 4041 of ERISA of a notice of intent to terminate any
Pension Plan or the termination of any Pension Plan; (iv) any event or
circumstance that could reasonably be expected to constitute grounds entitling
the PBGC to institute proceedings under Section 4042 of ERISA for the
termination of, or for the appointment of a trustee to administer, any Pension
Plan, or the institution by the PBGC of any such proceedings; (v) any
"accumulated funding deficiency" (as defined in Section 302 of ERISA or Section
412 of the Code), whether or not waived, shall exist with respect to any Pension
Plan; or (vi) complete or partial withdrawal under Section 4201 or 4204 of ERISA
from a Multiemployer Plan or the reorganization, insolvency or termination of
any Pension Plan; and in each case above, such event or condition, together with
all other events or conditions, if any, have subjected or could in the
reasonable opinion of Required Lenders subject any Loan Party or any ERISA
Affiliate to any tax, penalty or other liability to a Plan, a Multiemployer
Plan, the PBGC or otherwise (or any combination thereof) which in the aggregate
exceed or could reasonably be expected to exceed $100,000.
(l) The occurrence of any breach or default by the Borrower under the
Master Purchase Agreement (after giving effect to any grace or cure period
specified therein) which breach or default entitles Nortel Networks to exercise
a right or remedy under or in connection with the Master Purchase Agreement.
(m) Any termination, revocation or non-renewal by the FCC or any federal
or state public utility commission or other Governmental Authority of any
License of the Borrower or any of its Subsidiaries which is material to the
businesses of the Borrower and its Subsidiaries taken as a whole.
(n) The occurrence of any Material Adverse Effect.
(o) The occurrence of any Change in Control.
(p) If, at any time, the subordination provisions of any of the
Subordinated Debt Documents shall be invalidated or shall otherwise cease to be
in full force and effect.
(q) If, at any time, any event or circumstance shall occur which gives any
holder of any Subordinated Debt the right to request or require the Borrower or
any of its Subsidiaries to redeem, purchase or prepay any Subordinated Debt.
(r) The occurrence of (i) a default under (including, without limitation,
a "Default" as such term is used or defined in) any Subordinated Debt Document,
unless (A) such default has been waived, cured or consented to in accordance
with such documents, (B) such default is not a payment
CREDIT AGREEMENT - Page 79
<PAGE>
default, (C) the maturity of the Debt affected thereby has not been accelerated,
(D) a blockage under such Subordinated Debt Document has not been invoked, and
(E) such waiver or consent is not made in connection with any amendment or
modification of any such Subordinated Debt Documents or in connection with any
payment to the holders of any Subordinated Debt, (ii) a payment default under
(including, without limitation, a payment "Default" as such term is used or
defined in) any Subordinated Debt Document, (iii) an event of default under
(including, without limitation, an "Event of Default" as such term is used or
defined in) any Subordinated Debt Document, or (iv) any acceleration of the
maturity of any Subordinated Debt.
Section 11.2 Remedies. If any Event of Default shall occur and be
--------
continuing, the Administrative Agent may and, if directed by the Required
Lenders, the Administrative Agent shall do any one or more of the following:
(a) Acceleration. Declare all outstanding principal of and accrued and
------------
unpaid interest on the Loans and all other amounts payable by the Borrower under
the Loan Documents immediately due and payable, and the same shall thereupon
become immediately due and payable, without notice, demand, presentment, notice
of dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower;
(b) Termination of Commitments. Terminate each of the Commitments without
--------------------------
notice to the Borrower or any other Loan Party;
(c) Judgment. Reduce any claim to judgment;
--------
(d) Foreclosure. Foreclose or otherwise enforce any Lien granted to the
-----------
Administrative Agent for the benefit of the Administrative Agent and the Lenders
to secure payment and performance of the Obligations in accordance with the
terms of the Loan Documents; or
(e) Rights. Exercise any and all rights and remedies afforded by the laws
------
of the State of New York or any other jurisdiction, by any of the Loan
Documents, by equity or otherwise;
provided, however, that upon the occurrence of an Event of Default under Section
- -------- ------- -------
11.1(e) or Section 11.1(f), the Commitments of all of the Lenders shall
- ------- ---------------
immediately and automatically terminate, and the outstanding principal of and
accrued and unpaid interest on the Loans and all other amounts payable by the
Borrower under the Loan Documents shall thereupon become immediately and
automatically due and payable, without notice, demand, presentment, notice of
dishonor, notice of acceleration, notice of intent to accelerate, protest or
other formalities of any kind, all of which are hereby expressly waived by the
Borrower; and provided, further, however, in the event that the maturity of the
-------- ------- -------
Term Loans A is accelerated, the Administrative Agent shall also accelerate the
maturity of the Term Loans B unless Lenders that then hold at least a majority
(in Dollar amount) of the outstanding principal amount of the Term Loans B agree
or consent otherwise in writing.
Section 11.3 Performance by the Administrative Agent, etc.. If the
----------------------------------------------
Borrower shall fail to perform any covenant or agreement in accordance with the
terms of the Loan Documents, the Administrative Agent may perform or attempt to
perform, or may cause any Lender (with the consent of such Lender) to perform or
attempt to perform, such covenant or agreement on behalf of the Borrower. In
such event, the Borrower shall, at the request of the Administrative Agent,
promptly pay any amount reasonably expended by the Administrative Agent or the
Lenders in
CREDIT AGREEMENT - Page 80
<PAGE>
connection with such performance or attempted performance to the Administrative
Agent at its Principal Office, together with interest thereon at the applicable
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that neither the Administrative Agent nor any Lender shall have
any liability or responsibility for the performance of any obligation of the
Borrower or any other Person under this Agreement or any of the other Loan
Documents.
ARTICLE 12
The Administrative Agent
------------------------
Section 12.1 Appointment, Powers and Immunities. Each Lender hereby
----------------------------------
irrevocably appoints and authorizes the Administrative Agent to act as its agent
hereunder and under the other Loan Documents with such powers as are
specifically delegated to the Administrative Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Neither the Administrative Agent nor any of its
Affiliates, officers, directors, employees, attorneys or agents shall be liable
for any action taken or omitted to be taken by any of them hereunder or
otherwise in connection with this Agreement or any of the other Loan Documents
except for its or their own gross negligence or willful misconduct. Without
limiting the generality of the preceding sentence, the Administrative Agent (a)
may treat the payee of any Note as the holder thereof until the Administrative
Agent receives written notice of the assignment or transfer thereof signed by
such payee and in form satisfactory to the Administrative Agent, (b) shall have
no duties or responsibilities except those expressly set forth in this Agreement
and the other Loan Documents, and shall not by reason of this Agreement or any
other Loan Document be a trustee or fiduciary for any Lender, (c) shall not be
required to initiate any litigation or collection proceedings hereunder or under
any other Loan Document except to the extent requested by the Required Lenders,
(d) shall not be responsible to the Lenders for any recitals, statements,
representations or warranties contained in this Agreement or any other Loan
Document, or any certificate or other document referred to or provided for in,
or received by any of them under, this Agreement or any other Loan Document, or
for the value, validity, effectiveness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by any Person to perform any
of its obligations hereunder or thereunder, (e) 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, and (f) shall incur no liability under or in respect of
any Loan Document by acting upon any notice, consent, certificate or other
instrument or writing reasonably believed by it to be genuine and signed or sent
by the proper party or parties. As to any matters not expressly provided for by
this Agreement, the Administrative Agent shall in all cases be fully protected
in acting, or in refraining from acting, hereunder in accordance with
instructions signed by the Required Lenders, and such instructions of the
Required Lenders and any action taken or failure to act pursuant thereto shall
be binding on all of the Lenders; provided, however, that the Administrative
-------- -------
Agent shall not be required to take any action which exposes the Administrative
Agent to liability or which is contrary to this Agreement or any other Loan
Document or applicable law. The Administrative Agent shall not be deemed to have
any fiduciary relationship with any Lender or any Loan Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
Without limiting the generality of the foregoing, the use of the term "agent" in
this Agreement with
CREDIT AGREEMENT - Page 81
<PAGE>
respect to the Administrative Agent is not intended to connote any fiduciary or
other express or implied obligation arising under agency doctrine of any
applicable law; instead, such term is used merely as a matter of market custom
and is intended to create or reflect only an administrative relationship among
independent contracting parties.
Section 12.2 Rights of Administrative Agent as a Lender. With respect to
------------------------------------------
its Commitments, the Loans made by it and the Note(s) issued to it, Nortel
Networks (and any successor acting as Administrative Agent) in its capacity as a
Lender hereunder shall have the same rights and powers hereunder as any other
Lender and may exercise the same as though it were not acting as the
Administrative Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Agent in its individual
capacity as a Lender. The Administrative Agent and its Affiliates may (without
having to account therefor to any Lender) accept deposits from, lend money to,
act as trustee under indentures of, provide merchant banking services to, own
securities of, and generally engage in any kind of banking, trust or other
business with, the Borrower or any of its Affiliates and any other Person who
may do business with or own securities of the Borrower or any of its Affiliates,
all as if it were not acting as the Administrative Agent and without any duty to
account therefor to the Lenders. Without limiting the generality of the
foregoing, Nortel Networks has purchased certain equity securities issued by
Holdings.
Section 12.3 Defaults. The Administrative Agent shall not be deemed to
--------
have knowledge or notice of the occurrence of a Default (other than the
non-payment of principal of or interest on the Loans or of commitment fees)
unless the Administrative Agent has received notice from a Lender or the
Borrower specifying such Default and stating that such notice is a "notice of
default". In the event that the Administrative Agent receives such a notice of
the occurrence of a Default, the Administrative Agent shall give prompt notice
thereof to the Lenders (and shall give each Lender prompt notice of each such
non-payment). The Administrative Agent shall (subject to Section 12.1) take such
------------
action with respect to such Default as shall be directed by the Required
Lenders, provided that unless and until the Administrative Agent shall have
--------
received such directions, the Administrative Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default as it shall seem advisable and in the best interest of the
Lenders.
Section 12.4 INDEMNIFICATION. EACH LENDER HEREBY AGREES TO INDEMNIFY THE
---------------
ADMINISTRATIVE AGENT FROM AND HOLD THE ADMINISTRATIVE AGENT HARMLESS AGAINST (TO
THE EXTENT NOT REIMBURSED UNDER SECTIONS 13.1 AND 13.2, BUT WITHOUT LIMITING THE
------------- ----
OBLIGATIONS OF THE BORROWER UNDER SECTIONS 13.1 AND 13.2), RATABLY IN ACCORDANCE
------------- ----
WITH ITS PRO RATA SHARE (CALCULATED ON THE BASIS OF ITS COMMITMENT PERCENTAGE OF
THE AGGREGATE COMMITMENTS), ANY AND ALL LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES (INCLUDING ATTORNEYS'
FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH
MAY BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE ADMINISTRATIVE AGENT IN
ANY WAY RELATING TO OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY ACTION
TAKEN OR OMITTED TO BE TAKEN BY THE ADMINISTRATIVE AGENT UNDER OR IN RESPECT OF
ANY OF THE LOAN DOCUMENTS; PROVIDED, FURTHER, THAT NO LENDER SHALL BE LIABLE FOR
--------
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<PAGE>
ANY PORTION OF THE FOREGOING TO THE EXTENT CAUSED BY THE ADMINISTRATIVE AGENT'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. WITHOUT LIMITATION OF THE FOREGOING, IT
IS THE EXPRESS INTENTION OF THE LENDERS THAT THE ADMINISTRATIVE AGENT SHALL BE
INDEMNIFIED HEREUNDER FROM AND HELD HARMLESS AGAINST ALL OF SUCH LIABILITIES
(INCLUDING, WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), OBLIGATIONS, LOSSES,
DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, DEFICIENCIES, SUITS, COSTS, EXPENSES
(INCLUDING ATTORNEYS' FEES) AND DISBURSEMENTS OF ANY KIND OR NATURE DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE
OF THE ADMINISTRATIVE AGENT (EXCEPT TO THE EXTENT THE SAME ARE CAUSED BY THE
ADMINISTRATIVE AGENT'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT). WITHOUT LIMITING
ANY OTHER PROVISION OF THIS SECTION 12.4, EACH LENDER AGREES TO REIMBURSE THE
------------
ADMINISTRATIVE AGENT PROMPTLY UPON DEMAND FOR ITS PRO RATA SHARE (CALCULATED ON
THE BASIS OF ITS COMMITMENT PERCENTAGE OF THE AGGREGATE COMMITMENTS) OF ANY AND
ALL OUT-OF-POCKET EXPENSES (INCLUDING ATTORNEYS' FEES) INCURRED BY THE
ADMINISTRATIVE AGENT IN CONNECTION WITH THE PREPARATION, EXECUTION, DELIVERY,
ADMINISTRATION, MODIFICATION, AMENDMENT OR ENFORCEMENT (WHETHER THROUGH
NEGOTIATIONS, LEGAL PROCEEDINGS OR OTHERWISE) OF, OR LEGAL ADVICE IN RESPECT OF
RIGHTS OR RESPONSIBILITIES UNDER, THE LOAN DOCUMENTS, TO THE EXTENT THAT THE
ADMINISTRATIVE AGENT IS NOT PROMPTLY REIMBURSED FOR SUCH EXPENSES BY THE
BORROWER.
Section 12.5 Independent Credit Decisions. Each Lender agrees that it has
----------------------------
independently and without reliance on the Administrative Agent or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of Holdings, the Borrower and the
Subsidiaries of the Borrower and its own decision to enter into this Agreement
and that it will, independently and without reliance upon the Administrative
Agent or any other Lender, and based upon such documents and information as it
shall deem appropriate at the time, continue to make its own analysis and
decisions in taking or not taking action under this Agreement or any of the
other Loan Documents. The Administrative Agent shall not be required to keep
itself informed as to the performance or observance by any Loan Party of this
Agreement or any other Loan Document or to inspect the Properties or books of
the Borrower (or any other Person). Except for notices, reports and other
documents and information expressly required to be furnished to the Lenders by
the Administrative Agent hereunder or under the other Loan Documents, the
Administrative Agent shall not have any duty or responsibility to provide any
Lender with any credit or other financial information concerning the affairs,
financial condition or business of any Loan Party which may come into the
possession of the Administrative Agent or any of its Affiliates.
Section 12.6 Several Commitments. The Commitments and other obligations
-------------------
of the Lenders under this Agreement are several. The default by any Lender in
making a Loan in accordance with any of its Commitments shall not relieve the
other Lenders of their obligations under this Agreement. In the event of any
default by any Lender in making any Loan, each nondefaulting Lender shall be
obligated to make its Loan but shall not be obligated to advance the amount
which the defaulting Lender was required to advance hereunder. In no event shall
any Lender be required to advance an amount or amounts with respect to any of
the Loans which would
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in the aggregate exceed such Lender's Commitment with respect to such Loans. No
Lender shall be responsible for any act or omission of any other Lender.
Section 12.7 Successor Administrative Agent. Subject to the appointment
------------------------------
and acceptance of a successor Administrative Agent as provided below, the
Administrative Agent may resign at any time by giving notice thereof to the
Lenders and the Borrower. Upon any such resignation, the Required Lenders will
have the right to appoint another Lender as a successor Administrative Agent. If
no successor Administrative Agent shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Administrative Agent's giving of notice of resignation, then the
retiring Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent, which shall be a commercial bank organized under the laws
of the U.S. or any state thereof or of a foreign country if acting through its
U.S. branch and having combined capital and surplus of at least $100,000,000.
Upon the acceptance of its appointment as successor Administrative Agent, such
successor Administrative Agent shall thereupon succeed to and become vested with
all rights, powers, privileges, immunities and duties of the resigning
Administrative Agent, and the resigning Administrative Agent shall be discharged
from its duties and obligations under this Agreement and the other Loan
Documents. After any Administrative Agent's resignation as Administrative Agent,
the provisions of this Article 12 shall continue in effect for its benefit in
----------
respect of any actions taken or omitted to be taken by it while it was the
Administrative Agent. Each Administrative Agent (including each successor
Administrative Agent) agrees that, so long as it is acting as Administrative
Agent under this Agreement, it shall be a Lender under this Agreement.
ARTICLE 13
Miscellaneous
-------------
Section 13.1 Expenses. The Borrower hereby agrees, on demand, to pay or
--------
reimburse the Administrative Agent and each of the Lenders for paying: (a) all
reasonable out-of-pocket costs and expenses of the Administrative Agent accrued
in connection with the drafting, preparation, negotiation, execution and
delivery of the Loan Documents and in connection with any and all waivers,
amendments, modifications, renewals, extensions and supplements of or to the
Loan Documents, and the syndication of the Commitments and the Loans, including,
without limitation, the reasonable fees and expenses of legal counsel (including
all local counsel) for the Administrative Agent, (b) all out-of-pocket costs and
expenses of the Administrative Agent and the Lenders in connection with any
Default, the exercise of any right or remedy and the enforcement of this
Agreement or any other Loan Document or any term or provision hereof or thereof,
including, without limitation, the fees and expenses of all legal counsel for
the Administrative Agent and/or any Lender, (c) all transfer, stamp, documentary
or other similar taxes, assessments or charges levied by any Governmental
Authority in respect of this Agreement or any of the other Loan Documents, (d)
all costs, expenses, assessments and other charges incurred in connection with
any filing, registration, recording or perfection of any Lien contemplated by
this Agreement or any other Loan Document, and (e) all reasonable out-of-pocket
costs and expenses incurred by the Administrative Agent in connection with due
diligence, computer services, copying, appraisals, environmental audits,
collateral audits, field exams, insurance, consultants and search reports. The
Administrative Agent shall, in a reasonably prompt fashion after it receives a
request from the Borrower to do so, provide the Borrower with an estimate of the
expenses of syndication then previously incurred by the Administrative Agent.
CREDIT AGREEMENT - Page 84
<PAGE>
Section 13.2 INDEMNIFICATION. THE BORROWER HEREBY AGREES TO INDEMNIFY THE
---------------
ADMINISTRATIVE AGENT AND EACH LENDER AND EACH AFFILIATE THEREOF AND THEIR
RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, ATTORNEYS AND AGENTS FROM, AND HOLD
EACH OF THEM HARMLESS AGAINST, ANY AND ALL LOSSES, LIABILITIES (INCLUDING,
WITHOUT LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES,
JUDGMENTS, DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS'
AND CONSULTANTS' FEES) TO WHICH ANY OF THEM MAY BECOME SUBJECT WHICH DIRECTLY OR
INDIRECTLY ARISE FROM OR RELATE TO (A) THE NEGOTIATION, EXECUTION, DELIVERY,
PERFORMANCE, ADMINISTRATION OR ENFORCEMENT OF ANY OF THE LOAN DOCUMENTS,
INCLUDING, WITHOUT LIMITATION, THE EXERCISE OF ANY FORECLOSURE RIGHT OR OTHER
RIGHT OR REMEDY WHETHER OR NOT SUCH EXERCISE IS IN COMPLIANCE WITH LAWS
AFFECTING OTHER PERSONS OR RESULTS IN DAMAGES PAYABLE TO OTHER PERSONS, (B) ANY
OF THE TRANSACTIONS CONTEMPLATED BY THE LOAN DOCUMENTS, (C) ANY BREACH BY THE
BORROWER OF ANY MATERIAL REPRESENTATION, WARRANTY, COVENANT OR OTHER AGREEMENT
CONTAINED IN ANY OF THE LOAN DOCUMENTS, (D) THE USE OR PROPOSED USE OF ANY LOAN,
(E) THE PRESENCE, RELEASE, THREATENED RELEASE, DISPOSAL, REMOVAL OR CLEANUP OF
ANY HAZARDOUS MATERIAL LOCATED ON, ABOUT, WITHIN OR AFFECTING ANY OF THE
PROPERTIES OF THE BORROWER OR ANY OF ITS AFFILIATES, EXCEPT TO THE EXTENT THAT
THE LOSS, DAMAGE OR CLAIM IS THE DIRECT RESULT OF GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT OF THE PERSON TO BE INDEMNIFIED, OR (F) ANY INVESTIGATION, LITIGATION
OR OTHER PROCEEDING, INCLUDING, WITHOUT LIMITATION, ANY THREATENED
INVESTIGATION, LITIGATION OR OTHER PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BROUGHT BY THE BORROWER, HOLDINGS, ANY CREDITOR OR ANY OTHER PERSON; BUT
EXCLUDING ANY OF THE FOREGOING REFERRED TO IN CLAUSES (A) THROUGH (F) PRECEDING
TO THE EXTENT CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE PERSON
TO BE INDEMNIFIED. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY
OTHER LOAN DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH
PERSON TO BE INDEMNIFIED UNDER THIS SECTION 13.2 SHALL BE INDEMNIFIED FROM AND
HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES (INCLUDING, WITHOUT
LIMITATION, ENVIRONMENTAL LIABILITIES), CLAIMS, DAMAGES, PENALTIES, JUDGMENTS,
DISBURSEMENTS, COSTS AND EXPENSES (INCLUDING REASONABLE ATTORNEYS' FEES) ARISING
OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON.
WITHOUT PREJUDICE TO THE SURVIVAL OF ANY OTHER TERM OR PROVISION OF THIS
AGREEMENT, THE OBLIGATIONS OF THE BORROWER UNDER THIS SECTION 13.2 SHALL SURVIVE
THE REPAYMENT OF THE LOANS AND OTHER OBLIGATIONS AND TERMINATION OF THE
COMMITMENTS. THE INDEMNITY OBLIGATIONS REFERRED TO IN THIS SECTION 13.2 SHALL
NOT REQUIRE INDEMNIFICATION FOR MATTERS CAUSED BY ANY NONCOMPLIANCE BY NORTEL
NETWORKS WITH ITS OBLIGATIONS UNDER THE MASTER PURCHASE AGREEMENT.
CREDIT AGREEMENT - Page 85
<PAGE>
Section 13.3 Limitation of Liability. None of the Administrative Agent,
any Lender or any Affiliate, officer, director, employee, attorney or agent
thereof shall be liable for any error of judgment or act done in good faith, or
be otherwise liable or responsible under any circumstances whatsoever (including
such Person's negligence), except for such Person's gross negligence or willful
misconduct. None of the Administrative Agent, any Lender or any Affiliate,
officer, director, employee, attorney or agent thereof shall have any liability
with respect to, and the Borrower hereby waives, releases and agrees not to sue
any of them upon, any claim for any special, indirect, incidental or
consequential damages suffered or incurred by the Borrower or any Affiliate of
the Borrower in connection with, arising out of or in any way related to this
Agreement or any of the other Loan Documents, or any of the transactions
contemplated by this Agreement or any of the other Loan Documents. The Borrower
hereby waives, releases and agrees not to sue the Administrative Agent or any
Lender or any of their respective Affiliates, officers, directors, employees,
attorneys or agents for exemplary or punitive damages in respect of any claim in
connection with, arising out of or in any way related to this Agreement or any
of the other Loan Documents, or any of the transactions contemplated by this
Agreement or any of the other Loan Documents. The terms and provisions of this
Section 13.3 shall not apply to the Master Purchase Agreement.
Section 13.4 No Duty. All attorneys, accountants, appraisers and other
professional Persons and consultants retained by the Administrative Agent and
the Lenders shall have the right to act exclusively in the interest of the
Administrative Agent and the Lenders and shall have no duty of disclosure, duty
of loyalty, duty of care or other duty or obligation of any type or nature
whatsoever to the Borrower or any of its Affiliates or any other Person.
Section 13.5 No Fiduciary Relationship. The relationship between the
Borrower and each Lender is solely that of debtor and creditor, and neither the
Administrative Agent nor any Lender has any fiduciary or other special
relationship with the Borrower or any of its Affiliates, and no term or
condition of any of the Loan Documents shall be construed so as to deem the
relationship between the Borrower and any Lender, or such Affiliate and any
Lender, to be other than that of debtor and creditor. No joint venture or
partnership is created by this Agreement among the Lenders or among the Borrower
or any of its Affiliates and the Lenders.
Section 13.6 Equitable Relief. The Borrower recognizes that, in the event
it fails to pay, perform, observe or discharge any or all of the Obligations,
any remedy at law may prove to be inadequate relief to the Administrative Agent
and the Lenders. The Borrower therefore agrees that the Administrative Agent and
the Lenders, if the Administrative Agent or the Lenders so request, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
Section 13.7 No Waiver; Cumulative Remedies. No failure on the part of the
Administrative Agent or any Lender to exercise and no delay in exercising, and
no course of dealing with respect to, any right, power or privilege under this
Agreement or any other Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under this
Agreement or any other Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies provided for in this Agreement and the other Loan Documents are
cumulative and not exclusive of any rights and remedies provided by law.
CREDIT AGREEMENT - Page 86
<PAGE>
Section 13.8 Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns. The Borrower may not
assign or transfer any of its rights or obligations under this Agreement or any
other Loan Document without the prior written consent of the Administrative
Agent and the Lenders. Any Lender may sell participations in all or a portion of
its rights and obligations under this Agreement and the other Loan Documents
(including, without limitation, all or a portion of its Commitments and the
Loans owing to it); provided, however, that (i) such Lender's obligations under
this Agreement and the other Loan Documents (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the Borrower for the performance of such obligations, (iii) such
Lender shall remain the holder of its Notes for all purposes of this Agreement,
(iv) the Borrower shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents, and (v) the Lenders shall not grant any participation
under which the participant shall have the right to approve (or under which the
consent of the participant must be obtained prior to the Lenders' being able to
approve) any amendment or waiver of this Agreement or the other Loan Documents,
except to the extent that such amendment or waiver (A) increases any Commitment,
(B) reduces the interest rate or the amount of principal or fees applicable to
the Loans or Commitments in which such participant is participating, (C) extends
any Maturity Date, (D) releases any of the Collateral (except as provided for
herein or in any other Loan Document) or any guaranty of the Obligations, or (E)
releases any Loan Party from its monetary Obligations under any of the Loan
Documents.
(b) The Borrower and each of the Lenders agree that any Lender (the
"Assigning Lender") may at any time assign to one or more Eligible Assignees all
or any part of its rights and/or obligations under this Agreement and the other
Loan Documents (including, without limitation, its Commitments and/or Loans)
(each an "Assignee"); provided, however, that (i) each such assignment may be of
a varying percentage of the Assigning Lender's rights and/or obligations under
this Agreement and the other Loan Documents and may relate to some but not all
of such rights and/or obligations, (ii) except in the case of an assignment of
all of a Lender's rights and obligations under this Agreement and the other Loan
Documents, the amount of the Commitment(s) and/or Loans of the Assigning Lender
being assigned pursuant to each 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 calculated based upon the aggregate amount of the
Commitment(s) and/or Loans assigned, and (iii) the parties to each such
assignment shall execute and deliver to the Administrative Agent for its
acceptance and recording in the Register (as defined below), an Assignment and
Acceptance, together with the Note subject to such assignment, and a processing
and recordation fee of $3,500. Upon such execution, delivery, acceptance and
recording, from and after the effective date specified in each Assignment and
Acceptance, which effective date shall be at least five Business Days after the
execution thereof or such other date as may be approved by the Administrative
Agent, (1) the Assignee thereunder shall be a party hereto as a "Lender" 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 under the Loan Documents, and (2) the Assigning Lender
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 the other Loan
Documents (and, in the case of an Assignment and Acceptance covering all or the
remaining portion of a Lender's
CREDIT AGREEMENT - Page 87
<PAGE>
rights and obligations under the Loan Documents, such Lender shall cease to be a
party thereto, provided that such Lender's rights under Article 4, Section 13.1
and Section 13.2 accrued through the date of assignment shall continue). The
Borrower will provide full and prompt assistance to each Lender as it may
reasonably request from time to time in connection with such Lender's efforts to
assign its Commitments and/or Loans or sell any participation interest therein.
Such assistance shall include, without limitation, making senior officers of the
Borrower available for meetings with prospective Lenders and participants and
providing (in a timely manner) such assistance as may be reasonably requested by
such Lender and/or its advisors, including, without limitation, providing
information to and responding to inquiries from such prospective Lenders and
participants with respect to the businesses, operations, business plan,
financial condition and results of operations of the Borrower and its
Subsidiaries.
(c) By executing and delivering an Assignment and Acceptance, the
Assigning Lender 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 the Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Loan Documents or any other instrument or document
furnished pursuant thereto; (ii) such Assigning Lender makes no representation
or warranty and assumes no responsibility with respect to the financial
condition or results of operations of the Borrower or any of its Affiliates or
the performance or observance by the Borrower or any of its Affiliates of its
obligations under the Loan Documents; (iii) such Assignee confirms that it has
received a copy of the Loan Documents, together with copies of the financial
statements referred to in Section 7.2 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 or such
Assigning 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 and the other Loan Documents; (v) such
Assignee confirms that it is an Eligible Assignee; (vi) such Assignee appoints
and authorizes the Administrative Agent to take such action as agent on its
behalf and exercise such powers under the Loan Documents as are delegated to the
Administrative Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (vii) such Assignee agrees that it will
perform in accordance with their terms all of the obligations which by the terms
of the Loan Documents are required to be performed by it as a Lender.
(d) The Administrative Agent shall maintain at its Principal Office 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
Commitments of, and principal amount of the Loans 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 and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes under the Loan
Documents. 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.
(e) Upon its receipt of an Assignment and Acceptance executed by an
Assigning Lender and Assignee representing that it is an Eligible Assignee,
together with the Note(s) subject to such
CREDIT AGREEMENT - Page 88
<PAGE>
assignment, the Administrative Agent shall, if such Assignment and Acceptance
has been completed and is in substantially the form of Exhibit A hereto, (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, the
Borrower, at its expense, shall execute and deliver to the Administrative Agent
in exchange for each surrendered Note evidencing the Loans assigned, a new Note
evidencing such Loans payable to the order of such Eligible Assignee in an
amount equal to such Loans assigned to it and, if the Assigning Lender has
retained any Loans, a new Note evidencing each such Loans payable to the order
of the Assigning Lender in the amount of such Loans retained by it (each such
promissory note shall constitute a "Note" for purposes of the Loan Documents).
Such new Notes shall be dated the effective date of such Assignment and
Acceptance and shall otherwise be in substantially the form of Exhibit B-1 or
Exhibit B-2 hereto.
(f) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this Section 13.8, disclose to
the Assignee or participant or proposed Assignee or participant any information
relating to the Borrower or any of its Affiliates furnished to such Lender by or
on behalf of the Borrower or any of its Affiliates; provided that each such
actual or proposed Assignee or participant shall agree to be bound by the
provisions of Section 13.20.
(g) Any Lender may assign and pledge any Note held by it to any Federal
Reserve Bank or the U.S. Treasury as collateral security pursuant to Regulation
A of the Board of Governors of the Federal Reserve System and any operating
circular issued by such Federal Reserve System and/or Federal Reserve Bank;
provided, however, that any payment made by the Borrower for the benefit of such
assigning and/or pledging Lender in accordance with the terms of the Loan
Documents shall satisfy the Borrower's obligations under the Loan Documents in
respect thereof to the extent of such payment. No such assignment and/or pledge
shall release the assigning and/or pledging Lender from its obligations
hereunder.
(h) The Borrower shall maintain, or cause to be maintained, a register
(the "Registered Note Register") (which, at the request of the Borrower (which
request the Borrower makes by the execution of this Agreement) shall be kept by
the Administrative Agent on behalf of the Borrower at no extra charge to the
Borrower at the address to which notices to the Administrative Agent are to be
sent hereunder) on which it shall enter the name of the registered owner of each
of the Loans which is evidenced by a Registered Note. Notwithstanding anything
to the contrary contained in this Section 13.8, a Registered Note and the Loans
evidenced thereby may be assigned or otherwise transferred in whole or in part
only by registration of such assignment or transfer of such Registered Note and
the Loans evidenced thereby on the Registered Note Register (and each Registered
Note shall expressly so provide). Any assignment or transfer of all or part of
such Loans and the Registered Note evidencing the same shall be registered on
the Registered Note Register only upon surrender for registration of assignment
or transfer of the Registered Note evidencing such Loans, duly endorsed by (or
accompanied by a written instrument of assignment or transfer duly executed by)
the registered noteholder thereof, and thereupon one or more new Registered
Notes in the same aggregate principal amount shall be issued to the designated
assignee(s) or transferee(s). Prior to the due presentment for registration of
transfer of any Registered Note, the Borrower and the Administrative Agent shall
treat the Person in whose name such Loans and the Registered Note(s) evidencing
the same are registered as the owner thereof for the purpose of receiving all
payments thereon and for all other purposes, notwithstanding any notice to the
contrary. The Registered Note
CREDIT AGREEMENT - Page 89
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Register shall be available for inspection by the Borrower and any Lender at any
reasonable time upon reasonable prior notice.
(i) The Borrower will not become a party to any loan agreement, credit
agreement or similar agreement which restricts or prohibits the right or ability
of any lender which is a party thereto to become a Lender under this agreement.
(j) The Borrower shall provide prompt assistance to the Administrative
Agent and the Lenders in connection with their efforts in syndicating the Loans
and Commitments. Such assistance shall include making senior officers and other
representatives of the Borrower and its Affiliates available for meetings with
prospective Lenders and providing, in a timely manner, such assistance as may be
reasonably requested by the Administrative Agent or its advisors, including,
without limitation, providing information to and responding to inquiries from
prospective Lenders with respect to the business, operations, Business Plan,
results and other matters relating to the business of the Borrower, Holdings and
the other Loan Parties.
Section 13.9 Survival. All representations and warranties made or deemed
made in this Agreement or any other Loan Document or in any document, statement
or certificate furnished in connection with this Agreement shall survive the
execution and delivery of this Agreement and the other Loan Documents and the
making of the Loans, and no investigation by the Administrative Agent or any
Lender or any closing shall affect the representations and warranties or the
right of the Administrative Agent or any Lender to rely upon them. Without
prejudice to the survival of any other obligation of the Borrower hereunder, the
obligations of the Borrower under Article 4 and Sections 13.1 and 13.2 shall
survive repayment of the Loans and the Reimbursement Obligations and the other
Obligations.
Section 13.10 ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE
PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS (INCLUDING, WITHOUT
LIMITATION, ANY COMMITMENT LETTER), TERM SHEETS, AGREEMENTS, REPRESENTATIONS AND
UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF
AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO.
Section 13.11 Amendments. No amendment or waiver of any provision of this
Agreement, the Notes or any other Loan Document to which the Borrower is a
party, nor any consent to any departure by the Borrower therefrom, shall in any
event be effective unless the same shall be agreed or consented to by the
Required Lenders and the Borrower in writing, and each such waiver or consent
shall be effective only in the specific instance and for the specific purpose
for which given; provided, however, that no amendment, waiver or consent shall,
unless in writing and signed by all of the Lenders and the Borrower, do any of
the following: (a) increase the Commitments of the Lenders (or any Lender) or
subject the Lenders to any additional obligations; (b) reduce the principal of,
or interest on, the Loans or any fees or other amounts payable hereunder; (c)
postpone any date fixed for any payment (including, without limitation, any
mandatory prepayment) of principal of, or interest on, the Loans or any fees or
other amounts payable hereunder; (d) change the
CREDIT AGREEMENT - Page 90
<PAGE>
Commitment Percentages or the aggregate unpaid principal amount of the Loans or
the number or interests of the Lenders which shall be required for the Lenders
or any of them to take any action under this Agreement; (e) change any provision
contained in Section 3.2, 3.3 or 5.1 or this Section 13.11 or modify the
----------- --- --- -------------
definition of "Eligible Receivables," "Required Lenders" or "Revolving Loans
Borrowing Base" contained in Section 1.1; or (f) except as expressly authorized
-----------
by this Agreement, release any Collateral from any of the Liens created by the
Security Documents; and provided further, however, that no amendment, waiver or
---------------- -------
consent relating to Sections 12.1, 12.2, 12.3, 12.4 or 12.5 shall require the
------------- ---- ---- ---- ----
agreement of the Borrower. Notwithstanding anything to the contrary contained in
this Section 13.11, no amendment, waiver or consent shall be made with respect
-------------
to (i) Article 12 hereof without the prior written consent of the Administrative
----------
Agent, (ii) the definition of "Eligible Third-Party Expenses", "Maximum Financed
Amount of Eligible Third-Party Expenses", "Master Purchase Agreement", "Nortel
Networks Equipment", "Nortel Networks Goods and Services", "Nortel Networks
Software" or Section 2.5, 2.9 or 2.10 hereof without the prior written consent
----------- --- ----
of Nortel Networks (whether or not Nortel Networks is then a Lender hereunder),
(iii) any condition precedent set forth in Article 6 with respect to the making
---------
of any Loans without the prior written consent of the Lenders that hold, at the
time of such amendment, waiver or consent, at least a majority (in Dollar
amount) of the Term Loans A Commitments (or the Term Loans A if the Term Loans A
Commitments have terminated or expired) or the Revolving Loans Commitments (or
the Revolving Loans if the Revolving Loans Commitments have terminated or
expired), respectively, or (iv) the interest rate applicable to the Term Loans
A, the Term Loans B or the Revolving Loans, or the maturity date of the Term
Loans A, the Term Loans B or the Revolving Loans, in each case without the prior
written consent of the Lenders that hold, at the time of such amendment, waiver
or consent, at least a majority (in Dollar amount) of the Term Loans A
Commitments (or the Term Loans A if the Term Loans A Commitments have terminated
or expired), the Term Loans B or the Revolving Loans Commitments (or the
Revolving Loans if the Revolving Loans Commitments have terminated or expired),
respectively. In the event that this Agreement is amended to shorten the
Maturity Date as it relates to the Term Loans A, the parties hereto agree to
also shorten the Maturity Date as it relates to the Term Loans B such that the
Maturity Date as it relates to each of the Term Loans A and the Term Loans B is
identical.
Section 13.12 Maximum Interest Rate.
---------------------
(a) No interest rate specified in this Agreement or any other Loan
Document shall at any time exceed the Maximum Rate. If at any time the interest
rate (the "Contract Rate") for any Obligation shall exceed the Maximum Rate,
-------------
thereby causing the interest accruing on such Obligation to be limited to the
Maximum Rate, then any subsequent reduction in the Contract Rate for such
Obligation shall not reduce the rate of interest on such Obligation below the
Maximum Rate until the aggregate amount of interest accrued on such Obligation
equals the aggregate amount of interest which would have accrued on such
Obligation if the Contract Rate for such Obligation had at all times been in
effect.
(b) Notwithstanding anything to the contrary contained in this Agreement
or the other Loan Documents, none of the terms and provisions of this Agreement
or the other Loan Documents shall ever be construed to create a contract or
obligation to pay interest at a rate in excess of the Maximum Rate; and neither
the Administrative Agent nor any Lender shall ever charge, receive, take,
collect, reserve or apply, as interest on the Obligations, any amount in excess
of the Maximum Rate. The parties hereto agree that any interest, charge, fee,
expense or other obligation provided for in this Agreement or in the other Loan
Documents which constitutes interest under applicable
CREDIT AGREEMENT - Page 91
<PAGE>
law shall be, ipso facto and under any and all circumstances, limited or reduced
---- -----
to an amount equal to the lesser of (i) the amount of such interest, charge,
fee, expense or other obligation that would be payable in the absence of this
Section 13.12(b) or (ii) an amount, which when added to all other interest
- ----------------
payable under this Agreement and the other Loan Documents, equals the Maximum
Rate. If, notwithstanding the foregoing, the Administrative Agent or any Lender
ever contracts for, charges, receives, takes, collects, reserves or applies as
interest any amount in excess of the Maximum Rate, such amount which would be
deemed excessive interest shall be deemed a partial payment or prepayment of
principal of the Obligations and treated hereunder as such; and if the
Obligations, or applicable portions thereof, are paid in full, any remaining
excess shall promptly be paid to the Borrower. In determining whether the
interest paid or payable, under any specific contingency, exceeds the Maximum
Rate, the Borrower, the Administrative Agent and the Lenders shall, to the
maximum extent permitted by applicable law, (i) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate and spread in equal or unequal parts the total amount of interest
throughout the entire contemplated term of the Obligations, or applicable
portions thereof, so that the interest rate does not exceed the Maximum Rate at
any time during the term of the Obligations; provided that, if the unpaid
-------------
principal balance is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, the Administrative Agent and/or the
Lenders, as appropriate, shall refund to the Borrower the amount of such excess
and, in such event, the Administrative Agent and the Lenders shall not be
subject to any penalties provided by any laws for contracting for, charging,
receiving, taking, collecting, reserving or applying interest in excess of the
Maximum Rate.
(c) Pursuant to Article 15.10(b) of Chapter 15, Subtitle 79, Revised Civil
Statutes of Texas 1925, as amended, the Borrower agrees that such Chapter 15
(which regulates certain revolving credit loan accounts and revolving tri-party
accounts) shall not govern or in any manner apply to the Obligations.
Section 13.13 Notices. All notices and other communications provided for
-------
in this Agreement and the other Loan Documents to which the Borrower is a party
shall be given or made by telecopy or in writing and telecopied, mailed by
certified mail return receipt requested or delivered to the intended recipient
at the "Address for Notices" specified below its name on the signature pages
hereof (or, with respect to a Lender that becomes a party to this Agreement
pursuant to an assignment made in accordance with Section 13.8, in the
------------
Assignment and Acceptance executed by it); or, as to any party, at such other
address as shall be designated by such party in a notice to each other party
given in accordance with this Section 13.13. Except as otherwise provided in
-------------
this Agreement, all such communications shall be deemed to have been duly given
when transmitted by telecopy or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid; provided,
--------
however, that notices to the Administrative Agent shall be deemed given when
- -------
received by the Administrative Agent.
Section 13.14 GOVERNING LAW; SUBMISSION TO JURISDICTION; SERVICE OF
-----------------------------------------------------
PROCESS. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN CERTAIN LOAN
- -------
DOCUMENTS, THIS AGREEMENT, THE NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND EACH OF THE PARTIES
CREDIT AGREEMENT - Page 92
<PAGE>
HERETO CHOOSE THE LAWS OF THE STATE OF NEW YORK TO GOVERN THIS AGREEMENT
PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401 (CONSOL. 1995) AND APPLICABLE
LAWS OF THE U.S. THE BORROWER HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION
OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK,
(2) ANY NEW YORK STATE COURT SITTING IN NEW YORK, NEW YORK, (3) THE U.S.
DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, AND (4) ANY TEXAS STATE COURT
SITTING IN DALLAS COUNTY, TEXAS, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE BORROWER HEREBY IRREVOCABLY
CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SET FORTH
UNDERNEATH ITS SIGNATURE HERETO. THE BORROWER HEREBY IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORM.
Section 13.15 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 13.16 Severability. Any provision of this Agreement held by a
------------
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Agreement and the effect thereof shall be
confined to the provision held to be invalid or illegal.
Section 13.17 Headings. The headings, captions and arrangements used in
--------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 13.18 Construction. The Borrower, the Administrative Agent and
------------
each Lender acknowledges that it has had the benefit of legal counsel of its own
choice and has been afforded an opportunity to review this Agreement and the
other Loan Documents with its legal counsel and that this Agreement and the
other Loan Documents shall be construed as if jointly drafted by the parties
hereto.
Section 13.19 Independence of Covenants. All covenants hereunder shall be
-------------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of a Default if such action is taken or such condition
exists.
Section 13.20 Confidentiality. Each Lender agrees to exercise its best
---------------
efforts to keep any information delivered or made available by the Borrower to
it which is clearly indicated to be confidential information, confidential from
anyone other than Persons employed or retained by such Lender who are or are
expected to become engaged in evaluating, approving, structuring or
administering the Loans; provided that nothing herein shall prevent any Lender
--------
from disclosing such
CREDIT AGREEMENT - Page 93
<PAGE>
information (a) to any other Lender, (b) to any Person if reasonably incidental
to the administration of the Loans, (c) upon the order of any court or
administrative agency, (d) upon the request or demand of any regulatory agency
or authority having jurisdiction over such Lender, (e) which has been publicly
disclosed, (f) in connection with any litigation to which the Administrative
Agent, any Lender or their respective Affiliates may be a party, (g) to the
extent reasonably required in connection with the exercise of any right or
remedy under the Loan Documents, (h) to such Lender's legal counsel, independent
auditors and affiliates, and (i) to any actual or proposed participant or
Assignee of all or part of its rights hereunder, so long as such actual or
proposed participant or Assignee agrees to be bound by the provisions of this
Section 13.20.
- -------------
Section 13.21 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE
ACTIONS OF THE BORROWER, THE ADMINISTRATIVE AGENT OR ANY LENDER IN THE
NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
Section 13.22 Approvals and Consent. Except as may be expressly provided
---------------------
to the contrary in this Agreement or in the other Loan Documents (as
applicable), in any instance under this Agreement of the other Loan Documents
where the approval, consent or exercise of judgment of the Administrative Agent
or any Lender is requested or required, (a) the granting or denial of such
approval or consent and the exercise of such judgment shall be within the sole
discretion of the Administrative Agent or such Lender, respectively, and the
Administrative Agent and such Lender shall not, for any reason or to any extent,
be required to grant such approval or consent or to exercise such judgment in
any particular manner, regardless of the reasonableness of the request or the
action or judgment of the Administrative Agent or such Lender, and (b) no
approval or consent of the Administrative Agent or any Lender shall in any event
be effective unless the same shall be in writing and the same shall be effective
only in the specific instance and for the specific purpose for which given.
Section 13.23 Service of Process. The Borrower irrevocably consents to the
------------------
service of process by the mailing thereof by the Administrative Agent or the
Required Lenders by registered or certified mail, postage prepaid, to the
Borrower at its address listed on the signature pages hereof. Nothing in this
Section 13.23 shall affect the right of the Administrative Agent or the Lenders
- -------------
to serve legal process in any other manner permitted by law or affect the right
of the Administrative Agent or any Lender to bring any action or proceeding
against the Borrower or its Property in the court of any jurisdiction.
[Remainder of page intentionally left blank.]
CREDIT AGREEMENT - Page 94
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the day and year first above written.
BORROWER:
--------
NET-TEL CORPORATION
By:_________________________________________________
Name: Craig R. Bandes
Title: Senior Vice President
Address for Notices:
--------------------
NET-tel Corporation
1023 31st Street, N.W.
Washington, D.C. 20007
Attention: Craig R. Bandes, Senior Vice President
Telecopy No.: (202) 625-0693
Telephone No.:(202) 295-6600
with a copy to:
Swidler Berlin Shereff Friedman, LLP
3000 K Street, N.W., Suite 300
Washington, D.C. 20007-5116
Attention: Andrew D. Lipman, Esq.
Andrew M. Ray, Esq.
Telecopy No: (202) 424-7643
Telephone No.: (202) 424-7500
CREDIT AGREEMENT - Page 95
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
NORTEL NETWORKS INC.,
as Administrative Agent
By:_________________________________________________
Name: Jay R. Prestipino
Title: Director, Customer Finance
Address for Notices:
-------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Mail Stop 04D/02/A40
Richardson, Texas 75083-3858
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 684-3808
Telephone No: (972) 684-7687
CREDIT AGREEMENT - Page 96
<PAGE>
with a copy to:
Jenkens & Gilchrist, a Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202-2799
Attention: Ronald D. Rosener, Esq.
Telecopy No: (214) 855-4300
Telephone No: (214) 855-4332
CREDIT AGREEMENT - Page 97
<PAGE>
LENDERS:
-------
Term Loans A NORTEL NETWORKS INC.,
Commitment: $120,000,000
- ----------
Revolving Loans By: _________________________________________
Commitment: $10,000,000 Name: Jay R. Prestipino
- ---------- Title: Director, Customer Finance
Address for Notices:
-------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Vice President,
Customer Finance North America
Telecopy No.: (972) 684-3679
Telephone No: (972) 684-2271
and
Nortel Networks Inc.
PO Box 833858
Mail Stop 04D/02/A40
Richardson, Texas 75083-3858
Attention: Kimberly Poe, Loan Administration
Telecopy No.: (972) 684-3808
Telephone No: (972) 684-7687
Lending Office for Base Rate Loans:
----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
Lending Office for Eurodollar Loans:
-----------------------------------
Nortel Networks Inc.
2221 Lakeside Blvd.
Richardson, Texas 75082
CREDIT AGREEMENT - Page 98
<PAGE>
Term Loans B Commitment: $10,000,000 ALLIED CAPITAL CORPORATION
By: ___________________________________
Name: Thomas H. Aiken
Title: Associate
Address for Notices:
-------------------
Allied Capital Corporation
1919 Pennsylvania Avenue, N.W.
Suite 300
Washington, D.C. 20006
Attention: Thomas H. Aiken, Associate
Telecopy No.: (202) 659-2053
Telephone No.: (202) 331-1112
CREDIT AGREEMENT - Page 99
<PAGE>
Exhibit 10.8.1
[*] IMPORTANT NOTE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated
effective as of July 28, 1999 (the "Amendment Date") unless otherwise expressly
stated herein, is by and among NET-TEL CORPORATION (the "Borrower"), a Florida
corporation, NET-TEL COMMUNICATIONS, INC. ("Holdings"), a Delaware corporation,
each of the undersigned Lenders (as hereinafter defined) and NORTEL NETWORKS
INC., a Delaware corporation, as administrative agent for itself and the other
Lenders (in such capacity, together with its successors in such capacity, the
"Administrative Agent").
RECITALS:
A. Pursuant to that certain Credit Agreement dated as of July 28, 1999 (as
the same may be amended, modified, renewed, extended, restated or supplemented
from time to time, the "Credit Agreement") by and among the Borrower, each of
the lending entities which is a party thereto or which may from time to time
become a party thereto as a lender or any successor or assignee thereof
(individually, a "Lender" and, collectively, the "Lenders"), and the
Administrative Agent, the Lenders agreed to provide, with the assistance of the
Administrative Agent, (i) a $120,000,000 advancing term loan facility to finance
a portion of the Borrower's costs to purchase Nortel Networks Goods and Services
(as defined in the Credit Agreement) and to finance certain Eligible Third-Party
Expenses (as defined in the Credit Agreement), (ii) a $10,000,000 term loan
facility to finance certain of the Borrower's working capital needs and for
general corporate purposes, and (iii) a $10,000,000 revolving loan facility to
finance certain of the Borrower's working capital needs and for general
corporate purposes and in the ordinary course of business.
B. The Borrower, the Administrative Agent and the Lenders desire to amend
the Credit Agreement upon the terms and conditions contained herein.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Terms Defined. Unless otherwise defined or stated in this Amendment,
each capitalized term used in this Amendment has the meaning given to such term
in the Credit Agreement (as amended by this Amendment).
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE>
2. Amendments.
(a) Effective as of February 21, 2000, the term "Maximum Financed Amount
of Eligible Third-Party Expenses" and the definition thereof set forth in
Section 1 of the Credit Agreement are hereby amended and restated to read in
their entirety as follows:
"Maximum Financed Amount of Eligible Third-Party Expenses" means, as
of any date of determination, the lesser of (a) an amount equal to the
aggregate amount of Eligible Third-Party Expenses or (b) *% of the sum of
(without duplication) (i) the aggregate amount paid by the Borrower to
Nortel Networks and/or Nortel Networks Corporation to purchase Nortel
Networks Goods and Services for the Network plus (ii)*.
(b) Subclause (g)(iv) of the definition of the term "Permitted Liens"
contained in Section 1.1 of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(iv) the Debt secured by all such Liens, when aggregated with the
Debt secured by all purchase-money Liens at any time outstanding (whenever
incurred or created) and all Liens in connection with any conditional sale
or other title retention agreement or Capital Lease Obligation existing as
of the Closing Date or at any other time, shall not exceed (A) $* at any
time outstanding in the aggregate prior to March 27, 2000, and (B) $* at
any time outstanding in the aggregate on and after March 27, 2000.
(c) Section 2.7 of the Credit Agreement is hereby amended by adding the
following Section 2.7(g), which Section shall read in its entirety as follows:
(g) Maximum Financed Amount of Eligible Third-Party Expenses. *
(d) Section 2.11(a) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(a) Subject to Section 13.12, the Borrower shall, commencing on *,
and for all periods thereafter, pay to the Administrative Agent for the
account of each applicable Lender a commitment fee on the daily average
unused or unfunded amount of each of such Lender's Term Loans A
Commitments and Revolving Loans Commitments (as the same may be terminated
or reduced pursuant to Section 2.13), for the period from and including
the date upon which such Lender (or the date its predecessor in interest
with respect to such Commitments assigned to such Lender as to which a
commitment fee has not previously been paid during the applicable period)
became a party hereto to but excluding the Term Loans A Commitment
Termination Date or the Revolving Loans Commitment Termination Date, as
the case may be, at the rate of * percent (*%) per annum based on a 360
day year and the actual number of days elapsed, which accrued commitment
fees shall be payable in arrears on each Quarterly Date and on the Term
Loans A Commitment Termination Date or the Revolving Loans Commitment
Termination Date, as the case may be.
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE>
(e) Section 8.1(b) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(b) Quarterly Financial Statements. 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, beginning with the fiscal quarter ending
June 30, 1999 unless otherwise expressly stated herein, either (i) a copy
of the Form 10-Q (including all financial statements contained therein)
filed by Holdings as of the end of and for such fiscal quarter then ended,
together with consolidating schedules for each of Holdings and its
Subsidiaries (including, without limitation, the Borrower) with respect to
each of the financial statements contained therein, or (ii) a copy of the
unaudited consolidated balance sheet of the Borrower and its Subsidiaries
as of the end of such quarter and the related consolidated statements of
income or operations, shareholders' equity and cash flows and, commencing
with the fiscal quarter of the Borrower ending December 31, 1999,
quarterly operating budgets for the period commencing on the first day and
ending on the last day of such quarter, together with unaudited
consolidating schedules for the Borrower and its Subsidiaries with respect
to each of such financial statements and quarterly operating budgets, in
each case, commencing with the fiscal quarter of the Borrower ending
December 31, 1999, setting forth in comparative form the information or
figures and quarterly operating budget figures, respectively, for the
corresponding period of the preceding fiscal year, and certified by an
appropriate Responsible Officer of the Borrower as fairly presenting, in
accordance with GAAP, the financial position and the results of operations
of the Borrower and its Subsidiaries (except for year-end adjustments and
the absence of financial statement footnotes required by GAAP);
(f) Section 8.1(c) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(c) Compliance Certificate. Commencing with the fiscal quarter of
the Borrower ending *, concurrently with the delivery of each of the
financial statements referred to in Sections 8.1(a) and 8.1(b), a
Compliance Certificate of a Responsible Officer of the Borrower
substantially in the form of Exhibit D hereto, appropriately completed,
stating that, to the best of such officer's knowledge, no Default has
occurred and is continuing or, if a Default has occurred and is
continuing, stating the nature thereof and the action that has been taken
and is proposed to be taken with respect thereto;
(g) Section 8.1(h) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(h) Insurance. Commencing with the fiscal year of the Borrower
ending December 31, 2000, within 60 days prior to the end of each fiscal
year of the Borrower, a report in form and substance reasonably
satisfactory to the Administrative Agent summarizing all material
insurance coverage maintained by the Borrower and its Subsidiaries as of
the date of such report and all material
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE>
insurance coverage planned to be maintained by such Persons in the
subsequent fiscal year;
(h) Section 8.1(j) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(j) Business Plan, etc. Commencing with the fiscal year of the
Borrower ending December 31, 2000, not later than 15 days prior to the end
of each fiscal year, an update of the Business Plan for the immediately
succeeding fiscal year in reasonable detail generally consistent with the
form and substance of the Business Plan provided to the Administrative
Agent on or before the Initial Funding Date, which update shall reflect
the corresponding information for the prior year; and, promptly upon the
Borrower's preparation thereof, any proposed amendment, modification or
supplement to the Business Plan;
(i) Section 8.1(p) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(p) Accounts Receivable and Payable. Commencing with the fiscal
quarter of the Borrower ending December 31, 1999, as soon as available and
in any event within (i) 60 days after the end of the fiscal quarter of the
Borrower ending December 31, 1999 and (ii) 45 days after the end of each
fiscal quarter thereafter, an aged trial balance of all then-existing
Receivables and all then existing accounts payable of the Borrower and its
Subsidiaries;
(j) Section 8.1(r) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(r) Quarterly Report as to Key Business Statistics. Commencing with
the fiscal quarter of the Borrower ending December 31, 1999, as soon as
available and in any event within (i) 60 days after the end of the fiscal
quarter of the Borrower ending December 31, 1999 and (ii) 45 days after
the end of each fiscal quarter thereafter, reports as to key business and
operational statistics of the Borrower and its Subsidiaries, including,
without limitation, reports as to the number of customers, number of Sales
Representatives and such related information as the Administrative Agent
may reasonably request from time to time;
(k) Section 8.1(s) of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
(s) Borrowing Base Reports and Agings. Commencing with the fiscal
quarter of the Borrower ending December 31, 1999, as soon as available and
in any event within (i) 60 days after the end of the fiscal quarter of the
Borrower ending December 31, 1999 and (ii) 15 days after the end of each
fiscal quarter thereafter, and, in any event concurrently with the making
of each Revolving Loan hereunder and from time to time upon the request of
the Administrative Agent after the occurrence of a Default, (i) a
Borrowing Base Report duly completed and (ii) an aged
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE>
trial balance of all then-existing Receivables and all then existing
accounts payable of the Borrower and its Subsidiaries; and
(l) Section 8.17 of the Credit Agreement is hereby amended to change the
date "September 30, 1999" contained therein to the date "March 27, 2000".
(m) A new Section 13.24 is hereby added to the Credit Agreement, which
Section 13.24 shall read in its entirety as follows:
Section 13.24 Miscellaneous Matters. Notwithstanding anything to the
contrary contained in this Agreement:
(a) the Loan Documents required to be executed by the
Borrower's Subsidiary corporation organized under the laws of the
State of Virginia shall not be required to be executed or delivered
by such corporation until on or before March 27, 2000, and the
Borrower shall not be required to pledge to the Administrative Agent
the shares of Capital Stock of such corporation until on or before
March 27, 2000;
(b) the Borrower shall not be required to deliver to the
Administrative Agent a landlord subordination or waiver (as required
in accordance with Section 5.4) with respect to the Borrower's
Washington, D.C. switch location until on or before March 27, 2000;
and
(c) the Borrower shall not be obligated to deliver to the
Administrative Agent an endorsement to the issuance policies
(required to be maintained under the Credit Agreement) naming the
Administrative Agent as additional insured and loss payee until on
or before March 27, 2000.
(n) Exhibit C to the Credit Agreement is hereby amended and restated to
read in its entirety as set forth in First Amendment Exhibit A to this
Amendment.
(o) Schedule 10.8 of the Credit Agreement is hereby amended to delete the
minimum Gross Revenues requirements for the calendar quarters (and only for the
calendar quarters) ended September 30, 1999 and December 31, 1999.
(p) Schedule 10.9 of the Credit Agreement is hereby amended to delete the
minimum EBITDA requirements for the calendar quarters (and only for the calendar
quarters) ended September 30, 1999 and December 31, 1999.
(q) Schedule 10.12 of the Credit Agreement is hereby amended to delete the
minimum requirement for Average Monthly Gross Revenues Per Sales Representatives
for the calendar quarters (and only for the calendar quarters) ended September
30, 1999 and December 31, 1999.
3. Conditions Precedent. The effectiveness of this Amendment is
subject to the satisfaction of each of the following conditions precedent, all
of which conditions precedent must
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE>
be satisfied on or before February 29, 2000 (unless any one or more of such
conditions precedent are waived in writing by the Administrative Agent):
(a) The Administrative Agent shall have received all of the
following, each dated (where applicable and unless otherwise indicated) the date
of this Amendment, in form and substance satisfactory to the Administrative
Agent:
(i) Amendment Documents. This Amendment as executed by the
parties hereto and an Amended and Restated Administrative Agent's Letter,
in form and substance satisfactory to the Administrative Agent, executed
by the Borrower and Nortel Networks (collectively, the "Amendment
Documents");
(ii) Resolutions. Resolutions of the Board of Directors of the
Borrower certified by its Secretary or an Assistant Secretary which
authorize the execution, delivery and performance by the Borrower of this
Amendment and the other Amendment Documents to which it is or is to be a
party;
(iii) Insurance. A report in form and substance reasonably
satisfactory to the Administrative Agent summarizing all material
insurance coverage maintained by the Borrower and its Subsidiaries as of
the date of such report and all material insurance coverage planned to be
maintained by such Persons in the fiscal year of the Borrower ending
December 31, 2000;
(iv) Business Plan, etc. An update of the Business Plan for
the fiscal year of the Borrower ending December 31, 2000 in reasonable
detail generally consistent with the form and substance of the Business
Plan provided to the Administrative Agent on or before the Initial Funding
Date, which update shall reflect the corresponding information for the
prior year; and, promptly upon the Borrower's preparation thereof, any
proposed amendment, modification or supplement to the Business Plan;
(v) Fees, Costs and Expenses. If so requested by the
Administrative Agent, all fees, costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by the Administrative
Agent and each of the Lenders incident to this Amendment or required to be
paid in accordance with Section 13.1 of the Credit Agreement, to the
extent incurred and submitted to the Borrower, shall have been paid in
full by the Borrower;
(b) The representations and warranties contained herein and in all
other Loan Documents, as amended hereby, shall be true and correct as of the
date hereof as if made again on and as of the date hereof (except if and to the
extent that such representations and warranties are or were expressly made only
as of another specific date); and
(c) No Event of Default shall have occurred and be continuing
(immediately after giving effect to this Amendment).
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE>
Upon the satisfaction of all conditions precedent set forth in this Paragraph 3
and upon request of confirmation of such satisfaction made by the Borrower to
the Administrative Agent, the Administrative Agent shall confirm such
satisfaction in writing to the Borrower.
4. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE U.S.
5. Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
6. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN
AND AMONG THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A)
THE BORROWER OR ANY OTHER LOAN PARTY AND (B) THE ADMINISTRATIVE AGENT AND/OR ANY
LENDER.
7. Agreement Remains in Effect; No Waiver. Except as expressly provided
herein, all terms and provisions of the Credit Agreement and the other the Loan
Documents shall remain unchanged and in full force and effect and are hereby
ratified and confirmed. No waiver by the Administrative Agent or any Lender of
any Default or Event of Default shall be deemed to be a waiver of any other
Default or Event of Default. No delay or omission by the Administrative Agent or
any Lender in exercising any power, right or remedy shall impair such power,
right or remedy or be construed as a waiver thereof or an acquiescence therein,
and no single or partial exercise of any such power, right or remedy shall
preclude other or further exercise thereof or the exercise of any other power,
right or remedy under the Credit Agreement, the Loan Documents or otherwise.
8. Representations and Warranties. All representations and warranties made
in this Amendment or any other Loan Document shall survive the execution and
delivery of this Amendment and the other Loan Documents, and no investigation by
the Administrative Agent or any closing shall affect the representations and
warranties or the right of the Administrative Agent and the Lenders to rely upon
such representations and warranties.
9. Ratification of Obligations under the Loan Documents. Each of the
undersigned Loan Parties acknowledges and consents to the terms of this
Amendment and agrees that all of its indebtedness, liabilities and obligations
under the Loan Documents to which it is a party continue in full force and
effect notwithstanding the execution and delivery of this Amendment or the
consummation of the transactions contemplated hereby. There are no defenses,
offsets or counterclaims to the performance by any of the undersigned Loan
Parties of their respective indebtedness, liabilities and obligations under the
Loan Documents.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 7
<PAGE>
10. Reference to Credit Agreement. This Amendment shall constitute a Loan
Document. Each of the Loan Documents, including the Credit Agreement, the
Amendment Documents and any and all other agreements, documents or instruments
now or hereafter executed and/or delivered pursuant to the terms hereof or
pursuant to the terms of the Credit Agreement as amended hereby, are (if and to
the extent necessary) hereby amended so that any reference in such Loan
Documents to the Credit Agreement shall mean a reference to the Credit Agreement
as amended hereby.
11. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
12. Successors and Assigns. This Amendment is binding upon and shall inure
to the benefit of the Administrative Agent, the Lenders, the Borrower and the
other Loan Parties and their respective successors and assigns; provided,
however, that neither the Borrower nor any of the other Loan Parties may assign
or transfer any of its rights or obligations hereunder without the prior written
consent of the Administrative Agent and the Lenders.
13. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
14. Certain Resolutions. The Borrower shall, on or before March 3, 2000,
deliver, or cause to be delivered, to the Administrative Agent resolutions of
the Board of Directors of each of the Loan Parties, other than the Borrower,
certified by the Secretary or an Assistant Secretary of such Loan Party which
authorized the execution, delivery and performance by such Loan Party of this
Amendment and the other Amendment Documents to which such Loan Party is or is to
be a party.
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers effective as of the day
and year first above written.
BORROWER:
NET-TEL CORPORATION
By: /s/ Craig Bandes
____________________________
Name: Craig Bandes
____________________________
Title: Senior Vice President,
Corporate Development
HOLDINGS:
NET-TEL COMMUNICATIONS, INC.
By: /s/ Craig Bandes
____________________________
Name: Craig Bandes
____________________________
Title: Senior Vice President,
Corporate Development
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 9
<PAGE>
ADMINISTRATIVE AGENT:
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Mitchell Stone
____________________________
Name: Mitchell Stone
____________________________
Title: Director
____________________________
LENDERS:
NORTEL NETWORKS INC.
By: /s/ Mitchell Stone
____________________________
Name: Mitchell Stone
____________________________
Title: Director
____________________________
ALLIED CAPITAL CORPORATION
By: /s/ Thomas Aiken
____________________________
Name: Thomas Aiken
____________________________
Title: Associate
____________________________
FIRST AMENDMENT TO CREDIT AGREEMENT - Page 10
<PAGE>
Exhibit 10.8.2
[*] IMPORTANT NOTE: Certain material, indicated by an asterisk ("*"), has been
omitted from this document pursuant to a request for confidential treatment. The
omitted material has been filed separately with the Securities and Exchange
Commission.
SECOND AMENDMENT TO CREDIT AGREEMENT
------------------------------------
This SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated
---------
effective as of December 31, 1999 (the "Amendment Date") unless otherwise
--------------
expressly stated herein, is by and among NET-TEL CORPORATION (the "Borrower"), a
--------
Florida corporation, NET-TEL COMMUNICATIONS, INC. ("Holdings"), a Delaware
--------
corporation, NET-TEL CORPORATION OF VIRGINIA, INC., a Virginia corporation
("NET-tel Virginia"), each of the undersigned Lenders (as hereinafter defined)
- ------------------
and NORTEL NETWORKS INC., a Delaware corporation, as administrative agent for
itself and the other Lenders (in such capacity, together with its successors in
such capacity, the "Administrative Agent").
--------------------
RECITALS:
--------
A. Pursuant to that certain Credit Agreement dated as of July 28, 1999 (as
amended by that certain First Amendment to Credit Agreement dated effective as
of July 28, 1999 and as the same may be further amended, modified, renewed,
extended, restated or supplemented from time to time, the "Credit Agreement") by
----------------
and among the Borrower, each of the lending entities which is a party thereto or
which may from time to time become a party thereto as a lender or any successor
or assignee thereof (individually, a "Lender" and, collectively, the "Lenders")
------ -------
and the Administrative Agent, the Lenders agreed to provide, with the assistance
of the Administrative Agent, (i) a $120,000,000 advancing term loan facility to
finance a portion of the Borrower's costs to purchase Nortel Networks Goods and
Services (as defined in the Credit Agreement) and to finance certain Eligible
Third-Party Expenses (as defined in the Credit Agreement), (ii) a $10,000,000
term loan facility to finance certain of the Borrower's working capital needs
and for general corporate purposes, and (iii) a $10,000,000 revolving loan
facility to finance certain of the Borrower's working capital needs and for
general corporate purposes and in the ordinary course of business.
B. The Borrower, the Administrative Agent and the Lenders desire to amend
the Credit Agreement upon the terms and conditions contained herein.
AGREEMENTS:
----------
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Terms Defined. Unless otherwise defined or stated in this Amendment,
-------------
each capitalized term used in this Amendment has the meaning given to such term
in the Credit Agreement (as amended by this Amendment).
2. Amendments.
----------
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 1
<PAGE>
(a) The definition of the term "Average Customer Count" set forth in
Section 1 of the Credit Agreement is hereby amended and restated to read in its
- ---------
entirety as follows:
"Average Customer Count" means, as of the last day of any calendar
----------------------
quarter, the quotient obtained by dividing (a) the sum of the number of
customers of the Borrower and its Consolidated Subsidiaries as of the last
day of each of the three months during such calendar quarter, each of which
customers has average billings in excess of $100 per month, by (b) three.
(b) The definition of the term "Average Monthly Gross Revenues Per
Customer" set forth in Section 1 of the Credit Agreement is hereby amended and
---------
restated to read in its entirety as follows:
"Average Monthly Gross Revenues Per Customer" means, as to the
-------------------------------------------
Borrower and its Consolidated Subsidiaries and with respect to any calendar
quarter, the quotient obtained by dividing (a) the remainder of (i) the
Average Gross Revenues for such calendar quarter minus (ii) the Average
-----
Gross Revenues for such calendar quarter attributable to customers having
average billings (per customer) of less than $100 per month during such
calendar quarter by (b) the Average Customer Count as of the last day of
such calender quarter.
(c) Subclause (g)(iv) of the definition of the term "Permitted Liens"
-----------------
contained in Section 1.1 of the Credit Agreement is hereby amended and restated
-----------
to read in its entirety as follows:
(iv) the Debt secured by all such Liens, when aggregated with the Debt
secured by all purchase-money Liens at any time outstanding (whenever
incurred or created) and all Liens in connection with any conditional sale
or other title retention agreement or Capital Lease Obligation existing as
of the Closing Date or at any other time, shall not exceed (A) $*
outstanding in the aggregate at any time on or before December 30, 2001,
(B) $* outstanding in the aggregate on December 31, 2001 or at any time
thereafter on or before December 30, 2002, (C) $* outstanding in the
aggregate on December 31, 2002 or at any time thereafter on or before
December 30, 2003 and (D) $* outstanding in the aggregate on December 31,
2003 or at any time thereafter.
(d) Effective as of April 21, 2000, the definition of the term "Term Loans
A Commitment" set forth in Section 1 of the Credit Agreement is hereby amended
---------
and restated to read in its entirety as follows:
"Term Loans A Commitment" means, as to any Lender, the obligation (if
-----------------------
any) of such Lender to make or continue Term Loans A hereunder in an
aggregate principal amount up to but not exceeding the amount set forth
opposite the name of such Lender on the signature pages hereto under the
heading "Term Loans A Commitment" or, if such Lender is a party to an
Assignment and Acceptance, the amount of the "Term Loans A Commitment" set
forth in the most recent Assignment and Acceptance of such Lender, as the
same may be reduced or terminated pursuant
*Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 2
<PAGE>
to Section 2.13 or 11.2, and "Term Loans A Commitments" means such
------------ ---- ------------------------
obligations of all Lenders. As of March 27, 2000, the aggregate principal
amount of the Term Loans A Commitments is the remainder of (a) $115,000,000
minus (b) the aggregate principal amount of the Term Loans A advanced on or
before such date.
(e) Section 8.1(c) of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as follows:
(c) Compliance Certificate. Concurrently with the delivery of each of
----------------------
the financial statements referred to in Sections 8.1(a) and 8.1(b) and
--------------- ------
within 45 days after the end of the fourth quarter of each fiscal year of
the Borrower, a Compliance Certificate of a Responsible Officer of the
Borrower substantially in the form of Exhibit D hereto, appropriately
---------
completed, stating that, to the best of such officer's knowledge, no
Default has occurred and is continuing or, if a Default has occurred and is
continuing, stating the nature thereof and the action that has been taken
and is proposed to be taken with respect thereto;
(f) Section 8.1(p) of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as follows:
(p) Accounts Receivable and Payable. As soon as available and in any
-------------------------------
event within (i) 45 days after the end of each of the first three quarters
of each fiscal year of the Borrower and (ii) 90 days after the end of the
fourth quarter of each fiscal year of the Borrower, an aged trial balance
of all then-existing Receivables and all then existing accounts payable of
the Borrower and its Subsidiaries;
(g) Section 8.1(r) of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as follows:
(r) Quarterly Report as to Key Business Statistics. As soon as
----------------------------------------------
available and in any event within (i) 45 days after the end of each of the
first three quarters of each fiscal year of the Borrower and (ii) 90 days
after the end of the fourth quarter of each fiscal year of the Borrower,
reports as to key business and operational statistics of the Borrower and
its Subsidiaries, including, without limitation, reports as to the number
of customers, number of Sales Representatives and such related information
as the Administrative Agent may reasonably request from time to time;
(h) Section 8.1(s) of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as follows:
(s) Borrowing Base Reports and Agings. As soon as available and in
---------------------------------
any event within (i) 45 days after the end of each of the first three
quarters of each fiscal year of the Borrower and (ii) 90 days after the end
of the fourth quarter of each fiscal year of the Borrower and, in any event
concurrently with the making of each Revolving Loan hereunder and from time
to time upon the request of the Administrative Agent after the occurrence
of a Default, (A) a Borrowing Base Report
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 3
<PAGE>
duly completed and (B) an aged trial balance of all then-existing
Receivables and all then existing accounts payable of the Borrower and its
Subsidiaries; and
(i) Section 10.13 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as follows:
Section 10.13 Operating Leases. The Borrower will not, and will not
----------------
permit any Subsidiary of the Borrower to, at any time enter into or be a
party to operating leases that in the aggregate obligate the Borrower
and/or its Subsidiaries to make aggregate payments during any fiscal year
in excess of (a) for all operating leases other than operating leases of
real Property entered into in the ordinary course of the Borrower's and/or
its Subsidiaries' business, $* and (b) for all operating leases of real
Property, the lesser of (i) *% of the Gross Revenues of the Borrower and
its Consolidated Subsidiaries for such fiscal year or (ii) $*.
(j) Section 12.2 of the Credit Agreement is hereby amended by amending and
------------
restating the last sentence thereof which shall read in its entirety as follows:
"Without limiting the generality of the foregoing, (a) Nortel Networks has
purchased certain equity securities issued by Holdings and (b) it is
contemplated that Nortel Networks and/or certain other Lenders will be the
holder of warrants issued by Holdings."
(k) Effective as of April 21, 2000, the amount of "120,000,000" set forth
next to "Term Loans A Commitment" on the signature page for Nortel Networks as a
Lender is hereby amended to read "115,000,000".
(l) The "Address for Notices" set forth under the signature of each of the
Administrative Agent and Nortel Networks as a Lender is hereby amended and
restated to read in its entirety as follows:
Nortel Networks Inc.
Mail Stop 991 15 A40
2221 Lakeside Blvd.
Richardson, Texas 75082-4399
Attention: Mitchell D. Stone
Director, Customer Finance
Telephone: 972-684-0395
Telecopy: 972-684-3679
and
Nortel Networks Inc.
Mail Stop 468/05/B40
2100 Lakeside Blvd.
Richardson, Texas 75082-4399
* Confidential treatment requested. The redacted material has been separately
filed with the Securities and Exchange Commission.
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 4
<PAGE>
Attention: Kimberly Poe, Director
Loan Administration
Telephone: 972-684-7687
Telecopy: 972-685-3613
(m) Schedule 10.2 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 1 to this
---------------------------
Amendment.
(n) Schedule 10.3 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 2 to this
---------------------------
Amendment.
(o) Schedule 10.4 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 3 to this
---------------------------
Amendment.
(p) Schedule 10.5 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 4 to this
---------------------------
Amendment.
(q) Schedule 10.6 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 5 to this
---------------------------
Amendment.
(r) Schedule 10.7 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 6 to this
---------------------------
Amendment.
(s) Schedule 10.8 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 7 to this
---------------------------
Amendment.
(t) Schedule 10.9 of the Credit Agreement is hereby amended and restated to
-------------
read in its entirety as set forth on Second Amendment Schedule 8 to this
---------------------------
Amendment.
(u) Schedule 10.10 of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as set forth on Second Amendment Schedule 9 to this
---------------------------
Amendment.
(v) Schedule 10.11 of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as set forth on Second Amendment Schedule 10 to this
----------------------------
Amendment.
(w) Schedule 10.12 of the Credit Agreement is hereby amended and restated
--------------
to read in its entirety as set forth on Second Amendment Schedule 11 to this
----------------------------
Amendment.
3. Conditions Precedent. The effectiveness of this Amendment is subject
--------------------
to the satisfaction of each of the following conditions precedent, all of which
conditions precedent must be satisfied on or before April 30, 2000 (unless any
one or more of such conditions precedent are waived in writing by the
Administrative Agent):
(a) The Administrative Agent shall have received all of the following, each
dated (where applicable and unless otherwise indicated) the date of this
Amendment, in form and substance satisfactory to the Administrative Agent:
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 5
<PAGE>
(i) Amendment. This Amendment as executed by the parties hereto;
---------
(ii) Resolutions. Resolutions of the Board of Directors of each
-----------
Loan Party certified by its Secretary or an Assistant Secretary which
authorize the execution, delivery and performance by such Loan Party of
this Amendment; and
(iii) Fees, Costs and Expenses. If so requested by the
------------------------
Administrative Agent, all fees, costs and expenses (including, without
limitation, attorneys' fees and expenses) incurred by the Administrative
Agent and each of the Lenders incident to this Amendment or required to be
paid in accordance with Section 13.1 of the Credit Agreement, to the extent
------------
incurred and submitted to the Borrower, shall have been paid in full by the
Borrower;
(b) The representations and warranties contained herein and in all other
Loan Documents, as amended hereby, shall be true and correct as of the date
hereof as if made again on and as of the date hereof (except if and to the
extent that such representations and warranties are or were expressly made only
as of another specific date); and
(c) No Event of Default shall have occurred and be continuing (immediately
after giving effect to this Amendment).
Upon the satisfaction of all conditions precedent set forth in this
Paragraph 3 and upon request of confirmation of such satisfaction made by the
- -----------
Borrower to the Administrative Agent, the Administrative Agent shall confirm
such satisfaction in writing to the Borrower.
4. Governing Law. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS SHALL BE
-------------
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES) AND APPLICABLE LAWS OF THE U.S.
5. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
6. No Oral Agreements. THIS AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT
------------------
AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL AGREEMENTS BETWEEN
AND AMONG THE PARTIES HERETO RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A)
THE BORROWER OR ANY OTHER LOAN PARTY AND (B) THE ADMINISTRATIVE AGENT AND/OR ANY
LENDER.
7. Agreement Remains in Effect; No Waiver. Except as expressly provided
--------------------------------------
herein, all terms and provisions of the Credit Agreement and the other the Loan
Documents shall remain unchanged and in full force and effect and are hereby
ratified and confirmed. No waiver by the Administrative Agent or any Lender of
any Default or Event of Default shall be deemed to be a
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 6
<PAGE>
waiver of any other Default or Event of Default. No delay or omission by the
Administrative Agent or any Lender in exercising any power, right or remedy
shall impair such power, right or remedy or be construed as a waiver thereof or
an acquiescence therein, and no single or partial exercise of any such power,
right or remedy shall preclude other or further exercise thereof or the exercise
of any other power, right or remedy under the Credit Agreement, the Loan
Documents or otherwise.
8. Representations and Warranties. All representations and warranties
------------------------------
made in this Amendment or any other Loan Document shall survive the execution
and delivery of this Amendment and the other Loan Documents, and no
investigation by the Administrative Agent or any closing shall affect the
representations and warranties or the right of the Administrative Agent and the
Lenders to rely upon such representations and warranties.
9. Ratification of Obligations under the Loan Documents. Each of the
----------------------------------------------------
undersigned Loan Parties acknowledges and consents to the terms of this
Amendment and agrees that all of its indebtedness, liabilities and obligations
under the Loan Documents to which it is a party continue in full force and
effect notwithstanding the execution and delivery of this Amendment or the
consummation of the transactions contemplated hereby. There are no defenses,
offsets or counterclaims to the performance by any of the undersigned Loan
Parties of their respective indebtedness, liabilities and obligations under the
Loan Documents.
10. Reference to Credit Agreement. This Amendment shall constitute a Loan
-----------------------------
Document. Each of the Loan Documents, including the Credit Agreement and any
and all other agreements, documents or instruments now or hereafter executed
and/or delivered pursuant to the terms hereof or pursuant to the terms of the
Credit Agreement as amended hereby, are (if and to the extent necessary) hereby
amended so that any reference in such Loan Documents to the Credit Agreement
shall mean a reference to the Credit Agreement as amended hereby.
11. Severability. Any provision of this Amendment held by a court of
------------
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
12. Successors and Assigns. This Amendment is binding upon and shall
----------------------
inure to the benefit of the Administrative Agent, the Lenders, the Borrower and
the other Loan Parties and their respective successors and assigns; provided,
--------
however, that neither the Borrower nor any of the other Loan Parties may assign
- -------
or transfer any of its rights or obligations hereunder without the prior written
consent of the Administrative Agent and the Lenders.
13. Term Loans A Commitments. The Administrative Agent, the Lenders and
------------------------
the Borrower agree that, as of April 21, 2000, the aggregate principal amount of
the Term Loans A Commitments is the remainder of (a) $115,000,000 minus (b) the
-----
aggregate principal amount of the Term Loans A advanced on or before April 21,
2000.
14. Headings. The headings, captions and arrangements used in this
--------
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 7
<PAGE>
15. Fees, Costs and Expenses. The Borrower hereby agrees, on demand, to
------------------------
pay or reimburse the Administrative Agent and each of the Lenders for paying all
reasonable out-of-pocket costs and expenses of the Administrative Agent accrued
in connection with the drafting, preparation, negotiation, execution and
delivery of this Amendment and all Loan Documents to be entered into in
connection herewith, including, without limitation, the reasonable fees and
expenses of legal counsel (including all local counsel) for the Administrative
Agent.
[Remainder of this page intentionally left blank.]
SECOND AMENDMENT TO CREDIT AGREEMENT - Page 8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their duly authorized officers effective as of the day
and year first above written.
BORROWER:
--------
NET-TEL CORPORATION
By: /s/ James F. Kenefick
---------------------------
Name: James F. Kenefick
-------------------------
Title: CEO
------------------------
HOLDINGS:
--------
NET-TEL COMMUNICATIONS, INC.
By: /s/ James F. Kenefick
---------------------------
Name: James F. Kenefick
-------------------------
Title: CEO
------------------------
NET-TEL VIRGINIA:
----------------
NET-TEL CORPORATION OF VIRGINIA, INC.
By: /s/ James F. Kenefick
---------------------------
Name: James F. Kenefick
-------------------------
Title: CEO
------------------------
SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE>
ADMINISTRATIVE AGENT:
--------------------
NORTEL NETWORKS INC.,
as Administrative Agent
By: /s/ Mitchell L. Stone
---------------------------
Name: Mitchell L. Stone
-------------------------
Title: Director
------------------------
LENDERS:
-------
NORTEL NETWORKS INC.
By: /s/ Mitchell L. Stone
---------------------------
Name: Mitchell L. Stone
-------------------------
Title: Director
------------------------
ALLIED CAPITAL CORPORATION
By: /s/ Scott S. Binder
---------------------------
Name: Scott S. Binder
-------------------------
Title: Principal
------------------------
SECOND AMENDMENT TO CREDIT AGREEMENT
<PAGE>
Exhibit 10.9
GUARANTY AGREEMENT
------------------
This GUARANTY AGREEMENT (this "Guaranty"), dated effective as of July 28,
--------
1999, is executed and delivered by NET-TEL COMMUNICATIONS, INC., a Delaware
corporation ("Guarantor"), to and in favor of NORTEL NETWORKS INC., as
---------
administrative agent for itself and the other Lenders (as such term is
hereinafter defined) (in such capacity, together with its successors and assigns
in such capacity, "Administrative Agent").
--------------------
W I T N E S S E T H:
- - - - - - - - - -
A. NET-tel Corporation ("Borrower"), the lenders named therein (together
--------
with their successors and assigns, "Lenders") and Administrative Agent are,
-------
concurrently herewith, entering into that certain Credit Agreement dated as of
July 28, 1999 (as the same may be amended, renewed, extended, restated,
replaced, substituted, supplemented or otherwise modified from time to time, the
"Credit Agreement") and, in connection therewith, inter alia, Borrower is,
---------------- ----- ----
concurrently herewith, executing and delivering that certain (i) Term Note A
dated July 28, 1999, in the original principal amount of $120,000,000 payable to
the order of Nortel Networks Inc., (ii) Term Note B dated July 28, 1999, in the
original principal amount of $10,000,000 payable to Allied Capital Corporation,
and (iii) Revolving Note dated July 28, 1999, in the original principal amount
of $10,000,000 payable to the order of Nortel Networks Inc. (such promissory
notes, as they may be amended, renewed, extended, restated, replaced,
substituted, supplemented or otherwise modified from time to time, are
hereinafter collectively called the "Notes"; the Credit Agreement, the Notes,
-----
the Security Documents and the other Loan Documents (as such terms are defined
in the Credit Agreement), including, without limitation, any and all security
agreements, pledge agreements, assignments, guaranties, licenses, lien waivers,
collection account agreements, concentration account agreements and other
agreements, documents, instruments and certificates now or hereafter executed
and/or delivered in connection therewith, and any and all amendments,
modifications, renewals, extensions, restatements and/or supplements thereto
from time to time, are hereinafter collectively called the "Loan Documents").
--------------
B. Guarantor has directly and indirectly benefitted and will directly and
indirectly benefit from the loans evidenced and governed by the Credit
Agreement, the Notes and the other Loan Documents and the other transactions
evidenced by and contemplated in the Loan Documents.
C. Execution and delivery of this Guaranty is a condition to
Administrative Agent and Lenders entering into the Credit Agreement and the
making of Loans pursuant thereto.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Guarantor hereby agrees as follows:
1. Definitions. Unless otherwise defined in this Guaranty, all
-----------
capitalized terms used in this Guaranty shall have the meanings ascribed to such
terms in the Credit Agreement.
2. Guaranty of Indebtedness, Liabilities and Obligations. Guarantor
-----------------------------------------------------
hereby absolutely, unconditionally and irrevocably guarantees (a) payment and
performance to Administrative Agent
GUARANTY AGREEMENT - Page 1
<PAGE>
and Lenders, as and when the same become due or performable strictly in
accordance with the terms and provisions of the Loan Documents, whether at
stated maturity, by acceleration or otherwise, of any and all Obligations (as
such term is defined in the Credit Agreement), which Obligations include,
without limitation, (i) any and all interest, penalties, fees and expenses
(specifically including, but not limited to, attorneys' fees and expenses) which
Borrower may now or at any time hereafter owe to Administrative Agent or any
Lender (whether or not such interest, penalties, fees and expenses were
originally contracted with Administrative Agent or any Lender or with another or
others and whether or not such interest, penalties, fees and expenses are
enforceable against Borrower) pursuant to the Credit Agreement, any Note or any
other Loan Document plus (ii) the principal amount of any and all indebtedness,
----
liabilities and other obligations, whether primary, absolute, secondary, direct,
indirect, fixed, contingent, liquidated, unliquidated, secured or unsecured,
matured or unmatured, joint, several or joint and several, due or to become due
and whether arising by agreement, note, discount, acceptance, overdraft or
otherwise, which Borrower may now or at any time hereafter owe to Administrative
Agent or any Lender (whether or not such indebtedness, liabilities and
obligations were originally contracted with Administrative Agent or any Lender
or with another or others and whether or not such indebtedness, liabilities or
obligations are enforceable against Borrower) pursuant to the Credit Agreement,
any Note or any other Loan Document and (b) the faithful, prompt and complete
compliance by Borrower and the other Loan Parties (or any one or more of them)
with all terms, conditions, covenants, agreements and undertakings of Borrower
and the other Loan Parties (or any one or more of them) under the Credit
Agreement, any Note or any other Loan Document (the Obligations, including the
interest, penalties, fees, expenses, indebtedness, liabilities and obligations,
etc. referred to in clauses (a) and (b) preceding as to which payment,
------- --- ---
performance and compliance are guaranteed pursuant to this Guaranty are
hereinafter collectively called the "Guaranteed Obligations").
----------------------
Notwithstanding that Borrower may not be liable or obligated to
Administrative Agent or any Lender for interest and/or attorneys' fees and
expenses on, or in connection with, the Guaranteed Obligations from and after
the Petition Date (as hereinafter defined) as a result of the provisions of the
federal bankruptcy laws or otherwise, the Guaranteed Obligations for which
Guarantor shall be liable and obligated under this Guaranty shall include (to
the extent permitted by law or a court of competent jurisdiction) interest
accruing on the Guaranteed Obligations at the highest rate provided for in the
Credit Agreement from and after the date on which Borrower files for protection
under the federal bankruptcy laws or from and after the date on which an
involuntary proceeding is filed against Borrower under the federal bankruptcy
laws (herein collectively referred to as the "Petition Date") and all attorneys'
-------------
fees and expenses incurred by Administrative Agent or any Lender from and after
the Petition Date in connection with the Guaranteed Obligations.
3. Continuing Guaranty of Payment. This Guaranty is and shall be an
------------------------------
absolute, unconditional, irrevocable and continuing guaranty of payment, and
not merely of collection, and from time to time or at any time the Guaranteed
Obligations may be increased, reduced or paid in full without affecting the
liability or obligation of Guarantor with respect to indebtedness, liabilities
and obligations of Borrower to Administrative Agent or any Lender thereafter
incurred. Guarantor further agrees that this Guaranty shall continue to be
effective or be reinstated (if a release or discharge has occurred), as the case
may be, if at any time any payment (or any part thereof) to Administrative Agent
or any Lender in respect of the Guaranteed Obligations is rescinded or must
otherwise be restored by Administrative Agent or any Lender pursuant to any
bankruptcy,
GUARANTY AGREEMENT - Page 2
<PAGE>
insolvency, reorganization, receivership or other debtor relief granted to
Borrower or its successors or assigns. In the event that Administrative Agent or
any Lender must rescind or restore any payment received by Administrative Agent
or any Lender, respectively, in satisfaction of the Guaranteed Obligations, as
set forth herein, any prior release or discharge from the terms of this Guaranty
given to Guarantor by Administrative Agent or such Lender, respectively, shall
be without effect, and this Guaranty shall remain in full force and effect. It
is the intention of Administrative Agent, Lenders and Guarantor that Guarantor's
liabilities and obligations hereunder shall not be discharged except by the full
and complete payment and performance of the Guaranteed Obligations and then only
to the extent of such payment and performance. Subject to Paragraph 21 hereof,
------------
this Guaranty is independent of, and in addition and without modification to
(except as expressly provided in Paragraph 21 hereof), and does not impair or in
------------
any way affect any other guaranty, endorsement or other agreement executed in
favor of Administrative Agent or any Lender, and this Guaranty and Guarantor's
liabilities and obligations under this Guaranty shall not be impaired or
otherwise affected by the execution, delivery or performance by Guarantor or any
other Person of any other guaranty, endorsement or other agreement.
4. Absolute Guaranty. Guarantor's liabilities and obligations under this
-----------------
Guaranty shall be absolute and unconditional irrespective of, shall not be
released, impaired, limited, reduced, conditioned upon or otherwise affected by
and shall continue in full force and effect notwithstanding the occurrence of
any event (other than an event consisting of payment and performance of such
liabilities and obligations in accordance with this Guaranty) at any time or
from time to time, including, without limitation, any one or more of the
following events specified in clauses (a) through (o) of this Paragraph 4 below,
------- --- --- -----------
and neither Administrative Agent nor any Lender shall be obligated or required
to take or to refrain from taking any of such actions or inactions specified
below and shall not have any liability, obligation or duty whatsoever with
respect to such actions or inactions, it being acknowledged and agreed by
Guarantor that all of such liabilities, obligations and duties (if any) of
Administrative Agent or any Lender otherwise existing and all rights and
remedies (if any) of Guarantor with respect thereto (whether such liabilities,
obligations, duties, rights or remedies exist by virtue of agreement, common
law, equity, statute or otherwise), and each and every defense which, under
principles of guaranty or suretyship law, would otherwise operate to eliminate,
impair, condition or restrict the liabilities and obligations of Guarantor for
the Guaranteed Obligations, are hereby expressly waived by Guarantor:
(a) the taking or accepting of any security or other guaranty for any
or all of the Guaranteed Obligations, whether heretofore, concurrently
herewith or hereafter;
(b) any failure to create or perfect or properly create or perfect any
lien, security interest or assignment intended as security, or any release,
surrender, exchange, substitution, subordination or loss of any security or
guaranty at any time existing in connection with any or all of the
Guaranteed Obligations for any reason; or any suretyship defenses,
including, without limitation, any impairment of collateral;
(c) any partial or full release of the liability or obligation of
Guarantor under any other guaranty whether or not similar to this Guaranty;
GUARANTY AGREEMENT - Page 3
<PAGE>
(d) the entering into, delivery of, modification of, amendment to or
waiver of compliance with the Credit Agreement, any Note or any other Loan
Document, or any agreement, document or instrument evidencing, securing or
otherwise affecting all or part of the Guaranteed Obligations, without the
notification of Guarantor, the right of such notification being hereby
specifically waived by Guarantor;
(e) the bankruptcy, insolvency, arrangement, adjustment, composition,
liquidation, disability, dissolution or lack of authority (whether
corporate, partnership or trust or relating to any other entity or Person)
of Borrower, Guarantor or any other Loan Party or Person at any time liable
or obligated for the payment of any or all of the Guaranteed Obligations,
whether now existing or hereafter arising;
(f) any increase, reduction, renewal, extension, amendment,
modification, repayment, refunding and/or rearrangement of the payment or
any other terms or provisions of any or all of the Guaranteed Obligations
at any time and from time to time, whether on one or more occasions, either
with or without notice to or consent of Guarantor, or any adjustment,
indulgence, forbearance or compromise that might be granted or given by
Administrative Agent or any Lender to Borrower, Guarantor or any other Loan
Party;
(g) any neglect, delay, omission, failure or refusal of Administrative
Agent or any Lender (i) to exercise or properly or diligently exercise any
right or remedy with respect to any or all of the Guaranteed Obligations or
the collection thereof or any collateral, security or guaranty therefor,
whether under the Credit Agreement, any Note or any other Loan Document or
otherwise, including, without limitation, to ensure compliance with any
term or provision of the Credit Agreement or any other Loan Document, (ii)
to take or prosecute or properly or diligently take or prosecute any action
for the collection of any or all of the Guaranteed Obligations against
Borrower, Guarantor or any other guarantor of any or all of the Guaranteed
Obligations and/or any other Loan Party or Person, (iii) to foreclose or
prosecute or properly or diligently foreclose or prosecute any action in
connection with any agreement, document or instrument or arrangement
evidencing, securing or otherwise affecting all or any part of the
Guaranteed Obligations, including, without limitation, any failure to
conduct a commercially reasonable foreclosure sale, or (iv) to mitigate
damages or take any other action to reduce, collect or enforce the
Guaranteed Obligations;
(h) any failure of Administrative Agent or any Lender to give notice
to Borrower, Guarantor and/or any other Loan Party of, or obtain the
consent of Borrower, Guarantor and/or any other Loan Party with respect to,
(i) the incurrence of any of the Guaranteed Obligations, (ii) the
occurrence of any "Default" or "Event of Default" as such terms are defined
in the Credit Agreement or any of the other Loan Documents, (iii) demand,
presentment, protest, nonpayment, intention to accelerate, acceleration,
lack of diligence or delay in collection of all or any part of the
Guaranteed Obligations or any other matter, or the absence thereof, (iv)
any renewal, extension or assignment of the Guaranteed Obligations or any
part thereof, (v) the disposition or release of all or any part of any
security for the Guaranteed Obligations (whether or not such disposition is
commercially reasonable) or (vi) any other action taken or refrained from
being taken by Administrative Agent or any Lender against Borrower or any
other Loan Party, it being agreed that (except as may be
GUARANTY AGREEMENT - Page 4
<PAGE>
expressly provided in the other Loan Documents) neither Administrative
Agent nor any Lender shall be required to give Borrower, Guarantor or any
other Loan Party any notice of any kind or to obtain Borrower's,
Guarantor's or any other Loan Party's consent under any circumstances
whatsoever with respect to or in connection with the Guaranteed
Obligations;
(i) the unenforceability, illegality or uncollectibility of all or any
part of the Guaranteed Obligations against Borrower or any other Loan Party
by reason of (i) failure of consideration, (ii) breach of warranty, (iii)
fraud, (iv) the fact that the interest contracted for, charged, collected
or received in respect of the Guaranteed Obligations exceeds the amount
permitted by law, (v) the act of creating the Guaranteed Obligations or any
part thereof is ultra vires, (vi) the officers, directors, partners,
----- -----
trustees or representatives creating the Guaranteed Obligations acted in
excess of their authority or lacked legal capacity, (vii) the Credit
Agreement, any Note or any other Loan Document evidencing the Guaranteed
Obligations has been forged or otherwise is irregular or is not genuine or
authentic, (viii) expiration of the applicable statute of limitations of
the Guaranteed Obligations, (ix) failure to comply with the statute of
frauds, (x) lender liability, or (xi) accord and satisfaction;
(j) any payment by Borrower or any other Loan Party to Administrative
Agent or any Lender is held to constitute a preferential transfer or a
fraudulent conveyance or transfer under any applicable law, or for any
reason Administrative Agent or any Lender is required to refund such
payment or pay such amount to Borrower or any other Loan Party or any other
Person;
(k) any merger, reorganization, consolidation or dissolution of
Borrower or any other Loan Party, any sale, lease or transfer of any or all
of the assets of Borrower or any other Loan Party, or any change in name,
business, location, composition, structure or any change in the
shareholders, partners or members (whether by accession, secession, death,
dissolution, transfer of assets or otherwise) of Borrower or any other Loan
Party;
(l) any failure of Administrative Agent or any Lender to notify
Guarantor of (i) the acceptance of this Guaranty, (ii) the making of Loans
by any Lender in reliance on this Guaranty, (iii) the failure of Borrower
or any other Loan Party to make any payment due by Borrower or any other
Loan Party to Administrative Agent or any Lender, or (iv) any information
regarding the financial condition or prospects of Borrower or any other
Loan Party;
(m) any existing or future offset, claim or defense of Borrower or any
other Loan Party against Administrative Agent or any Lender or against
payment of all or any part of the Guaranteed Obligations, whether such
offset, claim or defense arises in connection with the Guaranteed
Obligations (or the transactions creating the Guaranteed Obligations) or
otherwise (other than defenses resulting from the payment and performance
of the Guaranteed Obligations);
(n) any full or partial release of the liability of Borrower or any
other Loan Party, any guarantor of all or
GUARANTY AGREEMENT - Page 5
<PAGE>
any part of the Guaranteed Obligations or any other Person for all or any
part of the Guaranteed Obligations, it being acknowledged and agreed by
Guarantor that it may be required to pay the Guaranteed Obligations in full
without assistance or support, whether from Borrower or any other Loan
Party, any other guarantor or any other Person; or
(o) any other action taken or omitted to be taken with respect to any
of the Credit Agreement, any Note or any other Loan Document, the
Guaranteed Obligations or the security and collateral therefor, whether or
not such action or omission prejudices Guarantor or increases the
likelihood that Guarantor will be required to pay all or any part of the
Guaranteed Obligations pursuant to the terms hereof.
Without limiting the foregoing or Guarantor's liability under this Guaranty, to
the extent that Administrative Agent and Lenders (or any of them) have advanced
funds or extended credit to Borrower and do not receive payments or benefits
thereon in the amounts and at the times required or provided by or in connection
with the Credit Agreement, any Note or any other Loan Document, Guarantor is
absolutely liable to make such payments and to confer such benefits on Lenders
on a timely basis.
5. Representations and Warranties. In connection with this Guaranty,
------------------------------
Guarantor hereby represents and warrants to Administrative Agent and Lenders
that:
(a) Guarantor is the parent corporation of Borrower; Guarantor has
received and will receive a direct and indirect material benefit from the
transactions evidenced by and contemplated in the Credit Agreement, the
Notes and the other Loan Documents; this Guaranty is given by Guarantor in
furtherance of the direct and indirect business interests and corporate
purposes of Guarantor, and is necessary to the conduct, promotion and
attainment of the businesses of Borrower and Guarantor; and the value of
the consideration received and to be received by Guarantor is reasonably
worth at least as much as the liability and obligation of Guarantor
hereunder;
(b) The execution and delivery of this Guaranty and the performance of
and compliance with the terms hereof will not constitute a default (or an
event which with notice or lapse of time or both would constitute a
default) under, or result in the breach of, any material contract,
agreement or instrument to which Guarantor is a party or which may be
applicable to Guarantor or any of its assets;
(c) This Guaranty, when executed and delivered by Guarantor, will
constitute the legal, valid and binding obligation of Guarantor enforceable
in accordance with its terms, except as limited by bankruptcy, insolvency
or other laws of general application relating to the enforcement of
creditors' rights and general principles of equity;
(d) As of the date of this Guaranty, and after giving effect to this
Guaranty and the contingent obligation evidenced by this Guaranty,
Guarantor is not, on either an unconsolidated basis or a consolidated basis
with Borrower and Guarantor's subsidiaries, insolvent, as such term is used
or defined in any applicable bankruptcy, fraudulent conveyance, fraudulent
transfer or similar law, and Guarantor has and will have assets which,
GUARANTY AGREEMENT - Page 6
<PAGE>
fairly valued, exceed its indebtedness, liabilities and obligations;
Guarantor is not executing this Guaranty with any intention to hinder,
delay or defraud any present or future creditor or creditors of Guarantor;
Guarantor is not engaged in any business or transaction (including, without
limitation, the execution of this Guaranty) which will leave Guarantor with
unreasonably small capital or assets which are unreasonably small in
relation to the business or transactions engaged in by Guarantor, and
Guarantor does not intend to engage in any such business or transaction;
Guarantor does not intend to incur, nor does Guarantor believe that it will
incur, debts beyond Guarantor's ability to repay such debts as they mature;
(e) All acts and conditions required to be performed and satisfied
prior to the creation and issuance of this Guaranty, and to constitute this
Guaranty as the legal, valid and binding obligation of Guarantor in
accordance with its terms, have been performed and satisfied in due and
strict compliance with all applicable laws;
(f) Guarantor is familiar with, and has independently received books
and records regarding, the financial condition of Borrower and is familiar
with the value of any and all collateral (if any) intended to secure the
Guaranteed Obligations; however, Guarantor is not relying on such financial
condition or any such collateral (if any) as an inducement to enter into
this Guaranty; Guarantor has adequate means to obtain from Borrower, on a
continuing basis, the information referred to in this clause (f) preceding
----------
and is not relying on Administrative Agent or any Lender to provide any
such information at any time;
(g) Guarantor has not been induced to enter into this Guaranty on the
basis of a contemplation, belief, understanding or agreement that any
Person other than Guarantor will be liable to pay the Guaranteed
Obligations;
(h) Except for the execution of the Credit Agreement, neither
Administrative Agent, any Lender nor any other Person has made any
representation, warranty or statement to, or promise, covenant or agreement
with, Guarantor in order to induce Guarantor to execute this Guaranty;
(i) Borrower is a wholly-owned Subsidiary of Guarantor; and
(j) All representations and warranties in the Credit Agreement
relating to the Guarantor are true and correct in all respects as of the
date hereof, except to the extent made only as of a specific prior date,
and on each date the representations and warranties thereunder are restated
pursuant to any of the Loan Documents with the same force and effect as if
such representations and warranties had been made on and as of such date,
all of which are incorporated herein by reference.
6. Default. Upon the occurrence and during the continuance of an Event
-------
of Default, Guarantor shall, on demand by Administrative Agent and without
further demand and without notice of dishonor and without notice of any kind
(including, without limitation, notice of acceptance by Administrative Agent or
any Lender of this Guaranty) having been given to Borrower, Guarantor or any
other Person previous to such demand, promptly (i.e., not later than 1:00 p.m.,
New York, New York time, on the date of such demand or, if such demand is made
after 12:00 noon, on the next
GUARANTY AGREEMENT - Page 7
<PAGE>
succeeding Business Day) pay, in immediately available funds, the full unpaid
amount of the Guaranteed Obligations, or such lesser amount, if any, as may be
specifically demanded by Administrative Agent from time to time, to
Administrative Agent at Administrative Agent's Principal Office located in New
York, New York or at such other place as Administrative Agent may specify to
Guarantor in writing. If acceleration of the time for payment of any amount
payable by Borrower under or with respect to any of the Guaranteed Obligations
is stayed or otherwise delayed upon the insolvency, bankruptcy or reorganization
of Borrower, all such amounts otherwise subject to acceleration under the terms
of the Guaranteed Obligations shall nonetheless be payable by Guarantor
hereunder promptly on demand by Administrative Agent.
7. Cumulative Remedies; No Election. If Guarantor is or becomes liable
--------------------------------
or obligated for the Guaranteed Obligations, by endorsement or otherwise, other
than under this Guaranty, such liability or obligation shall not be in any
manner impaired or affected hereby, and the rights and remedies of
Administrative Agent or any Lender hereunder shall be cumulative of any and all
other rights and remedies that Administrative Agent or such Lender may ever have
against Guarantor. The exercise by Administrative Agent or any Lender of any
right or remedy hereunder or under any other agreement, document or instrument,
or at law or in equity, shall not preclude the concurrent or subsequent exercise
of any other right or remedy. Without in any way limiting the generality of the
foregoing, it is specifically understood and agreed that this Guaranty is given
by Guarantor as an additional guaranty or security to any and all other
guaranties or security heretofore, concurrently herewith or hereafter executed
and/or delivered by Guarantor to or in favor of Administrative Agent or any
Lender relating to the Guaranteed Obligations, and nothing herein shall ever be
deemed to in any way negate or replace any such other guaranties or security;
provided, however, that Administrative Agent and Lenders shall have all of their
- -------- -------
rights and remedies under this Guaranty irrespective of anything to the contrary
contained in any such other guaranties or security. This Guaranty may be
enforced from time to time as often as occasion therefor may arise, and it is
agreed and understood that it shall not be necessary for Administrative Agent or
any Lender, in order to enforce this Guaranty against Guarantor, first to
exercise any rights or remedies against Borrower or any other Person or
institute suit or exhaust any available rights or remedies against security in
Administrative Agent's or any Lender's possession or under Administrative
Agent's or any Lender's control, or to resort to any other sources or means of
obtaining payment of the Guaranteed Obligations.
8. Joint and Several Obligation. Guarantor agrees that Administrative
----------------------------
Agent and Lenders, in their sole discretion, may (a) bring suit against all
guarantors or other Persons liable or obligated to Administrative Agent or any
Lender or against any one or more of them, for interest, penalties, expenses,
fees, indebtedness, liabilities and obligations owed to Administrative Agent or
any Lender and apply any amounts obtained by Administrative Agent or any Lender
in such a manner as Administrative Agent or any Lender may elect, (b) bring suit
against all guarantors of the Guaranteed Obligations jointly and severally or
against any one or more of them, (c) settle fully or in part with any one or
more of such guarantors for such consideration as Administrative Agent or any
Lender may deem proper, and (d) partially or fully release one or more of such
guarantors from liability under any guaranty agreement, and that no such action
shall impair the rights of Administrative Agent or any Lender to collect the
Guaranteed Obligations (or the unpaid balance thereof) from other guarantors
(including, without limitation, Guarantor), or any of them, not so sued, settled
with or released.
GUARANTY AGREEMENT - Page 8
<PAGE>
9. Release of Collateral, etc. If all or any part of the Guaranteed
---------------------------
Obligations is at any time secured, Guarantor agrees that Administrative Agent
or any Lender may, at any time and from time to time in its discretion and with
or without valuable consideration, allow substitution or withdrawal of
collateral or other security and release collateral or other security without
impairing or diminishing the liabilities or obligations of Guarantor hereunder.
Guarantor further agrees that, if Borrower or any other Person executes in favor
of Administrative Agent or any Lender any collateral agreement, mortgage, deed
of trust, collateral assignment, security agreement or other security
instrument, the exercise by Administrative Agent or any Lender of any right or
remedy thereby conferred on Administrative Agent or any Lender shall be wholly
discretionary with Administrative Agent and such Lender, respectively, and that
the exercise or failure to exercise any such right or remedy shall in no way
impair or diminish the obligation of Guarantor hereunder. Guarantor further
agrees that (except to the extent prohibited by applicable law notwithstanding
an agreement of the parties to the contrary) neither Administrative Agent nor
any Lender shall be liable for its failure to use diligence or care in the
collection of the Guaranteed Obligations, in the creation or perfection of any
lien, security interest or assignment intended as security or in preserving the
liability of any Person liable or obligated on the Guaranteed Obligations, and
Guarantor hereby waives presentment for payment, notice of nonpayment, protest
and notice thereof, and diligence in bringing suit against any Person liable on
the Guaranteed Obligations or any part thereof.
10. Binding Effect. This Guaranty is for the benefit of Administrative
--------------
Agent and Lenders and their successors and permitted assigns, and in the event
of an assignment by Administrative Agent or any Lender or its successors or
assigns of the Guaranteed Obligations, or any part thereof, the rights and
benefits hereunder, to the extent applicable to the indebtedness, liabilities
and obligations so assigned, may be transferred with such indebtedness,
liabilities and obligations. This Guaranty is binding, not only upon Guarantor,
but upon its successors and assigns.
11. TEMPORARY LIMITED WAIVER OF SUBROGATION, CONTRIBUTION AND OTHER
---------------------------------------------------------------
RIGHTS. UPON PAYMENT BY GUARANTOR OF ANY SUMS IN RESPECT OF THE GUARANTEED
- ------
OBLIGATIONS HEREUNDER (INCLUDING, WITHOUT LIMITATION, ANY AMOUNTS ADVANCED TO
BORROWER BY GUARANTOR), ALL RIGHTS OF GUARANTOR AGAINST BORROWER OR ANY OTHER
GUARANTOR OF THE GUARANTEED OBLIGATIONS ARISING AS A RESULT THEREFROM BY WAY OF
RIGHT OF SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION
AND/OR OTHERWISE SHALL IN ALL RESPECTS BE SUBORDINATE AND JUNIOR IN RIGHT OF
PAYMENT AND ENFORCEMENT TO THE PRIOR INDEFEASIBLE PAYMENT AND ENFORCEMENT IN
FULL OF THE GUARANTEED OBLIGATIONS. GUARANTOR SHALL NOT HAVE, AND HEREBY
IRREVOCABLY WAIVES, BUT ONLY UNLESS AND UNTIL ALL OF THE GUARANTEED OBLIGATIONS
HAVE BEEN PAID AND PERFORMED IN FULL, ANY AND ALL RIGHTS AND REMEDIES OF
SUBROGATION, REIMBURSEMENT, EXONERATION, CONTRIBUTION, INDEMNIFICATION AND/OR
OTHERWISE AGAINST OR FROM BORROWER. IN ADDITION TO THE FOREGOING, GUARANTOR
HEREBY IRREVOCABLY WAIVES ANY AND ALL CLAIMS OR OTHER RIGHTS AND REMEDIES IT MAY
NOW HAVE OR HEREAFTER ACQUIRE AGAINST ADMINISTRATIVE AGENT, ANY LENDER,
BORROWER OR ANY OTHER PERSON UNDER CHAPTER 34 OF THE TEXAS BUSINESS AND COMMERCE
CODE, UNDER
GUARANTY AGREEMENT - Page 9
<PAGE>
RULES 31 AND 163 OF THE TEXAS RULES OF CIVIL PROCEDURE, UNDER SECTION 17.001 OF
THE TEXAS CIVIL PRACTICE AND REMEDIES CODE AND UNDER ANY OTHER STATUTE OF ANY
STATE OR OTHER JURISDICTION REQUIRING RECOURSE AGAINST THE PRIMARY OBLIGOR OR
IMPOSING OTHER REQUIREMENTS AS A CONDITION TO RECOURSE AGAINST A GUARANTOR IF
AND TO THE EXTENT THAT THE SAME MAY BE APPLICABLE TO THIS GUARANTY. Except as
expressly otherwise provided in this Paragraph 11, Guarantor shall have all
------------
rights of subrogation, reimbursement, exoneration, contribution and
indemnification that may exist under currently applicable law.
12. Subordination of Indebtedness and Liens. In connection with this
---------------------------------------
Guaranty, Guarantor hereby agrees that:
(a) The payment of any and all principal of and interest on the
Subordinated Indebtedness (as defined below) shall in all respects be
subordinate and junior in right of payment and enforcement to the prior
payment and enforcement in full of all Guaranteed Obligations as provided
in this Paragraph 12. The Subordinated Indebtedness shall not be payable,
------------
and no payment of principal, interest or other amounts on account thereof,
and no property or guaranty of any nature to secure, guarantee or pay the
Subordinated Indebtedness shall be made or given, directly or indirectly by
or on behalf of any Debtor (hereafter defined) or received, accepted,
retained or applied by Guarantor unless and until the Guaranteed
Obligations shall have been paid and performed in full; except that, prior
to the occurrence and continuance of an Event of Default, Guarantor shall
have the right to receive regularly scheduled payments, but not
prepayments, on the Subordinated Indebtedness made in the ordinary course
of business. After the occurrence and during the continuance of an Event
of Default, no payments of principal or interest may be made or given,
directly or indirectly, by or on behalf of any Debtor or received,
accepted, retained or applied by Guarantor unless and until the Guaranteed
Obligations shall have been paid and performed in full. If any sums shall
be paid to Guarantor or any Affiliate of Guarantor by any Debtor or any
other Person on account of the Subordinated Indebtedness when such payment
is not permitted hereunder, such sums shall be held in trust by Guarantor
for the benefit of Administrative Agent and Lenders and shall forthwith be
delivered to Administrative Agent without affecting the liability of
Guarantor under this Guaranty and may be applied by Administrative Agent
against the Guaranteed Obligations in accordance with the Credit Agreement.
Upon the request of Administrative Agent, Guarantor shall execute, deliver,
and endorse to Administrative Agent such documentation as Administrative
Agent may request to perfect, preserve and enforce its rights hereunder.
For purposes of this Guaranty and with respect to Guarantor, the term
"Subordinated Indebtedness" means all indebtedness, liabilities and
--------------------------
obligations of Borrower or any Loan Party other than Guarantor (Borrower
and such Loan Parties are hereinafter called the "Debtors") to Guarantor,
-------
whether such indebtedness, liabilities and obligations now exist or are
hereafter incurred or arise, or are primary, absolute, secondary, direct,
indirect, fixed, contingent, liquidated, unliquidated, secured or
unsecured, matured or unmatured, joint, several, joint and several, or
otherwise, and irrespective of whether such indebtedness, liabilities or
obligations are evidenced by a note, contract, open account or otherwise,
and irrespective of the Person or Persons in whose favor such indebtedness,
obligations or liabilities may, at their inception, have been, or may
GUARANTY AGREEMENT - Page 10
<PAGE>
hereafter be created, or the manner in which they have been or may
hereafter be acquired by Guarantor;
(b) Any and all Liens (including any judgment Liens) upon any Debtor's
property or assets securing payment of any Subordinated Indebtedness (the
"Subordinated Liens") shall be and remain inferior and subordinate to any
-------------------
and all Liens upon any Debtor's assets securing payment of the Guaranteed
Obligations or any part thereof, regardless of whether such Subordinated
Liens presently exist or are hereafter created or when such Subordinated
Liens were created, perfected, filed or recorded. Guarantor shall not
exercise or enforce any creditors' rights or remedies that it may have
against any Debtor or foreclose, repossess, sequester or otherwise
institute any action or proceeding (whether judicial or otherwise,
including, without limitation, the commencement of, or joinder in, any
bankruptcy, insolvency, reorganization, liquidation, receivership or other
debtor relief law) to enforce any Subordinated Lien on any property or
assets of any Debtor unless and until the Guaranteed Obligations shall have
been irrevocably paid and performed in full.
(c) In the event of any receivership, bankruptcy, reorganization,
rearrangement, debtor's relief or other insolvency proceeding involving any
Debtor as debtor, Administrative Agent shall have the right to prove and
vote any claim under the Subordinated Indebtedness and to receive directly
from the receiver, trustee or other court custodian all dividends,
distributions and payments made in respect of the Subordinated Indebtedness
until the Guaranteed Obligations have been paid in full. Administrative
Agent may apply any such dividends, distributions and payments against the
Guaranteed Obligations in accordance with the Credit Agreement;
(d) All promissory notes, accounts receivable, ledgers, records or any
other evidence of Subordinated Indebtedness, and all mortgages, deeds of
trust, security agreements, assignments and other security documents
evidencing the Subordinated Liens, shall contain a specific written notice
thereon that the indebtedness and Liens evidenced thereby are subordinated
under the terms of this Guaranty; and
(e) The terms and provisions of this Paragraph 12 are given by
------------
Guarantor as additional rights, remedies and benefits to any and all other
subordination agreements heretofore, concurrently herewith or hereafter
executed by Guarantor to or in favor of Administrative Agent or any Lender,
and nothing in this Guaranty shall ever be deemed to in any way negate or
replace any other such previous, concurrent or subsequent subordination
agreements.
13. Right of Setoff. Guarantor hereby grants to Administrative Agent and
---------------
each Lender a right of setoff upon any and all monies, securities or other
property of Guarantor, and the proceeds therefrom, now or hereafter held or
received by or in transit to Administrative Agent or any Lender from or for the
account of Guarantor, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and also upon any and all deposits (general or special)
and credits of Guarantor, and any and all claims of Guarantor against
Administrative Agent or any Lender at any time existing. The right of setoff
granted pursuant to this Paragraph 13 shall be cumulative of and in addition to
------------
Administrative Agent's and each Lender's common law right of setoff.
GUARANTY AGREEMENT - Page 11
<PAGE>
14. Further Assurances. Upon the request of Administrative Agent or any
------------------
Lender, Guarantor will, at any time and from time to time, duly execute and
deliver to Administrative Agent any and all such further agreements, documents
and instruments, and supply such additional information, as may be necessary or
advisable, in the reasonable opinion of Administrative Agent or any Lender, to
obtain the full benefits of this Guaranty.
15. Invalid Provisions. If any provision of this Guaranty is held to be
------------------
illegal, invalid or unenforceable under present or future laws effective during
the term hereof, such provision shall be fully severable, this Guaranty shall be
construed and enforced as if such illegal, invalid or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid or unenforceable provision or by its severance herefrom. Furthermore,
in lieu of such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Guaranty a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible and be legal,
valid and enforceable. No provision herein or in any other Loan Document
evidencing the Guaranteed Obligations shall require the payment or permit the
collection of interest in excess of the maximum permitted by applicable law.
16. Modification in Writing. No modification, consent, amendment or
-----------------------
waiver of any provision of this Guaranty, and no consent to any departure by
Guarantor herefrom, shall be effective unless the same shall be in writing and
signed by a duly authorized officer of Administrative Agent and Guarantor and
then shall be effective only in the specific instance and for the specific
purpose for which given.
17. No Waiver, Etc. No notice to or demand on Guarantor or Administrative
---------------
Agent in any case shall entitle Guarantor or Administrative Agent, respectively,
to any other or further notice or demand in similar or other circumstances. No
delay or omission by Administrative Agent, any Lender or Guarantor in exercising
any right or remedy hereunder shall impair any such right or remedy or be
construed as a waiver thereof or any acquiescence therein, and no single or
partial exercise of any such right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy hereunder.
18. Cumulative Rights. All rights and remedies of Administrative Agent
-----------------
and Lenders hereunder are cumulative of each other and of every other right or
remedy which Administrative Agent or any Lender may otherwise have at law or in
equity or under any other contract or document, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
19. Expenses. Guarantor agrees to pay on demand by Administrative Agent
--------
all costs and expenses incurred by Administrative Agent or any Lender in
connection with the enforcement of the terms and provisions of this Guaranty
and, if and to the extent that Borrower is obligated therefor in accordance with
the Credit Agreement, any and all amendments, modifications, renewals,
restatements and/or supplements hereto from time to time, including, without
limitation, the reasonable fees and expenses of legal counsel to Administrative
Agent. If Guarantor should breach or fail to perform any provision of this
Guaranty, Guarantor agrees to pay to Administrative Agent all costs and expenses
incurred by Administrative Agent or any Lender in the enforcement of this
GUARANTY AGREEMENT - Page 12
<PAGE>
Guaranty from time to time, including, without limitation, the reasonable fees
and expenses of all legal counsel to Administrative Agent and Lenders.
20. APPLICABLE LAW. THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN
--------------
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS
OF LAWS PRINCIPLES).
21. NO ORAL AGREEMENTS. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT
------------------
BETWEEN GUARANTOR AND ADMINISTRATIVE AGENT AND LENDERS RELATING TO THE SUBJECT
MATTER OF THIS GUARANTY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF SUCH PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG GUARANTOR AND ADMINISTRATIVE AGENT OR
ANY LENDER. THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) ORAL AGREEMENTS, ORAL
ARRANGEMENTS OR ORAL UNDERSTANDINGS RELATING TO THE SUBJECT MATTER OF THIS
GUARANTY, AND THIS GUARANTY SUPERSEDES ALL PRIOR (IF ANY) WRITTEN AGREEMENTS
RELATING TO THE SUBJECT MATTER OF THIS GUARANTY IF AND TO THE EXTENT THAT SUCH
PRIOR AGREEMENTS ARE INCONSISTENT WITH THIS GUARANTY.
22. Notices. All notices and other communications required or permitted
-------
to be given under this Guaranty shall be given or made in writing and shall be
delivered in the manner and to the addresses, and shall be deemed to have been
duly given when, specified in the Credit Agreement.
23. Survival. All representations, warranties, covenants and agreements
--------
of Guarantor in this Guaranty shall survive the execution of this Guaranty.
24. Counterparts. This Guaranty may be executed in any number of
------------
counterparts, each of which shall constitute an original, but all of which when
taken together shall constitute one and the same Guaranty.
25. Limitation on Interest. Notwithstanding anything to the contrary
----------------------
contained or referred to in this Guaranty, none of the terms and provisions of
this Guaranty, the Credit Agreement, the Notes or any other Loan Document shall
ever be construed to create a contract or obligation to pay interest at a rate
in excess of the Maximum Rate, and neither Administrative Agent nor any Lender
shall ever charge, receive, take, collect, reserve or apply, as interest on the
Obligations or the Guaranteed Obligations, any amount in excess of the Maximum
Rate. The parties hereto agree that any interest, charge, fee, expense or other
indebtedness, liability or obligation provided for in this Guaranty, the Credit
Agreement, the Notes or any other Loan Document which constitutes interest under
applicable law shall be, ipso facto and under any and all circumstances, limited
---- -----
or reduced to an amount equal to the lesser of (a) the amount of such interest,
charge, fee, expense or other indebtedness, liability or obligation that would
be payable in the absence of this Paragraph 25 or (b) an amount, which when
------------
added to all other interest payable under this Guaranty, the Credit Agreement,
the Notes and any other Loan Document, equals the Maximum Rate. If,
notwithstanding the foregoing, Administrative Agent or any Lender ever contracts
for, charges,
GUARANTY AGREEMENT - Page 13
<PAGE>
receives, takes, collects, reserves or applies as interest any
amount in excess of the Maximum Rate, such amount which would be deemed
excessive interest shall be deemed a partial payment or prepayment of principal
of the Obligations and the Guaranteed Obligations and treated hereunder as such,
and if the Obligations and the Guaranteed Obligations, or applicable portions
thereof, are paid in full, any remaining excess shall promptly be paid to
Borrower, Guarantor or such other Person (as appropriate). In determining
whether the interest paid or payable, under any specific contingency, exceeds
the Maximum Rate, Guarantor, Borrower, Administrative Agent and Lenders shall,
to the maximum extent permitted by applicable law, (i) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest, (ii)
exclude voluntary prepayments and the effects thereof, and (iii) amortize,
prorate, allocate and spread in equal or unequal parts the total amount of
interest throughout the entire contemplated term of the Obligations and the
Guaranteed Obligations, or applicable portions thereof, so that the interest
rate does not exceed the Maximum Rate at any time during the term of the
Obligations and the Guaranteed Obligations; provided that, if the unpaid
-------- ----
principal balance is paid and performed in full prior to the end of the full
contemplated term thereof, and if the interest received for the actual period of
existence thereof exceeds the Maximum Rate, Administrative Agent and Lenders
shall refund to Borrower, Guarantor or such other Person (as appropriate) the
amount of such excess and, in such event, neither Administrative Agent nor any
Lender shall be subject to any penalties provided by any laws for contracting
for, charging, receiving, taking, collecting, receiving or applying interest in
excess of the Maximum Rate.
26. Irrevocable Nature of Guaranty. This Guaranty may not be revoked by
------------------------------
Guarantor; provided, however, in the event it shall be determined that Guarantor
-------- -------
shall have the right, in accordance with applicable law and notwithstanding its
express agreement herein to the contrary, to revoke this Guaranty, Guarantor may
deliver to Administrative Agent, at its address for notices set forth in the
Credit Agreement, written notice of Guarantor's intention not to be liable
hereunder for any Guaranteed Obligations arising, created or incurred after
Administrative Agent's receipt of such notice, whereupon such notice shall be
effective to the extent (but only to the extent) provided hereinbelow as to
Guarantor from and after (but not before) the time when such notice is actually
delivered to and received by and receipted for in writing by Administrative
Agent (the "Effective Revocation Time"); provided, further, however, that such
------------------------- -------- ------- -------
notice shall not be effective as to, and shall not in any way restrict, limit,
impair, release or otherwise affect, the indebtedness, liabilities or
obligations of Guarantor under this Guaranty with respect to (a) any Guaranteed
Obligations consisting of indebtedness, liabilities or obligations under the
Credit Agreement, the Notes or any other Loan Document, whether incurred before
or after the Effective Revocation Time (including, without limitation, any
loans, advances or extensions of credit at any time made or created under the
Credit Agreement, whether or not agreed, committed or contemplated to be made by
Administrative Agent or any Lender and whether or not discretionary with
Administrative Agent or any Lender), (b) any Guaranteed Obligations arising,
created or incurred prior to the Effective Revocation Time, (c) any amendments,
modifications, renewals, extensions, restatements and/or supplements to or of
the indebtedness, liabilities or obligations referred to in clauses (a) and (b)
------- --- ---
preceding, whether occurring before or after the Effective Revocation Time, or
(d) any interest or costs of collection with respect to any of the indebtedness,
liabilities or obligations referred to in clauses (a), (b) or (c) preceding. Any
------- --- --- ---
revocation or attempted revocation of this Guaranty, whether in whole or in
part, shall not be effective except under limited circumstances (if any), and to
the limited extent, expressly provided in this Paragraph 26.
------------
GUARANTY AGREEMENT - Page 14
<PAGE>
27. Reinstatement of Guaranteed Obligations. Notwithstanding anything to
---------------------------------------
the contrary contained in this Guaranty or any other Loan Document, if the
payment of any amount of principal of or interest with respect to the Guaranteed
Obligations, or any portion thereof, is rescinded, voided or must otherwise be
refunded by the Administrative Agent or any Lender or otherwise for any reason
whatsoever, then the Guaranteed Obligations will be automatically reinstated and
become automatically effective and in full force and effect, all to the extent
that and as though such payment so rescinded, voided or otherwise refunded had
never been made.
28. Covenants and Agreements. Guarantor covenants and agrees that, as
------------------------
long as the Guaranteed Obligations or any part thereof are outstanding or any
Lender has any Commitment under the Credit Agreement:
(a) Guarantor will comply, strictly in accordance with the terms
thereof, with all covenants and agreements specifically applicable to it as
set forth in any one or more of the Credit Agreement and the other Loan
Documents, all of which are incorporated herein by reference;
(b) Financial Statements. Guarantor will furnish to Administrative
--------------------
Agent and each Lender:
(i) Annual Financial Statements. As soon as available, and in
---------------------------
any event within 90 days after the end of each fiscal year of
Guarantor, beginning with the fiscal year ending December 31, 1999,
either (A) a copy of the Form 10-K (including all financial statements
contained therein) filed by Guarantor as of the end of and for such
fiscal year then ended, together with consolidating schedules for each
of Guarantor and its Subsidiaries (including, without limitation,
Borrower) with respect to the financial statements contained therein,
or (B) a copy of the annual audit report (including the consolidated
balance sheet) of Guarantor and its Subsidiaries as of the end of such
year and the related consolidated statements of income or operations,
shareholders' equity and cash flows for such fiscal year, together
with consolidating schedules for Guarantor and its Subsidiaries
(including, without limitation, Borrower) with respect to each of such
financial statements, in each case setting forth in comparative form
the figures for the previous fiscal year, and accompanied by the
opinion of independent certified public accountants of recognized
standing reasonably acceptable to Administrative Agent, which opinion
shall state that such consolidated financial statements present fairly
the financial position and results of operations for the periods
indicated in conformity with GAAP applied on a basis consistent with
prior years and which opinion shall not be qualified or limited
because of a restricted or limited examination by such accountant of
any material portion of such Person's records; and
(ii) Quarterly Financial Statements. As soon as available, and
------------------------------
in any event within 45 days after the end of each of the quarters of
each fiscal year of Guarantor, beginning with the fiscal quarter
ending June 30, 1999, either (A) a copy of the Form 10-Q (including
all financial statements contained therein) filed by Guarantor as of
the end of and for such fiscal quarter then ended, together with
GUARANTY AGREEMENT - Page 15
<PAGE>
consolidating schedules for each of Guarantor and its Subsidiaries
(including, without limitation, Borrower) with respect to each of the
financial statements contained therein, or (B) a copy of the unaudited
consolidated balance sheet of Guarantor and its Subsidiaries as of the
end of such quarter and the related consolidated statements of income
or operations, shareholders' equity and cash flows for the period
commencing on the first day and ending on the last day of such
quarter, together with unaudited consolidating schedules for Guarantor
and its Subsidiaries (including, without limitation, Borrower) with
respect to each of such financial statements, in each case setting
forth in comparative form the information or figures for the
corresponding period of the preceding fiscal year, and certified by an
appropriate Responsible Officer of Guarantor as fairly presenting, in
accordance with GAAP, the financial position and the results of
operations of Guarantor and its Subsidiaries (including, without
limitation, Borrower) (except for year-end adjustments and financial
statement footnotes required by GAAP);
(c) Guarantor shall, except as may be otherwise permitted pursuant to
Section 8.17 of the Credit Agreement, be a holding company and shall not
------------
own Telecommunications Assets used or useful in the operation of the
Telecommunications Business; and
(d) Guarantor will not engage in any business other than the ownership
of Borrower and matters incidental thereto.
[remainder of page intentionally left blank]
GUARANTY AGREEMENT - Page 16
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
date first written above.
GUARANTOR:
---------
NET-TEL COMMUNICATIONS, INC.
/s/ Craig R. Bandes
By:______________________________
Craig R. Bandes
Senior Vice President
The undersigned has executed this Guaranty solely for the purpose of
confirming receipt of this Guaranty and reliance on this Guaranty by
Administrative Agent and Lenders as of the date first written above.
NORTEL NETWORKS INC.,
as Administrative Agent
/s/ Jay R. Prestipino
By:______________________________
Jay R. Prestipino
Director, Customer Finance
GUARANTY AGREEMENT - Page 17
<PAGE>
Exhibit 10.10
PLEDGE AND SECURITY AGREEMENT
-----------------------------
(NET-tel Communications, Inc.)
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement") dated as of July 28, 1999,
---------
is by and between NET-TEL COMMUNICATIONS, INC., a Delaware corporation
("Debtor"), whose address is 1023 31st Street N.W., Washington, D.C. 20007 and
------
whose Tax I.D. Number is 54-1877699 and NORTEL NETWORKS INC., a Delaware
corporation ("Secured Party"), as Administrative Agent for the "Lenders", as
-------------
that term is defined below, whose address is 2221 Lakeside Blvd., Richardson,
Texas 75082.
R E C I T A L S:
---------------
A. NET-tel Corporation ("Borrower") is, concurrently herewith, entering
--------
into that certain Credit Agreement dated as of July 28, 1999, with the lenders
party thereto (each individually a "Lender" and collectively, the "Lenders") and
------ -------
Secured Party (such agreement, as it may be amended, renewed, extended,
restated, replaced, substituted, supplemented or otherwise modified from time to
time, is referred to herein as the "Credit Agreement").
----------------
B. Debtor has directly and indirectly benefitted and will directly and
indirectly benefit from the Loans evidenced and governed by the Credit Agreement
and the other transactions evidenced by and contemplated in the Loan Documents
(as defined in the Credit Agreement), and execution and delivery of this
Agreement is necessary and convenient to the conduct, promotion and attainment
of the business of Debtor.
C. The execution and delivery of this Agreement is required by the terms
of the Credit Agreement and is a condition to the availability of the Loans to
Borrower pursuant to the Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
ARTICLE 1
DEFINITIONS
-----------
Section 1.1 Definitions. As used in this Agreement, the following terms
-----------
have the following meanings:
"Borrower" means NET-tel Corporation, a Florida corporation, with its
--------
chief executive office located at 1023 31st Street N.W., Washington, D.C.
20007.
"Broker" means any "broker," as such term is defined in Article or
------
Chapter 8 of the UCC, and in any event shall include, but not be limited
to, any Person defined as a broker or dealer under the federal securities
laws, but without excluding a bank acting in that capacity.
Page 1
<PAGE>
"Capital Lease Obligations" means, as to the Borrower and its
-------------------------
Consolidated Subsidiaries, the obligations of such Persons to pay rent or
other amounts under a lease of (or other agreement conveying the right to
use) real and/or personal Property, which obligations are classified as a
capital lease on a balance sheet of such Persons under GAAP. For purposes
of this Agreement, the amount of such Capital Lease Obligations shall be
the capitalized amount thereof, determined in accordance with GAAP.
"Capital Stock" means corporate stock and any and all securities,
-------------
shares, partnership interests, limited partnership interests, limited
liability company interests, membership interests, equity interests,
participations, rights or other equivalents (however designated) of
corporate stock or any of the foregoing issued by any entity (whether a
corporation, a partnership, a limited liability company or another entity)
and includes, without limitation, securities convertible into Capital Stock
and rights or options to acquire Capital Stock.
"Clearing Corporation" means any "clearing corporation," as such term
--------------------
is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any (a) Person that is registered as a
"clearing agency" under the federal securities laws, (b) federal reserve
bank, or (c) other Person that provides clearance or settlement services
with respect to Financial Assets that would require it to register as a
clearing agency under the federal securities laws but for an exclusion or
exemption from the registration requirement, if its activities as a
clearing corporation, including, without limitation, promulgation of rules,
are subject to regulation by a federal or state governmental authority.
"Closing Date" means July 28, 1999, the date of the Credit Agreement.
------------
"Collateral" means as specified in Section 2.1.
---------- -----------
"Consolidated Subsidiary" means, with respect to any Person, any
-----------------------
Subsidiary the financial attributes of which are or would be consolidated
with those of such Person in the consolidated financial statements of such
Person in accordance with GAAP.
"Debt" means as to any Person at any time (without duplication): (a)
----
all indebtedness, liabilities and obligations of such Person for borrowed
money; (b) all indebtedness, liabilities and obligations of such Person
evidenced by bonds, notes, debentures or other similar instruments; (c) all
indebtedness, liabilities and obligations of such Person to pay the
deferred purchase price of Property or services, except trade accounts
payable of such Person arising in the ordinary course of business that are
not past due by more than 90 days; (d) all Capital Lease Obligations of
such Person; (e) all Debt of others Guaranteed by such Person; (f) all
indebtedness, liabilities and obligations secured by a Lien existing on
Property owned by such Person, whether or not the indebtedness, liabilities
or obligations secured thereby have been assumed by such Person or are non-
recourse to such Person; (g) all reimbursement obligations of such Person
(whether contingent or otherwise) in respect of letters of credit, bankers'
acceptances, surety or other bonds and similar instruments; (h) all
indebtedness, liabilities and obligations of such Person to redeem or
retire shares of Capital Stock of such Person; (i) all indebtedness,
liabilities and obligations of such Person under Interest Rate
Page 2
<PAGE>
Protection Agreements; and (j) all indebtedness, liabilities and
obligations of such Person in respect of unfunded vested benefits under any
pension plans.
"FCC" means the Federal Communications Commission and any successor
---
agency.
"Financial Asset" means any "financial asset," as such term is defined
---------------
in Article or Chapter 8 of the UCC, and in any event shall include, but not
be limited to, any (a) Security, (b) obligation of a Person or a share,
participation or other interest in a Person or in property or an enterprise
of a Person, which is, or is of a type, dealt in or traded on financial
markets, or which is recognized in any area in which it is issued or dealt
in as a medium for investment, and (c) any property that is held by a
Securities Intermediary for another Person in a Securities Account if the
Securities Intermediary has expressly agreed with the other Person that the
property is to be treated as a Financial Asset under Article or Chapter 8
of the UCC.
"GAAP" means generally accepted accounting principles, applied on a
----
consistent basis, as set forth in Opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and/or in
statements of the Financial Accounting Standards Board and/or their
respective successors and which are applicable in the circumstances as of
the date in question. Accounting principles are applied on a "consistent
basis" when the accounting principles applied in a current period are
comparable in all material respects to those accounting principles applied
in a preceding period.
"Governmental Authority" means any nation or government, any state,
----------------------
provincial or political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
or pertaining to government.
"Guarantee" by any Person means any indebtedness, liability or
---------
obligation, contingent or otherwise, of such Person directly or indirectly
guaranteeing any Debt or other obligation of any other Person and, without
limiting the generality of the foregoing, any indebtedness, liability or
obligation, direct or indirect, contingent or otherwise, of such Person (a)
to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or other obligation (whether arising by virtue of partnership
arrangements, by agreement to keep-well, to purchase assets, goods,
securities or services, to take-or-pay or to maintain financial statement
conditions or otherwise) or (b) entered into for the purpose of assuring in
any other manner the obligee of such Debt or other indebtedness, liability
or obligation as to the payment thereof or to protect the obligee against
loss in respect thereof (in whole or in part), provided that the term
--------
Guarantee shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be
an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee is made or, if not stated or
determinable, the maximum anticipated liability in respect thereof
(assuming such Person is required to perform thereunder).
"Instrument" means any "instrument", as such term is defined in
----------
Article or Chapter 9 of the UCC, now owned or hereafter acquired by Debtor
which evidences, whether in whole
Page 3
<PAGE>
or in part, any indebtedness which constitutes a part of the Collateral,
and, in any event, shall include the promissory notes described on Schedule
1 and all other promissory notes, drafts, bills of exchange and trade
acceptances of Debtor which constitute a part of the Collateral, whether
now owned or hereafter acquired.
"Interest Rate Protection Agreements" means, with respect to Borrower,
-----------------------------------
an interest rate swap, cap or collar agreement or similar arrangement
between Borrower and one or more Lenders providing for the transfer or
mitigation of interest rate risks either generally or under specified
contingencies.
"Issuer" means any "issuer," as such term is defined in Article or
------
Chapter 8 of the UCC, and in any event shall include, but not be limited
to, any Person that, with respect to an obligation on or a defense to a
Security, (a) places or authorizes the placing of its name on a Security
Certificate, other than as authenticating trustee, registrar, transfer
agent or the like, to evidence a share, participation or other interest in
its property or in an enterprise, or to evidence its duty to perform an
obligation represented by the certificate; (b) creates a share,
participation or other interest in its property or in an enterprise, or
undertakes an obligation, that is an Uncertificated Security; (c) directly
or indirectly creates a fractional interest in its rights or property, if
the fractional interest is represented by a Security Certificate; or (d)
becomes responsible for, or in the place of, another Issuer.
"Lien" means, with respect to any Property, any mortgage or deed of
----
trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, tax lien, financing statement, pledge, charge, hypothecation or
other lien, charge, easement (other than any easement not materially
impairing usefulness), encumbrance, preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever on
or with respect to such Property (including, without limitation, any
conditional sale or other title retention agreement having substantially
the same economic effect as any of the foregoing).
"Obligations" means the "Obligations," as such term is defined in the
-----------
Credit Agreement, and the obligations, indebtedness and liabilities of
Debtor under this Agreement and any other Loan Document to which Debtor may
be a party, including, without limitation, that certain Guaranty Agreement
dated as of July 28, 1999 executed by Debtor in favor of Secured Party.
"Person" means any individual, corporation, trust, association,
------
company, partnership, joint venture, limited liability company, joint stock
company, Governmental Authority or other entity.
"Pledged Collateral" has the meaning specified in Section 4.7(b)(i).
------------------ -----------------
"Pledged Shares" means all Capital Stock or other equity interests in,
--------------
of or issued by Borrower now or hereafter owned by Debtor, including,
without limitation, the shares of Capital Stock in, of or issued by
Borrower described on Schedule 2.
----------
Page 4
<PAGE>
"Proceeds" means any "proceeds," as such term is defined in Article or
--------
Chapter 9 of the UCC and, in any event, shall include, but not be limited
to, (a) any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to Debtor from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due
and payable to Debtor from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any Governmental Authority (or any Person acting, or
purporting to act, for or on behalf of any Governmental Authority), and (c)
any and all other amounts from time to time paid or payable under or in
connection with any of the Collateral.
"Property" means property and assets of all kinds, whether real,
--------
personal or mixed, tangible or intangible (including, without limitation,
all rights relating thereto), whether owned or acquired on or after the
Closing Date.
"Securities Account" means any "securities account," as such term is
------------------
defined in Article or Chapter 8 of the UCC, and in any event shall include,
but not be limited to, any account to which a Financial Asset is or may be
credited in accordance with an agreement under which the Person maintaining
the account undertakes to treat the Person for whom the account is
maintained as entitled to exercise the rights that comprise the Financial
Asset.
"Securities Intermediary" means any "securities intermediary," as such
-----------------------
term is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any (a) Clearing Corporation, or (b)
Person, including a bank or Broker, that in the ordinary course of its
business maintains Securities Accounts for others and is acting in that
capacity.
"Security" means any "security," as such term is defined in Article or
--------
Chapter 8 of the UCC and, in any event, shall include, but not be limited
to, any obligation of an Issuer or a share, participation or other interest
in an Issuer or in property or an enterprise of an Issuer (a) which is
represented by a Security Certificate in bearer or registered form, or the
transfer of which may be registered upon books maintained for that purpose
by or on behalf of the Issuer, (b) which is one of a class or series or by
its terms is divisible into a class or series of shares, participations,
interests or obligations, and (c) which (i) is, or is of a type, dealt in
or traded on securities exchanges or securities markets, or (ii) is a
medium for investment and by its terms expressly provides that it is a
security governed by Article or Chapter 8 of the UCC.
"Security Certificate" means any "security certificate," as such term
--------------------
is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any certificate representing a Security.
"Subsidiary" means, with respect to any Person, any corporation or
----------
other entity of which at least a majority of the outstanding shares of
stock or other ownership interests having by the terms thereof ordinary
voting power to elect a majority of the board of directors (or Persons
performing similar functions) of such corporation or entity (irrespective
of whether or not at the time, in the case of a corporation, stock of any
other class or classes
Page 5
<PAGE>
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned
or controlled by such Person or one or more of its Subsidiaries or by such
Person and one or more of its Subsidiaries.
"UCC" means the Uniform Commercial Code as in effect in the State of
---
New York; provided, that if, by applicable law, the perfection or effect of
--------
perfection or non-perfection of the security interest created hereunder in
any Collateral is governed by the Uniform Commercial Code as in effect on
or after the date hereof in any other jurisdiction, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for purposes of the
provisions hereof relating to such perfection or the effect of perfection
or non-perfection.
"Uncertificated Security" means any "uncertificated security," as such
-----------------------
term is defined in Article or Chapter 8 of the UCC, and in any event shall
include, but not be limited to, any Security that is not represented by a
certificate.
Section 1.2 Other Definitional Provisions. Terms used herein that are
-----------------------------
defined in the Credit Agreement and are not otherwise defined herein shall have
the meanings therefor specified in the Credit Agreement. References to
"Sections," "Subsections," "Exhibits" and "Schedules" shall be to Sections,
Subsections, Exhibits and Schedules, respectively, of this Agreement unless
otherwise specifically provided. All definitions contained in this Agreement
are equally applicable to the singular and plural forms of the terms defined.
All references to statutes and regulations shall include any amendments of the
same and any successor statutes and regulations. References to particular
sections of the UCC should be read to refer also to parallel sections of the
Uniform Commercial Code as enacted in each state or other jurisdiction where any
portion of the Collateral is or may be located.
ARTICLE 2
SECURITY INTEREST
-----------------
Section 2.1 Security Interest. As collateral security for the prompt
-----------------
payment and performance in full when due of the Obligations (whether at stated
maturity, by acceleration or otherwise), Debtor hereby pledges and assigns (as
collateral) to Secured Party, and grants to Secured Party a continuing Lien on
and security interest in, all of Debtor's right, title and interest in and to
the following, whether now owned or hereafter arising or acquired and wherever
located (collectively, the "Collateral"):
----------
(a) the Pledged Shares and the certificates representing the Pledged
Shares, and all dividends, cash, instruments and other property from time to
time received, receivable or otherwise distributed or distributable in respect
of or in exchange for any or all of the Pledged Shares, and all rights,
interests and other property, including, without limitation, general
intangibles, relating to any or all of the Pledged Shares and such dividends,
cash, investments and other property;
(b) all Debt from time to time owed to Debtor by Borrower and/or any
Subsidiary of Borrower and the Instruments evidencing such Debt, and all
interest, cash, instruments and other
Page 6
<PAGE>
property from time to time received, receivable or otherwise distributed or
distributable in respect of or in exchange for any or all of such Debt;
(c) all proceeds, in cash or otherwise, of any of the property described in
the foregoing clauses (a) through (b) and all liens, security, rights, remedies
----------- ---
and claims of Debtor with respect thereto; and
(d) all Proceeds and products of any or all of the foregoing.
Section 2.2 Delivery of Collateral. All certificates or instruments
----------------------
representing, evidencing or constituting the Pledged Shares, any Instrument or
any other Collateral (now owned or hereafter acquired), promptly upon Debtor
gaining any rights therein, shall be delivered to and held by or on behalf of
Secured Party pursuant hereto in suitable form for transfer by delivery, or
accompanied by duly executed instruments of transfer or assignment in blank, all
in form and substance reasonably satisfactory to Secured Party. After the
occurrence and during the continuation of an Event of Default, Secured Party
shall have the right at any time to exchange certificates or instruments
representing or evidencing any Pledged Collateral in its possession for
certificates or instruments of smaller or larger denominations.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce Secured Party to enter into this Agreement, Debtor represents and
warrants to Secured Party that:
Section 3.1 Title. Debtor is, and with respect to Collateral acquired
-----
after the date hereof Debtor will be, the legal and beneficial owner of the
Collateral free and clear of any Lien or other encumbrance, except for Permitted
Liens and Liens in favor of Secured Party.
Section 3.2 Financing Statements. No financing statement, security
--------------------
agreement or other Lien instrument covering all or any part of the Collateral is
on file in any public office, except as may have been filed in favor of Secured
Party pursuant to this Agreement and except for financing statements evidencing
Permitted Liens in favor of Secured Party. Except as may be disclosed on
Schedule 3 hereto, Debtor does not do business and has not done business within
- ----------
the past five (5) years under a trade name or any name other than its legal name
set forth at the beginning of this Agreement.
Section 3.3 Principal Place of Business. The principal place of
---------------------------
business and chief executive office of Debtor, and the office where Debtor keeps
its books and records, is located at the address of Debtor shown at the
beginning of this Agreement.
Section 3.4 Perfection. Upon the filing of Uniform Commercial Code
----------
financing statements in the jurisdictions listed on Schedule 4 hereto and
----------
Secured Party's obtaining possession of the Pledged Shares and Security
Certificates of Debtor and the Instruments, the security interest
Page 7
<PAGE>
in favor of Secured Party created herein will constitute a valid and perfected
Lien upon and security interest in the Collateral, subject to no equal or prior
Liens.
Section 3.5 Pledged Shares and Instruments.
------------------------------
(a) The Pledged Shares have been duly authorized and validly issued and are
fully paid and nonassessable under the laws of the jurisdiction of incorporation
or organization of Borrower. To the best knowledge of Debtor, the Instruments
have been duly authorized and validly issued by Borrower and constitute legally
enforceable indebtedness of Borrower.
(b) Debtor is the legal and beneficial owner of the Pledged Shares and the
Instruments, free and clear of any Lien (other than the Lien created by this
Agreement), and Debtor has not sold, granted any option with respect to,
assigned, transferred or otherwise disposed of any of its rights or interest in
or to the Pledged Shares or the Instruments.
(c) On the date hereof, the Pledged Shares constitute the percentage of the
issued and outstanding shares of Capital Stock of Borrower indicated on Schedule
--------
2, as such Schedule 2 may from time to time be supplemented, amended or
- - ----------
modified.
Section 3.6 Consideration. Debtor expects to derive substantial benefit
-------------
(and Debtor may reasonably be expected to derive substantial benefit), directly
and indirectly, from the Loans and the other transactions contemplated by the
Credit Agreement. Debtor will receive reasonably equivalent value in exchange
for the Collateral being provided by it pursuant to the Loan Documents to which
it is a party as security for the payment and performance of the Obligations.
ARTICLE 4
COVENANTS
---------
Debtor covenants and agrees with Secured Party that until the Obligations
are paid and performed in full and all Commitments under the Credit Agreement
have expired or have been terminated:
Section 4.1 Encumbrances. Debtor shall not create, permit or suffer to
------------
exist, and shall defend the Collateral against, any Lien or other encumbrance on
the Collateral except for those Permitted Liens (if any) which are permitted to
attach to the Collateral in accordance with the Credit Agreement, and shall
defend Debtor's rights in the Collateral and Secured Party's pledge and
collateral assignment of and security interest in the Collateral against the
claims and demands of all Persons. Debtor shall do nothing to impair the rights
of Secured Party in the Collateral.
Section 4.2 Disposition of Collateral. Except as expressly permitted by
-------------------------
the terms of the Credit Agreement, Debtor shall not sell, lease, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, the Collateral or any part thereof without the prior written consent
of Secured Party.
Page 8
<PAGE>
Section 4.3 Further Assurances. At any time and from time to time, upon
------------------
the request of Secured Party, and at the sole expense of Debtor, Debtor shall
promptly execute and deliver all such further agreements, documents and
instruments and take such further action as Secured Party may reasonably deem
necessary or appropriate to preserve and perfect its security interest in and
pledge and collateral assignment of the Collateral and carry out the provisions
and purposes of this Agreement or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any of the Collateral,
and, to the extent any of the Collateral at any time constitutes Investment
Property, then Debtor shall cause Secured Party to obtain "control," as defined
in Article or Chapter 8 of the UCC, of such Collateral in one (or more, if
Secured Party reasonably so requests) of the manners prescribed in Section 8-106
of the UCC. Debtor and Secured Party agree that the grant of the security
interest in the Investment Property pursuant to this Agreement shall have the
effect of a delivery of such securities to Secured Party pursuant to Section 8-
301 of the UCC, and the effect of a taking of delivery by Secured Party of such
Collateral in accordance with Section 8-302 of the UCC. Except as otherwise
expressly permitted by the terms of the Credit Agreement relating to disposition
of assets and except for Permitted Liens, Debtor agrees to defend the title to
the Collateral and the Lien thereon of Secured Party against the claim of any
other Person and to maintain and preserve such Lien. Without limiting the
generality of the foregoing, Debtor shall (a) execute and deliver to Secured
Party such financing statements as Secured Party may from time to time require;
(b) deliver and pledge to Secured Party all Instruments of Debtor with any
necessary endorsements; and (c) execute and deliver to Secured Party such other
agreements, documents and instruments as Secured Party may reasonably require to
perfect and maintain the validity, effectiveness and priority of the Liens
intended to be created by the Loan Documents. Debtor authorizes Secured Party
to file one or more financing or continuation statements, and amendments
thereto, relating to all or any part of the Collateral without the signature of
Debtor where permitted by law. A carbon, photographic or other reproduction of
this Agreement or of any financing statement covering the Collateral or any part
thereof shall be sufficient as a financing statement and may be filed as a
financing statement.
Section 4.4 Entity Maintenance and Changes. Debtor shall preserve and
------------------------------
maintain its entity existence. Debtor shall not change its name, identity or
corporate structure in any manner that might make any financing statement filed
in connection with this Agreement seriously misleading unless Debtor shall have
given Secured Party thirty (30) days prior written notice thereof and shall have
taken all action deemed necessary or appropriate by Secured Party to protect its
Liens and the perfection and priority thereof. Debtor shall not change its
principal place of business, chief executive office or the place where it keeps
its books and records unless (except in the event of casualty or other
legitimate emergency which necessitates such a change, in which event Debtor
shall give Secured party prompt written notice of such change) it shall have
given Secured Party thirty (30) days prior written notice thereof and shall have
taken all action deemed necessary or reasonably appropriate by Secured Party to
cause its security interest in the Collateral to be perfected with the priority
required by this Agreement.
Section 4.5 Books and Records; Information. Debtor shall keep accurate
------------------------------
and complete books and records of the Collateral and Debtor's business and
financial condition in accordance with GAAP. Debtor shall from time to time at
the request of Secured Party deliver to Secured Party such information regarding
the Collateral and Debtor as Secured Party may reasonably request, including,
without limitation, lists and descriptions of the Collateral and evidence of the
identity and existence
Page 9
<PAGE>
of the Collateral. To the extent required by Section 4.4 of this Agreement,
-----------
Debtor shall mark its books and records to reflect the security interest of
Secured Party under this Agreement.
Section 4.6 Notification. Debtor shall promptly notify Secured Party of
------------
(a) any Lien, encumbrance or claim (other than Permitted Liens) that has
attached to or been made or asserted against any of the Collateral, (b) any
material change in any of the Collateral, including, without limitation, any
material damage to or loss of Collateral and (c) the occurrence of any other
event or condition (including, without limitation, matters as to Lien priority)
that could reasonably be expected to have a material adverse effect on the
Collateral or the security interest created hereunder.
Section 4.7 Voting Rights; Distributions, Etc.
----------------------------------
(a) So long as no Event of Default or, if and to the extent provided below,
Default shall have occurred and be continuing:
(i) Debtor shall be entitled to exercise any and all voting and other
consensual rights (including, without limitation, the right to give
consents, waivers and notifications in respect of any of the Pledged
Collateral) pertaining to any of the Pledged Collateral or any part
thereof; provided, however, that without the prior written consent of
-------- -------
Secured Party, no vote shall be cast or consent, waiver or ratification
given or action taken which would (A) be inconsistent with or violate any
provision of this Agreement or any other Loan Document or (B) amend, modify
or waive any term, provision or condition of the partnership agreement,
certificate of incorporation, by-laws, certificate of formation, operating
agreement or other charter document or other agreement relating to,
evidencing, providing for the issuance of or securing any Collateral; and
provided further that Debtor shall give Secured Party at least five (5)
-------- -------
Business Days' prior written notice in the form of an officer's certificate
of the manner in which it intends to exercise, or the reasons for
refraining from exercising, any voting or other consensual rights
pertaining to the Collateral or any part thereof which might have a
material adverse effect on the value of the Collateral or any part thereof;
and
(ii) Unless a Default or an Event of Default shall have occurred and
be continuing, Debtor shall be entitled to receive and retain any and all
dividends and interest paid in respect of any of the Collateral to the
extent permitted by the Credit Agreement; provided, however, that any and
-------- -------
all
(A) Restricted Payments paid or payable in violation of Section
-------
9.4 of the Credit Agreement,
---
(B) Restricted Payments paid or payable other than in cash in
respect of, and instruments and other property received, receivable or
otherwise distributed in respect of, or in exchange for, any
Collateral,
(C) Restricted Payments hereafter paid or payable in cash in
respect of any Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction of
capital, capital surplus or paid-in-surplus, and
Page 10
<PAGE>
(D) cash paid, payable or otherwise distributed in redemption of,
or in exchange for, any Collateral,
shall be, and shall be forthwith delivered to Secured Party to hold as,
Collateral and shall, if received by Debtor, be received in trust for the
benefit of Secured Party, be segregated from the other property or funds of
Debtor and be forthwith delivered to Secured Party as Collateral in the
same form as so received (with any necessary endorsement). All amounts
(other than amounts described in clauses (ii) (A)-(D) above which shall not
--------------------
be released to Debtor) received by Secured Party in respect of any Pledged
Collateral shall be either (1) promptly released to Debtor, so long as no
Default or Event of Default shall have occurred and be continuing or (2) if
any Default or Event of Default shall have occurred and be continuing, held
by Secured Party and (if an Event of Default shall have occurred and be
continuing) applied as provided by the Credit Agreement. During the
continuance of any Default, any dividends, interest or other distributions
(whether in cash, securities, property or otherwise) received by Debtor
with respect to any Pledged Collateral shall be held by Debtor in trust for
the benefit of Secured Party and, upon the request of Secured Party, shall
be delivered promptly to Secured Party to hold as Collateral or shall be
applied by Secured Party toward payment of the Obligations, as Secured
Party may in its discretion determine. If such Default is waived or cured
to the satisfaction of Secured Party, any such distributions (except those
of the types described in clauses (ii)(A-D) above which shall not be
-----------------
released to Debtor) shall be returned promptly to Debtor (provided that no
other Default or Event of Default exists). If such Default remains uncured
and becomes an Event of Default, any such distributions will be applied by
Secured Party as provided in the Credit Agreement.
(b) Upon the occurrence and during the continuance of an Event of Default
or, if and to the extent provided below, a Default:
(i) Secured Party may, without notice to Debtor, transfer or register
in the name of Secured Party or any of its nominees any or all of the
Collateral described in Section 2.1(a) or Section 2.1(b), the proceeds
-------------- --------------
thereof (in cash or otherwise) and all liens, security, rights, remedies
and claims of Debtor with respect thereto (collectively, the "Pledged
-------
Collateral") held by Secured Party hereunder, and Secured Party or its
----------
nominee may thereafter, after delivery of notice to Debtor, exercise all
voting and corporate rights at any meeting of any corporation, partnership
or other business entity issuing any of the Pledged Collateral and any and
all rights of conversion, exchange, subscription or any other rights,
privileges or options pertaining to any of the Pledged Collateral as if it
were the absolute owner thereof, including, without limitation, the right
to exchange at its discretion any and all of the Pledged Collateral upon
the merger, consolidation, reorganization, recapitalization or other
readjustment of any corporation, partnership or other business entity
issuing any of such Pledged Collateral or upon the exercise by any such
issuer or Secured Party of any right, privilege or option pertaining to any
of the Pledged Collateral, and in connection therewith, to deposit and
deliver any and all of the Pledged Collateral with any committee,
depositary, transfer agent, registrar or other designated agency upon such
terms and conditions as it may determine, all without liability except to
account for property actually received by it but Secured Party shall have
no duty to exercise any of the aforesaid
Page 11
<PAGE>
rights, privileges or options, and Secured Party shall not be responsible
for any failure to do so or delay in so doing.
(ii) All rights of Debtor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant to Section
-------
4.7(a)(i) and to receive the dividends, interest and other distributions
---------
which it would otherwise be authorized to receive and retain pursuant to
Section 4.7(a)(ii) shall be suspended until such Default or Event of
------------------
Default (as applicable) shall no longer exist, and all such rights shall,
until such Default or Event of Default (as applicable) shall no longer
exist, thereupon become vested in Secured Party which shall thereupon have
the sole right to exercise such voting and other consensual rights and to
receive and hold as Collateral such dividends, interest and other
distributions.
(iii) All dividends, interest and other distributions which are
received by Debtor contrary to the provisions of this Section 4.7(b) shall
--------------
be received in trust for the benefit of Secured Party, shall be segregated
from other funds of Debtor, and shall be forthwith paid over to Secured
Party as Collateral in the same form as so received (with any necessary
endorsement).
(iv) Debtor shall execute and deliver (or cause to be executed and
delivered) to Secured Party all such proxies and other instruments as
Secured Party may reasonably request for the purpose of enabling Secured
Party to exercise the voting and other rights which it is entitled to
exercise pursuant to this Section 4.7(b) and to receive the dividends,
--------------
interest and other distributions which it is entitled to receive and retain
pursuant to this Section 4.7(b). The foregoing shall not in any way limit
--------------
Secured Party's power and authority granted pursuant to Section 5.1.
-----------
4.8 Transfers and Other Liens; Additional Investments.
-------------------------------------------------
(a) Except as may be expressly permitted by the terms of the Credit
Agreement, Debtor shall not grant any option with respect to, exchange, sell or
otherwise dispose of any of the Collateral or create or permit to exist any Lien
upon or with respect to any of the Collateral except for the Liens created
hereby.
(b) Debtor agrees that it will (i) cause each issuer of any of the Pledged
Collateral not to issue any Capital Stock, notes or other securities or
instruments in addition to or in substitution for any of the Pledged Collateral,
except, with the written consent of Secured Party, to Debtor, (ii) pledge
hereunder, immediately upon its acquisition (directly or indirectly) thereof,
any and all such Capital Stock, notes or other securities or instruments, and
(iii) promptly (and in any event within three Business Days) deliver to Secured
Party an Amendment, duly executed by Debtor, in substantially the form of
Exhibit A (an "Amendment"), in respect of such Capital Stock, notes or other
- --------- ---------
securities or instruments, together with all certificates, notes or other
securities or instruments representing or evidencing the same. Debtor hereby
(A) authorizes Secured Party to attach each Amendment to this Agreement, (B)
agrees that all such Capital Stock, notes or other securities or instruments
listed on any Amendment delivered to Secured Party shall for all purposes
hereunder constitute Pledged Collateral, and (iii) is deemed to have made, upon
such delivery, the representations and warranties contained in Article III with
-----------
respect to such Pledged Collateral.
Page 12
<PAGE>
Section 4.9 Possession; Reasonable Care. Regardless of whether a
---------------------------
Default or an Event of Default has occurred or is continuing, Secured Party
shall have the right to hold in its possession all Pledged Collateral pledged,
assigned or transferred hereunder and from time to time constituting a portion
of the Collateral. Secured Party may, from time to time, in its sole
discretion, appoint one or more agents (which in no case shall be Debtor or an
Affiliate of Debtor) to hold physical custody, for the account of Secured Party,
of any or all of the Collateral. Secured Party shall be deemed to have
exercised reasonable care in the custody and preservation of the Collateral in
its possession if the Collateral is accorded treatment substantially equal to
that which Secured Party accords its own property, it being understood that
Secured Party shall not have any responsibility for (a) ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders or
other matters relative to any Collateral, whether or not Secured Party has or is
deemed to have knowledge of such matters, or (b) taking any necessary steps to
preserve rights against any parties with respect to any Collateral. Following
the occurrence and during the continuance of an Event of Default, Secured Party
shall be entitled to take possession of the Collateral.
Section 4.10 Constitutional Documents. Debtor will not agree or consent
------------------------
to or implement or permit any termination, amendment, modification, supplement
or waiver of the articles of incorporation, bylaws or other constitutional
documents of Debtor; provided, however, that Debtor may amend, modify or
-------- -------
supplement the foregoing if and to the extent that such amendment or
modification is not adverse to Borrower, Debtor, Secured Party or any Lender.
Debtor will deliver to Secured Party, promptly after the execution thereof, a
true and correct copy of each and every amendment, modification or supplement to
any one or more of the articles of incorporation, bylaws or other constitutional
documents of Debtor.
ARTICLE 5
Rights of Secured Party
-----------------------
Section 5.1 Power of Attorney. Debtor hereby irrevocably constitutes
-----------------
and appoints Secured Party and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the name of Debtor or in its own name, to take after the
occurrence and during the continuance of an Event of Default, any and all action
and to execute any and all documents and instruments which Secured Party at any
time and from time to time deems necessary or desirable to accomplish the
purposes of this Agreement and, without limiting the generality of the
foregoing, Debtor hereby gives Secured Party the power and right on behalf of
Debtor and in its own name to do any of the following after the occurrence and
during the continuance of an Event of Default, without notice to or the consent
of Debtor:
(a) to demand, sue for, collect or receive, in the name of Debtor or in its
own name, any money or property at any time payable or receivable on account of
or in exchange for any of the Collateral and, in connection therewith, endorse
checks, notes, drafts, acceptances, money orders, documents of title or any
other instruments for the payment of money under the Collateral or any policy of
insurance;
(b) to pay or discharge taxes, Liens or other encumbrances levied or placed
on or threatened against the Collateral;
Page 13
<PAGE>
(c) (i) to direct account debtors and any other parties liable for any
payment under any of the Collateral to make payment of any and all monies due
and to become due thereunder directly to Secured Party or as Secured Party shall
direct; (ii) to receive payment of and receipt for any and all monies, claims
and other amounts due and to become due at any time in respect of or arising out
of any Collateral; (iii) to sign and endorse any drafts against debtors,
assignments, proxies, stock powers, verifications and notices in connection with
accounts and other documents relating to the Collateral; (iv) to commence and
prosecute any suit, action or proceeding at law or in equity in any court of
competent jurisdiction to collect the Collateral or any part thereof and to
enforce any other right in respect of any Collateral; (v) to defend any suit,
action or proceeding brought against Debtor with respect to any Collateral; (vi)
to settle, compromise or adjust any suit, action or proceeding described above
and, in connection therewith, to give such discharges or releases as Secured
Party may deem appropriate; (vii) to exchange any of the Collateral for other
property upon any merger, consolidation, reorganization, recapitalization or
other readjustment of the issuer thereof and, in connection therewith, deposit
any of the Collateral with any committee, depositary, transfer agent, registrar
or other designated agency upon such terms as Secured Party may determine;
(viii) to add or release any guarantor, indorser, surety or other party to any
of the Collateral; (ix) to renew, extend or otherwise change the terms and
conditions of any of the Collateral; (x) to make, settle, compromise or adjust
any claims under or pertaining to any of the Collateral (including claims under
any policy of insurance); and (xi) to sell, transfer, pledge, convey, make any
agreement with respect to or otherwise deal with any of the Collateral as fully
and completely as though Secured Party were the absolute owner thereof for all
purposes, and to do, at Secured Party's option and Debtor's expense, at any
time, or from time to time, all acts and things which Secured Party deems
necessary to protect, preserve, maintain, or realize upon the Collateral and
Secured Party's security interest therein.
This power of attorney is a power coupled with an interest and shall be
irrevocable until this Agreement is terminated in accordance with its terms.
Secured Party shall be under no duty to exercise or withhold the exercise of any
of the rights, powers, privileges and options expressly or implicitly granted to
Secured Party in this Agreement, and shall not be liable for any failure to do
so or any delay in doing so. Neither Secured Party nor any Person designated by
Secured Party shall be liable for any act or omission or for any error of
judgment or any mistake of fact or law. This power of attorney is conferred on
Secured Party solely to protect, preserve, maintain and realize upon its
security interest in the Collateral. Secured Party shall not be responsible for
any decline in the value of the Collateral and shall not be required to take any
steps to preserve rights against prior parties or to protect, preserve or
maintain any Lien given to secure the Collateral.
Section 5.2 Set-off. If an Event of Default shall have occurred and be
-------
continuing, each of Secured Party and the Lenders shall have the right to set-
off and apply against the Obligations, at any time and without notice to Debtor,
any and all deposits (general or special, time or demand, provisional or final)
or other sums at any time credited by or owing from any of Secured Party or the
Lenders to Debtor and although such Obligations may be unmatured. The rights
and remedies of Secured Party and the Lenders hereunder are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
that Secured Party and the Lenders may have.
Section 5.3 Assignment by Secured Party. In accordance with the
---------------------------
provisions of the Credit Agreement, any of Secured Party and the Lenders may at
any time assign or otherwise transfer all
Page 14
<PAGE>
or any portion of its rights and obligations under this Agreement and the other
Loan Documents (including, without limitation, the Obligations), in connection
with an assignment of the Obligations, to any other Person, and such other
Person shall thereupon become vested with all the benefits thereof granted to
Secured Party and the Lenders, respectively, herein or otherwise.
Section 5.4 Performance by Secured Party. If Debtor shall fail to
----------------------------
perform any covenant or agreement contained in this Agreement, Secured Party may
perform or attempt to perform such covenant or agreement on behalf of Debtor.
In such event, Debtor shall, at the request of Secured Party, promptly pay any
amount expended by Secured Party in connection with such performance or
attempted performance to Secured Party, together with interest thereon at the
Default Rate from and including the date of such expenditure to but excluding
the date such expenditure is paid in full. Notwithstanding the foregoing, it is
expressly agreed that Secured Party shall not have any liability or
responsibility for the performance of any indebtedness, liability or obligation
of Debtor under this Agreement.
ARTICLE 6
Default
Section 6.1 Rights and Remedies. If an Event of Default shall have
-------------------
occurred and be continuing, Secured Party shall have the following rights and
remedies (subject to Section 6.3):
-----------
(a) In addition to all other rights and remedies granted to Secured Party
in this Agreement or in any other Loan Document or by applicable law, Secured
Party shall have all of the rights and remedies of a secured party under the UCC
(whether or not the UCC applies to the affected Collateral) and Secured Party
may also, without notice except as specified below, sell the Collateral or any
part thereof in one or more parcels at public or private sale, at any exchange,
broker's board or at any of Secured Party's offices or elsewhere, for cash, on
credit or for future delivery, and upon such other terms as Secured Party may
deem commercially reasonable or otherwise as may be permitted by law. Without
limiting the generality of the foregoing, Secured Party may (i) without demand
or notice to Debtor, collect, receive or take possession of the Collateral or
any part thereof and for that purpose Secured Party may enter upon any premises
on which the Collateral is located and remove the Collateral therefrom or render
it inoperable, and/or (ii) sell, lease or otherwise dispose of the Collateral,
or any part thereof, in one or more parcels at public or private sale or sales,
at Secured Party's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as Secured Party may deem commercially
reasonable or otherwise as may be permitted by law. Secured Party shall have the
right at any public sale or sales, and, to the extent permitted by applicable
law, at any private sale or sales, to bid (which bid may be, in whole or in
part, in the form of cancellation of indebtedness) and become a purchaser of the
Collateral or any part thereof free of any right or equity of redemption on the
part of Debtor, which right or equity of redemption is hereby expressly waived
and released by Debtor. Upon the request of Secured Party, Debtor shall
assemble the Collateral and make it available to Secured Party at any place
designated by Secured Party that is reasonably convenient to Debtor and Secured
Party. Debtor agrees that Secured Party shall not be obligated to give more
than five (5) days prior written notice of the time and place of any public sale
or of the time after which any private sale may take place and that such notice
shall constitute reasonable notice of such matters. Secured Party shall not be
obligated to make any sale
Page 15
<PAGE>
of Collateral if it shall determine not to do so, regardless of the fact that
notice of sale of Collateral may have been given. Secured Party may, without
notice or publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the time and place
to which the same was so adjourned. Debtor shall be liable for all expenses of
retaking, holding, preparing for sale or the like, and all attorneys' fees,
legal expenses and other costs and expenses incurred by Secured Party in
connection with the collection of the Obligations and the enforcement of Secured
Party's rights under this Agreement. Debtor shall remain liable for any
deficiency if the Proceeds of any sale or other disposition of the Collateral
applied to the Obligations are insufficient to pay the Obligations in full.
Secured Party may apply the Collateral against the Obligations in such order and
manner as Secured Party may elect in its sole discretion. Debtor waives all
rights of marshaling, valuation and appraisal in respect of the Collateral. Any
cash held by Secured Party as Collateral and all cash proceeds received by
Secured Party in respect of any sale of, collection from or other realization
upon all or any part of the Collateral may, in the discretion of Secured Party,
be held by Secured Party as collateral for, and then or at any time thereafter
applied in whole or in part by Secured Party against, the Obligations in such
order as Secured Party shall select. Any surplus of such cash or cash proceeds
and interest accrued thereon, if any, held by Secured Party and remaining after
payment in full of all the Obligations shall be paid over to Debtor or to
whoever may be lawfully entitled to receive such surplus; provided that Secured
-------- ----
Party shall have no obligation to invest or otherwise pay interest on any
amounts held by it in connection with or pursuant to this Agreement.
(b) Secured Party may cause any or all of the Collateral held by it to be
transferred into the name of Secured Party or the name or names of Secured
Party's nominee or nominees.
(c) Secured Party may exercise any and all rights and remedies of Debtor
under or in respect of the Collateral, including, without limitation, any and
all rights of Debtor to demand or otherwise require payment of any amount under,
or performance of any provision of, any of the Collateral and any and all voting
rights and corporate powers in respect of the Collateral.
(d) Secured Party may collect or receive all money or property at any time
payable or receivable on account of or in exchange for any of the Collateral,
but shall be under no obligation to do so.
(e) On any sale of the Collateral, Secured Party is hereby authorized to
comply with any limitation or restriction with which compliance is necessary, in
the view of Secured Party's counsel, in order to avoid any violation of
applicable law or in order to obtain any required approval of the purchaser or
purchasers by any applicable Governmental Authority.
Section 6.2 Registration Rights, Private Sales, Etc.
---------------------------------------
(a) If Secured Party shall determine to exercise its right to sell all or
any of the Collateral pursuant to Section 6.1, Debtor agrees that, upon the
-----------
request of Secured Party (which request may be made by Secured Party in its sole
discretion), Debtor will, at its own expense:
Page 16
<PAGE>
(i) execute and deliver, and cause each issuer of any of the
Collateral contemplated to be sold and the directors and officers thereof
to execute and deliver, all such agreements, documents and instruments, and
do or cause to be done all such other acts and things, as may be necessary
or, in the opinion of Secured Party, advisable to register such Collateral
under the provisions of the Securities Act (as hereinafter defined) and to
cause the registration statement relating thereto to become effective and
to remain effective for such period as prospectuses are required by law to
be furnished and to make all amendments and supplements thereto and to the
related prospectus which, in the opinion of Secured Party, are necessary or
advisable, all in conformity with the requirements of the Securities Act
and the rules and regulations of the Securities and Exchange Commission
applicable thereto;
(ii) if reasonably necessary or, in the reasonable opinion of
Secured Party, advisable, use its best efforts to qualify such Collateral
under all applicable state securities or "Blue Sky" laws and to obtain all
necessary governmental approvals for the sale of such Collateral, as
requested by Secured Party;
(iii) if reasonably necessary or, in the reasonable opinion of
Secured Party, advisable, cause each such issuer to make available to its
security holders, as soon as practicable, an earnings statement which will
satisfy the provisions of Section 11(a) of the Securities Act;
(iv) do or cause to be done all such other acts and things as may be
reasonably necessary to make such sale of the Collateral or any part
thereof valid and binding and in compliance with applicable law; and
(v) bear all reasonable costs and expenses, including reasonable
attorneys' fees, of carrying out its obligations under this Section 6.2.
-----------
(b) Debtor recognizes that Secured Party may be unable to effect a public
sale of any or all of the Collateral by reason of certain prohibitions contained
in the Securities Act of 1933, as amended from time to time (the "Securities
----------
Act") and applicable state securities laws but may be compelled to resort to one
- ---
or more private sales thereof to a restricted group of purchasers who will be
obliged to agree, among other things, to acquire such Collateral for their own
account for investment and not with a view to the distribution or resale
thereof. Debtor acknowledges and agrees that any such private sale may result
in prices and other terms less favorable to the seller than if such sale were a
public sale and, notwithstanding such circumstances, agrees that any such
private sale shall, to the extent permitted by law, be deemed to have been made
in a commercially reasonable manner. Neither Secured Party nor the Lenders
shall be under any obligation to delay a sale of any of the Collateral for the
period of time necessary to permit the issuer of such securities to register
such securities under the Securities Act or under any applicable state
securities laws, even if such issuer would agree to do so.
(c) Debtor further agrees to do or cause to be done, to the extent that
Debtor may do so under applicable law, all such other acts and things as may be
necessary to make such sales or resales of any portion or all of the Collateral
valid and binding and in compliance with any and all applicable laws,
regulations, orders, writs, injunctions, decrees or awards of any and all
courts,
Page 17
<PAGE>
arbitrators or governmental instrumentalities, domestic or foreign,
having jurisdiction over any such sale or sales, all at Debtor's expense.
Debtor further agrees that a breach of any of the covenants contained in this
Section 6.2 will cause irreparable injury to Secured Party and the Lenders and
- -----------
that Secured Party and the Lenders have no adequate remedy at law in respect of
such breach and, as a consequence, agrees that each and every covenant contained
in this Section 6.2 shall be specifically enforceable against Debtor, and Debtor
-----------
hereby waives and agrees, to the fullest extent permitted by law, not to assert
as a defense against an action for specific performance of such covenants that
(i) Debtor's failure to perform such covenants will not cause irreparable injury
to Secured Party and the Lenders or (ii) Secured Party and the Lenders have an
adequate remedy at law in respect of such breach. Debtor further acknowledges
the impossibility of ascertaining the amount of damages which would be suffered
by Secured Party and the Lenders by reason of a breach of any of the covenants
contained in this Section 6.2 and, consequently, agrees that, if Debtor shall
-----------
breach any of such covenants and Secured Party or any Lender shall sue for
damages for such breach, Debtor shall pay to Secured Party or such Lender, as
liquidated damages and not as a penalty, an aggregate amount equal to the value
of the Collateral on the date Secured Party or such Lender shall demand
compliance with this Section 6.2.
-----------
(d) DEBTOR HEREBY AGREES TO INDEMNIFY, PROTECT AND SAVE HARMLESS SECURED
PARTY AND THE LENDERS AND ANY CONTROLLING PERSONS THEREOF WITHIN THE MEANING OF
THE SECURITIES ACT FROM AND AGAINST ANY AND ALL LIABILITIES, SUITS, CLAIMS,
COSTS AND EXPENSES (INCLUDING REASONABLE COUNSEL FEES AND DISBURSEMENTS) ARISING
UNDER THE SECURITIES ACT, THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED,
ANY APPLICABLE STATE SECURITIES STATUTE, OR AT COMMON LAW, OR PURSUANT TO ANY
OTHER APPLICABLE LAW IN CONNECTION WITH THE SALE OF ANY SECURITIES OR THE
EXERCISE OF ANY OTHER RIGHT OR REMEDY OF SECURED PARTY, INSOFAR AS SUCH
LIABILITIES, SUITS, CLAIMS, COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON,
ANY UNTRUE STATEMENT OR ALLEGED UNTRUE STATEMENT OF A MATERIAL FACT MADE IN
WRITING BY DEBTOR OR ANY OF ITS SUBSIDIARIES IN CONNECTION WITH THE SALE OR
PROPOSED SALE OF ANY PART OF THE COLLATERAL, OR ARISES OUT OF, OR IS BASED UPON,
THE OMISSION OR ALLEGED OMISSION BY DEBTOR OR ANY OF ITS SUBSIDIARIES TO STATE A
MATERIAL FACT REQUIRED TO BE STATED IN CONNECTION THEREWITH OR NECESSARY TO MAKE
THE STATEMENTS MADE NOT MISLEADING; PROVIDED, HOWEVER, THAT DEBTOR SHALL NOT BE
-------- -------
LIABLE IN ANY SUCH CASE TO THE EXTENT THAT ANY SUCH LIABILITIES, SUITS, CLAIMS,
COSTS AND EXPENSES ARISE OUT OF, OR ARE BASED UPON, ANY UNTRUE STATEMENT OR
ALLEGED UNTRUE STATEMENT OR OMISSION OR ALLEGED OMISSION MADE IN RELIANCE UPON
AND IN CONFORMITY WITH WRITTEN INFORMATION FURNISHED TO DEBTOR BY SECURED PARTY
OR ANY LENDER SPECIFICALLY FOR INCLUSION IN CONNECTION THEREWITH. THE FOREGOING
INDEMNITY AGREEMENT IS IN ADDITION TO ANY INDEBTEDNESS, LIABILITY OR OBLIGATION
THAT DEBTOR MAY OTHERWISE HAVE TO SECURED PARTY OR ANY SUCH LENDER OR ANY SUCH
CONTROLLING PERSON.
Page 18
<PAGE>
Section 6.3 Compliance with Laws. Notwithstanding anything to the
--------------------
contrary contained in any Loan Document or in any other agreement, instrument or
document executed by Debtor and delivered to Secured Party, Secured Party will
not take any action pursuant to this Agreement any document referred to herein
which would constitute or result in any assignment of any FCC license or any
change of control (whether de jure or de facto) of Debtor if such assignment of
any FCC license or change of control would require, under then existing law, the
prior approval of the FCC or any other Governmental Authority without first
obtaining such prior approval of the FCC or other Governmental Authority. Upon
the occurrence of an Event of Default or at any time thereafter during the
continuance thereof, subject to the terms and conditions of this Agreement,
Debtor agrees to take any action which Secured Party may reasonably request in
order to obtain from the FCC or such other Governmental Authority such approval
as may be necessary to enable Secured Party to exercise and enjoy the full
rights and benefits granted to Secured Party by this Agreement and the other
documents referred to above, including specifically, at the cost and expense of
Debtor, the use of reasonable efforts to assist in obtaining approval of the FCC
or such other Governmental Authority for any action or transaction contemplated
by this Agreement for which such approval is or shall be required by law, and
specifically, without limitation, upon request, to prepare, sign and file with
the FCC or such other Governmental Authority the assignor's or transferor's
portion of any application or applications for consent to the assignment of
license or transfer of control necessary or appropriate under the FCC's or such
other Governmental Authority's rules and regulations for approval of (a) any
sale or other disposition of the Collateral by or on behalf of Secured Party, or
(b) any assumption by Secured Party of voting rights in the Collateral effected
in accordance with the terms of this Agreement.
ARTICLE 7
Miscellaneous
-------------
Section 7.1 No Waiver; Cumulative Remedies. No failure on the part of
------------------------------
Secured Party to exercise and no delay in exercising, and no course of dealing
with respect to, any right, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under this Agreement preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies provided for in this Agreement are cumulative and not
exclusive of any rights and remedies provided by law.
Section 7.2 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of Debtor and Secured Party and their respective heirs,
successors and permitted assigns, except that Debtor may not assign any of its
rights, indebtedness, liabilities or obligations under this Agreement without
the prior written consent of Secured Party.
Section 7.3 Entire Agreement; Amendment . THIS AGREEMENT EMBODIES THE
----------------------------
FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDES ANY AND ALL
PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER
WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE
CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL
Page 19
<PAGE>
AGREEMENTS AMONG THE PARTIES HERETO. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the parties hereto,
except as provided in Section 4.8(b).
--------------
Section 7.4 Notices. All notices and other communications provided for
-------
in this Agreement shall be given or made by telecopy or in writing and
telecopied, mailed by certified mail return receipt requested or delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature pages hereof; or, as to any party at such other address as shall
be designated by such party in a notice to the other party given in accordance
with this Section 7.4. Except as otherwise provided in this Agreement, all such
-----------
communications shall be deemed to have been duly given when transmitted by
telecopy or when personally delivered or, in the case of a mailed notice, three
(3) Business Days after deposit in the mails, in each case given or addressed as
aforesaid; provided, however, that notices to Secured Party shall be deemed
-------- -------
given when received by Secured Party.
Section 7.5 Governing Law; Submission to Jurisdiction; Service of
-----------------------------------------------------
Process. EXCEPT AS MAY BE EXPRESSLY STATED TO THE CONTRARY IN THE CREDIT
- -------
AGREEMENT, THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES) AND EACH OF THE PARTIES HERETO CHOOSES THE LAWS OF THE STATE OF NEW
YORK TO GOVERN THIS AGREEMENT PURSUANT TO N.Y. GEN. OBLIG. LAW SECTION 5-1401
(CONSOL. 1995) AND APPLICABLE LAWS OF THE U.S. DEBTOR HEREBY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION OF EACH OF (1) THE U.S. DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK, (2) ANY NEW YORK STATE COURT SITTING IN NEW
YORK, NEW YORK, (3) THE U.S. DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS,
AND (4) ANY TEXAS STATE COURT SITTING IN DALLAS, COUNTY, TEXAS, FOR THE PURPOSES
OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. DEBTOR
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO DEBTOR AT ITS ADDRESS FOR
NOTICES SET FORTH UNDERNEATH ITS SIGNATURE HERETO. DEBTOR HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
Section 7.6 Headings. The headings, captions and arrangements used in
--------
this Agreement are for convenience only and shall not affect the interpretation
of this Agreement.
Section 7.7 Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made in this Agreement or in any certificate
delivered pursuant hereto shall survive the
Page 20
<PAGE>
execution and delivery of this Agreement, and no investigation by Secured Party
shall affect the representations and warranties or the right of Secured Party to
rely upon them.
Section 7.8 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 7.9 Waiver of Bond. In the event Secured Party seeks to take
--------------
possession of any or all of the Collateral by judicial process, Debtor hereby
irrevocably waives any bonds and any surety or security relating thereto that
may be required by applicable law as an incident to such possession, and waives
any demand for possession prior to the commencement of any such suit or action.
Section 7.10 Severability. Any provision of this Agreement which is
------------
determined by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
Section 7.11 Construction. Debtor and Secured Party acknowledge that
------------
each of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by Debtor and Secured
Party.
Section 7.12 Termination. If all of the Obligations shall have been paid
-----------
and performed in full and all Commitments of the Lenders shall have expired or
terminated, Secured Party shall, upon the written request of Debtor, execute and
deliver to Debtor a proper instrument or instruments acknowledging the release
and termination of the security interests created by this Agreement, and shall
duly assign and deliver to Debtor (without recourse and without any
representation or warranty) such of the Collateral as may be in the possession
of Secured Party and has not previously been sold or otherwise applied pursuant
to this Agreement.
Section 7.13 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
--------------------
APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY
WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THE ACTIONS OF SECURED
PARTY IN THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT THEREOF.
[Remainder of page intentionally left blank.]
Page 21
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first written above.
DEBTOR:
------
NET-TEL COMMUNICATIONS, INC.
By:/s/ Craig R. Bandes
-----------------------------
Craig R. Bandes
Senior Vice President
Address for Notices:
-------------------
NET-tel Communications, Inc.
1023 31st Street N.W.
Washington, D.C. 20007
Attention: Craig R. Bandes, Senior Vice President
Telecopier No.: (202) 625-0078
Telephone No.: (202) 295-6600
Page 22
(From Pledge & Security Agreement)
<PAGE>
SECURED PARTY:
-------------
NORTEL NETWORKS INC.
as Administrative Agent
By:/s/ Jay R. Prestipino
-----------------------------
Jay R. Prestipino
Director, Customer Finance
Address for Notices:
-------------------
Nortel Networks Inc.
8 Federal Street
Billerica, Massachusetts 01821
Attention: Vice President, Finance
Carrier Packet Solutions
Telecopy No.: (978) 916-4755
Telephone No.: (978) 916-1751
and
Nortel Networks Inc.
GMS 991 15 A40
2221 Lakeside Boulevard
Richardson, Texas 75082-4399
Attention: Vice President - Customer
Finance North America
Telecopy No.: (972) 684-3679
Telephone No.: (972) 684-2271
and
Nortel Networks Inc.
P.O. Box 833858
Richardson, Texas 75083-3858
Mail Stop 04D/02/A40
Attention: Kimberly Poe,
Loan Administration
Telecopy No.: (972) 684-3808
Telephone No.: (972) 684-7687
Page 23
(Pledge & Security Agreement)
<PAGE>
SCHEDULE 1
----------
PROMISSORY NOTES
None.
Page 24
<PAGE>
SCHEDULE 2
----------
PLEDGED SHARES
<TABLE>
<CAPTION>
Percentage of
Number of Outstanding
Issuer Class of Shares Certificate No(s). Shares Shares
------ --------------- ------------------ -------- ------------
<S> <C> <C> <C> <C>
NET-tel Corporation Common, $.01 4 935,001 100%
par value per
share
</TABLE>
Page 25
<PAGE>
SCHEDULE 3
----------
OTHER NAMES
1. Debtor was formerly known as NET-tel Holding Company.
Page 26
<PAGE>
SCHEDULE 4
----------
JURISDICTIONS FOR FILING
UCC-1 FINANCING STATEMENTS
1. District of Columbia
Page 27
<PAGE>
EXHIBIT A
---------
FORM OF AMENDMENT
-----------------
This Amendment, dated ____________________, ____, is delivered pursuant to
Section 4.8(b) of the Pledge Agreement (as herein defined) referred to below.
- --------------
The undersigned hereby agrees that this Amendment may be attached to the Pledge
and Security Agreement dated as of July 28, 1999, between the undersigned and
Nortel Networks Inc., as Secured Party (the "Pledge Agreement") and that the
----------------
Capital Stock or other instruments listed on Schedule 1 annexed hereto shall be
----------
and become part of the Collateral referred to in the Pledge Agreement and shall
secure payment and performance of all Obligations as provided in the Pledge
Agreement.
Capitalized terms used herein but not defined herein shall have the
meanings therefor provided in the Pledge Agreement.
DEBTOR:
------
NET-TEL COMMUNICATIONS, INC.
By:
-------------------------
Name:
-----------------------
Title:
----------------------
Page 28
<PAGE>
Schedule 1
to
Form of Amendment
-----------------
<TABLE>
<CAPTION>
Percentage of
Class of Certificate Number of Outstanding
Issuer Shares No(s). Shares Shares
- --------- -------- ----------- --------- -------------
<S> <C> <C> <C> <C>
</TABLE>
Page 29
<PAGE>
Exhibit 10.11
Page 1 of 4
PROMISSORY NOTE
---------------
$200,000 FAIRFAX, VIRGINIA
January 28, 2000
THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONTAINS A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR TO
OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
FOR VALUE RECEIVED, the undersigned, Laurence S. and Jeannine A. Langston
(hereinafter collectively referred to as "Maker") jointly and severally promises
to pay to the order of NET-tel Corporation, a Florida corporation ("hereinafter
referred to as "Noteholder"), at Noteholder's offices at 1023 31st Street, NW,
Washington, DC 20007 the principal sum of TWO HUNDRED THOUSAND DOLLARS AND
NO/CENTS ($200,000) in lawful money of the United States, and with interest
thereon at the rate of 7.25% compounded yearly.
THIS PROMISSORY NOTE is given by Maker to Noteholder in consideration of
receiving said funds for the sole purpose of paying taxes on Maker's exercise of
certain non-qualified incentive stock options Maker has with MCI Worldcom,
("Grant"). Maker agrees to provide Noteholder, as soon as practicable, with
evidence that Maker has exercised such options and paid said taxes thereto.
MAKER agrees that this Note shall mature, and Maker shall pay the unpaid
principal and accrued interest hereunder on the earlier to occur of: (a) the
date that Maker's employment with the Noteholder is terminated for any reason or
(b) January 26, 2002 (the "Maturity Date"); provided, however, that if the
Noteholder's parent company consummates an initial public offering or other
transaction in which its securities (or the securities of a successor entity)
become listed on a national securities exchange or market prior to the Maturity
Date, the Noteholder shall make a pre-payment of $100,000 in respect of the
amounts due hereunder upon the later to occur of (a) the closing of such
transaction or (b) the expiration of any lock-up agreement or similar
underwriter restriction to which the Maker is a party in connection with such
transaction (unless the application of this provision would result in a payment
date which extends beyond the Maturity Date, in which case, all amounts due
hereunder shall be due on the Maturity Date).
MAKER agrees that in the event his employment is terminated with
Noteholder, for any reason, prior to the Due Date, Maker hereby authorizes
Noteholder, to the extent permitted by law, and at its sole election, to deduct
any funds necessary from my paycheck(s) or other amounts owed to the Maker to
satisfy this Note. In the event such withholdings do not satisfy the Note, the
Maker agrees to repay Noteholder any amounts owed to Noteholder as set forth
above. Except as otherwise provided in the first sentence of this paragraph, all
payments due under this Note shall be made when due without any set-off or
deduction whatsoever. The Maker agrees that it will not interpose, and hereby
waives its right to interpose, any plea of recoupment, counterclaim, offset, or
claim for deduction in any action to enforce collection of this Note, to the
extent permitted by applicable law and excluding any compulsory counterclaims.
Initial /s/ LSL/JAL
-----------
<PAGE>
Page 2 of 4
MAKER agrees that if one or more of the following events (an "Event of
Default") shall occur and be continuing:
(a) any default by Maker in the payment when due of any amount due
hereunder, and such default shall continue un-remedied for a period of five days
after the same shall have become due and payable; or
(b) any default by the Maker in the performance of any of its other
covenants or agreements in this Note;
THEREUPON: (i) in the case of an Event of Default, the Noteholder may, by
notice to the Maker, declare the principal amount then outstanding of, and the
accrued interest on, this Note and all other amounts payable by the Maker under
this Note to be forthwith due and payable, whereupon such amount shall be
immediately due and payable without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the Maker;
(ii) the Maker shall pay all of the expenses of the Noteholder incurred for the
collection of this Note, including without limitation reasonable attorneys' fees
and legal expenses; and (iii) the Maker may exercise from time to time any
rights and remedies available to it by law, including those available under any
agreement or other instrument relating to the amounts owed under this Note. No
delay on the part of the Noteholder in the exercise of any right or remedy and
no course of dealing shall preclude other or further exercise thereof or the
exercise of any other right or remedy. Noteholder may apply any funds received
from the Maker, in such manner and order of priority and against such payment
obligations hereunder as Noteholder may determine.
MAKER'S obligations hereunder are secured by a pledge of (a) the shares
underlying the Grant and (b) any options granted by Noteholder to the Maker,
including, in each case, any dividends thereon, proceeds thereof and any other
securities or property into which the foregoing may be converted. The Maker
agrees to enter into a pledge and security agreement setting forth the
Noteholder's rights therein in a form prepared by Noteholder, and to take such
other actions as may be requested by Noteholder to prefect its security interest
therein. Without limiting any other rights available to the Noteholder herein or
at law, the Noteholder shall have the right to terminate Lawrence S. Langston
immediately and for "Cause" (as such term is used in the Employment Agreement)
if the Maker does not comply with the covenants set forth in the preceding two
sentences.
MAKER waive the benefit of any Homestead Exemption as to this indebtedness,
notice of maturity, presentment, demand, protest and notice of protest,
dishonor, grace and partial payments, before or after maturity, without
prejudice to the Noteholder and agrees to pay all cost and expenses, including
reasonable attorney's fees, obligated, incurred or paid by the Noteholder in
enforcing the terms and conditions of this Promissory Note.
THIS PROMISSORY NOTE shall be governed as to the validity, interpretation,
construction, effect and in all other aspects by the laws and decisions of the
Commonwealth of Virginia and the undersigned also consents to the jurisdiction
of the Commonwealth of Virginia and to the service of process in connection with
this Promissory Note by certified or registered mail at the address set forth
below, and that any such service shall be complete within three (3) days after
the same shall have been posted as aforesaid.
Failure to exercise any rights to which the Noteholder may be entitled in
the event of any default shall not constitute a waiver of that right in the
event of any subsequent default, whether of the same or different nature.
IN ADDITION TO ALL OTHER REMEDIES AVAILABLE UNDER APPLICABLE LAW, THE MAKER
hereby constitutes and appoints James K. Dize or any other designee of
Noteholder, with full power of substitution, as their true and lawful attorney
in fact, for the Maker, in their names, place and stead, upon the occurrence of
an Event of Default, to acknowledge and accept service of process in any suit
brought for the collection of this obligation and to confess judgment before the
Clerk of the Circuit Court in Fairfax, Virginia for the principal balance of
this Note, together with interest, late payment charges, court costs and
reasonable
Initial /s/ LSL/JAL
-----------
<PAGE>
Page 3 of 4
attorneys' fees of 15% of the principal balance of this Note, and hereby
ratifies and confirms the acts of said attorney-in-fact as fully as if done by
the Maker. The Maker consents to immediate execution of such confessed judgment
and waives the benefit of any exemption laws in connection therewith. If the
actual attorneys' fees incurred by the Noteholder are less than 15% of the
principal balance of this Note, the Noteholder shall not collect from the Maker,
in enforcing its judgment lien, more than its actual attorneys; fees.
THE MAKER HEREBY ACKNOWLEDGES AND UNDERSTANDS THAT NOTHING CONTAINED IN
THIS NOTE SHALL BE DEEMED AS CREATING AN EMPLOYMENT CONTRACT OR A CONDITION
OF EMPLOYMENT.
WITNESS the following signatures and seals:
MAKERS:
/s/ Laurence S. Langston (Seal)
------------------------
Laurence S. Langston
/s/ Jeannine A. Langston (Seal)
------------------------
Jeannine A. Langston
Address: 13 Talley Court
North Potomac, MD 20878
State of Virginia
County of Fairfax To wit:
I Susan Day, a Notary Public of and for the county and State aforesaid, do
hereby certify that Laurence S. Langston, who signed the foregoing Promissory
Note, bearing date on the 28th day of January, 2000, has acknowledged same
before me in my county aforesaid.
Given under my hand this 28th day of January 2000.
/s/ Susan G. Day
-----------------------
Notary Public
Susan G. Day
Commission Expires 4/30/2001
Initial /s/ LSL/JAL
-----------
<PAGE>
Page 4 of 4
State of Virginia
County of Fairfax To wit:
I Susan Day, a Notary Public of and for the county and State aforesaid, do
hereby certify that Laurence S. Langston and Jeannine A. Langston, who signed
the foregoing Promissory Note, bearing date on the 28th day of January, 2000,
has acknowledged same before me in my county aforesaid.
Given under my hand this 28th day of January 2000.
/s/ Susan E. Day
__________________________
Notary Public
Susan E. Day
My commission expires 4-30, 2001.
Initial /s/ LSL/JAL
-----------
<PAGE>
Exhibit 10.12
DEED OF LEASE
BETWEEN
WEST*GROUP PROPERTIES LLC
(Landlord)
AND
NET-TEL CORPORATION
(Tenant)
SHENANDOAH BUILDING
7901 Jones Branch Drive
McLean, Virginia 22102
Date: February ___, 2000
i
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
ARTICLES
- --------
<S> <C>
ARTICLE I -- BASIC LEASE INFORMATION AND DEFINITIONS................. 1
ARTICLE II -- DEMISING OF PREMISES................................... 4
ARTICLE III -- PARKING............................................... 4
ARTICLE IV -- IMPROVEMENTS........................................... 4
ARTICLE V -- COMMENCEMENT DATE; DELIVERY OF PREMISES................. 4
ARTICLE VI -- RENT................................................... 4
ARTICLE VII -- DEPOSIT............................................... 4
ARTICLE VIII -- SERVICES OF LANDLORD................................. 4
ARTICLE IX -- OPERATING COSTS........................................ 4
ARTICLE X -- ALTERATIONS............................................. 4
ARTICLE XI -- REPAIRS................................................ 4
ARTICLE XII -- CONDUCT OF BUSINESS BY TENANT......................... 4
ARTICLE XIII -- INSURANCE AND INDEMNITY.............................. 4
ARTICLE XIV -- DESTRUCTION OF PREMISES............................... 4
ARTICLE XV -- CONDEMNATION........................................... 4
ARTICLE XVI -- ASSIGNMENT AND SUBLETTING............................. 4
ARTICLE XVII -- FINANCING AND SUBORDINATION.......................... 4
ARTICLE XVIII -- DEFAULT OF TENANT................................... 4
ARTICLE XIX -- ACCESS BY LANDLORD.................................... 4
ARTICLE XX -- SURRENDER; HOLDING OVER................................ 4
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ARTICLE XXI -- NOTICES............................................... 4
ARTICLE XXII -- HAZARDOUS MATERIALS.................................. 4
ARTICLE XXIII -- MISCELLANEOUS....................................... 4
EXHIBITS
- --------
EXHIBIT A -- PREMISES................................................ 4
EXHIBIT B -- LAND.................................................... 4
EXHIBIT C -- RULES AND REGULATIONS................................... 4
EXHIBIT D -- FORM OF COMMENCEMENT NOTICE............................. 4
EXHIBIT E -- WORK AGREEMENT.......................................... 47
EXHIBIT F -- BASE BUILDING HVAC SPECIFICATIONS....................... 55
EXHIBIT G -- LANDLORD'S SUBORDINATION AND CONSENT.................... 56
RIDERS
- ------
RIDER NO. 1 -- RENEWAL OPTIONS....................................... 4
RIDER NO. 2 -- EXPANSION OPTION...................................... 4
</TABLE>
ii
<PAGE>
DEED OF LEASE
-------------
THIS DEED OF LEASE ("Lease") is made and entered into as of the ______ day
of February, 2000, by and between WEST*GROUP PROPERTIES LLC, a Virginia limited
liability company ("Landlord"), and NET-TEL CORPORATION, a Florida corporation
("Tenant").
ARTICLE I
---------
BASIC LEASE INFORMATION AND DEFINITIONS
---------------------------------------
The terms used in this Lease shall have the meanings set forth below.
A. Premises: The entire Rentable Area on the fifth (5/th/) through ninth
--------
(9/th/) floors of the Building, as shown on Exhibit A attached hereto. In the
---------
event that the Premises are made available to Tenant in a phased progression,
then the "Premises" shall, at any given time, consist of the aggregate of those
phases which have thus far become available for occupancy pursuant to Section
5.01 hereof.
B. Building: The building located on the Land, commonly known as the
--------
Shenandoah Building, having an address of 7901 Jones Branch Drive, McLean,
Virginia 22102.
C. Land: That certain parcel of real property located in WEST*PARK
----
Office Park, as shown on Exhibit B attached hereto.
---------
D. Project: The Land, the Building, and all other improvements located
-------
on the Land.
E. Common Areas: Those areas and facilities of the Project which are
------------
provided by Landlord for the non-exclusive use by tenants of the Project, and
their employees, clients, customers, licensees and invitees, or for use by the
public.
F. Commencement Date: The date on which the Term shall commence, as
-----------------
determined pursuant to Article V hereof, which date is anticipated to be August
1, 2000.
1
<PAGE>
G. Expiration Date: The last day of the month in which the tenth
---------------
(10/th/) anniversary of the Commencement Date occurs.
H. Term: Approximately ten (10) years, beginning on the Commencement
----
Date and ending on the Expiration Date, unless earlier terminated as provided
herein.
I. Rent: Base Rent and Additional Rent.
----
J. Base Rent: The initial Base Rent for the entire Premises shall be
---------
Three Million Four Hundred Sixty-Six Thousand Five Hundred Thirty-Eight and
52/100 Dollars ($3,466,538.52) per annum ($288,878.21 per month), i.e., $30.50
per square foot of Rentable Area of the Premises (the "Square Foot Rental
Rate"), subject to increase pursuant to Article VI hereof.
K. Parking Fees: Fourteen Thousand Four Hundred Twenty and No/100
------------
Dollars ($14,420.00) per month, calculated by multiplying $35.00 by the number
of parking spaces available to Tenant pursuant to Article III hereof, which
amount shall be due and payable as Additional Rent as and when Base Rent is due
hereunder, and which amount shall be subject to increase as and when Base Rent
is increased pursuant to Article VI hereof.
L. Deposit: Four Million Five Hundred Forty-Six Thousand Two Hundred
-------
Eighty and No/100 Dollars ($4,546,280.00) (i.e., $40.00 per square foot of
Rentable Area of the Premises), to be held by Landlord in accordance with
Article VII hereof.
M. Rentable Area of the Premises: Approximately one hundred Thirteen
-----------------------------
thousand six hundred fifty-seven (113,657) square feet, as stipulated by the
parties hereto. The Rentable Area of each floor of the Premises is as follows:
5/th/, 6/th/ & 7/th/ floors Twenty-three thousand two hundred forty
(23,240) per floor
8/th/ floor Twenty-two thousand five hundred sixty-four
(22,564)
9/th/ floor Twenty-one thousand three hundred seventy-
three (21,373).
N. Rentable Area of the Building: Approximately one hundred ninety-six
-----------------------------
thousand three hundred thirty-nine (196,339) square feet, as stipulated by the
parties hereto.
O. Tenant's Pro Rata Share: Fifty-Seven and Eighty-Nine one-hundredths
-----------------------
percent (57.89%), calculated by dividing the Rentable Area of the Premises by
the Rentable Area of the Building. Tenant's
2
<PAGE>
Pro Rata Share shall be automatically adjusted to reflect any change in the
Rentable Area of the Premises or the Rentable Area of the Building.
P. Permitted Use: General office purposes, and, to the extent permitted
-------------
under the applicable zoning ordinance, a network operations and
telecommunications switch center.
Q. Landlord's Address for Notice:
-----------------------------
WEST*GROUP PROPERTIES LLC
c/o G.T. Halpin
1600 Anderson Road
McLean, VA 22102
with a copy to:
WEST*GROUP MANAGEMENT LLC
ATTN: General Counsel
1600 Anderson Road
McLean, VA 22102
R. Landlord's Address for Payment:
------------------------------
WEST*GROUP PROPERTIES LLC
c/o WEST*GROUP MANAGEMENT LLC -- Accounting Dept.
1600 Anderson Road
McLean, VA 22102
S. Tenant's Address for Notice:
---------------------------
Prior to the Commencement Date:
NET-TEL Corporation
1023 31st Street, NW
Washington, DC 20007
On and after the Commencement Date: At the Premises.
T. Broker: Transwestern Carey Winston, L.L.C.
------
ARTICLE II
----------
DEMISING OF PREMISES
--------------------
3
<PAGE>
Landlord hereby leases and demises the Premises to Tenant for the Term, and
Tenant hereby leases and rents the Premises from Landlord for the Term, together
with the non-exclusive right to use the Common Areas, subject to the terms,
covenants and conditions contained herein, and also subject to all deeds of
trust, mortgages, easements, covenants, restrictions, agreements, governmental
ordinances and other encumbrances now or hereafter affecting the Project. The
exterior walls, the ceiling, the floor, the area above the ceiling and beneath
the floor of the Premises, and the area within any shafts or other core areas
penetrating the Premises, are not demised hereunder, and the use thereof,
together with the right to install, maintain, use, repair and replace pipes,
ducts, conduits, wires, tunnels, sewers and structural elements leading through
the Premises in locations which will not materially interfere with Tenant's use
thereof and serving other parts of the Project, are hereby reserved to Landlord.
Notwithstanding the foregoing, Tenant shall, during the Term, have the non-
exclusive right, in common with other tenants, to install and maintain, within
certain common area penetrations designated by Landlord, telecommunications
cabling between (i) any floors or portions of floors occupied by Tenant in the
Building, and (ii) any floors or portions of floors occupied by Tenant in the
Building and the antennas on the roof of the Building as such may exist from
time to time as provided for in Section 12.06 herein. Except as otherwise
agreed to in writing by Landlord, the amount of space within the common area
penetrations used by Tenant shall not exceed Tenant's Pro Rata Share of space
available for the installation of telecommunications cabling. Upon the
expiration or termination of this Lease, Tenant shall remove the foregoing
telecommunications cabling at Tenant's sole cost and expense, and shall repair
(in a manner acceptable to Landlord) any damage to the Project caused by the
removal of the telecommunications cabling; and, if Tenant fails to remove the
same, then the telecommunications cabling shall be deemed abandoned, and
Landlord may cause the same to be removed, and the Project to be repaired, at
Tenant's expense, which expense shall be considered Additional Rent. Subject to
the foregoing, and provided that Tenant is not in Default, Tenant shall have
peaceful and quiet enjoyment of the Premises during the Term.
4
<PAGE>
ARTICLE III
-----------
PARKING
-------
Tenant, along with Landlord and other tenants of the Project, and all of their
agents, employees, clients, customers, licensees and invitees, shall have a non-
exclusive license to park their vehicles in the parking spaces serving the
Project. Tenant shall have a license to use a total of 3.6 parking spaces for
every 1,000 square feet of Rentable Area being leased by Tenant. Thus, once the
entire Premises are available for occupancy pursuant to Section 5.01 hereof,
Tenant shall have a license to use a total of four hundred twelve (412) parking
spaces. Of the foregoing four hundred twelve (412) parking spaces, fifty (50)
shall be reserved for Tenant's exclusive use (as evidenced by the designation
"Net-Tel Reserved" painted on each of the reserved parking spaces), and the
remainder shall be available for Tenant's use on a non-exclusive basis. At any
time, and from time to time, after Landlord designates which parking spaces are
to be reserved for Tenant's exclusive use pursuant to this Article III, Landlord
shall have the right, in its sole discretion, to revoke such designation and to
designate different parking spaces for Tenant's exclusive use. Landlord agrees
not to allocate to the tenants in the Building more parking spaces, in the
aggregate, than exist on the Land.
ARTICLE IV
----------
IMPROVEMENTS
------------
Upon the full execution of this Lease, Landlord shall commence construction
of the Initial Improvements described in, and in accordance with, the "Work
Agreement" attached hereto as Exhibit E, and shall diligently proceed to
---------
complete the Initial Improvement Work (as defined in the Work Agreement) in a
good and workmanlike manner. Tenant hereby acknowledges that the Initial
Improvements may not be completed until sometime after the date set forth in
paragraph F of Article I hereof.
5
<PAGE>
ARTICLE V
---------
COMMENCEMENT DATE; DELIVERY OF PREMISES
---------------------------------------
Section 5.01. Commencement Date.
- ------------ -----------------
A. The Commencement Date shall be the date the Premises (or any phase
thereof) become available for occupancy pursuant to Section 5.01.B hereof. The
parties hereto agree that no phase of the Premises shall be delivered in less
than full-floor increments, unless the parties expressly agree otherwise in
writing.
B. The Premises (or phase thereof) shall be deemed available for
occupancy as soon as (i) the Initial Improvements have been substantially
completed (i.e., excluding any punch-list items), and (ii) Landlord has obtained
a non-residential use permit therefor.
Section 5.02. Commencement Notice. When the Commencement Date has been
- ------------ -------------------
determined in accordance with this Article V, Landlord and Tenant shall execute
a Commencement Notice in the form attached hereto as Exhibit D; provided,
---------
however, that Landlord's failure to prepare and present the Commencement Notice
to Tenant, or Tenant's failure to execute the same, shall not diminish the
effectiveness of this Lease, nor affect either party's liability hereunder.
Section 5.03. Entry by Tenant. Tenant shall not enter the Premises (or phase
- ------------ ---------------
thereof) prior to the date on which the Premises (or phase thereof) shall be
deemed available for occupancy pursuant to this Article V, without Landlord's
express written consent in each instance. If Landlord consents to Tenant's
early entry onto the Premises, such entry shall be subject to all of the terms
of this Lease. Notwithstanding the foregoing, Landlord agrees to permit Tenant
and/or Tenant's contractor to enter the Premises prior to the date on which the
Premises shall be deemed available for occupancy pursuant to this Article V and
prior to the enclosure of the walls therein, for the sole purpose of installing
therein cabling for telecommunications, computer and security systems serving
the Premises, provided that Tenant or Tenant's contractor coordinates its
installation activities with Landlord's contractor to avoid interfering with the
construction activities of Landlord's contractor.
Section 5.04. Occupancy. Occupancy of the Premises, or any phase thereof, by
- ------------ ---------
Tenant shall be conclusive evidence that Tenant (a) has accepted the Premises
(or phase thereof) as being in a good and satisfactory condition (except for any
punchlist items or latent defects), and (b) has accepted the Common Areas as
being in good and satisfactory condition.
6
<PAGE>
ARTICLE VI
----------
RENT
----
Section 6.01. Base Rent. Tenant hereby covenants and agrees to pay Landlord
- ------------ ---------
Base Rent, in equal monthly installments, in advance, on the first day of each
calendar month during the Term. In the event the Premises become available for
occupancy in phases, then the Base Rent shall be an amount equal to the product
of (a) the number of square feet comprising the Rentable Area of the phases
which have become available for occupancy, multiplied by (b) the Square Foot
Rental Rate.
Section 6.02. Base Rent Escalation. On the first (1st) anniversary of the
- ------------ --------------------
Commencement Date and on each anniversary thereafter during the Term (each of
such dates being hereinafter referred to as an "Adjustment Date"), the Base Rent
shall be increased by an amount equal to the product of (i) the Base Rent in
effect immediately prior to the Adjustment Date then at hand (which Base Rent
shall not reflect any rental abatement), and (ii) two and one-half percent (2
1/2%). The Base Rent, as adjusted, shall be due and payable as of such
Adjustment Date and on the first (1st) day of each month thereafter until the
next Adjustment Date or the end of the Term, as applicable.
Section 6.03. Definitions and Payments. All sums of money required to be paid
- ------------ ------------------------
by Tenant under this Lease other than Base Rent shall be deemed "Additional
Rent", and all remedies applicable to the non-payment of Base Rent shall apply
thereto. All Rent shall be paid without prior notice or demand therefor, and
without any counterclaim, set-off, deduction, recoupment, credit or defense, it
being understood and agreed that Tenant's covenant to pay the Rent is
independent of the obligations of Landlord hereunder. Any Additional Rent due
as a result of a default by Tenant shall be deemed payable on the first day of
the month next following such default, except as otherwise provided in this
Lease. Any partial payment by Tenant of an outstanding obligation hereunder
shall be credited against the earliest due installment of such obligation. No
endorsement or statement on any check or letter or other communication
accompanying a check for payment of any Rent shall be deemed an accord and
satisfaction, unless otherwise expressly agreed to in writing by Landlord. No
receipt or acceptance by Landlord of any sums shall be deemed a waiver of any
Tenant default. If the Term begins on a day other than the first day of a
calendar month or ends on a day other than the last day of a calendar month,
then the Rent for such month(s) shall be prorated
7
<PAGE>
accordingly. Tenant's obligation to pay Rent during the Term shall survive the
expiration of this Lease.
Section 6.04. Late Payment Charges and Interest. Tenant shall pay a late
- ------------ ---------------------------------
charge of Five Thousand and No/100 Dollars ($5,000.00) if Tenant's monthly
installment of Rent is not paid within five (5) days after the due date. In
addition to the foregoing late charge, any payment of Rent not paid within five
(5) days after the due date shall incur interest from the due date until paid at
the rate ("Interest Rate") of four percent (4%) above the highest prime rate of
interest quoted from time to time in The Wall Street Journal (or, if The Wall
----------------------- --------
Street Journal is no longer being published or no longer publishes a prime rate,
- --------------
by a comparable financial publication selected by Landlord); provided, however,
that the Interest Rate shall not exceed the maximum rate permitted under
applicable state or federal laws.
Section 6.05. Rental Abatement. Provided Tenant is not in Default hereunder,
- ------------ ----------------
Landlord shall abate Base Rent for the first seven (7) days after the Premises
(or phase thereof) are available for occupancy pursuant to Section 5.01 hereof,
for the purpose of providing Tenant time to install systems furniture in the
Premises.
ARTICLE VII
-----------
DEPOSIT
-------
Tenant shall pay the Deposit (which may be in the form of a letter of credit or
surety bond) to Landlord upon execution of this Lease as security for the
faithful performance by Tenant of the terms of this Lease. The Deposit shall
not constitute Rent for any period. Landlord shall have the right to commingle
the Deposit with other funds held by Landlord. The Deposit, without interest,
shall be returned to Tenant after the termination of this Lease, provided Tenant
shall have made all payments and performed all obligations required hereunder.
Landlord may apply all or part of the Deposit on account of a Tenant Default,
whereupon Tenant shall be required to restore the resulting deficiency in the
Deposit within five (5) days after Landlord notifies Tenant of the application
thereof. In the event Tenant elects to pay the Deposit by means of a letter of
credit or surety bond, the letter of credit or surety bond, as applicable, shall
be in a form acceptable to Landlord, in its sole discretion, and the creditor or
surety, as applicable, shall be acceptable to Landlord. Provided that Tenant
has not committed a Default under the Lease, the amount of the Deposit which
Tenant is required to provide hereunder (i) shall be reduced by $909,256.00
after Landlord ascertains (based on Landlord's review of the three
8
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(3) most recent annual reports provided to Landlord) that Tenant has had
positive earnings before interest, taxes, depreciation and amortization
("EBITDA") (taking into consideration any restatements of EBITDA reflected in
the subject annual reports) for three (3) consecutive fiscal years, and (ii)
shall be reduced by $909,256.00 each subsequent year that Landlord ascertains,
as aforesaid, that Tenant has had positive EBITDA for three (3) consecutive
fiscal years; provided, however, that in no event shall the amount of the
Deposit be reduced to an amount which is less than Tenant's then current monthly
installment of Base Rent.
ARTICLE VIII
------------
SERVICES OF LANDLORD
--------------------
Section 8.01. Services. Landlord agrees to operate and manage the Building in
- ------------ --------
a manner typical of the operation and management of other first class office
buildings in the Tysons Corner real estate market. Landlord shall furnish
Tenant with the following services and facilities during the Term: (i) elevator
service twenty-four (24) hours a day, seven (7) days a week; (ii) heat or air
conditioning (as applicable) from 8:00 a.m. to 7:00 p.m. Monday through Friday,
and 8:00 a.m. to Noon on Saturdays, except Holidays; (iii) electricity, water,
public lavatory facilities and supplies; and (iv) janitorial services, Monday
through Friday, except Holidays. The heating, air conditioning and fresh air
specifications for the Building are as set forth on Exhibit F attached hereto.
---------
For purposes hereof, "Holidays" shall refer to federal legal holidays. If
Tenant requires air-conditioning, heating or other services (such as cleaning
services) routinely supplied by Landlord for hours or days in addition to the
hours and days specified herein, Landlord shall make reasonable efforts to
provide such additional service after receiving written request therefor from
Tenant, and Tenant shall reimburse Landlord for the cost of providing such
additional service in accordance with Landlord's schedule of rates in effect at
that time, which rates shall be based upon and limited to the costs (including
but not limited to administrative costs) incurred by Landlord to provide such
services. If Tenant's requirements for, or consumption of, electricity exceeds
what is customarily required to operate office space having the same size as the
Premises, Landlord shall, at Tenant's expense, make reasonable efforts to supply
such service through the then-existing feeders and risers serving the Premises,
and shall separately meter (via submeter) such additional service, and shall
bill Tenant periodically therefor.
9
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Section 8.02. Utility Suppliers. Landlord's obligation to furnish utility
- ------------ -----------------
services pursuant to this Article VIII shall be subject to the rules and
regulations of the supplier of such utility services and the rules and
regulations of any governmental authority regulating suppliers of such utility
services.
Section 8.03. Discontinuation of Utility Services. No failure to furnish, nor
- ------------ -----------------------------------
any stoppage of, the services referred to in this Article VIII resulting from
any cause shall make Landlord liable in any respect for damages to any person,
property or business, or be construed as an eviction of Tenant, or entitle
Tenant to any relief from any of Tenant's obligations under this Lease.
Notwithstanding the foregoing, if the electric or base-building HVAC service to
the Premises is discontinued for more than five (5) consecutive business days
for reasons solely within Landlord's control, and if, as a result thereof,
Tenant is unable to conduct its business in the Premises, then Landlord shall
abate Rent every day thereafter until such service is restored. Landlord shall
use commercially reasonable efforts (to the extent within Landlord's control) to
remedy (in a commercially reasonable expedited manner) any discontinuation of
utility services which Landlord is obligated to provide hereunder as soon as
Landlord is apprised of the situation.
Section 8.04. Controlled Access Key Cards. Landlord agrees to provide Tenant
- ------------ ---------------------------
with key cards providing access to the main lobby of the Building. The number
of key cards to be provided to Tenant at Landlord's expense shall be equal to
the number of parking spaces which Tenant has the right to use pursuant to
Article III hereof. Landlord shall provide any additional cards requested by
Tenant at Tenant's expense.
10
<PAGE>
ARTICLE IX
----------
OPERATING COSTS
---------------
Section 9.01. Tenant's Operating Costs Payment. Commencing on the first (1/st/)
- ------------ --------------------------------
anniversary of the Commencement Date, Tenant shall pay, as Additional Rent, the
amount ("Tenant's Operating Costs Payment") by which Tenant's Pro Rata Share of
Operating Costs (hereinafter defined) exceeds the Base Operating Costs
(hereinafter defined), such amount to be calculated and paid as follows:
A. On or before April 1 of the 2001 calendar year and each calendar year
thereafter, Landlord shall furnish Tenant with an estimate ("Estimate") of
Tenant's Operating Costs Payment for the then current calendar year. On the
first day of each month during such year, Tenant shall pay to Landlord one-
twelfth (1/12th) of Tenant's Operating Costs Payment, as shown on the Estimate.
For the period extending from the beginning of the calendar year to the date
Landlord delivers the Estimate to Tenant, Tenant shall continue to pay Tenant's
Operating Costs Payment payable for the previous year. After receiving the
Estimate, Tenant shall promptly pay to Landlord the difference (if any) between
the amount due for the current calendar year (as set forth in the Estimate), and
the amount Tenant had actually paid for such year. If Landlord determines, in
its reasonable discretion, that an Estimate for the current year is inaccurate,
Landlord shall have the right to adjust such Estimate.
B. Within ninety (90) days after the end of each calendar year during
which Tenant's Operating Costs Payment is due, Landlord shall furnish Tenant
with a statement of the actual Operating Costs for such calendar year. Within
thirty (30) days after Landlord's delivery of such statement, Tenant shall make
a lump sum payment to Landlord in the amount (if any) by which Tenant's
Operating Costs Payment for the subject calendar year, as shown on Landlord's
statement, exceeds the aggregate of the monthly installments of Tenant's
Operating Costs Payments paid during such calendar year. If Tenant's Pro Rata
Share of Operating Costs is less than the aggregate of the monthly installments
paid by Tenant during such calendar year, then Landlord shall apply such amount
to the next installment(s) of Rent due hereunder until fully credited to Tenant.
11
<PAGE>
Section 9.02. Operating Costs; Taxes.
- ------------ ----------------------
A. (i) The term "Operating Costs" shall refer to all expenses, costs and
disbursements which Landlord pays or incurs in connection with the operation,
management, repair and maintenance of the Project. All Operating Costs shall be
determined according to generally accepted accounting principles which shall be
consistently applied. Operating Costs shall include, but not be limited to, the
following: (a) Wages, salaries, benefits and fees of personnel or entities
engaged in the operation, repair, maintenance or security of the Project; (b)
Cost of all service agreements for maintenance, janitorial services, access
control, alarm service, window cleaning, elevator maintenance and landscaping
for the Project; (c) All utilities for the Project, including water, sewer,
electricity and gas; (d) Cost of all insurance for the Project which Landlord
may carry from time to time, together with all appraisal and consultants' fees
in connection with such insurance; (e) All Taxes (hereinafter defined); (f)
Legal and accounting costs incurred by Landlord or paid by Landlord to third
parties (other than legal fees with respect to disputes with individual tenants,
negotiations of tenant leases, or operating the entity which constitutes the
Landlord); (g) Cost of non-capitalized repairs and general maintenance of the
Project; (h) Project management office rent or rental value; (i) A management
fee (in an amount not to exceed the greater of (x) five percent (5%) of rents
and other revenues collected by Landlord or (y) the then current customary rate
being charged in the Tysons Corner real estate market) and all items
reimbursable to the Project manager, if any, pursuant to any management contract
for the Project; and (j) Cost of capital improvements (amortized on a straight-
line basis over the useful life of the capital improvement) which are (1) for
the purpose of reducing Operating Costs, (2) required by any governmental
authority, or (3) considered to be operating costs (notwithstanding their
capital nature) under generally accepted accounting principles. If any amounts
comprising Operating Costs are incurred not just with respect to the Project,
but also with respect to one or more other buildings outside the Project, then
Landlord shall reasonably allocate such amounts between the Project and such
other buildings or areas. There shall be no duplication of costs or
reimbursement.
(ii) "Operating Costs" shall not include (a) expenses for which Landlord
is reimbursed by an insurer, condemnor, warrantor or tenant; (b) expenses
incurred in leasing or procuring tenants for the Project (including lease
commissions, advertising expenses and expenses of renovating space for tenants);
(c) interest or amortization payments on any mortgages or debts; (d) costs of
any services sold or provided to tenants other than Tenant; (e) costs
12
<PAGE>
or fees relating to the defense of Landlord's title or interest in the Land; (f)
the cost of capital improvements other than those expressly permitted in the
preceding paragraph; (g) administrative costs of operating the entity which
constitutes the Landlord; or (h) compensation paid to officers of Landlord or
officers of the management agent who do not perform property management related
activities.
B. The term "Taxes" shall mean (i) all taxes, assessments, and other
governmental charges applicable to or assessed against the Project, or any
portion thereof, or applicable to or assessed against Landlord's personal
property used in connection therewith, whether federal, state, county or
municipal, and whether assessed by taxing districts or authorities presently
taxing the Project, or by other taxing authorities subsequently created, (ii)
all taxes, assessments, and other governmental charges which the applicable
taxing authority has abated, but which would have otherwise been levied against
the Project, or portion thereof, absent the abatement, (iii) any expenses
incurred by Landlord in contesting any taxes or the assessed valuation of all or
any part of the Project, and (iv) any charge which is based upon rents from the
Project (such as a gross receipts tax), or the transactions represented by
leases or the occupancy or use of the Project. Taxes shall not include: (1)
income or net profits taxes, unless the same are substituted for real estate
taxes, (2) transfer taxes assessed against Landlord or the Project, (3)
penalties or interest on any late payments of Taxes by Landlord, and (4)
personal property taxes of tenants in the Project.
C. The term "Base Operating Costs" shall refer to all Operating Costs
accruing during the 2000 calendar year ("Base Year").
Section 9.03. Gross-Up of Certain Operating Costs. If the Building is not
- ------------ -----------------------------------
fully occupied during any full or fractional year of the Term, the Operating
Costs for services which vary based upon the level of occupancy in the Building
(e.g., water service, management fees) shall be adjusted for such year
(including the Base Year) to an amount which Landlord reasonably estimates would
have been incurred if the Building had been fully occupied.
Section 9.04. Tenant's Right to Audit. Tenant shall have the right to audit
- ------------ -----------------------
Landlord's statement of Operating Costs. Tenant must complete its audit by the
date which is the later of (a) one hundred eighty (180) days after receipt of
the statement or (b) the end of the calendar year immediately following the year
to which the statement pertains. The cost of any such audit shall be paid by
Tenant, except that, if it is determined on the basis of such audit (or if, in
accordance with the following provisions, it is
13
<PAGE>
otherwise ultimately determined) that the amount of Tenant's obligations for
Operating Costs for any calendar year was overstated by more than five percent
(5%), then the reasonable cost of the audit (in an amount not to exceed
$2,500.00) shall be paid by Landlord. Landlord shall refund to Tenant any
overpayment for the calendar year in question within thirty (30) days after the
amount of the overpayment has been established by the audit or as otherwise
provided in this Section 9.04. If Tenant fails to timely exercise its right of
audit pursuant to this Section 9.04, then the amount of Tenant's obligations for
Operating Costs shall be conclusively established as the amount set forth in the
statement. If, however, Tenant timely exercises its right of audit, the amount
of Tenant's obligations for Operating Costs shall be conclusively established as
the amount determined by such audit unless, within ninety (90) days after
receipt of a report of the same from Tenant's auditors, Landlord, at its
expense, shall contest the amount thereof, in which event Tenant shall be
entitled to pursue any legal remedies it may have to finally ascertain the
amount thereof and, if appropriate, a refund on account thereof.
ARTICLE X
---------
ALTERATIONS
-----------
Section 10.01. Alterations. Tenant shall not make any alterations, repairs or
- ------------- -----------
improvements in or to the structural components of the Building, or any building
systems serving the Premises which also serve areas of the Building beyond the
boundaries of the Premises, without Landlord's prior written consent, which
Landlord may withhold, condition or delay in Landlord's sole and absolute
discretion. Tenant shall not make any other types of alterations, repairs or
improvements in or to the Premises without Landlord's prior written consent,
which Landlord shall not unreasonably withhold, condition or delay.
Notwithstanding the foregoing, Tenant shall have the right to make decorative
alterations or to rearrange trade fixtures without obtaining Landlord's prior
consent.
Section 10.02. Mechanic's Liens. If a mechanic's lien is filed against the
- ------------- ----------------
Premises or the Project, or any interest therein, as a result of any services,
labor or materials provided (or claimed to have been provided) on Tenant's
behalf (other than by the General Contractor for the construction of the Initial
Improvements), Tenant shall (i) immediately notify Landlord of such lien, and
(ii) within ten (10) business days after receiving notice (from Landlord or any
other source) of the filing of any such lien, discharge and
14
<PAGE>
cancel such lien by payment or bonding, in accordance with the laws of the
Commonwealth, at Tenant's sole cost and expense.
Section 10.03. Removal. All leasehold improvements and alterations made to
- ------------- -------
the Premises shall be Landlord's property (except for Tenant's moveable trade
fixtures, which shall be Tenant's property), and shall not be removed from the
Premises during the Term. Upon the expiration of the Term, Tenant shall, at
Tenant's expense, remove from the Premises (i) any leasehold improvements and
alterations which Landlord directed Tenant to remove at the time Landlord
approved the same (other than those Initial Improvements constituting items
which are generally considered building standard items, or which otherwise
conform to the minimum standards attached to the Work Agreement as Exhibit E-1),
-----------
and (ii) all of Tenant's decorative alterations and moveable trade fixtures.
Tenant shall promptly repair, or reimburse Landlord for the cost of repairing,
any damage to the Premises caused by such removal.
ARTICLE XI
----------
REPAIRS
-------
Section 11.01. By Landlord. Except as expressly otherwise set forth herein,
- ------------- -----------
Landlord shall perform all maintenance and shall make all repairs and
replacements to the Premises. In addition to Tenant's obligation to reimburse
Landlord for maintenance, repairs and replacements pursuant to Article IX
hereof, Tenant shall reimburse Landlord for the cost of (a) all repairs and
replacements to the Premises performed by Landlord at the request of Tenant
which are outside the scope of Landlord's responsibilities under Article IX
hereof (unless the subject items are among the Initial Improvements and the cost
to repair or replace such items are still covered under warranty), and (b) all
repairs and replacements to the Project which are necessitated as a result of
the acts or omissions of Tenant, or its agents, employees, contractors,
licensees or invitees. Amounts payable by Tenant pursuant to this Section 11.01
shall be due and payable within thirty (30) days after receipt of an invoice
(plus reasonable back-up documentation) therefor from Landlord. Landlord has no
obligation and has made no promise to maintain, alter, remodel, improve, repair,
decorate or paint the Premises, except as expressly set forth in this Lease. In
no event shall Landlord have any obligation to maintain, repair or replace any
fixtures or personal property of Tenant.
Section 11.02. By Tenant. Tenant shall keep the Premises in good order, and in
- ------------- ---------
a safe, neat and clean condition. Unless expressly
15
<PAGE>
authorized elsewhere in this Lease, Tenant shall not perform any maintenance or
repair work or make any replacement in or to the Premises, but rather shall
promptly notify Landlord of the need for such maintenance, repair or replacement
so that Landlord may proceed to perform the same. Notwithstanding the foregoing,
Tenant shall be solely responsible for maintaining and repairing any
supplemental HVAC, electrical and telecommunications systems which exclusively
serve the Premises, or any portion thereof. (However, the parties shall have the
right - but not the obligation - to enter into a separate contract, containing
mutually agreeable terms, for the maintenance of any such supplemental HVAC
systems.) Nothing in this Section 11.02 shall be deemed to prevent Tenant from
performing cosmetic work in the Premises (e.g., painting and recarpeting).
----
ARTICLE XII
-----------
CONDUCT OF BUSINESS BY TENANT
-----------------------------
Section 12.01. Use of Premises. Tenant (and any sublessee or assignee of
- ------------- ---------------
Tenant) shall use and occupy the Premises during the Term solely for the
Permitted Use set forth in Article I hereof and for no other purpose. The
Premises shall not be used for the storage of personal property (other than as
may be incidental to the conduct of Tenant's business) unless expressly
permitted by the terms of this Lease. Tenant shall procure and maintain, at
Tenant's expense, any governmental licenses or permits which may be required for
the proper and lawful conduct of Tenant's business in the Building (other than
the non-residential use permit, which shall be obtained by Landlord at
Landlord's expense).
Section 12.02. Operation of Business. Tenant covenants and agrees that, in the
- ------------- ---------------------
operation of its business within the Premises, Tenant shall (a) pay before
delinquency all taxes, assessments and public charges levied, assessed or
imposed upon Tenant's business, Tenant's leasehold interest, or Tenant's
fixtures, furnishings or equipment in the Premises, and pay when due all such
license fees, permit fees and similar charges for Tenant's conduct of business
in the Premises; (b) observe the Rules and Regulations attached hereto as
Exhibit C, and all other reasonable rules and regulations established by
- ---------
Landlord from time to time, as provided in paragraph 7 of said Exhibit C,
---------
provided Tenant shall be given written notice thereof (the delivery of which
need not conform to the requirements of Article XXI hereof); and (c) not use any
space outside the Premises for storage or any other undertaking.
16
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Section 12.03. Care of Premises. Tenant shall not move any safe, heavy
- ------------- ----------------
machinery, heavy equipment or fixtures into or out of the Premises without
Landlord's prior written consent. Tenant agrees that it will not place a load
on the floor which exceeds 100 pounds per square foot live load (including
partitions), and will not install, operate or maintain in the Premises any heavy
equipment, except in such manner as to achieve a proper distribution of weight.
Section 12.04. Signage.
- ------------- -------
A. If the Building has a directory in the main lobby, Landlord shall
allocate to the Tenant, at Landlord's expense, Tenant's Pro Rata Share of
directory strips. Tenant shall also have the right to place a sign, at Tenant's
expense, on the entry door(s) to the Premises on each floor (or the elevator
lobby of each full floor leased by Tenant), the design, color, location and size
of which shall be subject to Landlord's prior written approval, which Landlord
shall not unreasonably withhold, condition or delay.
B. Subject to applicable legal requirements, Tenant shall have the right
to install signage on a panel of the monument sign to be located on the Land,
the design, color and size of which shall be subject to Landlord's prior written
approval. In addition, to the extent legally permitted, Tenant shall have the
right to install a backlit sign at or near the top of the facade of the Building
facing Jones Branch Drive, the design, color, size and location of which shall
be subject to Landlord's prior written approval. Tenant shall install the sign
in a manner acceptable to Landlord. The installation of the sign shall be
completed in a workmanlike manner and in accordance with all applicable laws and
regulations. Tenant shall be solely responsible for obtaining any permits or
licenses necessary to install the sign. Tenant shall be solely responsible for
paying all costs and expenses related the installation of the sign, and shall
indemnify Landlord for any costs which Landlord might incur due to Tenant's
installation of the sign. Tenant shall cause its general liability and casualty
policies to cover the sign. Upon the expiration or termination of this Lease,
or if Tenant is in Default as a result of Tenant's failure to pay Rent when due,
or if Tenant (or an affiliate of Tenant) ceases to lease and occupy (subject to
Section 16.01.D hereof) at least fifty percent (50%) of the Building, then, in
such event, Landlord shall have the right to require Tenant to remove the sign
at Tenant's sole cost and expense, and to restore the Building to its condition
prior to the installation of the sign; and, if Tenant fails to remove the same,
then the sign shall be deemed abandoned, and Landlord may cause the same to be
removed, and the Building to be restored, at Tenant's expense, which expense
17
<PAGE>
shall be considered Additional Rent. Notwithstanding the terms of this
paragraph, Landlord makes no representations as to whether a sign is presently
permitted under the current zoning ordinance affecting the Project.
C. Except as expressly set forth in this Section 12.04, Tenant shall not
install or maintain any sign on the Building or the Project without the prior
written consent of Landlord, which Landlord shall have the right to withhold in
its sole and absolute discretion.
Section 12.05. Legal Requirements. Tenant shall, at its own expense, comply
- ------------- ------------------
with all laws, orders, ordinances and regulations of federal, state and local
authorities, and with all rules, recommendations, requirements and regulations
of the Board of Fire Underwriters, Landlord's insurance companies, and any other
organization establishing insurance rates in the geographical area where the
Project is located.
Section 12.06. Roof Rights. To the extent legally permitted, Tenant shall have
- ------------- -----------
a non-exclusive license (which shall not be assignable except in conjunction
with an assignment of this Lease) to install Tenant's communications equipment
and supplementary HVAC equipment (the "Roof Equipment") on the roof of the
Building, in locations acceptable to Landlord, subject to Landlord's prior
approval of the size and type of such equipment. Tenant shall perform the
installation in a manner acceptable to Landlord. The installation of the Roof
Equipment shall be completed in a workmanlike manner, in accordance with all
applicable laws and regulations, in a manner which does not adversely affect the
roof warranty, and in compliance with all roof and floor load limitations.
Tenant shall be required to screen the Roof Equipment, at Tenant's expense, in a
manner acceptable to Landlord, unless otherwise agreed to in writing by
Landlord. Except as otherwise agreed to in writing by Landlord, the amount of
space taken by Tenant's Roof Equipment shall not exceed Tenant's Pro Rata Share
of roof space available for the installation of such equipment. Tenant shall be
solely responsible for obtaining any permits or licenses necessary to install
the Roof Equipment. Tenant shall be solely responsible for paying all costs and
expenses related to the installation of the Roof Equipment, and shall indemnify
Landlord for any costs which Landlord might incur due to Tenant's installation
of the Roof Equipment. Tenant shall cause its general liability and casualty
policies to cover the Roof Equipment. Upon the expiration or termination of
this Lease, Tenant shall, unless otherwise expressly directed in writing by
Landlord, remove the Roof Equipment at Tenant's sole cost and expense, and shall
restore the integrity of the roof and repair (in a manner acceptable to
Landlord) any damage to the Project caused
18
<PAGE>
by the removal of the Roof Equipment; and, if Tenant fails to remove the same,
then the Roof Equipment shall be deemed abandoned, and Landlord may cause the
same to be removed, and the Project to be repaired, at Tenant's expense, which
expense shall be considered Additional Rent. If the real estate taxes or
insurance premiums for the Buildings are increased as a result of the
installation of the Roof Equipment, then Tenant shall pay its share of any such
increase directly attributable to such installation upon receipt of adequate
documentation. Notwithstanding the terms of this Section 12.06, Landlord makes
no representations as to whether any such Roof Equipment is presently permitted
under the current zoning ordinance to which the Project is subject.
Section 12.07. Emergency Generator. To the extent legally permitted, Tenant
- ------------- -------------------
shall have a non-exclusive license (which shall not be assignable except in
conjunction with an assignment of this Lease) to install in the parking garage
serving the Project, in a location identified on the Landlord-approved Tenant's
plans, one emergency generator (with a power rating not exceeding 250 kilowatts)
and one above-ground diesel fuel storage tank (with a capacity not exceeding 465
gallons), along with the lines and conduits reasonably necessary to connect the
generator to the Premises (collectively, the "Generator Equipment"). Tenant
shall perform the installation in accordance with Landlord's guidelines. The
installation of the Generator Equipment shall be completed in a workmanlike
manner and in accordance with all applicable laws and regulations. Tenant shall
be required to screen the Generator Equipment, at Tenant's expense, in a manner
acceptable to Landlord, unless otherwise agreed to in writing by Landlord.
Tenant shall be solely responsible for paying all costs and expenses related to
the installation of the Generator Equipment, and shall indemnify Landlord for
any costs which Landlord might incur due to Tenant's installation of the
Generator Equipment. Tenant shall cause its general liability and casualty
policies to cover the Generator Equipment. Upon the expiration or termination
of this Lease, Tenant shall remove the Generator Equipment at Tenant's sole cost
and expense, and shall restore the integrity of the parking garage and repair
(in a manner acceptable to Landlord) any damage to the Project caused by the
removal of the Generator Equipment; and, if Tenant fails to remove the same,
then the Generator Equipment shall be deemed abandoned, and Landlord may cause
the same to be removed, and the Project to be repaired, at Tenant's expense,
which expense shall be considered Additional Rent. If the real estate taxes or
insurance premiums for the Building are increased as a result of the
installation of the Generator Equipment, then Tenant shall pay its share of any
such increase directly attributable to such installation upon receipt of
adequate documentation. Notwithstanding the terms of this Section 12.07,
Landlord makes no representations as to whether any such Generator Equipment is
19
<PAGE>
presently permitted under the current zoning ordinance to which the Project is
subject.
Section 12.08. Telecommunications Providers. Tenant shall have the right to
- ------------- ----------------------------
connect to the telecommunications provider of its choice, subject to Landlord's
prior written approval of the plans for installing such service. Except as
otherwise agreed to in writing by Landlord, the amount of space in the telephone
closet(s) serving the Building shall not exceed Tenant's Pro Rata Share of space
available for the installation of such service.
Section 12.09. Secured Access to Premises. Tenant shall be allowed to install,
- ------------- --------------------------
as part of the Initial Improvements, a card access system which restricts access
to the Premises, subject to Landlord's prior written approval of the type of
system, and method of installation, proposed by Tenant. Tenant agrees to
provide Landlord with security cards to allow Landlord access to the Premises
(or to program the system to permit access by Landlord's cards), and
acknowledges that the installation of the access system shall not in any manner
restrict Landlord's right to access the Premises in accordance with the
provisions of this Lease.
ARTICLE XIII
------------
INSURANCE AND INDEMNITY
-----------------------
Section 13.01. Insurance to be Procured by Landlord. Landlord shall obtain,
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and maintain in effect throughout the Term the following coverage: (a) casualty
insurance covering the replacement cost of the Building, and (b) commercial
general liability insurance containing contractual liability coverage of at
least Five Million and NO/100 Dollars ($5,000,000.00), combined single limit,
written on an occurrence basis. Such insurance shall be issued by an insurance
company licensed to do business in the Commonwealth.
Section 13.02. Insurance to be Procured by Tenant. Tenant, at Tenant's sole
- ------------- ----------------------------------
cost and expense, shall obtain, and maintain in effect throughout the Term,
policies providing for the following coverage:
A. Commercial general liability insurance protecting against liability
occasioned by any occurrence in the Premises and on the Project, and containing
contractual liability coverage of at least Five Million and NO/100 Dollars
($5,000,000.00), combined single limit, written on an occurrence basis. If it
becomes customary for a significant number of tenants of commercial office
buildings in the area to be required to provide insurance policies to their
20
<PAGE>
landlords with additional coverages or coverage limits higher than the foregoing
limits, then Tenant shall be required, at Landlord's request, to obtain
insurance policies having limits which are commensurate with the then customary
limits.
B. Casualty insurance covering Tenant's fixtures, equipment, furnishings,
merchandise and other contents located in the Premises, insuring against
vandalism, malicious mischief and sprinkler damage, and all perils included
under the classification "Fire and Extended Coverage".
C. Tenant's worker's compensation insurance affording statutory coverage
and containing statutory limits required under the Commonwealth's worker's
compensation statutes.
Section 13.03. General Provisions. The insurance policies required under
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Section 13.02 hereof shall (i) be issued by insurance companies licensed to do
business in the Commonwealth which have a Best's Rating of A:XII or better; (ii)
be written as primary policy coverage and not contributing with or in excess of
any coverage which Landlord may carry; and (iii) name Landlord and any mortgagee
of the Project as additional insureds. Neither the issuance of any insurance
policy required hereunder, nor the minimum limits specified herein with respect
to Tenant's insurance coverage, shall be deemed to limit or restrict Tenant's
liability arising hereunder. Tenant shall deliver to Landlord, on or before the
Commencement Date, a certificate of insurance for each policy which Tenant is
required to procure pursuant to this Article XIII. Tenant shall also deliver to
Landlord, on or before the expiration or cancellation of a policy, a certificate
of insurance evidencing an extension of such policy or the issuance of a
replacement policy. Each insurance policy which Tenant is required to procure
shall provide (and any certificate evidencing the existence of each such
insurance policy shall certify) that the insurance carrier shall not cancel,
fail to renew, or make material changes to, such insurance policy, without in
each instance providing Landlord with at least thirty (30) days prior written
notice thereof. If Tenant shall fail to obtain any insurance coverage which
Tenant is required to procure hereunder for a period of two (2) business days
after receiving notice thereof, then Landlord shall have the right to obtain the
same and pay the premium therefor for a period not exceeding one (1) year, and
the premium so paid by Landlord together with an administrative fee of ten
percent (10%) of such premium shall be immediately payable by Tenant to Landlord
as Additional Rent.
Section 13.04. Insurance Requirements. Tenant shall promptly comply with all
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rules, orders, regulations, or requirements of the insurance services office
having jurisdiction. Tenant shall not do
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or permit to be done any act or thing upon the Premises that will invalidate or
be in conflict with any insurance policies covering the Project, or which shall
increase the rate of any insurance covering the Project, or any property located
therein. If, as a result of Tenant's failure to comply with the provisions of
this Section, the rates of any insurance covering the Project shall increase,
then Tenant shall reimburse Landlord on demand as Additional Rent for that part
of the premium charged as a result of such violation by Tenant.
Section 13.05. Indemnification.
- ------------- ---------------
A. Tenant hereby waives all claims against Landlord for damage to any
property, or injury to or death of any person, in or upon the Premises or the
Project, arising at any time and from any cause other than the negligence or
willful misconduct of Landlord, its agents or employees. Tenant shall indemnify
and hold Landlord harmless from any damage to any property, or injury to or
death of any person, arising from the use of the Project, or the use, condition
or occupancy of the Premises, by Tenant, its agents, employees, contractors,
licensees or invitees, unless such damage is caused by the negligence or willful
misconduct of Landlord or the General Contractor, their agents or employees.
Tenant's foregoing indemnity shall include attorneys' fees, investigation costs,
and all other reasonable costs and expenses incurred by Landlord in connection
therewith.
B. Landlord shall indemnify and hold Tenant harmless from any damage to
any property, or injury to or death of any person, arising from the use or
occupancy of the Common Areas, unless such damage is caused by the negligence or
willful misconduct of Tenant, its agents, employees, contractors, licensees or
invitees. In addition, Landlord shall indemnify and hold Tenant harmless from
any damage to any property, or injury to or death of any person, caused by the
negligence or willful misconduct of Landlord, its agents or employees.
Landlord's foregoing indemnity shall include attorneys' fees, investigation
costs, and all other reasonable costs and expenses incurred by Tenant in
connection therewith.
C. The provisions of this Section 13.05 shall survive the termination of
this Lease with respect to any occurrence prior to such termination.
Section 13.06. Mutual Waiver of Claims. Tenant and Landlord each hereby
- ------------- -----------------------
release and relieve each other, and waive their entire right to recovery against
the other, for loss or damage insured by the casualty policies required herein
or any other casualty policies actually held by either Tenant or Landlord,
whether due to the negligence, respectively, of Landlord or Tenant, or their
agents,
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employees, contractors, licensees or invitees. Tenant and Landlord shall cause
their respective casualty policies to contain a provision allowing the foregoing
waiver of claims.
ARTICLE XIV
-----------
DESTRUCTION OF PREMISES
-----------------------
Section 14.01. Destruction of Premises. Tenant shall give prompt notice to
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Landlord of any fire or other damage to the Premises or the Building of which
Tenant becomes aware. If (i) any damage to the Premises or Building cannot
reasonably be repaired within one (1) year after the damage occurred, or (ii)
any mortgagee of the Premises shall require that the insurance proceeds under
the policies referred to in Section 13.01 hereof be used to pay down the
mortgage, or (iii) the Premises or Building shall be damaged as a result of a
risk which is not covered by Landlord's insurance, then Landlord may terminate
this Lease by notice given within ninety (90) days after the date of such
damage. In addition, Landlord shall notify Tenant, in writing, within ninety
(90) days after the date the damage occurred, if Landlord has reasonably
determined that it will take more than one (1) year from the date the damage
occurred to rebuild the Premises, whereupon Tenant shall have the right to
terminate this Lease upon written notice to Landlord delivered not more than
thirty (30) days after Landlord delivers said notice to Tenant. Any termination
under this Section 14.01 shall be effective as of the date of the casualty, or
such later date of actual vacation, with appropriate proration if Tenant
continues to occupy and use the undamaged portion of the Premises after the
casualty.
Section 14.02. Obligation to Rebuild. If the Premises are damaged by fire or
- ------------- ---------------------
other casualty and this Lease is not terminated pursuant to Section 14.01, then
all insurance proceeds under the policies referred to in Article XIII hereof
that are recovered on account of any such damage shall be made available to pay
for the cost of repairing such damage, and, as soon as practicable after such
damage occurs, Landlord shall repair or rebuild the Premises to a condition
substantially similar to their condition immediately prior to such occurrence to
the extent the cost therefor is fully funded by insurance proceeds. However, in
no event shall Landlord be obligated to repair or replace Tenant's trade
fixtures, equipment or personalty.
Section 14.03. Rent Abatement. In the event of any repair or rebuilding
- ------------- --------------
pursuant to Section 14.02 hereof, then an equitable portion of the Rent shall be
abated during the existence of such
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<PAGE>
damage, based upon the portion of the Premises which is rendered untenantable
and the duration thereof. Except as expressly set forth in this Article XIV,
Landlord shall not be liable or obligated to Tenant if the Premises are damaged
by fire or other casualty. Tenant hereby waives any and all rights to terminate
this Lease that it may have, by reason of damage to the Premises by fire or
other casualty, pursuant to any presently existing or hereafter enacted law.
24
<PAGE>
ARTICLE XV
----------
CONDEMNATION
------------
Section 15.01. Condemnation of Premises or Project. If all or substantially
- ------------- -----------------------------------
all of the Premises or the Project is taken or condemned by condemnation or
conveyance in lieu thereof (such taking, condemnation or conveyance in lieu
thereof being hereinafter referred to as "Condemnation"), this Lease shall
terminate on the earlier of the date the condemning authority takes possession
or the date title vests in the condemning authority. Landlord hereby represents
that it has not received any notice from any governmental authority that a
portion of the Project is subject to a pending condemnation proceeding.
Section 15.02. Partial Taking of Project. If any portion of the Project shall
- ------------- -------------------------
be taken by Condemnation (whether or not such taking includes any portion of the
Premises) and (i) such taking, in Landlord's reasonable business judgment,
results in a condition where the Project cannot be restored in an economically
feasible manner for use substantially as originally designed, or (ii) Landlord's
mortgagee requires Landlord to use the proceeds thereof to pay down the
mortgage, then Landlord shall have the right, at Landlord's option, to terminate
this Lease effective as of the date specified by Landlord in a written notice of
termination to Tenant.
Section 15.03. Partial Taking of Premises. If a portion, but less than
- ------------- --------------------------
substantially all, of the Premises shall be taken by Condemnation, then this
Lease shall be terminated as of the date of Condemnation as to the portion of
the Premises so taken, unless Tenant reasonably determines that it shall no
longer be able to conduct its business in the remainder of the Premises,
whereupon Tenant shall have the right to terminate this Lease effective as of a
date not later than sixty (60) days after the date of Condemnation, as specified
by Tenant in a written notice of termination delivered to Landlord within ten
(10) days after the date of Condemnation.
Section 15.04. Condemnation Award. All compensation awarded or paid upon a
- ------------- ------------------
Condemnation of any portion of the Project shall belong to and be the property
of Landlord, without participation by Tenant. Notwithstanding the foregoing,
Tenant shall have the right to prosecute any claim directly against the
condemning authority for loss of business, loss of goodwill, moving expenses,
and damage to and cost of removal of trade fixtures, furniture and other
personal property belonging to Tenant, so long as Tenant's claim
25
<PAGE>
shall not diminish or adversely affect any award claimed or recovered by
Landlord.
ARTICLE XVI
-----------
ASSIGNMENT AND SUBLETTING
-------------------------
Section 16.01. Assignment or Sublease by Tenant.
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A. Tenant shall not sublet the Premises (or any portion thereof) or
assign this Lease (or any interest herein), nor shall any assignment or
sublease, without the prior written consent of Landlord, which Landlord shall
not unreasonably withhold, condition or delay. Notwithstanding the foregoing, as
an alternative to granting consent to a proposed sublease or assignment,
Landlord shall have the right, in its sole discretion, to elect: (i) to sublet
from Tenant the portion of the Premises proposed by Tenant to be sublet upon the
same terms as the proposed sublet (except that if the rental rate thereunder is
greater than the rental rate hereunder, then the rental rate shall be adjusted
pursuant to paragraph B hereof); or (ii) if Tenant desires to assign this Lease,
to terminate this Lease as of the proposed effective date of the assignment.
Landlord agrees to make the foregoing election within ten (10) business days
after receiving written notice from Tenant outlining the terms of the proposed
sublease or assignment, and requesting Landlord's consent thereto. In no event
shall Tenant be permitted to sublease the Premises or assign this Lease if
Tenant is then in Default under this Lease. In the event of any assignment or
sublease pursuant to the terms of this Article XVI, Tenant shall remain liable
for all of its obligations under this Lease, including but not limited to
payment of Rent. Landlord's consent to a particular assignment or sublease
pursuant to this Article XVI shall not constitute consent to any other
assignment or sublease.
B. If Tenant should desire to assign this Lease or sublet the Premises,
Tenant shall give Landlord written notice thereof specifying: (i) the name,
current address and business of the proposed assignee or sublessee, (ii) the
amount and location of the space within the Premises proposed to be so
subleased, (iii) the proposed effective date and duration of the assignment or
sublease, (iv) the proposed rent and other consideration to be paid to Tenant by
such assignee or sublessee, and (v) all other information reasonably required by
Landlord to evaluate the proposed assignment or sublease. If Landlord consents
to such assignment or sublease, Tenant shall deliver to Landlord copies of all
documents executed in connection therewith, which documents shall be in form and
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<PAGE>
substance reasonably satisfactory to Landlord, and which documents shall require
such assignee or sublessee to comply with all terms of this Lease on Tenant's
part to be performed. No acceptance by Landlord of any rent or any other sum of
money from any sublessee or assignee shall be deemed to constitute Landlord's
consent to any assignment or sublease. If Landlord permits Tenant to sublet the
Premises or assign this Lease, and the rental rate thereunder exceeds the rental
rate hereunder, Tenant shall remit to Landlord as Additional Rent, as and when
Rent hereunder becomes due, fifty percent (50%) of the difference between the
rent due under the sublease or assignment and the Rent due hereunder, less
commercially reasonable expenses incurred by Tenant in subleasing the space or
assigning this Lease (amortized on a straight-line basis over the term of the
sublease or assignment).
C. Notwithstanding the foregoing provisions of this Section 16.01, Tenant
shall have the right, upon prior written notice to Landlord, but without
Landlord's consent, and provided Tenant is not then in Default, to assign this
Lease, or to sublet all or any part of the Premises (without Landlord having any
of its termination, recapture or revenue sharing rights pursuant to this Section
16.01), to (i) any entity resulting from a merger or consolidation with Tenant,
(ii) any corporation succeeding to all the business and assets of Tenant, or
(iii) any affiliate of Tenant; provided, however, that the net worth of the
surviving or successor entity or the affiliate is at least equal to the net
worth of Tenant as of the date of this Lease; and provided, further, that Tenant
shall remain unconditionally liable for Tenant's obligations under this Lease.
For purposes hereof, an affiliate of Tenant is any entity which controls, is
controlled by, or is under common control with Tenant.
D. Notwithstanding any provision to the contrary, during the first four
(4) years of the Term, Tenant shall have the right, subject to Landlord's prior
written consent, which shall not be unreasonably withheld, conditioned or
delayed, and provided Tenant is not then in Default, to sublet two (2) of the
floors comprising the Premises to one or more unrelated third-parties, without
Landlord having any of its recapture rights pursuant to Section 16.01.A hereof.
However, all other terms of paragraphs A and B of this Section 16.01 shall apply
to any sublease entered into pursuant to this paragraph D. Notwithstanding
anything to the contrary set forth in Section 12.04.B hereof, Landlord may not
exercise its right to require Tenant to remove the sign from the facade of the
Building, if Landlord's sole reason for exercising such right is that Tenant
happens to occupy less than fifty percent (50%) of the Building as a result of
having entered into one or more subleases pursuant to this paragraph D.
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<PAGE>
Section 16.02. Assignment Under Bankruptcy Code. Any person or entity to which
- ------------- --------------------------------
this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall
be deemed, without further act or deed, to have assumed and be subject to all of
the obligations, conditions and provisions under this Lease as of the date of
such assignment. Notwithstanding the foregoing, to the extent allowed by law,
this Lease shall not be assignable by voluntary or involuntary bankruptcy,
insolvency or reorganization proceedings, nor shall this Lease, or any rights or
privileges hereunder, be an asset of Tenant under any bankruptcy, insolvency or
reorganization proceedings.
Section 16.03. Assignment by Landlord. The term "Landlord" shall be limited to
- ------------- ----------------------
mean only the owner or owners, at the time in question, of the fee title to, or
a lessee's interest in a ground lease of, the Project. In the event of any
transfer, assignment or conveyance of any such title or interest, the Landlord-
transferor shall be automatically freed and relieved, from and after the date of
such transfer, assignment or conveyance, of all obligations of Landlord
hereunder, and the Landlord-transferee of such title or interest shall be deemed
to have assumed, from and after the date of such transfer, assignment or
conveyance, all obligations of Landlord hereunder. Tenant hereby acknowledges
that Landlord may transfer its interest in the Lease or the Project without the
consent of Tenant.
ARTICLE XVII
------------
FINANCING AND SUBORDINATION
---------------------------
Section 17.01. Subordination; Attornment.
- ------------- -------------------------
A. This Lease is subject and subordinate to all current and future ground
leases, deeds of trust, mortgages or other security instruments covering any
portion of the Project, or any interest of Landlord therein, as the same may be
amended from time to time. This provision shall be self-operative, and no
further instrument shall be required to effect such subordination of this Lease.
Upon demand, however, Tenant shall execute, acknowledge and deliver to Landlord
any further instruments evidencing such subordination as Landlord, and any
mortgagee or lessor of Landlord, shall reasonably require. Notwithstanding the
foregoing, any mortgagee or lessor of Landlord shall have the right at any time
to subordinate any such deed of trust or mortgage or underlying lease to this
Lease, on such terms and subject to such conditions as such mortgagee or lessor
of Landlord may deem appropriate.
28
<PAGE>
B. Upon any transfer of Landlord's interest in the Project, Tenant shall,
upon request of such transferee ("successor landlord"), automatically attorn to
and become the Tenant of the successor landlord, without change in the terms of
this Lease. This agreement of Tenant to attorn to a successor landlord shall
survive any foreclosure sale, trustee's sale, conveyance in lieu thereof or
termination of any underlying lease. Tenant shall, upon demand at any time,
before or after any such foreclosure or termination, execute, acknowledge and
deliver to the successor landlord any written instruments evidencing such
attornment as such successor landlord may reasonably require.
C. Notwithstanding the terms of this Article XVII, Landlord shall obtain
from the current mortgagee of the Building a fully-executed (having been first
signed by Tenant) subordination, nondisturbance and attornment agreement, and
shall deliver the same to Tenant. In addition, Landlord shall obtain from any
future mortgagee of the Building a fully-executed (having been first signed by
Tenant) subordination, nondisturbance and attornment agreement on such
mortgagee's standard form of agreement, and shall deliver the same to Tenant,
provided that Landlord is reimbursed by Tenant for any cost incurred by Landlord
in obtaining the same from such future mortgagee.
Section 17.02. Mortgagee's Right to Cure. In the event of any default by
- ------------- -------------------------
Landlord hereunder, Tenant shall, prior to taking any action to remedy such
default or to cancel this Lease, send to Guaranty Federal Bank, F.S.B., 8333
Douglas Avenue, Dallas, Texas 75225, Attn: Commercial Real Estate Lending
Division, or to any subsequent mortgagee of which Tenant has notice, by
certified mail, return receipt requested, a notice specifying the default by
Landlord, whereupon such mortgagee shall have a right to cure such default on
behalf of Landlord in accordance with the terms of the nondisturbance agreement
provided to Tenant pursuant to Section 17.01.C hereof. Tenant shall have no
right to take any other action as a result of Landlord's default unless and
until Tenant complies with the provisions of this paragraph.
ARTICLE XVIII
-------------
DEFAULT OF TENANT
-----------------
Section 18.01. Defaults. Each of the following occurrences shall constitute a
- ------------- --------
"Default" by Tenant:
29
<PAGE>
A. If Tenant fails to pay any installment of Rent when the same shall
become due and payable, and such failure shall continue for five (5) business
days after written notice thereof.
B. Intentionally deleted.
C. If any execution, levy, attachment or other process of law occurs upon
Tenant's interest in the Premises, and Tenant fails to discharge or bond-off the
same within ten (10) business days after receiving notice thereof (from Landlord
or otherwise).
D. If a mechanic's lien is filed against the Premises or the Project as a
result of any services or labor provided, or materials furnished, on Tenant's
behalf, and Tenant fails to timely cause such lien to be discharged, or bond
such lien or post such security, as is required by Section 10.02, and such
failure shall continue for five (5) business days after written notice from
Landlord to Tenant.
E. If Tenant violates the sublease or assignment provisions set forth in
Article XVI hereof.
F. If Tenant fails to maintain in force all policies of insurance required
by this Lease, and such failure shall continue for two (2) business days after
written notice thereof.
G. If Tenant fails to provide Landlord with the financial statements or
the estoppel certificates within the time periods referenced in Sections 23.16
and 23.17 hereof, respectively.
H. Subject to the terms of the Bankruptcy Code, if (i) Tenant, Tenant's
guarantor or any permitted assignee, shall (a) make an assignment for the
benefit of creditors, (b) file or acquiesce in a petition in any court (whether
or not pursuant to any statute of the United States or of any state) in any
bankruptcy, reorganization or insolvency proceedings, or (c) make an application
in any such proceedings for or acquiesce in the appointment of a trustee or
receiver for it or all or any portion of its property; or (ii) any petition
shall be filed against Tenant, Tenant's guarantor or any permitted assignee, in
any bankruptcy, reorganization or insolvency proceedings and (x) Tenant,
Tenant's guarantor or any permitted assignee or sublessee shall thereafter be
adjudicated bankrupt, or (y) such petition shall be approved by any such court,
or (z) such proceedings shall not be dismissed, discontinued or vacated within
sixty (60) days after such petition is filed; or (iii) a receiver or trustee
shall be appointed for Tenant, Tenant's guarantor or a permitted assignee, for
all or any portion of their property, and such
30
<PAGE>
receivership or trusteeship shall not be set aside within sixty (60) days after
such appointment.
I. If Tenant fails to perform or observe any other term of this Lease
which is not specifically referred to in this Section 18.01, and such failure
continues for more than thirty (30) days after written notice from Landlord,
except that such thirty (30) day period shall be extended for such additional
period of time as may reasonably be necessary to cure such breach, if such
breach, by its nature, cannot be cured within such thirty (30) day period,
provided that Tenant commences to cure such breach within such thirty (30) day
period and is at all times thereafter in the process of diligently curing the
same, and does in fact cure such breach prior to the time that a failure to cure
could cause the Landlord to be subject to prosecution for violation of any law,
rule, ordinance or regulation or could cause a default under any mortgage, lease
or other agreement applicable to the Project.
J. If Tenant fails to perform any of its obligations under this Lease
three (3) or more times within any twelve (12) month period, and Landlord has
delivered notice of the breach for each such failure, notwithstanding any
subsequent cure of such failure as provided in this Section 18.01.
Section 18.02. Landlord's Remedies. In the event of a Default, Landlord may
- ------------- -------------------
pursue any or all of the following remedies:
A. Landlord shall have the right to terminate this Lease by delivering to
Tenant written notice thereof, whereupon Tenant shall be required to immediately
vacate and surrender the Premises.
B. Landlord shall have the right, without notice, to re-enter the
Premises and dispossess, by summary proceedings, self help or otherwise, Tenant
and any other occupants of the Premises, and Tenant shall have no further claim
or right hereunder.
C. Landlord shall have the right to bring a special proceeding to recover
possession of the Premises from Tenant.
D. If Landlord exercises its rights under paragraphs B or C above,
Landlord may remove all persons from the Premises, and may treat all property as
abandoned and dispose of same in accordance with Section 20.02 of this Lease.
E. Landlord may exercise its rights under paragraphs B or C above with or
without terminating the Lease, and in no event shall any such exercise be
construed as an election to terminate this Lease or operate to release Tenant
from any of its obligations for the remainder of the Term, or give rise to any
claim for trespass.
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If Landlord exercises its rights under paragraphs B or C above without
terminating the Lease, Landlord may from time to time make such alterations and
repairs as necessary in order to relet the Premises, and may thereafter relet
the Premises or any part thereof for such rent and upon such other terms and
conditions as Landlord may determine advisable in its sole discretion. Upon each
such reletting, all rentals and other sums received by Landlord from such
reletting shall be applied as follows: first, to the payment of any costs and
expenses of such reletting; second, to the payment of any indebtedness other
than Rent due and unpaid hereunder; and third, to the payment of Rent due and
unpaid hereunder. If such rentals and other sums received from such reletting
during any month are less than the amounts due pursuant to the foregoing
schedule for application of proceeds, Tenant shall pay such deficiency to
Landlord; if such rentals and other sums shall be more, Tenant shall have no
right to, and shall receive no credit for, the excess. Such deficiency shall be
calculated and paid monthly. Notwithstanding any such reletting without
termination, Landlord may at any time elect to terminate this Lease for such
previous breach. In the event Landlord re-enters and takes possession of the
Premises pursuant to this Section 18.02, then Landlord shall add the Premises
into its inventory of available space and shall use commercially reasonable
efforts to relet the same; provided, however, that in no event shall Landlord be
required to relet the Premises in preference to other available space in
Landlord's inventory at that time, nor shall Landlord be required to divide the
Premises for the purpose of leasing the portions thereof to more than one
tenant.
F. Landlord may recover its lost Rent and other damages due hereunder (i)
at the time of the re-entry or termination, in a single action or in separate
actions, from time to time, as the lost Rent shall accrue, or (ii) in a single
proceeding deferred until the expiration of the Term (in which event Tenant
hereby agrees that the cause of action shall not be deemed to have accrued until
the date of expiration of the Term). Notwithstanding the foregoing, if Landlord
terminates this Lease as a result of a Tenant Default, Landlord may, as an
alternative to the remedies set forth in the preceding sentence, recover upon
demand the following liquidated damages (which the parties hereto agree shall
not be deemed a penalty) upon written notice thereof to Tenant: The sum of: (i)
all past-due Rent through the termination date of this Lease, plus (ii) the
amount of Landlord's Costs (hereinafter defined) which remains unamortized as of
the termination date of this Lease, plus (iii) the lesser of (a) the amount of
Rent due for the remainder of the Term, or (b) the amount of Rent due for the
twelve (12) month period immediately following the termination date of this
Lease. Landlord and Tenant acknowledge that they have agreed to the foregoing
amount as liquidated damages because of the
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difficulty of ascertaining in advance the amount of damages Landlord is likely
to incur as a result of Tenant's Default and Landlord's subsequent termination
of this Lease. For purposes hereof, the term "Landlord's Costs" shall refer to
the sum of (i) all real estate brokerage commissions incurred by Landlord in
connection with the Lease, (ii) all costs and expenses incurred by Landlord in
connection with the construction and/or installation of any leasehold
improvements within the Premises, (iii) any rental abatements, (iv) any
allowances granted to Tenant, and (v) any other costs and expenses incurred by
Landlord in connection with the Lease. In addition to any other damages for
which Tenant shall be liable hereunder, Tenant shall be liable for all
reasonable attorneys' fees and court costs incurred by Landlord as a result of
Tenant's Default.
Section 18.03. Waiver of Trial by Jury. Landlord and Tenant hereby waive all
- ------------- -----------------------
right to trial by jury regarding any matter connected with this Lease.
Section 18.04. Injunction. In addition to the other remedies provided in this
- ------------- ----------
Lease, and anything contained herein to the contrary notwithstanding, Landlord
and Tenant shall be entitled to restraint by injunction of any default or
violation, or attempted or threatened default or violation, of any of the terms
of this Lease.
Section 18.05. Landlord's Right to Perform for Account of Tenant. If Tenant
- ------------- -------------------------------------------------
shall Default, Landlord may cure such Default for the account and at the expense
of Tenant. Tenant agrees to pay Landlord, on demand, with interest at the
Interest Rate, the amount so paid, expended or incurred by Landlord, and any and
all expenses, including reasonable attorneys' fees and court costs, incurred by
Landlord as a result of such Default.
Section 18.06. Additional Remedies; Waivers. The rights and remedies of
- ------------- ----------------------------
Landlord set forth in this Article XVIII shall be in addition to any other right
and remedy now or hereafter available at law or in equity, and all such rights
and remedies shall be cumulative rather than exclusive. Landlord may exercise
such rights and remedies at such times, in such order, to such extent, and as
often as Landlord deems advisable, without regard to whether the exercise of one
right or remedy precedes, coincides with or succeeds the exercise of another. A
single or partial exercise of a right or remedy shall not preclude a further
exercise thereof, or the exercise of another right or remedy. No waiver of a
Default shall be effective unless it is expressly agreed to in writing by
Landlord.
33
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Section 18.07. Landlord's Failure to Perform. In the event Landlord shall fail
- ------------- -----------------------------
to perform any of its obligations hereunder, then Tenant shall be entitled to
pursue its rights and remedies available at law or in equity.
ARTICLE XIX
-----------
ACCESS BY LANDLORD
------------------
Landlord may, at any time, upon prior reasonable notice to Tenant (except
in the case of emergency), enter the Premises for the purpose of: (i) inspecting
the Premises; (ii) making repairs, replacements or alterations; or (iii) during
the final year of the Term, showing the Premises to prospective purchasers or
tenants. No such entry by Landlord shall constitute actual or constructive
eviction of Tenant. During the course of any such entry, Landlord shall use
reasonable efforts to avoid disrupting Tenant's business operations.
34
<PAGE>
ARTICLE XX
----------
SURRENDER; HOLDING OVER
-----------------------
Section 20.01. Surrender. Upon the expiration of this Lease, or upon re-entry
- ------------- ---------
by Landlord without terminating this Lease pursuant to Article XVIII hereof,
Tenant shall peacefully vacate and surrender the Premises to Landlord in good
order, broom clean and in the same condition as at the beginning of the Term,
reasonable wear and tear and damage by casualty excepted. Tenant shall also
remove its trade fixtures, furniture and other personal property from the
Premises along with any leasehold improvements or other additions which Tenant
is required to remove pursuant to Section 10.03 hereof.
Section 20.02. Personal Property. The parties hereto agree that Tenant's
- ------------- -----------------
personal property located in the Premises shall be subject to that certain
Consent and Subordination Agreement in the form attached hereto as Exhibit G.
---------
Landlord agrees to subordinate, to the rights of any lender who is providing
financing for any of Tenant's personal property in the Premises, any statutory
or common law right of Landlord to levy its landlord's lien against Tenant's
personal property. Except to the extent provided to the contrary in the
foregoing Consent and Subordination Agreement, if Tenant fails to timely remove
its property in accordance with Section 20.01, Landlord shall have the right, on
the tenth (10th) business day after Landlord's delivery of written notice to
Tenant, to deem such property abandoned by Tenant. Landlord may thereafter
remove or otherwise deal with the abandoned property in a commercially
reasonable manner at Tenant's sole cost and expense, and Landlord shall have no
liability to Tenant with respect to such abandoned property. Tenant specifically
acknowledges and agrees that Landlord shall not be considered a bailee of such
property. Tenant hereby agrees to indemnify Landlord against any loss, cost,
expense, claim or cause of action arising in connection with Landlord's exercise
of its rights under this Section 20.02 including, without limitation, any claim
by a third party for conversion or trespass as to chattels.
Section 20.03. Holding Over. If Tenant shall hold possession of the Premises
- ------------- ------------
after the expiration of this Lease, Landlord shall have the right, in its sole
discretion, to deem Tenant either (i) a trespasser, whereupon Landlord shall be
entitled to the benefit of all laws relating to the speedy recovery of the
possession of the Premises; or (ii) a month-to-month tenant subject to the
provisions and obligations of this Lease (insofar as the same are applicable to
a month-to-month tenancy), except that Tenant shall be required
35
<PAGE>
to pay to Landlord a monthly rental equal to two (2) times the amount of Rent
payable during the last month of the Term. Unless Landlord notifies Tenant in
writing to the contrary within thirty (30) days after the expiration of this
Lease, Tenant's tenancy shall automatically become month-to-month. The terms of
this Article XX shall survive the expiration of this Lease.
ARTICLE XXI
-----------
NOTICES
-------
Except as may be expressly provided to the contrary in this Lease, all
notices, consents, demands, requests or other communications (other than payment
of Rent) required or permitted hereunder (collectively, "notices") shall be in
writing, and shall be deemed given when dispatched to the other party by hand
delivery (with signed receipt), or one (1) day after being dispatched to the
other party by air express courier (with signed receipt), or three (3) days
after being deposited in the United States Mail, postage prepaid, certified or
registered, return receipt requested. The addresses of the parties for notices
shall be those set forth in Article I hereof, or any other address subsequently
specified by either party in a notice given pursuant to this Article XXI.
ARTICLE XXII
------------
HAZARDOUS MATERIALS
-------------------
Section 22.01. Environmental Requirements. Tenant's use and occupancy of the
- ------------- --------------------------
Premises shall at all times be in strict compliance with all federal, state and
local laws, rules, regulations, orders, guidelines, ordinances and standards, as
they may now or hereafter exist, relating in any way to the protection of human
health, safety, the environment and natural resources, including but not limited
to the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"); the Resource Conservation and Recovery Act; the Toxic Substances
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Clean
Air Act; the Federal Water Pollution Control Act; the Occupational Safety and
Health Act; the Safe Drinking Water Act, and their applicable state and local
counterparts or equivalents ("Environmental Laws").
36
<PAGE>
Section 22.02. Clean-Up. If Tenant becomes aware of a Release (hereinafter
- ------------- --------
defined), threat of a Release or the presence of any Hazardous Substance
(hereinafter defined) affecting the Premises or surrounding areas, Tenant shall
immediately notify Landlord in writing thereof, and shall take all necessary
steps to ensure that any future activities by Tenant do not exacerbate the
Release, threat of a Release or the presence of Hazardous Substance. If a
Release, threat of a Release or the presence of any Hazardous Substance
affecting the Premises or surrounding areas is caused by the acts or omissions
of Tenant, or its agents, employees, contractors, licensees or invitees, Tenant
shall immediately take all measures necessary to contain, remove and dispose off
the Premises, or surrounding areas, all such materials present or Released (or
threatened to be Released), and shall remedy and mitigate all threats to public
health or the environment relating to such presence or Release, or threat
thereof. If Tenant shall fail to take the measures described above, or shall
fail to comply with the requirements of any Environmental Laws, Landlord may
give such notice and/or cause such work to be performed at the Premises or
surrounding areas, and/or take any and all other actions as Landlord shall deem
necessary to restore the Premises or surrounding areas to the condition in which
they existed as of the date of this Lease. Such actions by Landlord shall not
affect Tenant's obligations under this Lease.
Section 22.03. Indemnification. Tenant shall indemnify, defend and hold
- ------------- ---------------
harmless Landlord from and against any and all claims, liens, suits, actions,
debts, damages, costs, losses (including, without limitation, any loss of value
of, loss of use of, or loss of income from, the Premises or the Project),
liabilities, obligations, judgments and expenses (including, without limitation,
court costs and attorneys' fees), arising from or relating to any of the
following occurrences caused by the acts or omissions of Tenant, its agents,
employees, contractors, licensees or invitees: (i) a failure to comply with any
Environmental Laws, or (ii) a Release, threat of a Release or the presence of
any Hazardous Substance affecting the Premises or surrounding areas. Tenant's
obligations under this Lease shall arise whether or not any governmental
authority or individual has taken or threatened to take any action in connection
with the presence of any Hazardous Substance.
Section 22.04. Definitions. As used herein, the term "Hazardous Substance"
- ------------- -----------
shall mean petroleum or petroleum by-products, and/or any chemicals, substances
or wastes which are defined as or included in the definition of "hazardous
substance", "hazardous waste", "hazardous material", "toxic substance", "toxic
pollutant", or words of similar import, under any Environmental Laws, and shall
include building materials and building components including,
37
<PAGE>
without limitation, asbestos or asbestos containing materials. The term
"Release" shall have the meaning set forth in Section 101(22) of CERCLA.
Section 22.05. Operations. Tenant shall not engage in operations which involve
- ------------- ----------
the generation, manufacturing, refining, transportation, treatment, storage,
disposal or handling of any Hazardous Substance, other than office equipment and
cleaning solutions that are customarily found in office buildings, provided that
the use, generation, handling or storage of such equipment and solutions is
reasonably necessary for the operation and maintenance of the Premises as
permitted pursuant to the terms of this Lease, and is in strict compliance with
Environmental Laws.
Section 22.06. Inspection. Tenant agrees to permit Landlord and its authorized
- ------------- ----------
representatives to enter, inspect and assess the Premises at reasonable times
for the purpose of determining Tenant's compliance with the provisions of this
Article XXII. Such inspections and assessments may include obtaining samples
and performing tests of building materials, soil, surface water, groundwater or
other media.
Section 22.07. Survival. This entire Article XXII shall survive the expiration
- ------------- --------
of this Lease.
ARTICLE XXIII
-------------
MISCELLANEOUS
-------------
Section 23.01. Professional Fees. To the extent permitted by law, in any
- ------------- -----------------
action or proceeding brought by either party against the other under this Lease,
the prevailing party shall be entitled to recover from the other party the
reasonable professional fees incurred by the prevailing party, such as
appraisers', accountants' and attorneys' fees, investigation costs, and other
legal expenses and court costs.
Section 23.02. No Partnership. Nothing contained herein shall be deemed to
- ------------- --------------
create a partnership, joint venture, or any other relationship between the
parties hereto except landlord and tenant.
Section 23.03. Brokerage. Landlord and Tenant each warrant and represent to
- ------------- ---------
the other that no broker or agent on Landlord's or Tenant's behalf was involved
in negotiating this Lease or addressing matters concerning the renting of the
Premises, other than Broker and WEST*GROUP MANAGEMENT LLC, whose commissions
shall be paid in full by Landlord in accordance with separate agreements.
38
<PAGE>
Landlord and Tenant each agree to indemnify and hold the other harmless against
any claims for brokerage or other commissions arising from a breach by Landlord
or Tenant of the foregoing representation and warranty.
Section 23.04. Interpretation.
- ------------- --------------
A. Every provision of this Lease which imposes an obligation on Tenant
shall be deemed to be a covenant by Tenant.
B. This Lease may be executed in several counterparts which shall
constitute one and the same instrument.
C. Any restriction or requirement imposed upon Tenant hereunder shall be
deemed to extend to Tenant's guarantors, sublessees, assignees, licensees and
invitees, and it shall be Tenant's obligation to cause the foregoing persons to
comply with such restriction or requirement.
D. Any reference to the expiration of this Lease or the Expiration Date
shall include the earlier termination of this Lease.
E. The term "mortgagee" shall also refer to any beneficiary of a deed of
trust, or any other individual or entity having a security interest in the
Project.
F. The term "Commonwealth" shall refer to the Commonwealth of Virginia.
Section 23.05. Recording. Neither this Lease, nor any memorandum hereof, may
- ------------- ---------
be recorded among the land records without the express written consent of
Landlord, which Landlord may condition or withhold in its sole and absolute
discretion.
Section 23.06. Severability. Every agreement contained in this Lease shall be
- ------------- ------------
construed as a separate and independent agreement. If any term of this Lease,
or the application thereof to any person or circumstance, shall be invalid or
unenforceable, the remaining agreements contained in this Lease shall not be
affected.
Section 23.07. Waiver of Redemption. If, as a result of a Tenant Default,
- ------------- --------------------
Landlord terminates this Lease, or obtains possession of the Premises without
terminating this Lease, Tenant hereby expressly waives, to the extent legally
permissible, any right of redemption or right to restore the operation of this
Lease pursuant to Va. Code Section 55-247 or any other present or future law.
39
<PAGE>
Section 23.08. Limitation of Landlord's Liability. Anything contained in this
- ------------- ----------------------------------
Lease to the contrary notwithstanding, Tenant agrees to look solely to the
estate and property of Landlord in the Project for the collection of any
judgment or other judicial process requiring the payment of money by Landlord
for any default or breach by Landlord under this Lease, subject, however, to the
prior rights of any mortgagee or lessor of the Project. No other assets of
Landlord, or any partners, shareholders or other principals of Landlord, shall
be subject to levy, execution or other judicial process for the satisfaction of
Tenant's claim.
Section 23.09. Force Majeure. Whenever a period of time is herein prescribed
- ------------- -------------
for action to be taken by Landlord or Tenant (other than payment of rent), such
party shall not be liable or responsible for, and there shall be excluded from
the computation for any such period of time, any delays due to force majeure,
which term shall include strikes, riots, acts of God, shortages of labor or
materials, war, governmental approvals, laws, regulations or restrictions, or
any other cause which is beyond the reasonable control of such party.
Section 23.10. Headings. The article headings contained in this Lease are for
- ------------- --------
convenience only and shall not enlarge or limit the scope or meaning of the
terms hereof. Words in the singular number shall be held to include the plural,
unless the context otherwise requires.
Section 23.11. Successors and Assigns. If there be more than one Tenant, the
- ------------- ----------------------
obligations hereunder imposed upon Tenant shall be joint and several, and all
agreements and covenants herein contained shall be binding upon the respective
heirs, personal representatives, successors and assigns of the parties hereto.
Notwithstanding the foregoing, nothing contained in this Section 23.11 shall be
deemed to override the terms of Article XVI.
Section 23.12. Entire Agreement; Amendments. This Lease, and the exhibits and
- ------------- ----------------------------
riders (if any) attached hereto, set forth the entire agreement between the
parties, and no representations, inducements or agreements, oral or written,
between Landlord and Tenant shall have any force or effect, unless the same are
set forth in this Lease. No amendment or modification of this Lease shall be
binding or valid unless expressed in a document signed by both parties hereto.
Section 23.13. Governing Law. This Lease shall be governed by and construed
- ------------- -------------
under the laws of the Commonwealth, without reference to its conflicts of laws
principles. Tenant hereby consents to jurisdiction in the Circuit Court for
Fairfax County, Virginia, if any suit is brought relating to this Lease. Should
any provision
40
<PAGE>
of this Lease require judicial interpretation, Landlord and Tenant hereby agree
and stipulate that the court interpreting or considering same shall not apply
the presumption that the terms hereof should be more strictly construed against
the party who drafted the same, it being agreed that all parties hereto have
participated in the preparation of this Lease, and that each party has had full
opportunity to consult legal counsel of its choice before executing this Lease.
Section 23.14. Time of Essence. Time is of the essence in this Lease.
- ------------- ---------------
Section 23.15. Acceptance by Landlord. The submission of this Lease to Tenant
- ------------- ----------------------
shall not be construed as an offer, and Tenant shall not have any rights with
respect thereto unless and until Landlord executes a copy of this Lease and
delivers the same to Tenant.
Section 23.16. Financial Statements. At any time during the Term, Tenant
- ------------- --------------------
shall, upon ten (10) business days prior written notice from Landlord, provide
Landlord with a current financial statement and financial statements of the two
(2) years prior to the current financial statement year. Such statements shall
be prepared in accordance with generally accepted accounting principles,
consistently applied, and, if such is the normal practice of Tenant, shall be
audited by an independent certified public accountant. If it is not the normal
practice of Tenant to prepare audited statements, then the unaudited statements
shall be certified by Tenant's chief financial officer.
Section 23.17. Estoppel Certificates. Tenant shall, from time to time, within
- ------------- ---------------------
ten (10) business days after written request from Landlord or its mortgagee,
execute, acknowledge and deliver in recordable form an estoppel certificate
regarding the terms and status of the Lease and the tenancy thereunder, and such
other matters as may be reasonably requested by Landlord or its mortgagee.
Tenant's failure to execute and deliver such statement within the allotted time
shall be conclusive evidence that Tenant acknowledges that the contents of the
proffered estoppel are accurate.
Section 23.18. Authority of Parties. Execution hereof shall constitute a
- ------------- --------------------
representation and warranty by each party hereto that such party has complied
with all applicable laws, rules and governmental regulations relative to that
party's right to do business in the Commonwealth, that such party has the full
right and authority to enter into this Lease, and that all persons signing on
behalf of such party were authorized to do so by all necessary or appropriate
legal actions.
41
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal
as of the date first above written.
LANDLORD:
--------
WEST*GROUP PROPERTIES LLC
/s/ G.T. Halpin
By: ________________________ [SEAL]
G.T. Halpin, President
TENANT:
------
NET-TEL CORPORATION
/s/ James K. Dize
By: _______________________ [SEAL]
Name: James K. Dize
Title: General Counsel
-----------------------
42
<PAGE>
EXHIBIT A
---------
PREMISES
43
<PAGE>
EXHIBIT B
---------
LAND
44
<PAGE>
EXHIBIT C
---------
RULES AND REGULATIONS
---------------------
1. Sidewalks, doorways, vestibules, halls, stairways and similar areas shall
not be obstructed by Tenant, or its agents, servants or employees, or used for
any purpose other than ingress and egress to and from the Premises, and for
going from one part of the Building to another part of the Building.
2. Plumbing fixtures and appliances shall be used only for the purpose for
which they were constructed, and no sweepings, rubbish, rags or other unsuitable
material shall be thrown or placed therein. The cost of repairing any stoppage
or damage to any such fixtures or appliances due to misuse by Tenant, or
Tenant's employees, agents, contractors, licensees or invitees, shall be paid by
Tenant.
3. No signs, posters, advertisements or notices shall be painted or affixed
on any of the windows or doors, or other part of the Building, except in such
places, and of such color, size and style, as shall be first approved in writing
by the Building manager.
4. Tenants shall not do anything, or permit anything to be done, in or about
the Building, or bring or keep anything therein, that will in any way increase
the possibility of fire or other casualty or obstruct or interfere with the
rights of, or otherwise injure or annoy, other tenants.
5. No birds, animals, reptiles or other creatures shall be brought into or
kept in or about the Building.
6. Landlord has the right to evacuate the Building in the event of emergency
or catastrophe.
7. Landlord reserves the right to rescind any of these Rules and Regulations
and make such other rules and regulations not inconsistent with the express
terms of the Lease as, in the judgment of Landlord, shall from time to time be
necessary for the protection, care and cleanliness of the Building, and the
safety of the tenants therein.
45
<PAGE>
EXHIBIT D
---------
FORM OF COMMENCEMENT NOTICE
---------------------------
This Commencement Notice is entered into this _____ day of ____________,
2000, by WEST*GROUP PROPERTIES LLC ("Landlord"), and NET-TEL CORPORATION
("Tenant"), pursuant to the provisions of that certain Deed of Lease (the
"Lease") dated _______________, 2000, by and between Landlord and Tenant,
covering certain space in the office building commonly known as the Shenandoah
Building, located in WEST*PARK Office Park. The terms used herein shall have
the meaning set forth in the Lease.
W I T N E S S E T H :
1. The Premises, and any and all improvements required to be constructed
and furnished by Landlord in accordance with the terms of the Lease, have been
satisfactorily completed by Landlord, and have been delivered to and accepted by
Tenant.
2. The Commencement Date of the Lease is the ______ day of ____________,
200__, and the Expiration Date is the ______ day of ____________, 200__.
IN WITNESS WHEREOF, Landlord and Tenant have entered into this Commencement
Notice as of the date first written above.
LANDLORD:
--------
WEST*GROUP PROPERTIES LLC
By: ________________________
G.T. Halpin, President
TENANT:
------
NET-TEL CORPORATION
By: _______________________
Name: _______________________
Title:_______________________
46
<PAGE>
EXHIBIT E
---------
WORK AGREEMENT
--------------
1. Initial Improvement Work. Subject to the terms and conditions of this
------------------------
Work Agreement, Landlord shall construct in the Premises those improvements
identified on the Final Construction Drawings (hereinafter defined), or any
clarifications or revisions thereto (such as via change orders or shop drawings)
(the "Initial Improvements"). Landlord and Tenant agree that the Initial
Improvements shall be of a quality equal to or greater than the specifications
set forth in Exhibit E-1 attached hereto. The cost of designing, permitting and
-----------
constructing the Initial Improvements (the "Initial Improvement Costs") shall be
borne solely by Tenant; however, pursuant to Section 4 hereof, Landlord shall
provide Tenant with an Improvement Allowance (hereinafter defined) to defray the
Initial Improvement Costs. All work constituting the Initial Improvements (the
"Initial Improvement Work") shall be subject to Landlord's prior written
approval. The general contractor for the construction of the Initial
Improvements (which shall be performed on an "open book" basis) shall be
WEST*GROUP MANAGEMENT LLC ("General Contractor"), an affiliate of Landlord. The
fee which Landlord shall pay to the General Contractor for project management,
home-office overhead and profit shall be an amount equal to six percent (6%) of
the sum of (i) the "Cost of the Work", as defined in AIA document A111, plus
(ii) permitting costs; except with regard to change order work, which shall be
an amount equal to ten percent (10%) of the sum of (i) the Cost of the Work,
plus (ii) permitting costs. In addition to the foregoing fees, Landlord shall
reimburse the General Contractor for the General Conditions (hereinafter
defined) incurred in performing the Initial Improvement Work. All of the Initial
Improvement Work shall be performed in a good and workmanlike manner and in
accordance with all applicable federal and local laws, regulations and
ordinances. Landlord shall be responsible for obtaining, at Tenant's expense,
all necessary permits and licenses, including the non-residential use permit,
for the Initial Improvement Work. Landlord shall use commercially reasonable
efforts to minimize the cost of the Initial Improvements.
2. Bidding. Landlord shall cause the General Contractor to competitively bid
-------
the Initial Improvement Work, as shown on the Final Construction Drawings, to at
least three (3) qualified subcontractors. Tenant shall be entitled to designate
at least one bidder in each competition, provided that such bidders are provided
to Landlord on or before February 25, 2000 ("Bid Designation Deadline").
Landlord shall have the right to object to any Tenant proposed bidder, provided
such objection is based upon Landlord's
47
<PAGE>
good faith belief that such bidder might disrupt the work process, or that such
bidder's work may not be up to Landlord's standards for the Building, or that
such bidder may not otherwise be able to perform. In that event, Tenant may
designate a substitute bidder, which substitute bidder also must be reasonably
acceptable to Landlord. Only licensed contractors may bid to perform the Initial
Improvement Work. The General Contractor shall deliver to Tenant copies of the
bids and bid summaries. Landlord and Tenant will then work together in good
faith to select the bids of the subcontractors to be awarded the trade work.
Tenant agrees to keep all bid information confidential. Landlord agrees to
select the lowest qualified bid, unless Landlord reasonably concludes that such
bidder might disrupt the work process, or that such bidder's work may not be up
to Landlord's standards for the Building, or that such bidder may not otherwise
be able to perform. Promptly following selection of the successful bidders,
Landlord shall enter into appropriate contracts for completion of the Initial
Improvement Work.
3. Construction Budgets. Landlord shall deliver to Tenant, for Tenant's
--------------------
review and approval, all budgets for the Initial Improvement Work. Upon receipt
of each budget, Tenant shall have a period of five (5) business days in which to
approve the same. It shall be a Tenant Delay if Tenant fails to approve a budget
within five (5) business days, as aforesaid, unless such disapproval is due to
an error by Landlord or the General Contractor. Landlord shall share all cost
and budget information with Tenant and permit Tenant at all reasonable times to
inspect all records relating to the performance and expense of the Initial
Improvement Work.
4. Improvement Allowance. Landlord shall provide Tenant with an allowance
---------------------
("Improvement Allowance"), in an amount equal to the product of Thirty and
No/100 Dollars ($30.00) multiplied by the number of square feet comprising the
Rentable Area of the Premises, to be applied toward the Initial Improvement
Costs. Tenant shall have the right to use a portion of the Improvement
Allowance, in an amount not to exceed $2.50 per square foot of Rentable Area in
the Premises, for expenses associated with the installation of
telecommunications equipment and cabling, and (b) moving costs (provided that
such moving costs do not exceed $1.00 per square foot of Rentable Area in the
Premises). If the Initial Improvement Costs exceed the Improvement Allowance,
then Tenant shall bear the entire cost thereof (which amount shall be deemed
Additional Rent), and shall pay Landlord the entire excess amount (less a ten
percent (10%) retention of the General Contractor's fee) within ten (10) days
after Landlord submits to Tenant an invoice therefor. Landlord agrees not to
submit an invoice to Tenant for any such excess amount until the subject Initial
Improvements have been substantially completed. Tenant shall pay Landlord the
ten percent
48
<PAGE>
(10%) retention of the General Contractor's fee upon completion of the punchlist
items. To the extent the Improvement Allowance exceeds the Initial Improvement
Costs, then Tenant shall have the right to apply the difference thereof toward
the cost of constructing any alterations desired by Tenant and approved by
Landlord pursuant to Article X of the Lease, or the cost of any signage
installed by Tenant pursuant to Section 12.04.B of the Lease.
5. Appointment of Architect and Engineer. Ai architectural firm (the
-------------------------------------
"Architect") is hereby appointed as the architect, and Meta Engineering, PC (the
"Engineer") is hereby appointed as the engineer, who will prepare any and all
architectural and engineering drawings, plans and specifications necessary for
Landlord to construct the Initial Improvement Work. The contract for the
services to be provided by the Architect shall be between the Architect and the
General Contractor, and the contract for the services to be provided by the
Engineer shall be between the Engineer and the General Contractor. Tenant shall
be responsible for any fees owed to the Architect and Engineer in connection
with the Initial Improvement Work.
6. Architectural Drawings; Engineering Drawings. Tenant shall deliver the
--------------------------------------------
Preliminary Plans (hereinafter defined) to Landlord on or before February 7,
2000, and shall deliver the Schedule of Finishes (hereinafter defined) to
Landlord on or before February 14, 2000, such delivery (of both the Preliminary
Plans and the Schedule of Finishes) to be made in hard copy and electronic
format. For purposes hereof, "Preliminary Plans" shall the refer to the set of
plans which are reasonably necessary for the Architect and the Engineer to
prepare the Final Construction Drawings (hereinafter defined), and shall
include, at a minimum, (a) Tenant's plans for the configuration of the Premises,
including without limitation, space allocation and partition layout; (b)
information with respect to Tenant's requirements pertaining to the electrical,
mechanical, HVAC, telephone, plumbing, lighting and similar systems servicing
the Building, heat generating equipment and power requirements, computer
facilities (equipment, power and heat output) and energy management systems (if
any) subject to further detailing by the Engineer; (c) Tenant's power and
telephone layout, kitchen layout with equipment schedules, reflected ceiling
plans, general lighting plans, receptacle plans and wiring plans; and (d) any
other special requirements of Tenant with respect to the completion of the
Initial Improvements. The Schedule of Finishes shall include a description of
all finish selections (e.g., paint and carpeting colors, wall covering
selections and any elevations necessary to identify finish locations) for the
Premises, and all other information necessary to prepare permitable construction
drawings. Upon Landlord's receipt of both the
49
<PAGE>
Preliminary Plans and the Schedule of Finishes (in both hard copy and electronic
format), Landlord shall thereupon submit the same to the Architect and the
Engineer, and shall instruct them to prepare preliminary construction drawings
for the Initial Improvements (the "Preliminary Construction Drawings"). Upon
completion of the Preliminary Construction Drawings, Landlord shall submit the
same to Tenant for its review and approval. Upon receipt of the Preliminary
Construction Drawings, Tenant shall have a period of five (5) business days in
which to approve the same. It shall be a Tenant Delay if Tenant fails to approve
the Preliminary Construction Drawings within five (5) business days, as
aforesaid, or proposes any changes thereto, unless such disapproval or change is
due to the Preliminary Construction Drawings failing to conform to what is
depicted (with reasonable clarity) on, and/or described (with reasonable
clarity) in, the Preliminary Plans. The Architect and the Engineer shall then
promptly modify the Preliminary Construction Drawings to incorporate any changes
agreed upon by Landlord and Tenant (such Preliminary Construction Drawings, as
modified, to be hereinafter referred to as the "Final Construction Drawings").
Upon completion of the Final Construction Drawings, Landlord shall submit the
same to the Contractor for bid.
7. Tenant Delay; Long-Lead Items.
-----------------------------
A. The term "Tenant Delay" shall include any act or omission by Tenant,
its agents, employees, contractors or licensees, which actually delays
Landlord's completion of the Initial Improvements. By way of example, but
without limitation, it shall be a Tenant Delay if Landlord is delayed in
substantially completing the Premises and/or obtaining a certificate to allow
Tenant to occupy the same as a result of (i) any drawings, plans or
specifications not being prepared and/or approved (and/or the information
reasonably necessary to complete the same not being provided) by Tenant or its
agents within the timeframes specified herein, or in any other documentation
associated with the Initial Improvement Work; (ii) Tenant's request for changes,
alterations or additions to any Tenant-approved drawings, plans or
specifications; or (iii) Tenant's request for materials, finishes or
installations constituting "long-lead" items (as that term is commonly used in
the commercial office construction industry). For purposes hereof, the term
"substantial completion" (or "substantially completed") shall mean the
completion by Landlord (or its agents) of the Initial Improvements, exclusive
only of those items, commonly referred to as "punchlist items". If there are
multiple Tenant Delays, of the type described in this paragraph A, which affect
the same date(s), then such Tenant Delays shall be counted as one concurrent
Tenant Delay (rather than multiple, successive Tenant Delays) for the applicable
date(s) affected.
50
<PAGE>
B. The term "Tenant Delay" shall also include (i) each day that Tenant
fails to timely deliver to Landlord any budget approval pursuant to Section 3
hereof, (ii) each day that Tenant fails to timely deliver to Landlord the
Preliminary Plans and/or the Schedule of Finishes pursuant to Section 6 hereof,
(iii) each day that Tenant fails to timely approve the Preliminary Construction
Drawings pursuant to Section 6 hereof and (iv) if Tenant elects to designate
bidders pursuant to Section 2 hereof (which Tenant may decline to do, in its
sole discretion), the number of days between the Bid Designation Deadline and
the date on which Tenant designates a bidder; regardless of whether any failure
described in this paragraph B actually delays Landlord's completion of the
Initial Improvements.
C. Tenant hereby agrees to pay Landlord, as Additional Rent, one (1)
day's worth of Base Rent for each day of Tenant Delay, such amount to be due and
payable within thirty (30) days after the Commencement Date.
D. From time to time after its receipt of the Preliminary Plans, Landlord
shall use commercially reasonable efforts to assist Tenant prior to bidding the
trade work for the Initial Improvements in proactively attempting to ascertain
which, if any, of the materials desired by Tenant (and approved by Landlord)
might constitute a long-lead item. At the latest, Landlord agrees to inform
Tenant within thirty (30) days after the completion of the Final Construction
Drawings which, if any, of the materials desired by Tenant (and approved by
Landlord) would constitute a long-lead item. Tenant hereby acknowledges that,
notwithstanding the efforts of Landlord and Tenant, some long-lead items may not
be identified until after receiving the responses from the bidding
subcontractors. In the event Landlord informs Tenant of any long-lead item after
completion of the Final Construction Drawings, then Tenant shall have two (2)
business days in which to designate a substitute material which Landlord and
Tenant reasonably believe would not constitute a long-lead item; provided,
however, that if such substitute material is in fact a long-lead item, then the
procurement of such material, or the substitution of yet another material,
shall, in and of itself, constitute a long-lead item. If, at any time, Tenant
informs Landlord that it has elected to utilize an item which is identified as a
long-lead item, then Landlord agrees to promptly order that item upon Tenant's
written authorization thereof.
8. Inspections. Only Tenant's authorized inspector shall have the right to
-----------
inspect the Initial Improvement Work during the course of construction, provided
that such inspector shall use reasonable efforts not to disrupt or interfere
with the Initial Improvement Work in the course of such inspections, and
provided further that
51
<PAGE>
all such inspections shall be at Tenant's sole risk. Until further notice,
Tenant's authorized inspector shall be James K. Dize, who shall have full
authority to act on behalf of Tenant. Landlord shall have no liability to Tenant
for any injury or damage to Tenant or Tenant's agents, employees or contractors
occurring in the course of such inspections. Any complaints or defects noted in
such inspection shall be noted in writing by Tenant to Landlord's authorized
representative, and not to Landlord's contractor or subcontractors. Until
further notice, Landlord's authorized representative shall be J.C. Ewing.
9. Punchlist. Landlord shall notify Tenant when the Premises will be ready
---------
for a final inspection. Within three (3) business days after such notice the
parties shall jointly inspect the Premises and prepare a "punchlist" of items
which have not been completed in accordance with this Work Agreement. Landlord
shall use commercially reasonable efforts to correct the punchlist items within
thirty (30) days after the substantial completion of the Initial Improvement
Work.
10. Warranties. Landlord will assign to Tenant all of the manufacturers'
----------
warranties (to the extent transferable) for any supplemental mechanical,
electrical, or other types of equipment installed by Landlord or the General
Contractor (or any of their agents or subcontractors) as part of the Initial
Improvements. Landlord agrees to rectify, at Landlord's expense, any latent
defects (i.e., defects which customarily would not be considered punch-list type
items) in the construction of the Initial Improvements and building systems
serving the Premises which are discovered during the first (1st) year of the
Term.
11. General Conditions. For purposes hereof, the term "General Conditions"
------------------
shall refer to the following items: superintendent(s), general superintendent
and costs of the laborer(s) (all with associated labor burden and
transportation); dumpster; telephone hook-up; safety/health devices/office
supplies; safety/barricades; small tools; telephone/fax; small equipment rental;
courier and express mail; blueprinting and miscellaneous.
12. Change Orders. Following delivery of the Final Construction Drawings to
-------------
Landlord, Tenant shall have the right to request changes to the Final
Construction Drawings with regard to the Initial Improvement Work, provided that
Tenant agrees to pay for such work (including reasonable adjustments, if any, to
the cost of the General Conditions) and provided, further, that such change
shall not delay the completion of the Initial Improvement Work. Any such change
shall be initialed by the Architect and approved by Landlord and the General
Contractor (who may not unreasonably withhold or delay approval) as a change
order on American Institute
52
<PAGE>
of Architects ("AIA") forms and in accordance with AIA procedures (other than
the requirement to resolve disputes through arbitration). No change shall be
permitted without the prior written consent of Landlord, which consent shall not
be unreasonably withheld, conditioned or delayed. If any change requested by
Tenant pursuant to this Section will delay the completion of the Initial
Improvement Work, then such change shall still be made in accordance with the
procedures herein, but the delay due to such change shall constitute a Tenant
Delay (hereinafter defined), or, alternatively, the change may be made after
substantial completion of the Initial Improvement Work.
53
<PAGE>
EXHIBIT E-1
-----------
MINIMUM SPECIFICATIONS/INITIAL IMPROVEMENTS
54
<PAGE>
EXHIBIT F
---------
BASE BUILDING HVAC SPECIFICATIONS
---------------------------------
55
<PAGE>
EXHIBIT G
---------
LANDLORD'S SUBORDINATION AND CONSENT
------------------------------------
56
<PAGE>
RIDER NO. 1
-----------
RENEWAL OPTIONS
---------------
A. Subject to the terms hereof, Tenant shall have the right to renew and
extend the Term for two (2) "Renewal Terms" of five (5) years each by giving
written notice thereof to Landlord no later than twelve (12) months prior to the
expiration of the original Term or the immediately preceding Renewal Term, as
applicable. Each Renewal Term shall commence immediately upon the expiration of
the original Term or subsequent Renewal Term, as applicable, and, upon exercise
of each renewal option, the Expiration Date of the Term shall automatically
become the last day of the applicable Renewal Term. Once Tenant exercises a
renewal option, Tenant may not thereafter revoke such exercise. If Tenant does
not renew the Lease in a timely manner, then Tenant's right to renew the Term
pursuant to this Rider shall expire and be of no further force or effect.
B. Unless otherwise agreed to by Landlord and Tenant, Tenant shall take
the Premises "as-is" for the Renewal Terms, and Landlord shall have no
obligation to make any improvements or alterations thereto.
C. Notwithstanding anything to the contrary set forth in this Rider,
Tenant shall have no right to renew the Term if Tenant is in Default either as
of the date Tenant attempts to exercise its renewal option, or as of the date on
which the Renewal Term then at hand is scheduled to commence.
D. Base Rent for the first year of each Renewal Term shall be the Fair
Market Rental Rate (hereinafter defined) multiplied by the number of square feet
of Rentable Area of the Premises; provided, however, that in no event shall the
Base Rent for the first year of any Renewal Term be less than the Minimum
Renewal Rate (hereinafter defined). Base Rent for each subsequent year of the
Renewal Term shall be subject to increase pursuant to Section 6.02 of the Lease.
For purposes hereof, the "Fair Market Rental Rate" means the fair market rental
rate (taking into consideration any economic concessions and other relevant
factors) per square foot for a comparable lease term commencing at the
appropriate time for a comparable tenant leasing space of comparable size (on an
"as-is" basis pursuant to paragraph B hereof), with comparable parking
accommodations in a comparable building located in the Tysons Corner real estate
market. The Parking Fees then being charged by Landlord shall be in addition to
(but shall be a relevant factor in calculating) the Fair Market Rental Rate
pursuant to the terms hereof. Landlord and Tenant shall endeavor to agree upon
the Fair
57
<PAGE>
Market Rental Rate at least ninety (90) days prior to the commencement of the
upcoming Renewal Term (the "Deadline Date"). Neither Landlord nor Tenant shall
have any obligation to accept the other's estimate of the Fair Market Rental
Rate, and shall in no event be deemed to have acted in bad faith for their
failure to have reached an agreement regarding the Fair Market Rental Rate. In
the event that the parties fail to reach an agreement regarding the Fair Market
Rental Rate prior to the Deadline Date, then the Fair Market Rental Rate shall
be determined as follows. Within ten (10) days after the Deadline Date, Landlord
and Tenant shall each select a real estate broker and identify such selected
broker in a written notice to the other. In the event that either Landlord or
Tenant shall fail to notify the other of its selection within such ten (10) day
period, then the broker selected by the other party shall determine the Fair
Market Rental Rate. Otherwise, the two brokers selected by Landlord and Tenant
shall endeavor to agree upon the Fair Market Rental Rate. If the two brokers are
unable to reach an agreement on the Fair Market Rental Rate within fifteen (15)
days after having been requested to do so by Landlord and Tenant, then the two
brokers shall, within ten (10) days after the expiration of the foregoing
fifteen (15) day period, select a third real estate broker and notify both
Landlord and Tenant in writing of such selection. If the two selected brokers
fail to select a third broker within such time period, then the third broker
shall be selected by the President of the Greater Washington Commercial
Association of Realtors. All brokers shall be Virginia-licensed real estate
brokers who have at least ten (10) years experience in commercial office leasing
in the geographical area in which the Project is located and who are recognized
in the industry as being ethical and reputable. Within fifteen (15) days after
all of the brokers have been selected, they shall meet and attempt to agree upon
the Fair Market Rental Rate. If they are unable to reach agreement within such
fifteen (15) day period, then each broker shall submit in writing to Landlord
and Tenant, within fifteen (15) days thereafter, their respective determination
of the Fair Market Rental Rate. The Fair Market Rental Rate shall then be
conclusively determined by taking the average of the two determinations which
are the closest to one another (the third determination being disregarded).
Landlord and Tenant shall each bear the cost of the broker selected by it, and
shall share equally the cost of the third broker. In the event that the Fair
Market Rental Rate is determined to be less than the Minimum Renewal Rate, then
Tenant shall have a period of five (5) days after receiving notice of the
foregoing determination to revoke the exercise of its renewal option, whereupon
Tenant's right to renew the Term pursuant to this Rider No. 1 shall be null and
void and of no further force or effect. For purposes hereof, the "Minimum
Renewal Rate" refers to the Base Rent in effect immediately prior to the
expiration of
58
<PAGE>
the original Term or the immediately preceding Renewal Term, as applicable.
E. Tenant shall not be entitled to any rental abatement, additional
renewal options or other concessions contained in the Lease during any Renewal
Term.
F. Except as set forth herein, the leasing of the Premises for the Renewal
Terms shall be upon the same terms and conditions as are applicable for the
original Term.
G. Tenant's rights under this Rider shall be personal to Tenant and shall
not inure to the benefit of any assignee of Tenant, except for an assignee
permitted under Section 16.01.C of the Lease.
59
<PAGE>
RIDER NO. 2
EXPANSION OPTION
----------------
1. Subject to the terms hereof, Tenant shall have the right to expand the
Premises by adding thereto all or a portion of the space on the first (1/st/)
through fourth (4/th/) floors of the Building (the "Prospective Expansion
Space") in accordance with the terms hereof.
2. If any portion of the Prospective Expansion Space becomes, or is about to
become, available for lease (the "Subject Expansion Space"), then Landlord shall
inform Tenant in writing of the availability thereof, whereupon Tenant shall
have seven (7) days to inform Landlord in writing whether it desires to lease
the Subject Expansion Space. In the event Tenant notifies Landlord that it does
not wish to lease the Subject Expansion Space, or fails to notify Landlord
within said seven (7) day period that it desires to lease the Subject Expansion
Space, then Landlord shall have the right to lease the Subject Expansion Space
to any other party, and Tenant shall have no further rights hereunder to add the
Subject Expansion Space to the Premises. If Tenant does notify Landlord within
said seven (7) day period that it desires to lease the Subject Expansion Space,
then Landlord and Tenant shall promptly enter into an amendment to the Lease,
whereby the Subject Expansion Space shall be added to the Premises in accordance
with the terms set forth in paragraph 3 hereof.
3. The initial Base Rent for the Subject Expansion Space shall be the Fair
Market Rental Rate (as defined in Rider No. 1 to the Lease) multiplied by the
number of square feet of Rentable Area in the Subject Expansion Space; provided,
however, that in no event shall the initial Base Rent for the Subject Expansion
Space be less than the Minimum Renewal Rate (as defined in Rider No. 1 to the
Lease). The term of the Lease for the Subject Expansion Space shall be as agreed
upon by Landlord and Tenant (but shall reflect what is generally considered
standard in the then current market); provided, however, that in no event shall
the term expire later than the Expiration Date set forth in Article I of the
Lease, nor sooner than the date which is three (3) years after the commencement
date for the Subject Expansion Space. In the event Landlord and Tenant are
unable to agree upon the duration of the term of the lease for the Subject
Expansion Space in light of current market conditions, then, so long as the
Rentable Area of the Subject Expansion Space contains at least 10,000 square
feet of space, the parties shall employ the three (3) broker method described in
Rider No. 1 to the Lease to resolve the impasse. All other terms of the addition
of the Subject Expansion Space to the Premises shall be substantially as set
forth in the Lease.
60
<PAGE>
4. Neither the Expansion Space, nor any portion thereof, shall be deemed
available for lease if the pre-existing tenant desires to renew the term of its
lease, regardless of whether such lease contains a renewal option.
5. Notwithstanding anything to the contrary set forth in this Rider, Tenant
shall have no right to expand the Premises pursuant to the terms hereof if
Tenant is in Default as of the date on which Tenant attempts to exercise its
expansion option hereunder, or if Tenant is not then leasing and occupying at
least fifty percent (50%) of the Building.
6. Tenant's rights under this Rider shall be personal to Tenant and shall not
inure to the benefit of any assignee of Tenant, except for an assignee permitted
under Section 16.01.C of the Lease.
61
<PAGE>
Exhibit 10.13
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective this 1st day of March, 2000, by and
between, NET-tel Corporation (hereinafter referred to as "NET-tel or
Corporation") having its principal place of business at 1023 31st Street, N.W.,
Washington, D.C. 20007 and Craig R. Bandes, (hereinafter referred to as the
"Employee"), who resides at 735 S. Pitt Street, Alexandria, VA 22314.
A. Corporation is engaged in the business of designing, creating,
marketing, and providing broadband integrated access telecommunications
services to the small and medium sized business market.
B. Corporation desires to continue the employment relationship of the
Employee.
C. The parties hereto desire to specify the terms of Employee's employment
by Corporation.
Therefore, the parties agree as follows:
1. Term of Employment.
------------------
Corporation hereby agrees to amend its employment relationship subject to
and upon the terms and conditions of this Agreement. This Agreement shall
commence on March 1, 2000, and remain in full force and effect unless and until
terminated by either party pursuant to the provisions in Paragraph 8.
2. Duties.
------
Employee shall continue to be employed by the Corporation as the Sr. Vice
President, Corporate Development or in such other positions involving comparable
responsibilities as the Chief Executive Officer or the Board of Directors of the
Corporation may designate from time to time. Employee shall perform the duties
normally associated with such position. In addition, Employee shall perform
such other duties as the Corporation shall reasonable assign from time to time.
3. Compensation.
------------
As compensation for services rendered to the corporation, the Corporation
shall pay Employee a Base Salary, which on an annualized basis would be
equivalent to $180,000 and will be paid in semi-monthly installments. In
addition to the Base Salary, the Employee shall be entitled to an annual bonus
of up to 70 percent of his Base Salary, payable quarterly (i.e., up to 17.5
percent every three months) to be based on Employee meeting Corporation,
department and personal objectives.
4. Best Efforts.
------------
4.1 Employee agrees to perform to the best of Employee's ability,
experience, and talents, all of the duties that may be required by the express
and implicit terms of this Agreement, to the reasonable satisfaction of
Corporation. Such duties shall be performed at such place(s) as the needs,
business, or opportunities the Corporation may require from time to time.
4.2 Employee agrees that so long as this Agreement continues in
effect, Employee shall devote substantially all of his full business time and
energies to the business and affairs of the Corporation, Employee shall use his
best efforts, skills and abilities to promote the Corporation's interests, and
Employee shall perform the duties described in this Agreement and such other
duties as may reasonably be assigned to Employee.
5. Prohibition on Using Confidential Information and Non Solicitation
-------------------------------------------------------------------
The Employee agrees to the terms and conditions of the attached
Agreement Regarding Confidentiality, Non-Solicitation, as attached hereto and
incorporated into this Agreement by reference.
<PAGE>
6. Covenant Not to Compete.
-----------------------
6.1 Except as expressly noted herein, during Employee's employment
with the Corporation, and for a period of one (1) year following the termination
of the Agreement and Employee's employment thereunder, Employee shall not,
either directly or indirectly, engage in or have any interest in any person,
firm, corporation or business (whether as an employee, officer, director, agent,
or principal investor) that engages in a business in direct competition with the
Corporation within 90 miles of the Corporation's corporate headquarters.
6.2 Subject to the terms of Paragraph 8.1(b), upon termination of this
Agreement by Corporation under Paragraph 8.1, Employee will be paid severance
pay for a period of one year based on the Employee's Base Salary, to be paid in
accordance with the Corporation's payment of Base Salary.
7. Enforcement of Covenant Not to Compete.
--------------------------------------
If Employee breaches or threatens to breach the terms of the Covenant Not
to Compete of this Agreement, NET-tel may pursue any remedies it is or may be
entitled to under the law or equity, including injunctive relief. Employee
acknowledges that NET-tel would be irreparably injured upon Employee's breach of
the foregoing provisions regarding confidential information, non-solicitation,
and covenant not to compete, and it is difficult to ascertain with certainty the
amount of money damages NET-tel will suffer. Employee agrees, however, that a
reasonable amount of such money damages would be the commissions and bonuses
Employee was paid by NET-tel in the six (6) month period prior to Employee's
termination. Provided further, however, that nothing herein shall preclude NET-
tel from seeking a recoupment of its actual damages should they be ascertainable
in an amount certain and should they exceed the amount of commissions and
bonuses Employee received in the six (6) months prior to termination.
8. Termination.
-----------
8.1 Termination Without Cause. Employee's employment under this
-------------------------
Agreement shall be on an "at will" basis. Subject to the provisions of
Paragraph 8.2, either party may terminate this Agreement and Employee's
employment thereunder at any time, for any reason or no reason whatsoever.
(a) Subject to the terms of Paragraph 8.1(b), upon termination of
this Agreement by Corporation under Paragraph 8.1, Employee will be paid
severance pay equal to four weeks of his Base Salary for every year Employee was
employed by Corporation.
(b) If, in the good faith belief of the Corporation, the Employee
breaches the prohibition against disclosing Confidential Information, the Non-
Solicitation clause and the Covenant Not Compete, the Employee's entitlement to
any severance will cease immediately and Corporation shall have no further
obligation or liability to Employee.
(c) Upon termination of employment under Paragraph 8.1, Employee
will be entitled to payment for his unused personal days.
8.2 Termination for Cause. Corporation may terminate this Agreement
---------------------
for Cause and cancel its obligation to Employee hereunder, except for base
salary earned but unpaid to the effective date of termination. In the event the
Agreement is terminated under this Paragraph for cause, Employee will not be
entitled to severance pay. As used herein, the term "Cause" shall include, but
not be limited to: (i) the commission of Employee of a felony or a crime
involving moral turpitude or the commission of any other act involving
dishonesty, disloyalty or fraud, (ii) conduct by Employee tending to bring
Corporation into substantial public disgrace or dispute, (iii) failure of
Employee to perform, in any material respect, his obligations under this
Agreement or the reasonable directives of the Board or the Corporation's Chief
Executive Officer, (iv) failure of Employee to perform his job in an efficient
and satisfactory manner, (v) negligence or willful misconduct by Employee in
providing services required hereby, (vi) Employee's breach of any aspect of this
Agreement (viii) the determination by the Board that Employee has acted, or
<PAGE>
had failed to act, which action or failure to take actions are within Employee's
power and authority, in a manner detrimental to the best interests of
Corporation.
8.3 Death or Disability. In the event of Employee's death or the
-------------------
Employee's inability, due to a disability, to perform the essential functions of
his job with or without reasonable accommodation during the term of this
Agreement, Corporation shall have no further obligations or liability hereunder,
except to pay to Employee or Employee's estate (in addition to and without
regard for any benefits due under any insurance, retirement, stock option, or
other benefit plan of the Corporation or any other person or entity) the amount
of Employee's Compensation, including base salary, commissions, and unused
personal leave, other payments accrued but unpaid at the date of Employee's
death or disability as described above. Employee's employment shall be deemed
terminated by reason of disability as described above only if the Board of
Directors of the Corporation shall determine in good faith that Employee shall
be unable to perform his duties by reason of such disability for a period of at
least four (4) consecutive months.
8.4 Return of Property. Upon termination of this Agreement,
------------------
Employee shall deliver all property (including keys, records, notes, data,
memoranda, models, and equipment) that is in the Employee's possession or under
the Employee's control which is the Corporation's property or related to the
Corporation's business.
9. Governing Law.
-------------
This Agreement is made pursuant to, and shall be governed, construed,
and enforced in all respects and for all purposes in accordance with the laws of
the Commonwealth of Virginia.
10. Waivers.
-------
No consent or waiver, express or implied, by either party, to or of
any breach or default by the other in the performance by the other of its
obligations hereunder, shall be deemed or construed to be a consent or waiver
to, or of, any other breach or default in the performance by such other party
hereunder. Failure on the part of either party to complain of any act or
failure to act of any other party, or to declare any other party in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder.
11. Amendments.
----------
This Agreement is subject to amendment only by a written agreement
signed by all of the parties hereto.
12. Attorneys' Fees.
---------------
In the event of any litigation between the parties hereto to enforce
any provision of this Agreement or any right of any party hereto, the
unsuccessful party to such arbitration or litigation agrees to pay to the
successful party, all costs and expenses, including reasonable attorneys' fees
and costs incurred therein.
13. Entire Agreement.
----------------
This Agreement contains the entire Agreement of the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and that
no other agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended by oral
agreement, but only by an agreement in writing.
<PAGE>
IN WITNESS WHEREOF, the parties to this Agreement have duly executed
the same on the date and year first above written.
NET-tel Corporation Craig Bandes
By: ./s/ James F. Kenefick By: /s/ James K. Dize, Attorney-in-Fact
------------------------- ----------------------------------
Its: President
------------------------
<PAGE>
Exhibit 10.14
NET-tel Communications, Inc.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective the 1st day of April, 2000, by and
between, NET-tel Communications, Inc., a Delaware corporation (hereinafter
referred to as "Net-tel" or "Corporation") having its principal place of
business at 1023 31st Street, NW, Washington, DC 20007 and James Kenefick
(hereinafter referred to as the "Employee").
A. Corporation is engaged in the data and voice communications business
B. Corporation desires to hire the Employee.
C. Employee is willing to be employed by the Corporation.
D. The parties hereto desire to specify the terms of Employee's employment
by Corporation.
Therefore, the parties agree as follows.
1. Term of Employment.
------------------
Corporation hereby employs Employee and Employee accepts employment
with and agrees to serve Corporation, subject to and upon the terms and
conditions of this Agreement. This Agreement shall commence on April 1, 2000,
and remain in full force and effect for three years. Effective as of the
expiration of such initial three-year term and as of each anniversary date
thereof, the term of this Agreement shall be extended for an additional 12-month
period unless terminated in writing at least ninety (90) days prior to the
expiration of the then current term. Notwithstanding the foregoing, Employee's
employment hereunder may be terminated earlier, as provided in Paragraph 13.
2. Duties.
------
Employee shall be employed by the Corporation as the Chairman of the
Board, Chief Executive Officer and President or in such other positions
involving comparable responsibilities as the Board of Directors of the
Corporation may designate from time to time. Employee shall perform the duties
normally associated with such position. In addition, Employee shall perform
such other duties as the Corporation shall reasonably assign from time to time.
<PAGE>
3. Compensation.
------------
3.1 As compensation for services rendered to the Corporation, the
Corporation shall pay Employee a Base Salary, which on an annualized basis would
be equivalent to (a) Three Hundred Thousand Dollars ($300,000) during the first
(1st) contract year hereof; (b) Three Hundred Twenty Five Thousand Dollars
($325,000) during the second (2nd) contract year hereof; and (c) Three Hundred
Fifty Thousand Dollars ($350,000) during the third (3rd) contract year hereof.
Employee's Base Salary shall be payable in installments at such intervals as the
Corporation pays the salaries of its management employees generally, but in no
event less frequently than on a monthly basis, and subject to such deductions
and withholdings as are required to be made pursuant to applicable government
laws, rules and regulations. Employee shall also be eligible for such
additional incentive compensation as may be determined by the Board of Directors
from time to time in its sole discretion.
3.2 Incentive Compensation. In addition to the base salary to which
----------------------
Employee is entitled pursuant to paragraph 3.1 hereof, Employee shall be
entitled to up to twenty-five percent (25%) of his annual base salary on a
quarterly basis based on the satisfactory performance of the approved Board
"Financial Plan", which shall include specific quarterly revenue and EBITDA
targets.
3.3 Employee shall be eligible under any executive pension plan of
Corporation if such plan becomes available.
3.4 The Corporation will reimburse Employee for his legal,
accounting, tax planning, financial planning and estate planning fees up to
$25,000 per year upon submission by Employee of invoices for such services.
4. Best Efforts.
------------
4.1 Employee agrees to perform faithfully, industriously, and to the
best of Employee's ability, experience, and talents, all of the duties that may
be required by the express and implicit terms of this Agreement, to the
reasonable satisfaction of Corporation. Such duties shall be performed at such
place(s) as the needs, business, or opportunities the Corporation may require
from time to time.
4.2 Employee agrees that so long as this Agreement continues in
effect, Employee shall devote substantially all of his full business time and
energies to the business and affairs of the Corporation, Employee shall use his
best efforts, skills and abilities to promote the Corporation's interests, and
Employee shall perform the duties described in this Agreement and such other
duties as may reasonably be assigned to Employee.
4.3 During the Employee's employment by Corporation, Employee shall
not directly, either as owner, partner, shareholder, broker, dealer, agent,
employee or otherwise, engage in any other significant business activity for
gain or profit or other pecuniary advantage without the approval of the
Corporation's Board of Directors or an authorized committee thereof; provided,
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however, that this paragraph shall not limit or restrict Employee's right to
make and have personal investments in such form or manner that do not require
Employee's active services in the daily operations or affairs of the business in
which such investments are made and do not otherwise conflict with Employee's
duties and obligations to the Corporation and this paragraph shall not limit or
restrict Employee's right to serve as a member of the board of directors of
other companies.
5. Personal Days
-------------
5.1 Employee shall be entitled to thirty (30) paid personal days each
year.
5.2 At the end of each calendar year, Employee can elect to have up
to 20 of his unused personal days, paid to him as a bonus (based on Employee's
Base Salary). Employee can carry over the remainder of his unused personal days
into the following year, but at no time can Employee begin a new year on January
1 with more than 45 personal days.
6. Business Expenses.
-----------------
Employee shall be entitled to reimbursement by Corporation for any
ordinary and necessary business expenses incurred by Employee in the performance
of Employee's duties on behalf of the Corporation, provided that:
(a) Each such expenditure is of a nature qualifying it as a proper
deduction on the federal and state income tax returns of Corporation as a
business expense and not as compensation to Employee; and
(b) Employee furnishes to Corporation adequate records and other
documentary evidence as required by federal and state statutes and regulations
issued by the appropriate taxing authorities for the substantiation of such
expenditures as a deductible business expense of Corporation.
7. Reimbursement.
-------------
Employee agrees that, if at any time any payment made to Employee by
Corporation as business expense reimbursement shall be disallowed in whole or in
part as a nondeductible expense of Corporation by any taxing authority, Employee
shall reimburse Corporation to the full extent of such disallowance, with
interest thereon at the rate as would be charged by the Internal Revenue Service
for such period from the date of reimbursement by Corporation until repaid.
8. Stock Options.
-------------
Employee shall be entitled to options to purchase 750,000 shares of
common stock of the Corporation vesting ratably over a three year period, at
approximately 16.67% per six month period. The option price per share for the
first 250,000 shares shall be initial public offering price recorded on the
cover of the prospectus (referred to as the "IPO Price"), the option price for
the second 250,000 shares shall be 150 percent of the IPO Price, and the option
price for the third
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250,000 shares shall be 200 percent of the IPO Price. Other terms and conditions
of such options shall be set forth in an option agreement approved by the Board
of Directors and accepted by the Employee.
9. Prohibition on Using Confidential Information.
---------------------------------------------
9.1 Employee recognizes and acknowledges that Confidential
Information (defined below) is a valuable and unique asset of NET-tel, access
to and knowledge of which is essential to the performance of the Employee'
duties to NET-tel. Except as required to perform the services required under
this Agreement, Employee shall not, during his employment or any time
thereafter, disclose, in whole or in part, such Confidential Information to any
person, firm, corporation, association, or other entity for any reasons or
purpose whatsoever, or make use of such Confidential Information for his own
purposes or for the benefit of such person or other entity (except NET-tel),
under any circumstances.
9.2 Employee shall, prior to or upon leaving NET-tel, deliver to NET-
tel any and all records, items, media of any type (including all partial or
complete copies or duplicates) containing or otherwise relating to Confidential
Information whether prepared or acquired by Employee or provided to Employee by
NET-tel. Employee also acknowledges that all such records, items and media are
at all times and shall remain the property of NET-tel.
9.3 Confidential Information means information disclosed to or known
by an employee as a consequence or through his association with NET-tel,
including any information conceived, originated, discovered, or developed by
Employee, which is not generally known to the public or potential competitors of
NET-tel and which constitutes or relates to marketing, sales, research,
development, or know-how, including, but not limited to plans, specifications,
drawings, sketches, lay-outs and formulas, development and manufacture of the
products of the Corporation, purchasing, accounting, customer or contract
lists, trade engineering and technical data, computer software and hardware
design, information entrusted to NET-tel by third parties, or any trade secrets,
proprietary or confidential matter.
9.4 Employee shall not acquire any intellectual property rights under this
Agreement except the limited right to use set out above. Employee acknowledges
that, as between NET-tel and Employee, the Confidential Information and all
related copyrights and other intellectual property rights, are (and at all times
will be) the property of NET-tel, even if suggestions, comments, and/or ideas
made by Employee are incorporated into the Confidential Information or related
materials during the period of this Agreement.
10. Non-Solicitation.
----------------
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Employee recognizes and acknowledges that NET-tel has a national and
international market for its services, and that Employee's duties will be
performed in, and will require him to come into contact with the national and
international market. Employee acknowledges that this market is very
competitive and that because of these factors and because of the Confidential
Information and customer lists which NET-tel has purchased or developed that
have been or will be obtained by or disclosed to Employee, as well as the access
Employee has or will have to NET-tel's subscribers, customers, and accounts,
Employee will abide by the following conditions during his employment and for a
term of six months after termination of this Agreement and Employee's employment
thereunder, whether voluntary or involuntary. During this period, Employee will
not directly or indirectly:
(a) Induce or attempt to induce any employee of NET-tel to leave its
employ;
(b) Persuade or attempt to persuade any customer of Corporation to
cease doing business with the Corporation, to reduce the amount of business it
does with the Corporation, or to do business with any other person, firm, or
corporation that directly or indirectly engages in any business competitive to
that of the Corporation;
(c) Persuade or attempt to persuade any potential customer not to do
business with the Corporation or to do business with any other company, person,
or firm that directly or indirectly engages in any business competitive to that
of the Corporation. For the purposes of this subparagraph 10(c), the term
"potential customer" includes any person, firm, or corporation to which the
Corporation made a presentation or otherwise actively solicited at any time
during the twelve (12) months preceding the date of the termination of this
Agreement.
11. Covenant Not to Compete.
-----------------------
Except as expressly noted herein, during Employee's employment with the
Corporation, and for a period of one (1) year following the termination of the
Agreement and Employee's employment thereunder (so long as the Company continues
to pay Employee's Base Salary during such period), Employee shall not, either
directly or indirectly own ten percent (10)%) or more of the equity securities
of) any person, firm, corporation or business (or serve as an employee, officer,
director or agent of any such person, firm, corporation or business) which
engages in the telecommunications business in the United States in a manner
which materially competes with the Company on the date of termination.
12. Enforcement of Confidential Information Clause, Non-Solicitation
Clause, and Covenant Not to Compete.
----------------------------------------------------------------
If Employee breaches or threatens to breach the terms of the Confidential
Information clause, Non-Solicitation clause, or Covenant Not to Compete of this
Agreement, NET-tel may pursue any remedies it is or may be entitled to under the
law or equity, including injunctive relief. Employee acknowledges that NET-tel
would be irreparably injured upon Employee's breach of the foregoing provisions
regarding confidential information, non-solicitation, and covenant not to
compete, and it is difficult to ascertain with certainty the amount of money
damages NET-tel will suffer.
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Employee agrees, however, that a reasonable amount of such money damages would
be the incentive compensation and bonuses Employee was paid by NET-tel in the
six (6) month period prior to Employee's termination.
13. Termination.
-----------
13.1 Termination for Cause. Corporation may terminate Employee's
---------------------
employment hereunder for cause. For purposes of this Agreement and subject to
the Employee's opportunity to cure as provided in Paragraph 13.2 hereof,
Corporation shall have "cause" to terminate Employee's employment hereunder if
such termination shall be the result of:
(a) willful fraud or dishonesty in connection with Employee's
performance hereunder that results in material harm to the Corporation;
(b) the repeated failure by Employee to substantially perform
his duties hereunder that results in material harm to the Corporation;
(c) material breach by Employee of Employee's obligations under
Paragraph 2 of this Agreement (other than as a result of incapacity due to
physical or mental illness), which is demonstrably willful and deliberate on
Employee's part and is committed in bad faith or without reasonable belief that
such conduct is in the best interests of the Corporation, or which is the result
of Employee's gross neglect of duties.
(d) the conviction for, or plea of nolo contendere to, a charge
---------------
of a commission of a felony.
If the Employee's employment is terminated by the Corporation for cause,
the Corporation shall have no further obligations or liability hereunder, except
to pay to Employee (in addition to and without regard for any benefits due under
any insurance, retirement, stock option, or other benefit plan of the
Corporation or any other person or entity) the amount of Employee's
Compensation, including base salary, and incentive compensation and other
payments accrued but unpaid at the date of Employee's termination. If Employee
is terminated for Cause, he will forfeit his unused personal days and he will
immediately forfeit any and all unvested stock rights and stock options and
other such unvested incentives or awards previously granted to him by the
Corporation. The foregoing sentence shall be in addition to, and not in lieu
of, any and all other rights and remedies which may be available to the
Corporation under the circumstances, whether at law or in equity.
13.2 Notice and Opportunity to Cure. Notwithstanding the foregoing,
------------------------------
it shall be a condition precedent to the Corporation's right to terminate
Employee's employment for "cause" that (1) the Corporation shall first have
given the Employee written notice stating with specificity the reason for the
termination ("breach"); (2) the Corporation provides Employee an opportunity to
appear before the Board to answer such grounds of termination; and (3) if such
breach is susceptible of cure or remedy, a period of 45 days from and after the
giving of such notice shall have elapsed without the Employee having effectively
cured or remedied such breach during such 45-day period, unless such breach
cannot be cured or remedied within 45 days, in which case the period for remedy
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<PAGE>
or cure shall be extended for a reasonable time (not to exceed an additional 30
days), provided the Employee has made and continues to make a diligent effort to
effect such remedy or cure.
13.3 Termination Without Cause. If the Employee's employment is
-------------------------
terminated by the Corporation without cause, the Employee will be entitled to
receive (i) severance compensation equal to what would have been his Base Salary
and Incentive Compensation under Paragraph 3.1, for two years from the date of
termination, payable at such times as his Base Salary and Incentive Compensation
would have been paid if his employment had not been terminated (or, at the
election of the Employee, in a lump sum without discount), payable when such
bonus would have been paid if Employee had remained actively employed (or, at
the election of the Employee, in a lump sum without discount), (ii) other
benefits accrued by him hereunder up to and including the date of such
termination, payable within ninety (90) days after the date of such termination,
and (iii) payment for unused personal days. In addition, the stock options to
which Employee is entitled pursuant to Paragraph 8 and the Corporation's Stock
Incentive Plan and/or any other equity incentive or similar plan which have not
been exercised will accelerate and vest as of the date of termination and the
Corporation will loan to Employee the money necessary for Employee to exercise
those options. The interest rate for such loan will be the minimum applicable
federal rate, and all principal and accrued interest thereon shall be due and
payable upon the earlier of (a) the sale of the shares acquired with the
proceeds of such loan or (b) three (3) years from the date such loan is made.
13.4 Death or Disability. In the event of Employee's death or the
-------------------
Employee's inability, due to a disability, to perform the essential functions of
his job with or without reasonable accommodation during the term of this
Agreement, Corporation shall have no further obligations or liability hereunder,
except to pay to Employee or Employee's estate (in addition to and without
regard for any benefits due under any insurance, retirement, stock option, or
other benefit plan of the Corporation or any other person or entity) the amount
of Employee's Compensation, including base salary, incentive compensation, and
unused personal leave, other payments accrued but unpaid at the date of
Employee's death or disability as described above. Employee's employment shall
be deemed terminated by reason of disability as described above only if the
Board of Directors of the Corporation shall determine in good faith that
Employee shall be unable to perform his duties by reason of such disability for
a period of at least four (4) consecutive months.
In addition, if the Employee is terminated by reason of disability he
shall receive severance compensation equal to what would have been his Base
Salary and incentive compensation pursuant to Section 3.1 and Section 3.2 for
the longer of six months or the remainder of what would have been the Term (but
not to exceed two years), payable at such times as his Base Salary and incentive
compensation would have been paid if his employment had not been terminated
(or, at the election of the Employee, in a lump sum without discount), less any
disability insurance benefits pursuant to any disability insurance provided by
the Corporation or purchased by the Employee, the cost of which is reimbursed by
the Corporation.
13.5 Termination by Employee for Other Than Good Reason. Employee
--------------------------------------------------
may voluntarily terminate his employment with the Corporation for any reason
whatsoever, by providing Corporation written notice thereof. In such event,
Employee's employment shall terminate effective on the thirtieth day after the
receipt of such notice by Corporation unless the parties mutually agree
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<PAGE>
to an earlier termination. Upon termination by the Employee for other than good
cause, the Corporation will pay Employee severance pay for a period of six
months to include Employee's Base Salary and Incentive Compensation, to be paid
in accordance with the Corporation's payment of Base Salary and Incentive
Compensation. However, if in the good faith belief of the Corporation, the
Employee breaches the prohibition against disclosing Confidential Information in
Paragraph 9, the Non-Solicitation clause in Paragraph 10, and the Covenant Not
to Compete in Paragraph 11.1, the Employee's entitlement to any severance or
incentive compensation pursuant to this Paragraph will cease immediately and the
Corporation shall have no further obligation or liability to Employee. Employee
will also be paid for his unused personal days. However, if Employee terminates
his employment under this Paragraph without giving 30 days notice of that
termination, he will forfeit his unused personal days.
13.6 Termination by Employee for Good Reason. The Employee's
---------------------------------------
employment under this Agreement may be terminated by the Employee for "Good
Reason" upon thirty (30) days written notice to the Corporation. For this
purpose, "Good Reason" means (i) a change in the location of the Corporation's
headquarters or of the office of the Employee from the Washington, D.C.
metropolitan area; (ii) a material diminution in the Employee's title, authority
or duties, as the same exist on the date hereof; (iii) a reduction in Employee's
annual Base Salary or incentive compensation opportunity; and (iv) a material
breach of this Agreement by the Corporation. Notwithstanding the foregoing, a
termination shall not be treated as a termination for Good Reason (i) if the
Employee consented in writing to the occurrence of the event giving rise to the
claim of termination for Good Reason or (ii) unless the Employee delivered a
written notice to the Board within thirty (30) days of his having actual
knowledge of the occurrence of one of such events stating that he intends to
terminate his employment for Good Reason and specifying the factual basis for
such termination, and such event, if capable of being cured, shall not have been
cured within ten (10) days of the receipt of such notice. If the Employee
terminates this Agreement for "Good Reason," the Employee shall be entitled to
receive the same payments and benefits as he would be entitled to receive
pursuant to Paragraph 13.3 hereof in the case of a Termination without cause.
13.7 Return of Property. Upon termination of this Agreement,
------------------
Employee shall deliver all property (including keys, records, notes, data,
memoranda, models, and equipment) that is in the Employee's possession or under
the Employee's control which is the Corporation's property or related to the
Corporation's business.
14. Arbitration.
-----------
With the exception of the Corporation's enforcement of the Confidential
Information provisions in Paragraph 9, the Non-Solicitation Provisions of
Paragraph 10, and the Covenant Not to Compete in Paragraph 11, any dispute,
controversy, or claim arising out of or related to this Agreement, shall be
resolved exclusively by arbitration in the Washington, D.C. area before a single
arbitrator appointed by the American Arbitration Association (the "AAA") in a
confidential arbitration conducted on an expedited basis in accordance with
applicable AAA rules and procedures. The determination and award of the
arbitrator shall be conclusive and binding on the Corporation and the Employee,
and judgment on the arbitrator's award shall be entered in any court having
jurisdiction thereof.
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15. Successors.
----------
15.1 This Agreement is personal to Employee and neither it nor any
benefits hereunder shall, without the prior written consent of the Corporation,
be assignable by Employee.
15.2 This Agreement shall inure to the benefit of and be binding upon
the Corporation and its successors and assigns and any such successor or
assignee shall be deemed substituted for the Corporation under the terms of this
Agreement for all purposes. As used herein, "successor" and "assignee" shall
include any person, firm, corporation, or other business entity that at any
time, whether by purchase, merger, or otherwise, directly or indirectly acquires
the stock of the Corporation or to which the Corporation assigns this Agreement
by operation of law or otherwise.
16. Indemnification.
---------------
The Corporation shall indemnify and hold harmless Employee to the fullest
extent permitted by law from and against any costs, expenses (including
attorney's fees) judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with the defense or settlement of any
threatened, pending, or future civil, criminal, administrative or investigative
action, suit or proceeding to which he is or is threatened to be made a party by
reason of the execution or performance of this Agreement, the fact that he is or
was a director, officer, employee, or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, or other enterprise,
if (i) such action, suit or proceeding arises out of activities of the
Corporation prior to his assumption of such position, or (ii) in acting within
the scope of his employment, (1) he acted in good faith and in the manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, or (2) with respect to any criminal action or proceeding, he had
no reasonable cause to believe his conduct was unlawful. The Corporation shall
also advance to Employee to the fullest extent permitted by law any costs and
expenses incurred by Employee in connection therewith.
17. Governing Law.
-------------
Because NET-tel is a national corporation, with employees working on a
national basis, to ensure uniformity, this Agreement is made pursuant to, and
shall be governed, construed, and enforced in all respects and for all purposes
in accordance with the laws of the State of Virginia.
18. Waivers.
-------
No consent or waiver, express or implied, by either party, to or of
any breach or default by the other in the performance by the other of its
obligations hereunder, shall be deemed or construed to be a consent or waiver
to, or of, any other breach or default in the performance by such other party
hereunder. Failure on the part of either party to complain of any act or
failure to act of any other party, or to declare any other party in default,
irrespective of how long such failure continues, shall not constitute a waiver
by such party of its rights hereunder.
9
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19. Amendments.
----------
This Agreement is subject to amendment only by a written Agreement
signed by all of the parties hereto.
20. Invalid Provisions.
------------------
In the event any one or more of the provisions contained in this
Agreement shall for any reason be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not affect
any other provision of this Agreement, but this Agreement shall be construed as
if such invalid, illegal or unenforceable provision had never been contained
herein and the same shall be enforceable to the fullest extent permitted by law.
21. Attorneys' Fees.
---------------
In the event of any arbitration or litigation between the parties
hereto to enforce any provision of this Agreement or any right of any party
hereto, the unsuccessful party to such arbitration or litigation agrees to pay
to the successful party, all costs and expenses, including reasonable attorneys'
fees and costs incurred therein.
22. Captions and Headings.
---------------------
The headings of the articles of this Agreement are inserted solely for
convenience of reference and are not a part of and are not intended to govern,
limit or aid in the construction of any term or provision hereto.
23. Entire Agreement.
----------------
This Agreement contains the entire Agreement of the parties. It
supersedes any and all other agreements, either oral or in writing, between the
parties. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and that
no other Agreement, statement or promise not contained in this Agreement shall
be valid or binding. This Agreement may not be modified or amended by oral
Agreement, but only by an Agreement in writing.
24. Use of Terms.
------------
Wherever the context of this Agreement requires, the masculine gender
includes the feminine or neuter, and the singular number includes the plural.
10
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25. Consideration.
-------------
The parties hereto agree that no consideration, independent of the
services to be performed by Employee for Corporation and the compensation and
benefits to be provided Employee for such services as may be agreed to by
Corporation and Employee from time to time, exists or has been provided by
either party hereto to induce the other to enter into this Employment Agreement.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed the
same on the date and year first above written.
NET-tel Communications, Inc. Employee:
By: /s/ James F. Kenefick
------------------------ ---------------------
James F. Kenefick
Its:
------------------------
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Exhibit 21.1
Subsidiaries of NETtel Communications, Inc.
1. NET-tel Corporation, a Florida corporation
2. NET-tel Corporation of Virginia, Inc., a Virginia public service company
