SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For Quarter ended September 30, 1998.
Commission File Number 0-13627.
CTC COMMUNICATIONS CORP.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2731202
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
360 Second Avenue, Waltham, Massachusetts 02154
(Address of principal executive offices) (Zip Code)
(781) 466-8080
(Registrant's telephone number including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the Issuer's
classes of Common Stock, as of the latest practicable date:
As of November 9, 1998, 10,275,299 shares of Common Stock were outstanding.
<PAGE>
CTC COMMUNICATIONS CORP.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Part I FINANCIAL STATEMENTS PAGE NO.
Item 1. Financial Statements
Condensed Balance Sheets
as of September 30 and March 31, 1998 3
Condensed Statements of Operations
Three Months Ended September 30, 1998 and 1997 4
Condensed Statements of Operations
Six Months Ended September 30, 1998 and 1997 5
Condensed Statements of Cash Flows
Six Months Ended September 30, 1998 and 1997 6
Notes to Condensed Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-19
Item 3. Quantitative and Qualitative Inapplicable
Disclosures About Market Risk
Part II OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 21
Item 3. Default Upon Senior Securities Inapplicable
Item 4. Submission of Matters to a
Vote of Security Holders Inapplicable
Item 5. Other Information Inapplicable
Item 6. Exhibits and Reports on Form 8-K 22-23
</TABLE>
2
<PAGE>
In addition to historical information, this Quarterly Report on Form
10-Q contains forward-looking statements made in good faith by the
Company pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 including, but not limited
to, those statements regarding the successful implementation of the
Company's business plan, availability of additional financing if
required, the ability to improve operational, financial and
management information systems, future profitability, the timing and
success of the expansion and deployment of facilities, future
operations and availability of capital and other future plans, events
and performance and other statements located elsewhere herein. The
forward-looking statements contained herein are subject to certain
risks and uncertainties that could cause actual results to differ
materially from those reflected in the forward-looking statements.
Factors that might cause such a difference include, but are not
limited to, those outlined in Exhibit 99.1 filed with this Quarterly
Report. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis as of
the date hereof. The Company undertakes no obligation to publicly
revise these forward-looking statements to reflect events or
circumstances that arise after the date hereof.
<PAGE>
CTC COMMUNICATIONS CORP.
CONDENSED BALANCE SHEETS
September 30, March 31,
1998 1998
--------------- ---------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,167,474 $ 2,167,930
Accounts receivable, net 25,538,298 17,288,183
Prepaid expenses and other current assets 5,073,783 3,029,069
------------- -------------
Total Current Assets 32,779,555 22,485,182
Furniture, Fixtures and Equipment 19,242,013 13,376,970
Less accumulated depreciation (8,447,683) (6,837,683)
------------- -------------
Total Equipment 10,794,330 6,539,287
Deferred income taxes 1,834,000 1,834,000
Other assets 4,198,786 108,885
------------- -------------
Total Assets $ 49,606,671 $ 30,967,354
============= =============
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses $ 18,736,601 $ 8,958,476
Accrued salaries and related taxes 2,166,186 756,159
Current portion of obligations under
capital leases 249,661 231,796
Current portion of note payable to bank 0 1,196,400
------------- -------------
Total Current Liabilities 21,152,448 11,142,831
Obligations under capital leases,
net of current portion 1,013,568 1,114,277
Note payable to bank, net of current portion 21,100,000 7,130,671
Series A redeemable convertible
preferred stock 12,260,165 0
Stockholders' equity (deficit):
Common Stock 100,101 99,806
Additional paid in capital 6,905,946 5,245,704
Deferred compensation (265,410) (318,410)
Retained earnings (deficit) (12,524,322) 6,688,300
------------- -------------
(5,783,685) 11,715,400
Amounts due from stockholders (135,825) (135,825)
------------- -------------
Total Stockholders' Equity (Deficit) (5,919,910) 11,579,575
------------- -------------
Total Liabilities and
Stockholders' Equity (Deficit) $ 49,606,671 $ 30,967,354
============= =============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Telecommunications revenues $ 14,516,189 $ 3,488,684
Commission revenues 0 8,356,413
------------- -------------
Total revenues 14,516,189 11,845,097
Costs and expenses
Cost of telecommunications revenues 12,383,432 2,712,249
Selling, general and administrative expenses 13,001,503 7,053,701
------------- -------------
25,384,935 9,765,950
------------- -------------
Income (loss) from operations (10,868,746) 2,079,147
Other
Interest income 38,437 39,352
Interest expense (983,466) (5,772)
Other 3,149 1,273
------------- -------------
(941,880) 34,853
------------- -------------
Income (loss) before income taxes (11,810,626) 2,114,000
Provision (benefit) for income taxes (827,000) 870,000
------------- -------------
Net income (loss) $(10,983,626) $ 1,244,000
============= =============
Net income (loss) per share available
to common stockholders
Basic $ (1.13) $ 0.13
============= =============
Diluted $ (1.13) $ 0.12
============= =============
Shares used in computing net income (loss) per
share available to common stockholders
Basic 10,002,370 9,894,195
============= =============
Diluted 10,002,370 10,694,319
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
1998 1997
------------- -------------
<S> <C> <C>
Telecommunications revenues $ 27,351,874 $ 6,542,785
Commission revenues 0 16,961,264
------------- -------------
Total revenues 27,351,874 23,504,049
Costs and expenses
Cost of telecommunications revenues 23,996,900 5,156,085
Selling, general and administrative expenses 22,496,457 13,987,801
------------- -------------
46,493,357 19,143,886
------------- -------------
Income (loss) from operations (19,141,483) 4,360,163
Other
Interest income 170,832 96,938
Interest expense (1,400,976) (10,227)
Other 33,001 5,127
------------- -------------
(1,197,143) 91,838
------------- -------------
Income (loss) before income taxes (20,338,626) 4,452,001
Provision (benefit) for income taxes (1,424,000) 1,834,000
------------- -------------
Net income (loss) $(18,914,626) $ 2,618,001
============= =============
Net income (loss) per share available
to common stockholders
Basic $ (1.92) $ 0.27
============= =============
Diluted $ (1.92) $ 0.24
============= =============
Shares used in computing net income (loss) per
share available to common stockholders
Basic 9,993,281 9,825,439
============= =============
Diluted 9,993,281 10,696,616
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CTC COMMUNICATIONS CORP.
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
September 30, September 30,
1998 1997
------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C>
Net cash used in operating activities (18,776,472) (599,047)
INVESTING ACTIVITIES
Additions to equipment (5,865,043) (1,478,700)
------------- -------------
Net cash used in investing activities (5,865,043) (1,478,700)
FINANCING ACTIVITIES
Net proceeds from issuance of
redeemable preferred stock 11,862,113 0
Proceeds from the issuance of common stock 88,861 44,671
Net borrowings/(repayment) of
obligations under capital leases (82,844) 0
Net borrowings/(repayment) of
note payable to bank 12,772,929 0
------------- -------------
Net cash provided by financing activities 24,641,059 44,671
------------- -------------
(Decrease) in cash (456) (2,033,076)
Cash at beginning of period 2,167,930 6,405,670
------------- -------------
Cash and cash equivalents at end of period $ 2,167,474 $ 4,372,594
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CTC COMMUNICATIONS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do
not include all the information and footnote disclosures required
by generally accepted accounting principles for complete
financial statements. In the opinion of management all
adjustments (consisting of normal recurring accruals) necessary
for a fair presentation have been included. Operating results
for the three and six months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for
the fiscal year ending March 31, 1999. These statements should
be read in conjunction with the financial statements and related
notes included in the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1998.
NOTE 2: COMMITMENTS AND CONTINGENCIES
Federal Court Action
In December 1997, the Company filed a Complaint and Jury Trial
Demand ("Complaint")against Bell Atlantic Corporation ("Bell
Atlantic") in the United States District Court for the District
of Maine (Civil Action No. 97-CV-395-P-H) alleging breach by Bell
Atlantic (as successor to the NYNEX Company) of the Agreement for
Sale of Services and Account Management effective as of February
1, 1996 between NYNEX and the Company (the "Agency Agreement") by
reason of failure to pay approximately $14.0 million in
commission payments due and owing under the Agency Agreement
among other breaches. Subsequent to filing the suit, Bell
Atlantic paid the Company approximately $2.5 million in reduction
of the amount due to the Company. The Complaint also seeks
monetary damages, and certain injunctive relief, for alleged
unlawful competition, illegal tying arrangements in violation of
the Sherman Antitrust Act and violation of Section 251 of the
Telecommunications Act of 1996 by Bell Atlantic.
In January 1998, Bell Atlantic instituted an action against the
Company in the U.S. District Court for the Southern District of
New York (98 CIV 0048) denying that it had breached its
obligations under the Agency Agreement and requesting an order
compelling the Company to arbitrate its dispute with Bell
Atlantic and enjoining the Company from proceeding with the
above-described litigation in the Maine federal court. Bell
Atlantic's complaint also sought an injunction to prevent the
Company from continuing to engage in certain activities
allegedly in violation of its post termination
non-competition, trademark usage and confidentiality
7
<PAGE>
obligations under the Agency Agreement. Subsequent to initiating
the action, Bell Atlantic filed a motion for a temporary
restraining order and preliminary injunction and an order
compelling arbitration of the entire dispute.
The Company filed an answer denying the material allegations of
the Bell Atlantic complaint. It believes that it has meritorious
defenses to the Bell Atlantic action and will vigorously defend
the action.
On January 30, 1998, the Court issued an order denying Bell
Atlantic's motion seeking to compel arbitration and granting its
motion for a temporary restraining order. Specifically, the
order temporarily enjoined the Company from selling or promoting
the sale of any non-Bell Atlantic IntraLATA (local)
telecommunications products, including IntraLATA products
purchased wholesale from Bell Atlantic for resale to the
Company's customers, to any Bell Atlantic customer for whom the
Company was responsible for account management or to whom the
Company sold any such Bell Atlantic service during the 12 months
preceding December 30, 1997. The order also temporarily enjoined
the Company from any use of Bell Atlantic's trademarks and trade
name in promotional, advertising or marketing material without
Bell Atlantic's written permission and from any use of certain
Bell Atlantic confidential information disclosed to the Company
in its capacity as Bell Atlantic's sales agent.
On July 2, 1998, the United States Court of Appeals for the
Second Circuit denied Bell Atlantic's appeal to compel
arbitration of the Company's claims against Bell Atlantic. The
denial of Bell Atlantic's appeal eliminates any obstacle to
permitting the Company's lawsuit in the United States District
Court in Maine to proceed against Bell Atlantic. The Company
believes that the trial will commence in February or March 1999.
On July 31, 1998, Judge Gene Carter of the United States District
Court in Portland, Maine, ordered the dissolution of the
temporary restraining order against the Company and denied Bell
Atlantic's motion for a permanent injunction. The court ruled
that the Company has an absolute right to solicit the customers
they had serviced while a Bell Atlantic agent.
State Regulatory Proceedings
On February 6, 1998, the Company filed a Complaint and Request
for Emergency Relief ("Complaint") with the Commonwealth of
Massachusetts, Department of Telecommunications and Energy
("DTE") against New England Telephone and Telegraph Company d/b/a
Bell Atlantic - Massachusetts ("Bell Atlantic"). The Complaint
alleges that Bell Atlantic has recently rescinded its policy in
the New England states of permitting resellers, including the
Company, to assume the service contracts of retail customers
under contract to Bell Atlantic. The Complaint alleges that Bell
Atlantic's actions violate the resale agreement between the
Company and Bell Atlantic, Section 251 of the Telecommunications
Act of 1996 (which provides, in relevant part, that incumbent
local exchange carriers have a duty not to prohibit, and not to
8
<PAGE>
impose unreasonable or discriminatory conditions or limitations
on, the resale of telecommunications service that the carrier
provides at retail to subscribers who are not telecommunications
carriers) and the DTE's Order on Competition in Massachusetts.
The Complaint seeks an order directing Bell Atlantic to cease and
desist from refusing to permit the assignment of existing
contracts and to continue its long-standing practice of allowing
resellers to assume these customer agreements, without penalty,
on a resold basis or, in the alternative, an emergency, expedited
investigation by the DTE into the dispute.
On July 2, 1998, the Massachusetts Department of
Telecommunications and Energy ruled that it is illegal for Bell
Atlantic to impose contract termination fees on its customers who
choose a competitive Bell Atlantic reseller as their local
provider. Bell Atlantic has appealed the decision on procedural
grounds. The Company anticipates that the DTE will issue a final
order on appeal prior to the end of 1998.
On September 14, 1998, the State of New York Public Service
Commission, and on October 7, 1998, the New Hampshire Public
Utilities Commission, also ruled in favor of the Company and
ordered Bell Atlantic to eliminate the customer termination fees.
Hearings have been held in both Vermont and Maine seeking to
reverse Bell Atlantic's policy of imposing contract termination
fees on its customers who choose a competitive Bell Atlantic
reseller as their local provider. To date, no decisions have
been rendered.
The Company has also filed a petition for repeal of the Bell
Atlantic customer termination fee requirement in the State of
Rhode Island.
The Company is also a party to suits arising in the normal course of
business which either individually or in the aggregate are not
material.
NOTE 3. PREFERRED STOCK
On April 10, 1998, the Company issued for investment to Spectrum
Equity Investors II, L.P. ("Spectrum") and certain other private
investors (together with Spectrum, the "Investors") an aggregate of
666,666 shares of Series A Convertible Preferred Stock (the "Preferred
Shares") for $12 million, pursuant to the terms and conditions of a
Securities Purchase Agreement among the Company and the Investors.
The Company also issued for investment to the Investors five-year
warrants to purchase an aggregate of 133,333 shares of its Common
Stock at an exercise price of $9.00 per share. Spectrum purchased
98.63% of the Preferred Shares and warrants in the private placement.
On the date of issuance, the Preferred Shares were convertible into
1,333,333 shares of the Company's Common Stock at $9.00 per share,
which conversion ratio is subject to certain adjustments. Reference
is made to the Company's Report on Form 8-K and exhibits thereto dated
and filed on May 15, 1998 for a complete description of the
transaction.
9
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NOTE 4. TRANSACTIONS SUBSEQUENT TO SEPTEMBER 30, 1998
On November 2, 1998, the Company obtained three-year vendor financing
facility for up to $25 million with Cisco Capital Corp. Under the
terms of the agreement, the Company has agreed to a three year, $25
million volume purchase commitment of Cisco Systems equipment and
services and Cisco Capital Corp has agreed to advance funds as these
purchases occur. In addition, a portion of the Cisco facility can be
utilized for working capital costs associated with the integration and
operation of Cisco Systems solutions and related peripherals.
Pursuant to the terms of the Cisco Vendor Financing Agreement dated as
of October 14, 1998, the Company has agreed to give the Lender a
senior security interest in all Cisco products purchased with the
proceeds of the first $15 million advanced under the Credit Facility
and a subordinate security interest in all other assets of the
Company. Under the terms of the Credit Facility, the Company is
required to pay interest on funds advanced under the facility at an
annual rate of 12.5%. In addition, the Company is required to pay a
commitment fee of .50% per annum on any unused amounts under the
facility as well as a monthly line fee of $15,000 per month.
Reference is made to the Company's Current Report on Form 8-K and the
agreement filed as an exhibit thereto filed on October 14, 1998 for a
complete description of the transaction.
NOTE 5 GOLDMAN SACHS/FLEET FINANCING
On September 1, 1998, the Company as Borrower, entered into a Loan and
Security Agreement ("Loan and Security Agreement") with Goldman Sachs
Credit Partners L.P. and Fleet National Bank as Lenders. Under the
terms of the Loan and Security Agreement, the Lenders have provided a
three-year senior secured credit facility to the Company consisting of
revolving loans in the aggregate amount of up to $75 million (the
"Credit Facility"). Advances under the facility bear interest at
1.75% over the prime rate and are secured by a first priority
perfected security interest on all of the Company's assets, provided,
however, that the Company has the ability to exclude assets acquired
through purchase money financing. In addition, the Company is
required to pay a commitment fee of 0.5% per annum on any unused
amounts under the facility as well as a monthly line fee of $150,000
per month. The Company may borrow $15 million unconditionally and $60
million based on trailing 120 days accounts receivable collections
(reducing to the trailing 90 days of collections by March 31, 2000).
The Company paid a one-time up front fee of $2,531,250, representing 3
3/8% of the facility. In the event that the Company wishes to prepay
the loan, the agreement provides for a prepayment penalty of 2% during
the first 18 months of the term of the loan. Warrants to purchase an
aggregate of 974,412 shares of the Company's common stock at a
purchase price of $6.75 per share were issued to the Lenders in
connection with the transaction. The Company has valued the Warrants
at $1.3 million which is being amortized and included in interest
expense over the three-year term of the Loan and Security Agreement.
As of October 31, 1998, the Company had borrowed $24,500,000 under the
Credit Facility.
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NOTE 6. NET INCOME PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share".
Statement 128 replaced the previously reported primary and fully
diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants, and convertible securities.
Diluted earnings per share is very similar to the previously reported
fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
The following table sets forth the computation of basic and diluted
net income per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30
1998 1997 1998 1997
------------------------- --------------------------
Numerator:
<S> <C> <C> <C> <C>
Net income (loss) (10,983,626) 1,244,000 (18,914,626) 2,618,001
Accretion to redemption value on
redeemable preferred stock (270,000) 0 (270,000) 0
Numerator for basic net income (loss)
per share and diluted net income ------------------------ --------------------------
(loss) per share (11,253,626) 1,244,000 (19,184,626) 2,618,001
======================== ==========================
Denominator:
Denominator for basic net income (loss)
per share-weighted average shares 10,002,370 9,894,195 9,993,281 9,825,439
Effect of dilutive securities:
Employee stock options 0 800,124 0 871,177
Denominator for diluted net income ------------------------- --------------------------
(loss) per share-weighted-average shares 10,002,370 10,694,319 9,993,281 10,696,616
========================== ==========================
Basic net income (loss) per share (1.13) 0.13 (1.92) 0.27
========================== ==========================
Diluted net income (loss) per share (1.13) 0.12 (1.92) 0.24
========================== ==========================
</TABLE>
NOTE 7 INCOME TAXES
The provision (benefit) for income taxes is less than the statutory
rate based upon management's assessment of the realizability of net
operating losses. The benefit is recognized ratably during the year
based on the relationship of amounts recoverable and management's
estimate of the total loss for the fiscal year ending March 31,
1999. The effective rate of the benefit may vary with changes in
management's estimates.
11
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Part I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Financial Statements and Notes set forth elsewhere in this Report.
OVERVIEW
CTC Communications Corp. (the "Company"), a Massachusetts
corporation, is a rapidly growing integrated communications provider
("ICP") with 14 years of local telecommunications marketing, sales
and service experience. The Company offers local, long distance,
Internet access, Frame Relay and other data services on a single
integrated bill. CTC currently serves small to medium-sized
business customers in seven Northeastern states through its
experienced 197-member direct sales force and 85 customer care
representatives located in 25 branch offices throughout the region.
Prior to becoming an ICP in January 1998, the Company was the oldest
and largest independent sales agent for Bell Atlantic Corp. ("Bell
Atlantic"), selling local telecommunications services as an agent
since 1984. The Company has also offered long distance and data
services under its own brand name since 1994. As an agent, during
the 1997 calendar year, the Company managed relationships with
approximately 5,600 franchise customers who purchased approximately
$200 million of annual local telecommunications services,
representing an estimated 280,000 local access lines at year end.
In late 1997, the Company became certified as a Competitive Local
Exchange Carrier ("CLEC") in New York and the six New England states
in order to embark upon its ICP strategy and take advantage of
market opportunities created by deregulation. In December 1997, the
Company terminated its agency agreement with Bell Atlantic and began
ICP operations in January 1998. As an ICP, the Company is utilizing
its well-developed infrastructure and the same relationship-centered
sales approach that it employed as an agent without the limitations
on potential customers, services and pricing that were imposed upon
it as an agent.
Over the next three years, the Company plans to expand within its
existing markets and into six additional states in the Boston-
Washington, D.C. corridor and add network facilities.
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Beginning in the first calendar quarter of 1999, the Company intends
to deploy a state-of-the-art, data centric, packet-switched
Integrated Communications Network ("ICN"). Installation initially
will take place in the Company's existing markets and in new markets
as customer demand and concentrations warrant. The ICN when
completed will consist of an advanced Asynchronous Transfer Mode
(ATM)-based network, using Cisco Systems, Inc. BPX(r) 8600 series
and MGX(tm) 8800 series IP+ATM wide-area switches, that will deliver
enhanced access services such as traditional dedicated services,
frame relay, IP, video, and circuit emulation transport services.
Cisco's solutions should enable CTC to deliver all of these services
and voice services across a single multiservice dedicated connection
that should lower customers' telecommunications costs.
The ICN will be interconnected by leased transmission and access
facilities. Initially, the Company will offer dedicated long
distance and data services over the ICN. The Company intends to
continue to lease local dialtone capabilities until these services
can be cost effectively integrated into a packet switched network
architecture. The Company expects that the ICN will be able to take
advantage of the growing customer demand for dedicated long distance
and data transmission capabilities and the economic benefits that
can be achieved by utilizing a combination of Company-owned
switching facilities and leased network elements. Once deployed,
the Company believes that the ICN will enable the Company to improve
margins, enhance customer control and broaden service offerings.
Prior to deploying the ICN, the Company is building its base of
installed access lines through reselling the network services of
other Telecommunications carriers.
Although management believes that its current strategy will have a
positive effect on the Company's results of operations over the
long-term, through an increase in its customer base and product
offerings, this strategy is expected to have a negative effect on
the Company's results of operations over the short-term. The
Company's operations are subject to certain material risks, as set
forth in Exhibit 99.1 to this Quarterly Report, and to certain other
factors discussed further in this Quarterly Report under "Liquidity
and Capital Resources." The Company anticipates losses and negative
cash flow in the near term, attributable in part to significant
investments in operating, sales, marketing, management information
systems and general and administrative expenses as well as
investments in the ICN.
13
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Historically, the Company's network service revenues have consisted
of commissions earned as an agent of Bell Atlantic and other RBOCs
and since 1994, revenues from the resale of long distance, frame
relay, Internet access and other communications services. For the
fiscal year ended March 31, 1998, agency commissions accounted for
approximately 60% of network service revenues with resale revenues
accounting for 40% of such revenues. As a result of the transition
to an ICP strategy in December 1997, agency commissions earned in
the future will not be material.
The Company bills its customers for local and long distance usage
based on the type of local service utilized, the number, time and
duration of calls, the geographic location of the terminating phone
numbers and the applicable rate plan in effect at the time of the
call.
During the period in which the Company resells the services of other
telecommunications carriers prior to deploying its ICN, cost of
services includes the cost of local and long distance services
charged by carriers for recurring charges, per minute usage charges
and feature charges, as well as the cost of fixed facilities for
dedicated services and special regional calling plans.
Selling expense consists of the costs of providing sales and other
support services for customers including salaries, commissions and
bonuses to salesforce personnel. General and administrative expense
consists of the costs of the billing and information systems and
personnel required to support the Company's operations and growth as
well as all amortization expenses. Depreciation is allocated
throughout sales, marketing, general and administrative expense
based on asset ownership.
The Company has experienced significant growth in the past and,
depending on the extent of its future growth, may experience
significant strain on its management, personnel and information
systems. To accommodate this growth, the Company intends, subject
to the availability of adequate financing, to continue to implement
and improve operational, financial and management information
systems. Since implementing its ICP strategy, the Company has
expanded its staff to include three additional senior executives and
over 85 additional employees. The Company is also expanding its
information systems to provide improved recordkeeping for customer
information and management of uncollectible accounts and fraud
control.
14
<PAGE>
RESULTS OF OPERATIONS - THREE AND SIX MONTHS ENDED SEPTEMBER 30,
1998 AS COMPARED TO THE THREE AND SIX MONTHS ENDED SEPTEMBER 30,
1997.
The results for the quarter ended September 30, 1998 reflect the
Company's operations as an Integrated Communications Provider
("ICP"). In its capacity as an independent agent for the Regional
Bell Operating Companies (RBOCs), the Company recorded revenues
which represented the fees and commissions earned by the Company for
sales of products and services to business customers. As an ICP, the
Company purchases local services from the RBOCs at a discount to the
retail rate, and resells and bills these services to business
customers. The Company also resells other services including long
distance, Internet access, and various data services in order to
provide a total integrated telecommunications solution to its
customers. The Company will continue reselling telecommunications
services until the deployment of its Integrated Communications
Network ("ICN") and begins migrating customers onto its own network.
Total revenues for the second fiscal quarter were $14,516,000, as
compared to $11,845,000 for the same period of the preceding Fiscal
year, or an increase of 23%. Total revenues for the six months
ended September 30, 1998 were $27,352,000, as compared to
$23,504,000, or an increase of 16%. The September quarter revenues
also represented an increase of 13% over the June 1998 quarter
revenues of $12,836,000. Revenues for local, Internet access and
data services increased a combined 63% on a sequential quarter basis
due primarily to the addition of new customer relationships. Long
distance revenue experienced a 24% decrease on a sequential quarter
basis as a result of the Company's strategic decision to stop
offering long distance to outbound call center customers. These
customers tend to be high volume, low margin businesses where the
relationship is short-term. It is the Company's policy to focus on
long-term relationships with customers that purchase the full
complement of services.
A common basis for measurement of an ICP's progress is the growth in
access line equivalents. During the quarter ended September 30,
1998, the Company sold 33,183 access line equivalents and
provisioned 25,553, bringing the total lines in service to 64,394
for the Company's first nine months as an ICP. New lines sold
represented a 26% sequential increase over lines sold during the
quarter ended June 30, 1998.
15
<PAGE>
Costs of telecommunications revenues for the quarter ended September
30, 1998 were $12,383,000, as compared to $2,712,000 for the same
period of the preceding Fiscal year. For the six months ended
September 30, 1998 costs of telecommunications revenues were
$23,997,000, as compared to $5,156,000 for the same period of the
preceding Fiscal year. Since substantially all revenues since
January 1, 1998 have resulted from operations as ICP, comparative
numbers on a year to year basis are not relevant. As a percentage
of telecommunications revenues, cost of telecommunications revenues
was 85% for the second quarter of Fiscal 1999, as compared to 90%
for the first quarter of Fiscal 1999 and 95% for fourth quarter of
Fiscal 1998, the first quarter of transition from agency status to
ICP status. The gross margin improvement over the first nine months
as an ICP is primarily attributable to the implementation of the
lower long distance wholesale costs previously renegotiated with the
Company's principal long distance supplier, significant improvements
made in local service gross margins, and the elimination of the
lower margin call center business from long distance gross margins.
For the quarter ended September 30, 1998, Selling, general and
administrative expenses (SG & A) increased 84% to $13,001,000 from
$7,054,000 for the same period of the preceding fiscal year. For
the six months ended September 30 1998, SG & A expenses were
$22,496,000, as compared to $13,988,000, or an increase of 61%.
These increases were due primarily to the opening of five new branch
sales offices during the six months ended September 30, 1998 and the
associated increased number of sales and service employees hired in
connection with the transition to the ICP platform. As of September
30, 1998, CTC employed 392 people including 197 Account Executives
and 85 Network Coordinators in 25 branch locations throughout New
England and New York. In addition, SG & A expenses increased due to
operating expenses associated with the network build out, as well as
an additional $500,000 of increased depreciation expense in the
second fiscal quarter associated with the investments in the
Integrated Communications Network. The final component of the
increase is related to legal and regulatory activities. Legal
expenses in prosecuting both the anti-trust action against Bell
Atlantic now pending in the federal courts and the state regulatory
proceedings instituted in each of the New England States against
Bell Atlantic for discriminatory practices regarding the Bell
Atlantic policy of imposing contract termination fees on its
customers as well as the regulatory expenses incurred in obtaining
certification as a reseller in additional states, were $1,913,000
and $2,632,000 respectively, for the three and six months ended
September 30, 1998.
16
<PAGE>
For the quarter ended September 30, 1998 the Company reported a loss
before taxes of $11,811,000. For the quarter ended June 30, 1998
the Company reported a net loss before taxes of $8,528,000, and
recorded a tax benefit of $2,900,000, for a net loss of $5,628,000,
or $0.56 per share. Initially, the Company recognized the benefit
of the tax loss carry-back at the Federal tax rate of 34%. The
Company has determined that the benefit should be applied ratably as
a percentage of the Company's estimated pre-tax loss over each of
the four quarters of the fiscal year. The effective rate of the
benefit may vary with changes in management's estimates. While
applying the tax benefit ratably over each of the four quarters will
not change the year end result, an adjustment was made for the first
quarter reducing the tax benefit to $597,000 compared to the
previously recorded tax benefit of $2,900,000. Based on the
foregoing, the net loss for the first quarter will increase from the
previously reported $5,628,000, or $0.56 per share, to $7,931,000,
or $0.79 per share. An Amendment to the Form 10-Q for the quarter
ended June 30, 1998 is being filed to reflect this change.
Liquidity and Capital Resources
Working capital at September 30, 1998 amounted to $11,627,000 as
compared to $11,342,000 at March 31, 1998, an increase of 3%. Cash
balances at September 30, 1998 and March 31, 1998 totaled
approximately $2,167,000.
Historically, the Company funded its working capital and operating
expenditures primarily from cash flow from operations. As a result
of Bell Atlantic's failure to pay approximately $14 million in
agency commissions (currently approximately $11.5 million) that the
Company believes it is owed under its agency contract, the losses
incurred following transition to an ICP strategy, and the investment
required to implement the Integrated Communications Network, the
Company has been required to raise additional capital. Although the
Company has sued Bell Atlantic and believes the collection of the
agency commissions is probable, there is no assurance that the
Company will be successful in its collection efforts were that such
collections will not be delayed. If the Company fails to collect
any of the agency commissions or if their collection becomes less
than probable, the Company would be required to write off the
uncollected amounts reflected in its financial statements or amounts
for which collection becomes less than probable. Delay in the
collection or write-off of agency commissions may adversely affect
the Company.
In April 1998, the Company completed a $12 million private placement
of Series A Convertible Preferred Stock and Warrants to Spectrum
Equity Investors II, L.P.
17
<PAGE>
On September 1, 1998, the Company as Borrower, entered into a Loan
and Security Agreement ("Loan and Security Agreement") with Goldman
Sachs Credit Partners L.P. and Fleet National Bank as Lenders.
Under the terms of the Loan and Security Agreement, the Lenders have
provided a three-year senior secured credit facility to the Company
consisting of revolving loans in the aggregate amount of up to $75
million (the "Credit Facility"). Advances under the facility bear
interest at 1.75% over the prime rate and are secured by a first
priority perfected security interest on all of the Company's assets,
provided, however, that the Company has the ability to exclude
assets acquired through purchase money financing. In addition, the
Company is required to pay a commitment fee of 0.5% per annum on any
unused amounts under the facility as well as a monthly line fee of
$150,000 per month. The Company may borrow $15 million
unconditionally and $60 million based on trailing 120 days accounts
receivable collections (reducing to the trailing 90 days of
collections by March 31, 2000). The Company paid a one-time up
front fee of $2,531,250, representing 3 3/8% of the facility. In
the event that the Company wishes to prepay the loan, the agreement
provides for a prepayment penalty of 2% during the first 18 months
of the term of the loan. Warrants to purchase an aggregate of
974,412 shares of the Company's common stock at an purchase price of
$6.75 per share were issued to the Lenders in connection with the
transaction. The Company has valued the Warrants at $1.3 million
which is being amortized and included in interest expense over the
three-year term of the Loan and Security Agreement. As of October
31, 1998, the Company had borrowed $24,500,000 under the Credit
Facility.
On November 2, 1998, the Company obtained three-year vendor
financing facility for up to $25 million from Cisco Capital Corp.
Under the terms of the agreement, the Company has agreed to a three
year, $25 million volume purchase commitment of Cisco Systems
equipment and services and Cisco Capital Corp has agreed to advance
funds as these purchases occur. In addition, a portion of the Cisco
facility can be utilized for working capital costs associated with
the integration and operation of Cisco Systems solutions and related
peripherals.
Pursuant to the terms of the Cisco Vendor Financing Agreement dated
as of October 14, 1998, the Company has agreed to give the Lender a
senior security interest in all Cisco products purchased with the
proceeds of the first $15 million advanced under the facility and a
subordinate security interest in all other assets of the Company.
Under the terms of the Cisco facility, the Company is required to
pay interest on funds advanced under the facility at an annual rate
of 12.5%. In addition, the Company is required to pay a commitment
fee of .50% per annum on any unused amounts under the facility as
well as a monthly line fee of $15,000 per month. The Company paid a
closing fee of 1% of the total credit facility.
18
<PAGE>
The Company expects to utilize the proceeds of the Cisco financing
to deploy the first phase of its data-centric Integrated
Communications Network in 22 network hub and node sites within the
New York and New England regions.
The implementation of the Company's current business plan to further
penetrate its existing markets, deploy the ICN in its existing
markets and enhance and expand the CTC information systems will
require significant capital. The Company may require additional
capital if it experiences demand for its products and services in
excess of that which is currently planned, accelerates the rate of
expansion of its sales presence from that which is currently
anticipated or accelerates the deployment of the ICN in its
existing markets. Additional capital will be required to expand the
Company's sales presence into the New York-Washington D.C. corridor
and deploy its ICN into this region or any other new markets. The
Company also expects to seek additional lease financing to fund the
acquisition of equipment and software related to the enhancements
and expansion of the CTC information systems and the deployment of
its network operating centers. The Company's actual capital
requirements also may be materially affected by many factors,
including the timing and actual cost of expansion into new markets,
the extent of competition and pricing of telecommunications services
in its markets, acceptance of the Company's services, technological
change and potential acquisitions.
While the Company believes that under its current business plan the
proceeds from the Goldman Sachs/Fleet credit facility combined with
the Cisco facility and other anticipated lease financing will be
sufficient to fund operations at least through December 1999,
several factors could influence the timing of the Company's need for
additional capital. These factors include, but are not limited to:
(a) the need to finance larger amounts of working capital if the
Company experiences demand for its services in excess of that which
is planned, (b) the Company expands its sales presence faster than
currently anticipated, (c) the enhancements and expansion of the CTC
information systems turn out to be more capital intensive than
originally planned, or (d) the Company fails to collect or is
delayed in collecting the approximately $11.5 million which it
believes is due from Bell Atlantic under its former Agency
arrangement or is delayed in collecting such amounts. The Company
may seek opportunistic financing activities prior to December 1999
depending on market conditions.
19
<PAGE>
Part II
Item 1. Legal Proceedings
The information required under this item with respect to the actions
entitled (1) "CTC Communications Corp. v. Bell Atlantic
Corporation," U.S. District Court for the District of Maine, Civil
Action No. 97-CV-395-P-H and (2) "Bell Atlantic Corporation v. CTC
Communications Corp. and Computer Telephone Company," U.S. District
Court for the Southern District of New York, Case No. 98 CIV 0048,
has been previously reported in the Company's Current Reports on
Form 8-K dated February 3, 1998 and August 4, 1998 and in the
Company's Annual Report on Form 10-K for the fiscal year ended March
31, 1998.
In December 1997, the Company terminated its agency contract and
filed suit against Bell Atlantic for breaches of the contract,
including the failure of Bell Atlantic's retail division to pay $14
million in agency commissions (now approximately $11.5 million) owed
to the Company. The Company also asserted violations by Bell
Atlantic of antitrust laws and the Telecommunications Act. Bell
Atlantic filed counterclaims asserting that the Company breached a
provision of the agency contract prohibiting the Company from
selling non-Bell Atlantic local services to certain agency customers
for a one-year period following termination of the contract. Based
on that provision, Bell Atlantic obtained a temporary restraining
order ("TRO") that prohibits the Company from marketing certain
local telecommunications services to any Bell Atlantic customer for
whom the Company was responsible for account management, or to whom
the Company sold Bell Atlantic services, during 1997. On July 31,
1998, Judge Gene Carter of the United States District Court of
Portland, Maine ordered the dissolution of the TRO against the
Company and denied Bell Atlantic's motion for a permanent
injunction. The Court ruled that the Company has an absolute right
to solicit the customers they had serviced while a Bell Atlantic
Agent. The Company purchases Bell Atlantic telecommunications
services local products for resale and believes that the lawsuit has
not affected the Company's good relations with the Bell Atlantic
wholesale division. Moreover, Bell Atlantic is prohibited by
applicable federal law from discriminating against the Company in
the provision of wholesale services. See "Risk Factors-Potential
Impact of the Bell Atlantic Litigation" and Note 2 to the Company's
Unaudited Financial Statements contained herein.
The Company is otherwise party to suits arising in the normal course
of business which management believes are either individually or in
the aggregate not material.
20
<PAGE>
Item 2. Changes in Securities
(c) During the quarter ended September 30, 1998, the Company issued
a total of 14,850 shares of Common Stock for an aggregate
consideration of $34,429 pursuant to the exercise of employee
incentive stock options by four employees of the Company. The
shares were issued in reliance upon the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended,
as transactions by an issuer not involving a public offering. The
recipients of the securities represented their intention to acquire
the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate
legends were attached to the shares certificates and stop transfer
orders given to the Company's transfer agent. All recipients had
adequate access to information regarding the Company.
On July 15, 1998, the Company issued to Spectrum Equity Investors
II, L.P. ("Spectrum") five-year warrants to purchase up to 55,555
shares of Common Stock at a purchase price of $9.00 per share in
consideration for the Spectrum commitment that, at any time prior to
June 30, 1999, it would, upon the Company's request, purchase an
additional $5 million of Preferred Stock containing the same terms
and conditions as the Series A Convertible Preferred Stock. The
Spectrum commitment was given in conjunction with a $20 million
Interim Financing Commitment issued by Fleet National Bank to
satisfy the Company's short-term liquidity requirements of the bank.
The warrants were issued in reliance upon the exemption from
registration provided by Section 4(2) of the Securities Act of 1933,
as amended, as transactions by an issuer not involving a public
offering.
On September 1, 1998, the Company issued to Goldman Sachs Credit
Partners, L.P. and Fleet National Bank (collectively, the
"Lenders"), in consideration of the Lenders providing a three-year
senior secured credit facility to the Company consisting of
revolving loans in the aggregate amount of up to $75 million, five-
year warrants to purchase an aggregate of 974,412 shares of Common
Stock at a purchase price of $6.75 per share. The warrants were
issued in reliance upon the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, as
transactions by an issuer not involving a public offering.
Reference is made to the Company's Current Report on Form 8-K and
exhibit thereto dated and filed on October 2, 1998 for a complete
description of the transaction.
21
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) The following exhibits are included herein:
3.1 Restated Articles of Organization, as amended(6)
3.2 Amended and Restated By-Laws of Registrant(6)
4.1 Form of Common Stock Certificate(5)
9.1 Voting Agreement dated April 10, 1998 among Robert
Fabbricatore and certain of his affiliates and Spectrum(7)
10.1 1996 Stock Option Plan(3)
10.2 1993 Stock Option Plan(5)
10.3 Employee Stock Purchase Plan(4)
10.4 Lease for premises at 360 Second Ave., Waltham MA(5)
10.5 Sublease for premises at 360 Second Ave., Waltham MA(5)
10.6 Lease for premises at 110 Hartwell Ave., Lexington MA(5)
10.7 Lease for premises at 120 Broadway, New York, NY(5)
10.8 Agreement dated February 1, 1996 between NYNEX and the Company(5)
10.9 Agreement dated May 1, 1997 between Pacific Bell and
the Company (5)
10.10 Agreement dated January 1, 1996 between SNET America,Inc.
and the Company(5)
10.11 Agreement dated June 23, 1995 between IXC Long Distance
Inc. and the Company, as amended(5)
10.12 Agreement dated August 19, 1996 between Innovative Telecom
Corp. and the Company(5)
10.13 Agreement dated October 20, 1994 between Frontier
Communications International, Inc. and the Company, as amended(5)
10.14 Agreement dated January 21, 1997 between Intermedia
Communications Inc. and the Company(5)
10.15 Employment Agreement between the Company and Steven Jones
dated February 27, 1998(7)
10.16 Securities Purchase Agreement dated April 10, 1998 among
the Company and the Purchasers named therein(6)
10.17 Registration Rights Agreement dated April 10, 1998 among
the Company and the Holders named therein(6)
10.18 Form of Warrant dated April 10, 1998(6)
10.19 Loan and Security Agreement dated as of September 1, 1998
by and between the Company, Goldman Sachs Credit Partners
L.P. and Fleet National Bank(8)
10.20 Agreement with Cisco Systems Capital Corp. dated as of
October 14, 1998 (9)
10.21 Warrant dated July 15, 1998 issued to Spectrum (10)
10.22 Lease for premises at 220 Bear Hill Rd., Waltham MA(10)
10.23 Warrant dated September 1, 1998 issued to Goldman Sachs & Co.(10)
10.24 Warrant dated September 1, 1998 issued to Fleet National Bank(10)
27 Financial Data Schedule(10)
99.1 Risk Factors(10)
- -----------------
(footnotes on next page)
22
<PAGE>
(1) Incorporated by reference to an Exhibit filed as part of the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1996.
(2) Incorporated by reference to an Exhibit filed as part of the Registrant's
Registration Statement on Form S-18 (Reg. No. 2-96419-B)
(3) Incorporated by reference to an Exhibit filed as part of the Registrant's
Registration Statement on Form S-8 (File No. 333-17613)
(4) Incorporated by reference to an Exhibit filed as part of the Registrant's
Registration Statement on Form S-8 (File No. 33-44337)
(5) Incorporated by reference to an Exhibit filed as part of the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1997.
(6) Incorporated by reference to an Exhibit filed as part of the Registrant's
Current Report on Form 8-K dated May 15, 1998.
(7) Incorporated by reference to an Exhibit filed as part of the Registrant's
Annual Report on Form 10-K for the Fiscal Year Ended March 31, 1998.
(8) Incorporated by reference to an Exhibit filed as part of the Registrant's
Current Report on Form 8-K dated October 2, 1998.
(9) Incorporated by reference to an Exhibit filed as part of the Registrant's
Current Report on Form 8-K dated November 6, 1998.
(10) Filed herewith.
(b) Reports on Form 8-K
On August 4, 1998, the Registrant filed a report on Form 8-K
incorporating its August 3, 1998 press release which provided an
update on the status of the Bell Atlantic litigation and various
state regulatory actions.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf by the undersigned thereunto duly authorized.
CTC COMMUNICATIONS CORP.
Date: November 13, 1998 /S/ ROBERT J. FABBRICATORE
----------------------------
Robert J. Fabbricatore
Chairman and CEO
Date: November 13, 1998 /S/ STEVEN C. JONES
-----------------------------
Steven C. Jones
Executive Vice President,
and Chief Financial Officer
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> SEP-30-1998
<CASH> 2,167
<SECURITIES> 0
<RECEIVABLES> 27,409
<ALLOWANCES> 1,871
<INVENTORY> 0
<CURRENT-ASSETS> 32,780
<PP&E> 19,242
<DEPRECIATION> 8,448
<TOTAL-ASSETS> 49,607
<CURRENT-LIABILITIES> 21,152
<BONDS> 0
0
12,260
<COMMON> 100
<OTHER-SE> (6,020)
<TOTAL-LIABILITY-AND-EQUITY> 49,607
<SALES> 14,516
<TOTAL-REVENUES> 14,557
<CGS> 12,383
<TOTAL-COSTS> 25,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 983
<INCOME-PRETAX> (11,811)
<INCOME-TAX> (827)
<INCOME-CONTINUING> (10,984)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,984)
<EPS-PRIMARY> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
EXHIBIT 10.21
WARRANT
CTC Communications Corp.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A PRIVATE
PLACEMENT, WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED OR OTHERWISE TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT COVERING
THE TRANSFER OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE ISSUER
THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED.
Date of Issuance: July 15, 1998 Certificate No. W-10
FOR VALUE RECEIVED, CTC Communications Corp., a Massachusetts
corporation (the "Corporation"), hereby grants to Spectrum Equity Investors
II, L.P., or its registered assigns (the "Registered Holder") the right to
purchase from the Corporation fifth-five thousand five hundred fifty-five
(55,555) shares of Common Stock at a price of $9.00 per share, subject to
adjustment as provided herein. This Warrant is the warrant (together with
any replacements or subdivisions thereof, the "Warrants") issued pursuant to
the terms of a commitment letter dated as of July 13, 1998 between the
Corporation and Spectrum Equity Investors II, L.P. Certain capitalized
terms used herein are defined in Section 8 hereof. Capitalized terms used
herein but not otherwise defined herein shall have the meanings set forth
for such terms in the Securities Purchase Agreement dated as of April 10,
1998 among the Corporation and the Purchasers named therein (the "Purchase
Agreement").
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
A. Exercise Period. The Registered Holder may exercise, in whole
or in part, the purchase rights represented by this Warrant at any time and
from time to time after the Date of Issuance to and including the fifth
(5th) anniversary of the Date of Issuance (the "Exercise Period").
B. Exercise Procedure.
(i) This Warrant or any part hereof specified by the Registered
Holder shall be deemed to have been exercised when the Corporation 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 rights
represented by this Warrant;
(b) this Warrant or an affidavit as provided in Section 10
hereof;
(c) the aggregate Exercise Price for the number of shares of
Common Stock being purchased through such exercise, such aggregate Exercise
Price to be payable by any combination of (1) a bank cashier's check or wire
transfer in immediately available funds to the Corporation in an amount
equal to the product of the Exercise Price multiplied by the number of
shares of Common Stock being purchased with the proceeds of such wire
transfer or (2) a written notice to the Corporation that the Holder is
exercising the Warrants (or a portion thereof) and as consideration of such
exercise is authorizing the Corporation to withhold from issuance a number
of shares of Common Stock issuable upon exercise of this Warrant which, when
multiplied by the sum of (x) the Market Price Per Share of the Common Stock
minus (y) the Exercise Price is equal to the aggregate Exercise Price for
the number of shares of Common Stock being purchased with such consideration
(in which event such withheld shares shall no longer be issuable under this
Warrant); and
(d) if this Warrant is not registered in the name of the
original Registered Holder, an Assignment or Assignments substantially in
the form set forth in Exhibit II hereto evidencing the assignment of this
Warrant to the Purchaser.
(ii) Certificates for shares of Common Stock purchased upon exercise
of all or part of this Warrant shall be delivered by the Corporation to the
Purchaser within ten (10) 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 Corporation 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 ten (10) business day period, deliver such new Warrant to the Person
designated for delivery in the Exercise Agreement.
(iii) The Common Stock issuable upon the exercise of all or part 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 Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of all or part 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 Corporation in connection with such exercise
and the related issuance of shares of Common Stock. Each share of Common
Stock issuable upon exercise of all or part of this Warrant shall be fully
paid and nonassessable and free from all Liens and charges with respect to
the issuance thereof.
(v) The Corporation shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued
Common Stock issuable upon exercise of this Warrant is at all times equal to
or less than the Exercise Price, on a per share basis.
(vi) The Corporation shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or to obtain
any governmental approvals prior to or in connection with any exercise of
all or part of this Warrant (including, without limitation, making any
filings required to be made by the Corporation).
(vii) Notwithstanding any other provision hereof, if an exercise of
any portion of this Warrant is to be made in connection with a public
offering or Organic Change, 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 Organic Change, in which case such exercise shall
not be deemed to be effective until immediately prior to the consummation of
such public offering or Organic Change.
(viii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely
for the purpose of issuance upon the exercise of the Warrants, such number
of shares of Common Stock as are issuable upon the exercise of all
outstanding Warrants. The Corporation shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation
applicable to the Company or any requirements of NASDAQ or any securities
exchange upon which shares of Common Stock may be listed or quoted (except
for official notice of issuance which shall be immediately delivered by the
Corporation upon each such issuance).
C. Exercise Agreement. The Exercise Agreement to be executed in
connection with the exercise of this Warrant shall be substantially in the
form set forth in Exhibit I hereto, except that if the shares of Common
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 Common Stock are to be
issued.
Section 2. Adjustment of Number of Shares and Exercise Price.
A. The number of shares of Common Stock obtainable upon exercise of
this Warrant and the Exercise Price shall be subject to adjustment from time
to time as provided in this Section 2.
B. Exercise Price. The initial exercise price shall be nine
dollars ($9.00) per share of Common Stock, which may be adjusted from time
to time hereafter (as so adjusted, the "Exercise Price") . If and whenever
on or after the original Date of Issuance of the Warrants the Corporation
issues or sells, or in accordance with Section 2(C) is deemed to have issued
or sold, any shares of its Common Stock or Convertible Securities for a
consideration per share less than the Exercise Price in effect immediately
prior to the time of such issue or sale, then upon such issue or sale, the
Exercise Price shall be reduced to an amount determined by dividing (a) the
sum of (1) the product derived by multiplying (i) the Exercise Price in
effect immediately prior to such issue or sale times (ii) the number of
shares of Common Stock Deemed Outstanding immediately prior to such issue or
sale, plus (2) the consideration, if any, received (or deemed received
pursuant to Section 2(C)(ii) below) by the Corporation upon such issue or
sale, by (b) the number of shares of Common Stock Deemed Outstanding
immediately after such issue or sale.
C. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2, the following shall
be applicable:
(i) Issuance of Convertible Securities. If the Corporation in any
manner issues or sells any Convertible Securities, whether or not the rights
to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange is less than the Exercise Price in effect
immediately prior to the time of such issue or sale, then the maximum number
of shares of Common Stock issuable upon exercise, conversion or exchange of
such Convertible Securities shall be deemed to be outstanding and to have
been issued and sold by the Corporation at the time of the issuance or sale
of such Convertible Securities for such price per share. For the purposes
of this paragraph, the "price per share for which Common Stock is issuable"
shall be determined by dividing (a) the total amount received or receivable
by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the cumulative minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
exercise, conversion or exchange thereof and, if applicable, the exercise,
conversion and exchange of any other Convertible Securities that such
Convertible Securities may be converted into or exchanged for, by (b) the
total maximum number of shares of Common Stock issuable upon the exercise,
conversion or exchange of all such Convertible Securities. No further
adjustment of the Exercise Price shall be made when Common Stock and, if
applicable, any other Convertible Securities, are actually issued upon the
exercise, conversion or exchange of such Convertible Securities.
(ii) Change in Exercise Price or Conversion Rate. If the additional
consideration payable to the Corporation upon the exercise, conversion or
exchange of any Convertible Securities, or the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock should
change at any time, the Exercise Price in effect at the time of such change
shall be readjusted to the Exercise Price that would have been in effect at
such time had such Convertible Securities that are still outstanding
provided for such changed additional consideration or changed conversion
rate, as the case may be, at the time such Convertible Securities were
initially granted, issued or sold; and on the termination date of any right
to exercise, convert or exchange such Convertible Securities without such
right having been duly exercised, the Exercise Price then in effect
hereunder shall be increased to the Exercise Price that would have been in
effect at the time of such termination had such Convertible Securities, to
the extent outstanding immediately prior to such termination, never been
issued.
(iii) Exceptions for Excluded Securities. Notwithstanding the
foregoing, no adjustments to the Exercise Price shall be made under Section
2 with respect to the issuance of any Excluded Securities.
D. Subdivision or Combination of Common Stock. If the Corporation
at any time subdivides (by any stock split, stock dividend, recapitalization
or otherwise) its outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately reduced, and conversely, in the event
the outstanding shares of Common Stock shall be combined (by reverse stock
split or otherwise) into a smaller number of shares, the Exercise Price in
effect immediately prior to such combination shall be proportionately
increased. In any such event all numbers, percentages, computations and the
like in this Warrant shall be deemed modified as necessary to give
appropriate effect to such subdivision or combination.
E. Adjustment in Number of Shares Issuable. Upon each adjustment
in the Exercise Price pursuant to any provisions of Section 2(D), the number
of shares of Common Stock purchasable hereunder shall be adjusted, to the
nearest whole share, to the product obtained by multiplying such number of
shares purchasable immediately prior to the event giving rise to such
adjustment in the Exercise Price by a fraction, the numerator of which shall
be the Exercise Price immediately prior to such adjustment and the
denominator of which shall be the Exercise Price in effect immediately
thereafter.
F. Certain Events. If an event not specified in this Section 2
occurs that has substantially the same economic effect on the Warrants as
those specifically enumerated, then this Section 2 shall be construed
liberally, mutatis mutandis, in order to give the Warrants the intended
benefit of the protections provided under this Section 2. In such event,
the Corporation's Board of Directors shall make an appropriate adjustment in
the Exercise Price so as to protect the rights of the holders of the
Warrants; provided that no such adjustment shall increase the Exercise Price
as otherwise determined pursuant to this Section 2 or decrease the number of
shares of Common Stock issuable upon exercise of this Warrant.
G. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the Corporation
shall give written notice thereof to the Registered Holder of this
Warrant, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Corporation shall give written notice to the Registered Holder of
this Warrant at least twenty (20) days prior to the date on which the
Corporation closes its books or takes a record (a) with respect to any
dividend or distribution upon Common Stock, (b) with respect to any pro
rata subscription offer to holders of Common Stock or (c) for determining
rights to vote with respect to any dissolution or liquidation.
Section 3. Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger (other than a consolidation or merger in which the
Company is the surviving corporation and which does not result in the
reclassification of any Common Stock) or sale of all or substantially all of
the Corporation's assets to another Person or other transaction which is
effected in such a way that holders of Common Stock are entitled to receive
(either directly or upon subsequent liquidation) stock, securities, cash or
assets with respect to or in exchange for Common Stock is referred to herein
as an "Organic Change." Prior to the consummation of any Organic Change,
the Corporation shall make appropriate provision to insure that each of the
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
Common Stock immediately theretofore issuable upon the exercise of such
holder's Warrant, such shares of stock, securities, cash or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore issuable upon exercise of such holder's
Warrant had such Organic Change not taken place. In any such case, the
Corporation shall make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of Section 2 and Section
3 hereof shall thereafter be applicable to the Warrants. The Corporation
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof, the successor entity (if other than the Corporation)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument the obligation to deliver to each such holder
such shares of stock, securities, cash or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
Section 4. Dividends. If the Corporation declares or pays a dividend
upon the Common Stock, except for a stock dividend payable in shares of
Common Stock, then the Exercise Price shall be reduced, on a cumulative
basis, by an amount equal to the amount of such dividend which would have
been paid to the holder of each share of Common Stock had all Warrants
issued under the Purchase Agreement been exercised prior to the record date
for payment of such dividend, until such Exercise Price has been reduced to
zero, and thereafter the Corporation shall pay to the Registered Holder of
this Warrant at the time of payment thereof an amount equal to such
dividend.
Section 5. Purchase Rights. If at any time the Corporation grants,
issues or sells any rights to purchase stock, warrants, securities or other
property pro rata to the holders of Common Stock (the "Purchase Rights"),
then the Registered Holder of this Warrant shall be entitled to obtain, upon
the same terms on which holders of Common Stock are to receive such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired
if such holder had held the number of shares of Common Stock issuable upon
complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
Section 6. Transfer Restriction.
The Warrants are subject to the transfer restrictions in Section 4.8 of
the Purchase Agreement, mutatis mutandis.
Section 7. Certificates, Notices and Consents.
A. Certificates. Upon the occurrence of any event requiring
adjustments of the number of shares subject to this Warrant pursuant to
Section 2, the Corporation shall mail to the Registered Holder (by
registered or certified mail, postage prepaid) a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer
of the Corporation, setting forth in reasonable detail the events requiring
the adjustment and the method by which such proposed adjustment was
calculated, specifying the adjusted number of shares subject to this Warrant
after giving effect to the proposed adjustment and the number of shares of
Common Stock to be issued pursuant to Section 2 hereof.
B. Notice. If the Corporation after the Date of Issuance shall
propose to: (i) pay any dividend payable in stock to the holders of Common
Stock or to make any other distribution to the holders of Common Stock or
any extraordinary dividend directly or indirectly attributable to proceeds
from the sale or other disposition of a significant business or asset of the
Corporation; (ii) offer to the holders of Common Stock rights to subscribe
for or purchase any additional shares of any class of stock or any other
rights or options; (iii) effect any reclassification except the subdivision
or combination of shares of outstanding Common Stock; (iv) effect any
Organic Change or sale transaction described in Section 2B or the
liquidation, dissolution or winding up of the Corporation; or (v) engage in
any diluting event not otherwise mentioned in this Section 6B, then, in each
such case, the Corporation shall mail (by registered or certified mail,
postage prepaid) to the Registered Holder notice of such proposed action,
which shall specify the date on which the books of the Corporation shall
close, or a record date shall be established, for determining holders of
Common Stock entitled to receive such stock dividends or other distribution
of such rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution or winding up shall take place or commence, as the
case may be, and the date as of which it is expected that holders of Common
Stock of record shall be entitled to receive securities or other property
deliverable upon such action, if any such date is to be fixed. Such notice
shall be mailed, in the case of any action covered by clauses (i), (ii) or
(v) above, at least 20 days prior to the record date for determining holders
of Common Stock for purposes of receiving such payment or offer, and, in the
case of any action covered by clause (iii) above, at least 20 days prior to
the date upon which such action takes place, and, in the case of any action
covered by clause (iv) above, at least 20 days prior to the date on which
the Corporation closes its books or takes a record for determining rights to
vote with respect to any event covered by clause (iv) and 20 days prior to
any record date to determine holders of Common Stock entitled to receive
such securities or other property.
C. Failure and Defects. Failure to file any certificate or notice
or to mail any notice, or any defect in any certificate or notice, pursuant
to this Section 6, shall not affect the legality or validity of the
adjustment of the Exercise Price and/or number of shares of Common Stock
subject to this Warrant pursuant to Section 2.
Section 8. Definitions. The following terms have meanings set forth
below:
"Certificate of Designation" shall mean the Certificate of Designation
of Series A Convertible Preferred Stock in the form attached to the Purchase
Agreement as Exhibit B.
"Common Stock" means, collectively, the Corporation's Common Stock,
par value $.01 per share.
"Convertible Securities" shall have the meaning set forth in the
Certificate of Designation.
"Date of Issuance" means the date of initial issuance of this Warrant
regardless of the number of times new certificates representing the
unexpired and unexercised rights formerly represented by this Warrant shall
be issued.
"Excluded Securities" shall have the meaning set forth in the
Certificate of Designation.
"Exercise Period" shall have the meaning set forth in Section 1(A)
hereof.
"Exercise Price" shall have the meaning set forth in Section 2 hereof.
"Exercise Time" shall have the meaning set forth in Section 1(B)
hereof.
"Majority Warrant Holders" means, at any time, the holders of Warrants
representing the right to purchase a majority of the aggregate number of
shares of unissued Common Stock then issuable upon exercise of all Warrants.
"Market Price Per Share of Common Stock" means the average closing bid
price (or closing sales price, as applicable) per share for the Company's
Common Stock on NASDAQ (or such national stock exchange upon which the
Corporation's Common Stock is then listed), for a period of 30 consecutive
trading days ending on the last trading day immediately preceding the
Exercise Time.
"Organic Change" shall have the meaning set forth in Section 3 hereof.
"Person" means an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
"Purchaser" shall mean the Person(s) to whom shares of Common Stock
are issued pursuant to the exercise of this Warrant.
"Registered Holder" with respect to this Warrant means the Person to
whom the Warrant was initially issued or any assignee of such Person as to
whom the Corporation has received an executed Assignment substantially in
the form of Exhibit II hereto, and "Registered Holders" at any time means
all Registered Holders of Warrants then outstanding.
Section 9. No Voting Rights; Limitations of Liability. Prior to the
exercise of this Warrant and except as otherwise specifically provided
herein, this Warrant shall not entitle the holder hereof to any rights as a
stockholder of the Corporation. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Registered Holder
shall give rise to any liability of such holder for the exercise of Warrants
hereunder or as a stockholder of the Corporation.
Section 10. Warrant Exchangeable for Different Denomination. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Corporation, 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.
Section 11. Replacement. Upon receipt of evidence reasonably
satisfactory to the Corporation (an affidavit of the Registered Holder being
reasonably satisfactory) of 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 an indemnity reasonably satisfactory
to the Corporation, or in the case of any such mutilation, upon surrender
and cancellation of such certificate, the Corporation shall, at its expense,
execute and deliver in lieu of such certificate a new certificate of like
tenor and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 12. 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 express 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 deposited in the U. S. Mail (i) to the Corporation, at its principal
executive offices or to its registered office in its state of domicile and
(ii) to the Registered Holder of this Warrant, at such holder's address as
it appears in the records of the Corporation (unless otherwise indicated by
any such holder).
Section 13. Amendment and Waiver. Except as otherwise provided
herein, the provisions of the Warrants may be amended and the Corporation
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, if and only if the Corporation has obtained
the written consent of the Majority Warrant Holders.
Section 14. 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. This
Warrant shall be governed by and construed and enforced in accordance with
the laws of the Commonwealth of Massachusetts, without giving effect to any
choice of law or conflict provision or rule that would cause the application
of the laws of any jurisdiction other than the State of the Commonwealth of
Massachusetts.
Section 15. Certain Expenses. The Corporation shall pay all expenses
incurred by it in connection with, and all taxes and other governmental
charges that may be imposed in respect of, the issuance, sale and delivery
of the Warrants or the shares of Common Stock.
Section 16. Registered Holders. The Corporation shall be entitled to
treat the Register Holder of this Warrant as the only holder of this Warrant
for all purposes.
IN WITNESS WHEREOF, the Corporation 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.
CTC COMMUNICATIONS CORP.
[CORPORATE SEAL]
By: ______________________________
Name: ________________________
Title:
________________________
EXHIBIT I
EXERCISE AGREEMENT
To: _______________________________ Dated:
________________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-10), hereby agrees to subscribe for the purchase
of _________ shares of the Common Stock covered by such Warrant and makes
payment herewith in full therefor at the price per share provided by such
Warrant.
_________________________________
Name: ___________________________
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-10, with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
Date: _______________, 199
____________________________________
Name: ______________________________
____________________________________
(Witness)
EXHIBIT 10.22
LEASE
Article I
1.1 COVER PAGE:
Parties:
Landlord (Lessor)
220 Bear Hill Road Realty Trust
Tenant (Lessee)
CTC Communications Corp.
360 Second Avenue
Waltham, MA 02451
State of Incorporation: Massachusetts
Date of Incorporation: 6/3/81
Federal ID Number: 04-2731202
Address for Notice & Payments
Lessor:
Vincent A. Messina, Trustee
P.O. Box 89
Wolfeboro, NH 03894
Lessee:
Same as above
Attention: Michael Donnellan
Vice President Operations
Commencement Date for Lessee
To Start Lessee's Buildout: August 24, 1998
Lessee will have access to rear space on August 10, 1998, and
remaining space on August 24, 1998.
Term: Commencement Date for
Rent Commencement: October 1, 1998
Expiration Date: September 30, 2004
Building and Leased Premises
Building: 220 Bear Hill Road
Premises: Building and Land
Building Address: 220 Bear Hill Road
City, State and Zip Code: Waltham, MA 0245
Size of Space Leased: Approximately 27,884 Square Feet
Security Deposit: $75,000
Use of Premises: Office, Warehouse & Related Uses
Rent: Annually Monthly
Adjusted Net Base Rent $304,166.66 $25,347.23
Plus:
Operating Expense
Contribution 7,500.00 625.00
Real Estate Tax
Contribution 57,354.15 4,779.50
__________________________________________________________
TOTAL ANNUAL PAYMENT $369,020.81
TOTAL MONTHLY PAYMENT $30,751.70
Rental Due Date: Rent is due in advance of the first day of each
month.
Late Payment
Charge & Interest: The Lessee will pay a late charge equal to
five (5) percent of any payment not received
by the Lessor within ten(10) days of the due
date thereof.
Interest on any delinquencies will be charged
at the rate of one and one-half (1-1/2)percent
per month.
Pro Ratio Percentages:
Approximate Square Feet of Building: 27,884
Approximate Square Feet of Premises Leased: 27,884
Pro-Rate Percentage attributable to Premises:
100% Operating and Other Expenses 100% Taxes & Assessments
Base Year Calculation:
The Lessee will be responsible for the above percentages in
Operating cost, and Real Estate Tax and assessments.
Insurance Requirements:
Lessee will carry Liability Insurance in the amount of
$1,000,000-$5,000,000 and Property Damage in the amount of
$1,000,000. Lessor will be named as additional insured.
1.2 EXHIBITS:
These are incorporated as part of this Lease:
EXHIBIT A: Description of Area Leased
EXHIBIT B: Additional Terms Between Lessor Lessee
EXHIBIT C: Option to Renew
Executed as a sealed instrument in two or more counterparts on the day and
year first above written.
These Cover Pages: 1,2 and 3.
Landlord: (Lessor)
_____________________________
Vincent A. Messina, Trustee
220 Bear Hill Road Realty Trust
Tenant: (Lessee)
_____________________________
CTC Communications Corp
Steve Milton - President
Chief Operating Officer
Date of Lease Execution: July 28, 1998
TABLE OF ARTICLES AND SECTIONS
I. REFERENCE DATA PAGE
1.1 Cover Pages 1,2,3
1.2 Exhibits At End
1.3 Table of Articles & Sections 4,5,6
II. PREMISES, TERM & RENT
2.1 The Premises 8
2.2 Rights to Use Common Facilities 8
2.3 Lessor's Reservations 8
2.4 Habendum 9
2.5 Rent, When Due; Where Paid; Late
Payments 9,10
2.6 Adjustment to Rent, Real Property
Taxes, Assessments 10,11
2.7 Adjustments to Rents, Operating Cost
Increases 11,12,13
2.8 Definition of Lot ` 13,14
2.9 Due Date of Additional Rent Payments 14
2.10 Change of Accounting Periods 14
2.11 Unlawful Charges 14
III. CONSTRUCTION
3.1 Plans and Specifications for the
Building and for Lessee's Space 15
3.2 Preparation of Premises for Occupancy 15
3.3 Alterations and Additions 15,16
3.4 General Provisions Applicable to
Construction 17
IV. LESSOR'S COVENANTS: INTERRUPTIONS AND DELAYS
4.1 Lessor's Covenants 18
4.2 Interruptions and Delays in Services
and Repairs, etc. 18
V. LESSEE'S COVENANTS
5.1 Payments 19
5.2 Repair and Yield Up 19
5.3 Use 19,20
5.4 Obstructions, Items Visible from
Exterior, Rules and Regulations 20
5.5 Safety Appliance; Licenses 20
5.6 Assignment, Sublease 20,21,22,23
5.7 Indemnity 23
5.8 Right of Entry 23
5.9 Floor Load, Prevention of Vibrations
and Noise 23,24
5.10 Personal Property Taxes 24
5.11 Payment of Litigation Expenses 24
5.12 Insurance of Lessee's Property 24,25
5.13 HVAC Maintenance 25
VI. CASUALTY AND TAKING
6.1 Termination of Restoration; Rent
Adjustment 26,27
6.2 Eminent Domain Damages Reserved 27
6.3 Temporary Taking 27
VII. DEFAULT
7.1 Events of Default 28,29
7.2 Damages 29,30
VIII.MISCELLANEOUS
8.1 Titles of Articles, Recording; Consent;
Notice; Binding Effect 31
8.2 Notice of Lease; Consent or Approval
Notices; Bind & Insure; Trust Estate 31,32
8.3 Lessor's Failure to Enforce or
Cancellation 32
8.4 Acceptance of Partial Payments of Rent 32
8.5 Cumulative Remedies 33
8.6 Partial Invalidity 33
8.7 License for Support 33
8.8 Self Help 33,34
8.9 Lessee's Estoppel Certificate 34
8.10 Waiver of Subrogation 34
8.11 Governing Law 35
8.12 Brokerage 35
8.13 Assignment of Rent 35
IX. SUBORDINATION
9.1 Lease Subordinate to Mortgage
Indebtedness 36
9.2 Implementation of Article IX 36
ARBITRATION
10.1 Method of Appointment of Arbiters;
Award; Costs 37,38
XI. SECURITY DEPOSIT
11.1 Amount, Application 39
XII. LESSOR'S LIENS
12.1 Leins for Lessor 40
Exhibit A 41
Exhibit B 42,43
Exhibit C 44,45
ARTICLE II
PREMISES, TERM AND RENT
2.1 The Premises.
The Lessor (designated in Section 1.1 of Article I) hereby leases to
Lessee and Lessee hereby hires from Lessor, Lessee's Space
(identified in Article I) in the building excluding the common
stairways, stairwells, elevators and elevator wells, if included
in building, the exterior faces of the exterior wells, and the
pipes, ducts, conduits, wires and appurtenant fixtures serving
exclusively or in common other parts of the building. Lessee's
Space with such exclusions is hereinafter referred to as "the
Premises".
2.2 Rights to Use Common Facilities, if any.
Lessee shall have, as appurtenant to the Premises, rights to use in
common with other tenants and occupants of the Building, subject
to reasonable rules of general applicability to Lessees of the
building, from time to time made by Lessor of which Lessee is
given notice:
(a) The common lobbies, hallways, stairways and elevators
of the building, and the pipes, ducts, conduits,
wires and appurtenant equipment serving the Premises
in common with others,
(b) Walkways and driveways necessary for access to the
Building, and
(c) The common toilets and other common facilities in the
central core of such floor.
2.3 Lessor's Reservations.
Lessor reserves the right from time to time, without unreasonable
interference with Lessee's use:
(a) To expand the building, construct other buildings on
the lot, or to rent part of the lot, to install, use,
maintain, repair, replace and relocate for service to
the Premises and other parts of the building, of
either pipes, ducts, conduits, wires and appurtenant
fixtures wherever located in the Premises or
building, and
(b) To alter or relocate any other common facility,
provided that substitutions are substantially
equivalent or better.
Installations, replacements and relocation's referred to
in clause (a) above shall be located so far as
practicable in the core area above ceiling surfaces,
below floor surfaces or within perimeter walls of the
premises.
2.4 Habendum.
Lessee shall have and hold the Premises for a period commencing on
the commencement date set forth in Article I, Section 1.1 and
shall continue for the lease term unless sooner terminated as
provided in Section 6.1 of Article VI.
2.5 Rent; When Due: Where Paid.
All monies payable by Lessee to Lessor under this Lease shall be
deemed to be rent and shall be payable and recoverable as rent in
the manner herein provided and Lessor shall have all rights
against Lessee for default in any such payment. Rent shall be
paid to Lessor in advance, on the first day of each calendar
month, during the entire term of this Lease, without deduction or
set-off, in legal tender of the jurisdiction in which the Building
is located at the address of Lessor as set forth, or to such other
person or to such other address as Lessor may designate in
writing. Lessee's obligation to pay all rent due under this Lease
shall survive the expiration or earlier termination of this Lease.
Should this Lease commence on a day other than the first day of
the month or terminate on a day other than the last day of the
month, the rent for such partial month shall be pro-rated based on
a 365-day year.
The payment of rent will commence on the rent commencement date of
this lease, which is October 1, 1998.
A. Base Rent
Lessee agrees to pay Lessor the Rent as set forth on the
Cover Pages of this Lease. The total Base Rent will never
be lower than the amount shown on the Cover Pages of this
Lease.
(1) Adjusted Net Base Rent for purposes of this
lease. The base rent is $312,500 annually.
(ii) The Lessor has given the Lessee and annual
allowance of $8,333.33 (50,000/6=8,333.333) per
year for repairs and improvements the Lessee
will perform at Lessee's expense. (See Exhibit
B)
(iii) The adjusted Net Base Rent annually is
$304,166.67
B. Interest Rate on Delinquencies.
If Lessee shall fail to pay any rent when due, such unpaid
amounts shall bear interest at the rate set forth on the
Cover Pages of this Lease.
C. Late Payment Charge.
If Lessee shall fail to pay rent when due, Lessee shall pay
to Lessor, in addition to the interest provided for in
Section 2.5 B, a late payment charge for each occurrence
of an amount as set forth on the Cover Pages of this
Lease.
2.6 Adjustments to Rent; Real Property Taxes, Assessments.
Lessee shall pay its pro-rata share of all Real Property Taxes and
Assessments levied and assessed upon the Building and the Land
upon which the Building is situated monthly. The real estate tax
bill for the fiscal year ended June 30, 1998 is $57,354.15.
(a) Real Property Tax Contests
Lessor shall use its best efforts to keep the assessed value
of the real property of which the Premises are a part at
the lowest possible level and shall, if Lessor deems
necessary, employ attorneys, accountants, appraisers and
consultants for such purpose.
Lessee agrees to pay its pro-rata share of all amounts paid
by Lessor to such persons; however, Lessee's pro-rata
share shall not exceed the amount Lessee's pro-rata share
of the increase in Real Property Taxes would have been if
the assessed value had not been contested.
(b) Adjustments to Rent; Real Property Taxes Caused by Lessee
Improvements.
In the event that an increase in Real Property Taxes is
caused by the Lessee's improvements made to the Premises,
Lessee shall pay the increase attributable to such
improvements.
(c) Adjustments to Rent; Rental Tax
Lessee shall pay any excise, transaction, sales, business or
privilege tax (except income tax) attributed to or
measured by rental which is now or subsequently imposed
upon Lessor by any government or unit thereof.
(c) Adjustment to Estimated Tax Payment for Actual Tax.
Within 90 days of receipt by Lessor of the actual tax bill
for the current fiscal year during the term hereof, Lessor
shall deliver to Lessee a written statement setting forth
the actual cost for the fiscal tax year. If such cost for
any year is higher then the estimated payment made by
Lessee monthly, Lessor shall bill Lessee for such
difference. Lessee shall pay the pro rata share of such
excess within thirty (30) days after receipt of such
statement.
If such amount is lower then the estimated amount, then
Lessor shall credit or reimburse Lessee.
2.7 Adjustments to Rents; Operating Cost Increases and Other Expenses.
Lessee shall pay monthly as additional rent its pro-rata share of
Lessor's total building operating costs, maintenance, and
improvements.
(a) Definitions
BASE YEAR: Calendar year during which this Lease commences.
LEASE YEAR: Calendar year commencing January 1 and ending
December 31.
(a-1) OPERATING EXPENSES:
The Lessee shall pay the Lessor for all expenses
for water, sewer, and insurance. These expenses
are estimated at $7,500 per year for the
calendar year 1998. The Lessee will pay $625
per month during 1998.
All Expenses and improvements paid or incurred by
Lessor for maintaining, operating and repairing
the building, the Land, and the personal
property used in conjunction therewith, which in
accordance with generally accepted accounting
and management principals would be considered an
expense of maintaining, operating or repairing
the building.
(a-2) All Other Expenses, Improvements, Repairs
and Costs to be Paid Directly by Lessee:
The Lessee is completely responsible for all
operating expenses, replacement cost of all
equipment, utilities servicing the Lessee's
space, such as but not limited to electricity,
heat, cleaning of its space, washing of windows,
all maintenance, improvements, and repairs to
Lessee's space, HVAC units, roof, and any and
all other expenses or costs incurred for the use
of Lessee's space and the lot. The Lessee will
pay for these expenses directly to the
suppliers.
The space is being leased to the Lessee as is in
its present condition. All costs are Lessee's
responsibility at the commencement of this
lease, during the lease, and during any option
of this lease, except for the allowance given
Lessee in Exhibit B.
The intent of paragraph (a.1) and (a.2) in this
lease is that this lease is a triple net lease.
ACTUAL COSTS: The actual expenses paid or incurred by
Lessor for operating expenses during any Lease
Year of the term hereof.
ESTIMATED COSTS: Lessor's estimate of actual Costs for the
following lease year.
BASE AMOUNT: The Actual Cost for the Base Year.
(b) Adjustment for Estimated Costs
Lessor shall furnish Lessee a written statement setting
forth the estimated Costs for such Lease Year, and a
statement showing one twelfth (1/12) of the amount,
by which the Estimated Costs exceed the Actual Costs
for the Base Year. Lessee shall pay its pro rata
share of such increase monthly.
(c) Actual Cost
Within 90 days after the close of each Lease Year during
the term hereof, Lessor shall deliver to Lessee a
written statement setting forth the Actual Costs
during the preceding Lease Year. If such costs for
any Lease Year exceed the Estimated Costs paid by the
Lessee to Lessor for such Lease Year, Lessee shall
pay its pro rata share of such excess within thirty
(30) days after receipt of such statement.
(d) Adjustments to Rent; Variable Interest Rate on
Encumbrance
This Paragraph Intentionally Deleted From This Lease.
(e) Adjustments to Rent-Consumer Price Index
This Paragraph Intentionally Deleted From This Lease.
2.8 The Lot.
The "Lot" means all, and also any parts of the land described in
Exhibit A plus any addition thereto resulting from the change of
any abutting street line. The Lessee shall have a right to park
in the common parking area of this lot as designated by the
Lessor. the Lessor has the right to sub divide the lot and or add
to the building.
The Lessee is allotted four (4) parking spaces per One Thousand
(1000) square feet, for a total of 112 parking spaces.
The Lessor retains the right to sub divide the lot, expand the
building, lease or rent our part of the lot as long as it provides
the 112 parking spaces to the Lessee.
If Lessee shall add additional space to the building by means of
adding to the mezzanine or by any other way, Lessor shall receive
rent per square foot times the added space at a rate to be
determined by agreement between Lessor and Lessee, taking into
consideration the capital expenditure incurred by Lessee, and the
fair market rent at the time of expansion.
2.9. Due Date of Additional Rent Payment.
Except as otherwise specifically provided herein, any sum, amount,
item or charge designated or considered as additional rent in this
Lease shall be paid by Lessee to Lessor on the first day of the
month following the date on which Lessor notifies Lessee of the
amount payable or on the tenth (10) day after the giving of such
notice, whichever shall be later. Any such notice shall specify
in reasonable detail the basis of such additional rent.
2.10 Change of Accounting Periods.
Lessor shall have the right from time to time to change the periods
of accounting under Sections 2.6 & 2.7 above, or either of them,
to any other annual period than a calendar year, and upon any such
change, all items referred to in said Sections 2.6 and 2.7 shall
be appropriately apportioned. In all statements rendered under
Sections 2.6 & 2.7, amounts for periods partially within and
partially without the accounting periods shall be appropriately
apportioned, and any items which are not determinable at the time
of a statement shall be included therein on the basis of Lessor's
estimate and with respect thereto Lessor shall render promptly
after determination a supplemental statement and appropriate
adjustment shall be made according thereto. All statements shall
be prepared on an accrual basis of accounting.
2.11 Unlawful Charges.
If any charges imposed in this lease are found to be unlawful, then
those charges will be automatically reduced to the maximum allowed
charge and the difference refunded.
ARTICLE III
CONSTRUCTION
3.1 Plans and Specifications for the Building and for Lessee's Space.
Lessor agrees that the improvements to the Building will be
constructed in accordance with plans and specifications prepared
by Lessee's Architect, at Lessee's expense.
3.2 Preparation of Premises for Occupancy.
Lessor agrees to use due diligence to have Premises ready for Lessee
to start its improvements on or before the Scheduled Term
Commencement Date For Lessee to Start Lessee's Build Out. In case
of delays due to governmental regulations, unusual scarcity of or
inability to obtain labor or materials, labor difficulties,
casualty or other causes reasonably beyond Lessor's control, the
Scheduled Term Commencement Date For Lessee to Start Lessee's
Build Out shall be extended for the period of such delays. If the
Premises are not ready for Lessee to start its build out on or
before the Scheduled Term Commencement Date For Lessee to Start
Lessee's Build Out as it may be extended as aforesaid, Lessee
shall have the right to terminate this Lease within thirty (30)
days thereafter. Upon the giving of such notice of termination,
there shall be no further liability or obligation upon either
party hereto. Such right of termination shall be the sole and
exclusive remedy, either at law or in equity, available to Lessee
in the event of Lessor's failure to turn over the space.
3.3 Alterations and Additions.
This Section 3.3 shall apply before and during the Lease Term.
Lessee shall not make alterations or additions to Lessee's Space
except in accordance with plans and specifications therefor first
approved by Lessor. Lessor shall not be deemed unreasonable for
withholding approval of any alterations or additions which will
(a) delay completion of the Premises or Buildings,
(b) require unusual expense to readapt the Premises to normal
office use on Lease termination or increase the cost of
construction or of insurance or taxes on the Buildings or
of Lessor's services called for by Section 4.1 unless
Lessee first gives assurances acceptable to Lessor for
payment of such termination without expense to Lessor.
All alterations and additions shall be part of the
Buildings unless and until Lessor shall specify the same
for removal pursuant to Section 5.2. All of Lessee's
alterations and additions and installation of furnishings
shall be coordinated with any work being performed by
Lessor and in such manner as to maintain harmonious labor
relations and not to damage the Buildings or lot or
interfere with Building operation and, except for
installation of furnishings, shall be performed by
Lessor's general contractor or by contractors or workmen
first approved by Lessor. Except for work by Lessor's
general contractor, Lessee before its work is started
shall: Secure all licenses and permits necessary therefor;
deliver to Lessor a statement of the names of all its
contractors and subcontractors and the estimated cost of
all labor and material to be furnished by them and
releases of all lien claims therefor; obtain from each
contractor covenants running to Lessor and Lessee not to
record or file for registration any notice of its
contract; and cause each contractor to carry workmen's
compensation insurance in statutory amounts covering all
the contractors and subcontractors employees and
comprehensive public liability insurance with such limits
as Lessor may reasonably require, but in no event less
than $1,000,000-$5,000,000, and property damage insurance
with limits of not less than $1,000,000 (all such
insurance to be written in companies approved by Lessor
and insuring Lessor and Lessee as well as the
contractors), and to deliver to Lessor certificates of all
such insurance. Lessee agrees to pay promptly when due
the entire cost of any work done on the Premises by
Lessee, its agents, employees, or independent contractors,
and not to cause or permit any liens for labor or
materials performed or furnished in connection therewith
to attach to the premises and immediately to discharge any
such liens which may so attach.
3.4 General Provisions Applicable to Construction.
All construction work done by Lessee, its agents, employees or
independent contractors shall be done in a good and workmanlike
manner and in compliance with all applicable laws and all lawful
ordinances, regulations and orders of governmental authority and
insurers of the Building. Lessor may inspect such work at any
time and shall promptly give notice to Lessee of any observed
defects.
ARTICLE IV
LESSOR'S COVENANTS; INTERRUPTIONS AND DELAYS
4.1 Lessor's Covenants:
Lessor has the right to make this Lease and that Lessee on paying the
rent and performing the obligations in this Lease shall peacefully
and quietly have, hold and enjoy the Premises, subject to all of
the terms and provisions hereof.
4.2 Interruptions and Delays in Services and Repairs, etc.
Lessor shall not be liable to Lessee except by an act of the Lessor,
for any compensation or reduction of rent by reason of
inconvenience or annoyance or for loss of business arising from
the necessity of Lessor's entering the Premises for any of the
purposes in this Lease authorized, or for repairing the Premises
or any portion of the Building, however the necessity may occur.
In case Lessor is prevented or delayed from making repairs,
alterations or improvements, or furnishing any services or
performing any other covenant or duty to be performed on Lessor's
part, by reason of any cause set forth in Section 3.2 hereof as
being reasonably beyond the Lessor's control, Lessor shall not be
liable to Lessee therefor, nor, except as expressly otherwise
provided in Section 6.1, shall Lessee be entitled to any abatement
or reduction of rent by reason thereof, nor shall the same give
rise to a claim in Lessee's favor that such failure constitutes
actual or constructive, total or partial, eviction from the
Premises.
Lessor reserves the right to stop any service or utility system, when
necessary by reason of accident or emergency, or until necessary
repairs have been completed provided, however, that in each
instance of stoppage, Lessor shall exercise reasonable diligence
to eliminate the cause thereof. Except in case of emergency
repairs Lessor will give Lessee reasonable advance notice of any
contemplated stoppage and will use reasonable efforts to avoid
unnecessary inconvenience to Lessee by reason thereof.
ARTICLE V
LESSEE'S COVENANTS
Lessee covenants during the Lease term and such further time as
Lessee occupies any part of the Premises:
5.1 The Payments.
To pay when due all fixed rent and additional rent and all charges to
Lessor and also all other expenses, repairs, and improvements to
the Premises and lot directly as Lessee incurs them to whomever
Lessee owes for such items.
5.2 Repair and Yield Up.
Except as otherwise provided in Article VI, to keep the Premises in
good order, repair and condition, reasonable wear and tear only
excepted, and all glass in windows and doors of the Premises whole
and in good condition with glass of the same quality as that
injured or broken, damaged by fire or other casualty not caused by
Lessee's negligence or willful misconduct only excepted, and at
the expiration or termination of the Lease peaceably to yield up
the Premises and all alterations and additions thereto in good
order, repair and condition, reasonable wear and tear expected,
first removing all goods and effects of Lessee and, to the extent
specified by Lessor by notice to Lessee given at least ten (10)
days before such expiration or termination, all alterations and
additions made by Lessee, and repairing any damage caused by such
removal and restoring the Premises and leaving them clean and
neat.
5.3 The Use.
Continuously from the commencement of the Lease term to use and
occupy the Premises for the Permitted Uses, and not to injure or
deface the Premises, Buildings or Lot, not to permit in the
Premises any auction sale, vending machine, or inflammable fluids
or chemicals, or nuisance, or the emission from the Premises of
any objectionable noise or odor, or any cooking or sleeping, nor
to use or devote or permit the use of the Premises or any part
thereof for any purpose other than the Permitted Uses, not to
permit any use thereof which is improper, offensive, contrary to
law or ordinance or liable to invalidate or increase the premiums
for any insurance on the Building or its contents or liable to
render necessary any alteration or addition to the Buildings.
5.4 Obstructions, Items Visible from Exterior; Rules and Regulations.
Nor to obstruct in any manner any portions of the Building not hereby
leased or any portion thereof or of the Lot used by Lessee in
common with others; not to permit the painting or placing of any
signs or the placing of any curtains, blinds, shades, awnings,
aerials or flagpoles, or the like, visible from outside the
Premises without the prior approval of Lessor not to be
unreasonably withheld; and to comply with all reasonable Rules and
Regulations now or hereafter made by Lessor, of which Lessee has
been given notice for the case and use of the Buildings, Lot and
their facilities and approaches, Lessor shall not be liable for
the failure of other Lessee's of the Building to conform to such
Rules and Regulations;
5.5 Safety Appliance; Licenses.
To keep the Premises equipped with all safety appliances required by
law or ordinance or any other regulation of any public authority
because of any use made by Lessee other than normal office use,
and to procure all other licenses and permits so required because
of such use, and if requested by Lessor, to do any work so
required because of such use, it being understood that the
foregoing provisions shall not be construed to broaden in any way
Lessee's Permitted Uses;
5.6 Assignment; Sublease.
Not without prior written consent of Lessor, which will not be
unreasonably withheld, to assign, mortgage, pledge or otherwise
transfer this Lease or to make any sublease, or permit occupancy
of the Premises or any part thereof by anyone other than the
Lessee; in connection with any request by Lessee for such consent
to assignment or subletting, to submit to Lessor in writing:
(i) the name of the proposed assignee or subtenant,
(ii) such information as to its financial responsibility and
standing as Lessor may reasonably require,
(iii) all of the terms and provisions upon which the proposed
assignment or subletting is to be made and
(iv) an option executed by Lessee to Lessor as provided in
the immediately following sentence of this Section 5.6,
provided that the Lessee shall not be obligated to give
such option if the proposed assignment or sublease is to
be made to an Affiliate of Lessee.
Lessor shall have an option, except as aforesaid, to be
exercised in writing within sixty (60) days after its
receipt from Lessee of such request, information and
option, to cancel and terminate this Lease, if the
request is to assign the Lease or to sublet all of the
Premises or, if the request is to sublet a portion of
the Premises only, to cancel and terminate this Lease
with respect to such portion, in each case as of the
date set forth in Lessor's notice of exercise of such
option, which shall be not less than fourteen (14) nor
more than sixty (60) days following the giving of such
notice; in the event Lessor shall exercise such option,
Lessee shall surrender possession of the entire
Premises, or the portion which is the subject of the
option, as the case may be, on the date set forth in
such notice in accordance with the provisions of this
Lease relating to surrender of the Premises at the
expiration of the Lease Term; if this Lease shall be
canceled as to a portion of the Premises only, Annual
Fixed Rent shall be abated proportionately according to
the ration that the number of square feet in the portion
of the space surrendered bears to the Rentable Floor
Area of Lessee's Space, as additional rent, Lessee shall
reimburse Lessor promptly for reasonable legal and other
expenses incurred by Lessor in connection with any
request by Lessee for consent to assignment or
subletting. In the event Lessor shall not exercise its
option to cancel this Lease pursuant to the foregoing
provisions, provided that the terms and provisions of
such assignment or subletting shall specifically make
applicable to the assignee or sublease all of the
provisions of this Section 5.6 so that Lessor shall have
against the assignee or sub-lessee all rights with
respect to any further assignment and subletting which
are set forth herein, no assignment or subletting shall
affect the continuing primary liability to Lessee
(which, following assignment, shall be joint and several
with assignee); no consent to any of the foregoing in a
specific instance shall operate as a waiver in any
subsequent instance; and no assignment shall be binding
upon Lessor or any of Lessor's mortgages, unless Lessee
shall deliver to Lessor an instrument in recordable form
which contains a covenant of assumption by the assignee
running to Lessor and all persons claiming by, through
or under Lessor, but the failure or refusal of the
assignee to execute such instrument so assumption shall
not release or discharge assignee from its liability as
Lessee hereunder. The term "Affiliate of Lessee" for
purposes of this Section 5.6 shall mean
(i) any corporation, partnership, trust, association
or other business organization directly or
indirectly (through other entities or otherwise)
owning, controlling or holding, whether with or
without power to vote, 30% or more of the entire
beneficial interest in Lessee or any successor
whether by merger, consolidation or acquisition
of all of the assets of Lessee,
(ii) any corporation or trust with transferable
shares, 30% or more of whose outstanding capitol
stock or shares of beneficial interest of any
class is directly or indirectly (through other
entities or otherwise) own, controlled or held,
whether with or without the power to vote, by
Lessee or any successor whether by merger,
consolidation or acquisition of all or
substantially all of the assets of Lessee or any
corporation affiliated with Lessee or such
successor as defined in (i) above, and
(iii) any partnership, association or other business
organization, 30% or more of the beneficial
interest in which, whether with or without the
power to vote, is directly or indirectly)
through other entities or otherwise) owned,
controlled or held by Lessee or such successor
or any corporation affiliated with Lessee or
such successor as defined in (i) above;
5.7 Indemnity.
To defend with counsel first approved by Lessor, save harmless, and
indemnify Lessor from any liability for injury, loss, accident or
damage to any person or property, and from any claims, actions,
proceedings and expenses and costs in connection therewith
(including without limitation reasonable counsel fees),
(i) arising from the omission, fault, willful act,
negligence or other misconduct of Lessee or from any use
made or thing done or occurring on the Premises not due
to the omission, fault, willful act, negligence or other
misconduct of Lessor, or
(ii) resulting from the failure of Lessee to perform and
discharge its covenants and obligations under this
Lease;
5.8 Right of Entry.
To permit Lessor and Lessor's agents and designees to examine the
Premises at reasonable times and, if Lessor shall so elect, to
make any repairs or replacements Lessor may deem necessary, to
remove at Lessee's expense, any alterations, additions, signs,
curtains, blinds, shades, awnings, aerials, flagpoles, or the like
not consented to in writing by Lessor, and to show the Premises to
prospective Lessees during the twelve (12) months preceding
expiration of the Lease Term and to prospective purchasers and
mortgagees at all reasonable times;
5.9 Floor Load; Prevention of Vibration and Noise.
Not to place a load upon the Premises exceeding the live load for
which the floors have been designed; and not to move any safe,
vault or other heavy equipment in, about or out of the Premises
except in such manner and at such times as Lessor shall in each
instance authorize; and to isolate and maintain all of Lessee's
business machines and mechanical equipment, which cause or may
cause airborne or structure-borne vibration or noise, whether or
not it may be transmitted to any other leased space in the
Building, in such manner acceptable to Lessor so as to eliminate
such vibration or noise;
5.10 Personal Property Taxes.
To pay promptly when due all taxes which may be imposed upon personal
property (including without limitation, fixtures and equipment) in
the Premises to whomsoever assessed;
5.11 Payment of Litigation Expenses.
In case Lessor shall, without any fault on its part, be made party to
any litigation commenced by or against Lessee or by or against any
party or parties in possession of the Premises or any part thereof
claiming under Lessee, to pay, as additional rent, all cost,
including without limitation, reasonable counsel fees incurred by
or imposed upon Lessor in connection with such litigation, and, as
additional rent, also to pay all such costs and fees incurred by
Lessor in connection with the successful enforcement by Lessor of
any obligations of Lessee under this Lease;
5.12 Insurance of Lessee's Property.
To procure, keep in force and pay for comprehensive public liability
insurance indemnifying Lessor and Lessee against all claims and
demands for injury to or death of persons or damage to property
which may be claimed to have occurred upon the Premises in the
amounts which shall, at the time Lessee and/or its agents or
contractors enter the Premises in accordance with Article III of
this Lease, be not less than One Million Dollars ($1,000,000) for
property damage, and Five Million Dollars($5,000,000) for injury
or death of more than one person in a single accident, and from
time to time thereafter shall not be less than such higher amounts
if procurable, as may be reasonably required by Lessor and are
customarily carried by responsible office lessees in the
Metropolitan Boston Area. Such insurance shall be effected with
insurers authorized to do business in Massachusetts as stock or
mutual companies having a minimum combined Capital and Surplus of
$1,000,000 under valid and enforceable Policies.
Such policies shall name Lessor and Lessee as the insured as their
respective interests may appear and certificates of all such
insurance shall be delivered to Lessor. Such insurance shall
provide that it shall not be canceled without at least ten (10)
days prior written notice to each insured named therein. On or
before the time Lessee and/or its contractors enter the Premises
in accordance with Article III of the Lease and thereafter not
less than fifteen (15) days prior to the expiration date of each
expiring policy, original copies of the policies provided for
herein issued by the respective insurers or certificates of such
policies setting forth in full the provisions thereof and issued
by such insurers shall be delivered by Lessee to Lessor and
certificates as aforesaid of such policies shall, upon request of
Lessor, be delivered by Lessee to the holder of any mortgage
affecting the Premises.
In addition to and not in limitation of the foregoing, Lessee
covenants and agrees that all merchandise, furniture, fixtures and
property of every kind, nature and description of Lessee or
Lessee's employees, agents, contractors, invitees, visitors or
guests which may be in or upon the Premises or Buildings, in the
public corridors, or on the sidewalks areaways and approaches
adjacent thereto, during the term hereof, shall be at the sole
risk and hazard of Lessee, and that if the whole or any part
thereof shall be damaged, destroyed, or stolen or removed by
reason of any cause or reason whatsoever, other than the
negligence or willful default of Lessor, no part of said damage or
less shall be charged to or borne by Lessor.
5.13 HVAC Maintenance.
Lessee will be responsible for maintaining all HVAC units and
annually provide Lessor with a copy of a preventive maintenance
agreement for each unit, from an authorized service company, that
is acceptable to Lessor.
ARTICLE VI
CASUALTY AND TAKING
6.1 Termination of Restoration; Rent Adjustment.
In case during the Lease Term all or any substantial part of the
Premises or the Buildings or the Lot are damaged materially by
fire, force majeure, civil commotion, war, or other casualty or by
action or public or other authority or a consequence thereof, or
are taken by eminent domain or Lessor receives compensable damage
by reason of anything lawfully done in pursuance of public or
other authority, this Lease shall terminate at Lessor's election,
which may be made notwithstanding Lessor's entire interest may
have been divested, by notice given to Lessee within forty five
(45) days after the election to terminate arises specifying the
effective date of termination. In case of such taking of part of
the Premises, if the remainder is insufficient for use for
Lessee's purposes, and the Lessor receives with the notice
hereinafter referred to a certificate to the effect signed by
Lessee, or in case of such damage or taking if the time needed to
do the construction work necessary to put the Premises or such
remainder in proper condition for use and occupation is reasonably
estimated by Lessor to exceed six (6) months, Lessee may terminate
this Lease by notice given to Lessor within sixty (60) days after
the right to terminate arises specifying the effective date of
termination. In case of such damage or taking, Lessor shall
notify Lessee within thirty (30) days after the occurrence thereof
if Lessor's estimate of the time needed to do the construction
work necessary to put the Premises or such remainder in proper
condition for use and occupancy. The effective date of
termination specified by either Lessor or Lessee shall not be less
than fifteen (15) nor more than thirty (30) days after the date of
notice of such termination. If in any such case the Premises are
rendered unfit for use and occupancy and the Lease is not so
terminated, Lessor shall use due diligence (following the
expiration of all periods in which either party may terminate this
Lease pursuant to the foregoing provisions of this Section 6.1) to
put the Premises, or in case of taking what may remain thereof
(excluding any terms installed or paid for by Lessee which Lessee
may be required to remove pursuant to Section 5.2), into proper
condition for use and occupancy and a just proportion of the fixed
rent and additional rent according to the nature and extent of the
injury shall be abated until the Premises or such remainder shall
have been put by Lessor in such condition; and in case of taking
which permanently reduces the area of the premises, a just
proportion of the fixed rent and additional rent shall be abated
for the remainder of the Lease Term.
6.2 Eminent Domain Damages Reserved.
Lessor reserves to itself any and all rights to receive awards made
for damages to the Premises, the Buildings and Lot and the
leasehold hereby created, or any one or more of them, accruing by
reason of exercise of eminent domain or by reason of anything
lawfully done in pursuance of public or other authority. Lessee
hereby releases and assigns to Lessor all Lessee's rights to such
awards, and covenants to deliver such further assignments and
assurances thereof as Lessor may from time to time request, hereby
irrevocably designating and appointing Lessor as its attorney-in-
fact to execute and deliver in Lessee's name and behalf all such
further assignments thereof.
6.3. Temporary Taking.
In the event of any taking of the Premises or any part thereof for
temporary use,
(i) this Lease shall be and remain unaffected thereby, and
(ii) Lessee shall be entitled to receive for itself such
portion or portions of any award made for such use with
respect to the period of the taking which is within the
Lease Term, provided that if such taking shall remain in
force at the expiration of earlier termination of this
Lease, Lessee shall then pay to Lessor a sum equal to
the reasonable cost of performing Lessee's obligations
under Section 5.2 with respect to surrender of the
Premises and upon such payment shall be excused from
such obligations.
ARTICLE VII
DEFAULT
7.1 Events of Default.
This Lease is made upon this condition, that if the Lessee shall
neglect or fail to perform any one or more of its covenants
contained herein and any such neglect or failure continues after
notice, in case of fixed rent or additional rent for more than ten
(10) days, or in any other case for more than thirty (30) days and
such additional time, if any, as is reasonably necessary to cure
the default if the default is of such a nature that it cannot
reasonably be cured in said thirty (30) days; or if Lessee or any
guarantor of any of Lessee's obligations under this Lease makes
any assignment for the benefit of creditors, commits any act of
bankruptcy or files a petition under any bankruptcy or insolvency
law; or if such a petition filed against Lessee or such guarantor
is not dismissed within ninety (90) days; or if a receiver or
similar officer becomes entitled to Lessee's leasehold hereunder
and it is not returned to Lessee within ninety (90) days; or if
such leasehold is taken on execution or other process of law in
any action against Lessee, then in any case, whether or not the
Lease Term shall have begun, Lessor may immediately, or at any
time while such default exists and without further notice,
terminate this Lease by notice to Lessee, specifying a date not
less than (10) days after the giving of such notice on which this
Lease shall terminate and this Lease shall come to an end on the
date specified therein as fully and completely as if such date
were the date herein originally fixed for the expiration of the
Lease Term, and Lessor, at its election, may lawfully or at any
time thereafter and without further notice, enter into and upon
the premises or any part thereof in the name of the whole, and
repossess the same as of Lessor's former estate and expel Lessee
and those claiming through or under Lessee and remove their
effects (forcibly if necessary) without being deemed guilty of any
manner of trespass and without prejudice to any remedies for
arrears of rent or any other preceding breach of covenant and
Lessor may, at its election, store any effects so removed in a
public warehouse or otherwise for the amount of, and at the
expense of, Lessee, and upon termination of this Lease as
aforesaid or under any provision of any statute, whether or not
Lessor enters the Premises, Lessee will then quit and surrender
the Premises to Lessor, but Lessee shall remain liable as
hereinafter provided.
7.2 Damages.
In the event that this Lease is terminated under any of the
provisions contained in Section 7.1 or shall be otherwise
terminated for breach of any obligation of Lessee, Lessee
covenants to pay forthwith to Lessor, as compensation, the excess
of the total rent reserved for the residue of the Lease Term over
the rental value of the Premises for said residue of the Lease
Term. In calculating the rent reserved there shall be included,
in addition to the Fixed Rent and all Additional Rent, the value
of all other considerations agreed to be paid or performed by
Lessee for said residue. Lessee further covenants as an
additional and cumulative obligation after any such ending to pay
punctually to Lessor all the sums and perform in the same manner
and to the same extent and at the same time as if this Lease had
not been terminated. In calculating the amounts to be paid by
Lessee under the next foregoing covenant Lessee shall be credited
with any amount paid to Lessor as compensation as in this Section
7.2 provided and also with the net proceeds of any rent obtained
by Lessor by reletting the Premises after deducting all Lessor's
expenses in connection with such reletting, including without
limitation, all repossession costs, brokerage commissions, fees
for legal services and expenses of preparing the Premises for such
reletting, it being agreed by Lessee that Lessor may
(i) relet the Premises or any part or parts thereof, for a
term or terms which may at Lessor's option be equal to
or less than exceed the period which would otherwise
have constituted the balance of the Lease Term and may
grant such concessions and free rent as Lessor in its
sole judgement considers advisable or necessary to relet
the same and
(ii) make alterations, repairs and decorations in the
premises as Lessor in its sole judgment considers
advisable or necessary to relet the same, and no action
of Lessor in accordance with the foregoing or failure to
relet or to collect rent under reletting shall operate
or be construed to release or reduce Lessee's liability
as aforesaid.
In lieu of any other damages or indemnity and in lieu of
full recovery by Lessor of all sums payable under all
the foregoing provisions of this Section 7.2, Lessor may
by written notice to Lessee, at any time after this
Lease is terminated under any of the provisions
contained in Section 7.1 or is otherwise terminated for
breach of any obligation of Lessee and before such full
recovery, elect to recover, and Lessee shall thereupon
pay, as liquidated damages, an amount equal to the
aggregate of the Fixed Rent and Additional Rent accrued
under Sections 2.5, 2.6 and 2.7 in the twelve (12)
months ended next prior to such termination plus the
amount of Fixed Rent and Additional Rent of any kind
accrued and unpaid at the time of termination and less
the amount of any recovery by Lessor under the foregoing
provisions of this Section 7.2 up to the time of payment
of such liquidated damages.
Nothing in this Lease shall limit or prejudice the right of
Lessor to prove for and obtain in proceedings for
bankruptcy or insolvency by reason of the termination of
this Lease, an amount equal to the maximum allowed by
any statute or rule of law in effect at the time when,
and governing the proceedings in which, the damages are
to be proved, whether or not the amount be greater,
equal to, or less than the amount of the loss or damages
referred to above.
In the event the Lessor becomes involved in bankruptcy,
insolvency, or assignment for the benefit of creditors
by the Lessor, the Lessee shall have the right to cancel
this Lease, provided that said conditions are not cured
within sixty (60) days.
ARTICLE VIII
MISCELLANEOUS
8.1 Titles of Articles; Recording; Consent; Notice; Binding Effect.
This Lease shall not be recorded. Upon request of either party, both
parties The Titles of the Articles are for convenience only and
not to be considered in constructing this Lease. shall execute
and deliver after this Lease Term begins a notice of this Lease in
form appropriate for recording or registration, and if this Lease
is terminated before this Lease expires, an instrument in such
form acknowledging the date of termination. Except as otherwise
provided in Section 5.6, whenever any approval or consent shall
not be delayed or withheld unreasonably. Whenever any notice,
approval, consent, request or election is given or made pursuant
to this Lease it shall be in writing. Communications and payments
shall be addressed if to Lessor to Lessor's Original Address or at
such other address as may have been specified by prior notice to
Lessee, and if to Lessee, at Lessee's Original Address or at such
other place as may have been specified by prior notice to Lessor.
Any communication so addressed shall be deemed duly served if
mailed by registered or certified mail, return receipt requested.
If Lessor by notice to Lessee at any time designates some other
person to receive payments or notices, all payments and notices
thereafter by Lessee shall be paid or given to the agent so
designated until notice to the contrary is received by Lessee from
Lessor. The obligations of this Lease shall run with the land,
and this Lease shall be binding upon and insure to the benefit of
the parties hereto and their respective successors and assigns,
except that only the original Lessor named herein shall be liable
for obligations accruing before the beginning of the Lease Term,
and thereafter the original Lessor names herein and each
successive owner of the Premises shall be liable only for
obligations accruing during the period of their ownership.
8.2 Notice of Lease; Consent or Approval Notices; Bind and Insure;
Trust Estates.
No assignment of this Lease and no agreement to make or accept any
surrender, termination or cancellation of this Lease and no
agreement to modify so as to reduce the rent, change the Lease
Term, or otherwise materially change the rights of Lessor under
this Lease, or to relieve Lessee of any obligations or liability
under this Lease, shall be valid unless consented to by Lessor's
mortgagees of record, if any, in each instance, if any, in which
such consent is required pursuant to the terms of the mortgage.
The delivery of keys to any employee of Lessor or to Lessor's
agent or any employee thereof shall not operate as a termination
of this Lease or a surrender of the Premises.
8.3 Lessor's Failure to Enforce.
The failure of Lessor or of Lessee to seek redress for violation of,
or to insist upon the strict performance of, any covenant or
condition of this Lease, or, with respect to such failure of
Lessor, any of the Rules and Regulations referred to in Section
5.4, whether heretofore or hereafter adopted by Lessor, shall not
be deemed a waiver of such violation nor prevent a subsequent act,
which would have originally constituted a violation, from having
all the force and effect of an original violation, nor shall the
failure of Lessor to enforce any of said Rules and Regulations
against any other Lessee in the Building be deemed a waiver of any
such Rules and Regulations. The receipt by Lessor of Fixed Rent
or Additional Rent with knowledge of the breach of any covenant of
this Lease shall not be deemed to have been waived by Lessor, or
by Lessee unless such waiver be in writing signed by the party to
be charged. No consent or waiver, express or implied, by Lessor
or Lessee to or of any breach of any agreement or duty shall be
construed as a waiver or consent to or any other breach of the
same or any other agreement or duty.
8.4 Acceptance of Partial Payments of Rent.
No acceptance by Lessor of a lesser sum than the fixed rent and
additional rent then due shall be deemed to be other than on
account of the earliest installment of such rent due, nor shall
any endorsement or statement on any check or any letter
accompanying any check or payment as rent be deemed an accord and
satisfaction, and Lessor may accept such check or payment without
prejudice to Lessors right to recover the balance of such
installment or pursue any other remedy in this Lease provided.
8.5 Cumulative Remedies.
The specific remedies to which Lessor may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of
any other remedies or means of redress to which it may be lawfully
entitled in case of any breach or threatened breach by Lessee of
any provisions of this Lease. In addition to the other remedies
provided in this Lease, Lessor shall be entitled to the restraint
by injunction of the violation or attempted or threatened of any
of the covenants, conditions or provisions of this Lease or to a
decree compelling specific performance of any such covenants,
conditions or provisions.
8.6 Partial Invalidity.
If any term of this Lease, or the application thereof to any person
or circumstances, shall to any extent be invalid or unenforceable,
the remainder of this Lease, or the application of such term to
persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each
term of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
8.7 License for Support.
If an excavation shall be made upon land adjacent to property of
Lessor of which the Premises are a part, or shall be authorized to
be made, Lessee shall afford to the person causing or authorized
to cause such excavation, license to enter upon the Premises for
the purpose of doing such work as said person shall deem necessary
to preserve the wall of the Buildings from injury or damage and to
support the same by proper foundations without any claims for
damages or indemnity against Lessor, or diminution or abatement of
rent.
8.8 Self Help.
If Lessee shall at any time default in the performance of any
obligation under this Lease, Lessor shall have the right, but
shall not be obligated, to enter upon the Premises and to perform
such obligation notwithstanding the fact that no specific
provision for such substituted performance by Lessor is made in
this Lease with respect to such default. In performing such
obligation, Lessor may make any payment of money or perform any
other act. All sums so paid by Lessor (together with interest at
the rate of 18% per annum) and all necessary incidental costs and
expenses in connection with the performance of any such act by
Lessor, shall be deemed to be Additional Rent under this Lease and
shall be payable to Lessor immediately on demand. Lessor may
exercise the foregoing rights without waiving any other of its
rights or releasing Lessee from any of its obligations under this
Lease.
8.9 Lessee's Estoppel Certificate.
Lessee agrees from time to time, upon not less than fifteen (15) days
prior written request by Lessor, to execute, acknowledge and
deliver to Lessor a statement in writing certifying that this
Lease is unmodified and in full force and effect and that Lessee
has no defenses, offsets or counterclaims against its obligations
to pay the Fixed Rent and Additional Rent and to perform its
other covenants under this Lease (or if there have been any
modifications that the same is in full force and effect so
modified and stating the modifications and, if there are any
defenses, offsets, counterclaims, or defaults, setting them forth
in reasonable detail), and the dates to which the Fixed Rent,
Additional Rent and other charges have been paid. Any such
statement delivered pursuant to this Section 8.9 may be relied
upon by any prospective purchaser or mortgages of the Premises or
any prospective assignee of any mortgage of the Premises.
8.10 Waiver of Subrogation.
Any insurance carried by either party with respect to the Premises
and property therein or occurrences thereon shall, if the other
party so requests and if it can be so written without additional
premium, or with an additional premium which the other party
agrees to pay, include a clause or endorsement denying to the
insurer rights of subrogation against the other party to the
extent rights have been waived by the insured prior to occurrence
of injury or loss. Each party, notwithstanding any provisions of
this Lease to the contrary, hereby waives any rights of recovery
against the other for injury or loss due to hazards covered by
insurance containing such clause or endorsement to the extent of
the indemnification received thereunder.
8.11 Governing Law.
This Lease shall be governed exclusively by the provisions hereof and
by the laws of the Commonwealth of Massachusetts, as the same may
from time to time exist.
8.12 Brokerage.
Lessee warrants and represents that it has dealt with no brokers or
brokerage firms in relation to this transaction other than Mike
Ripp of Lynch Murphy Walsh & Partners and Casler and Company.
Commissions will be detailed in a separate agreement between the
brokers and the Lessor.
8.13 Assignment of Rent.
With reference to any assignment by Lessor of Lessor's interest in
this Lease, or the rents payable hereunder, conditional in nature
or otherwise, which assignment is made to the holder of the first
mortgage on the Premises, the Lessee agrees:
(a) that the execution thereof by Lessor and the acceptance
thereof by the holder of such mortgage shall never be
deemed an assumption by such holder of any of the
obligations of the Lessor hereunder, unless such holder
shall, by written notice sent to Lessee, specifically
otherwise elect; and
(b) that, except as aforesaid, such holder shall be treated as
having assumed the Lessor's obligations hereunder only
upon foreclosure of such holder's mortgage all of its
duties and obligations hereunder.
(c) that notwithstanding any assignment of mortgage, the
Lessor shall discharge all of its duties and obligations
hereunder.
ARTICLE IX
SUBORDINATION
9.1 Lease Subordinate to Mortgage Indebtedness.
This Lease is also subordinate to certain mortgages on the Buildings
and Lot and shall be subordinate to any other mortgage hereafter
on the Buildings and Lot and to each advance made or hereafter to
be made under any such mortgages and to all renewals,
modifications, consolidations, replacements and extensions thereof
and all substitutions therefor. In the event that any mortgagee
or its respective successor in title shall succeed to the interest
of Lessor then, at the option of such mortgagee or successor, the
Lease shall nevertheless continue in full force and effect and
Lessee shall and does hereby agree in such event to adhere to such
mortgagee or successor and to recognize such mortgagee or
successor as its Lessor, provided such mortgagee or successor
agrees not to disturb the tenancy of the Lessee.
9.2 Implementation of Article IX.
Lessee agrees on request of Lessor to execute and deliver from time
to time any agreement which may reasonably be deemed necessary to
implement the provisions of this Article IX.
ARTICLE X
ARBITRATION
10.1 Method of Appointment of Arbiters; Awards; Costs.
In the event of a dispute between Lessor and Lessee with respect to
any matter set forth in Sections 3.1 or 3.2 hereof, such dispute
shall be arbitrated by three arbitrators appointed as follows:
Lessor and Lessee shall each appoint a fit and impartial person as
arbitrator who shall have at least ten (10) years experience in
the Metropolitan Boston Area in a calling connected with the
subject matter of the dispute. Written notice of such appointment
shall be given by each party to the other within fifteen (15) days
of the date upon which written notice is given by one party to the
other demanding arbitration and the arbitrators so appointed shall
appoint a third arbitrator who shall likewise have ten (10) years
of experience in the Metropolitan Boston Area in a calling
connected with the subject matter of the dispute, and if the
arbitrators fail to agree upon a third arbitrator within fifteen
(15) days of the date upon which the later of such written
notices of appointment of the first two arbitrators is given, such
third arbitrator shall be appointed by a Justice of the Superior
Court of the Commonwealth of Massachusetts in Middlesex County
upon ten (10) days notice of the institution proceedings for such
court appointment, or by any other Court sitting in Middlesex
County succeeding to the jurisdiction and functions exercised by
the Superior Court of the Commonwealth of Massachusetts. Any
award that shall be made in such arbitration by the arbitrators or
a majority of them shall be binding and shall have the same force
and effect as a judgment made in a court of competent jurisdiction
and both Lessor and Lessee shall have the right to apply to the
Superior Court of the Commonwealth of Massachusetts in Middlesex
County, or to any other court sitting in Middlesex County
succeeding to the jurisdiction and functions exercised by the
Superior Court of the Commonwealth of Massachusetts, for a decree,
judgment or order upon said arbitration or award upon ten (10)
days notice to the other party. The fees, costs and expenses of
arbitration, other than fees of attorneys for the parties, expert
witnesses and other witness' fees, shall be borne equally between
the parties unless the arbitrators determine that some other
division shall under the circumstances be more equitable.
ARTICLE XI
SECURITY DEPOSIT
11.1 Amount; Application.
Lessee has deposited with Lessor the sum of Seventy Five Thousand
Dollars ($75,000) as security for the performance by Lessee of its
covenants and obligations hereunder. Such Security Deposit shall
not bear interest and shall not be considered and advance payment
of rental or a measure of Lessor's damages in case of default by
Lessee. If Lessee defaults in the performance of any of the
covenants and obligations to be performed by it, Lessor may, from
time to time, without prejudice to any remedy, use such Security
Deposit to the extent necessary to make good any arrearages in
Rent or any sum as to which Lessee is in default including any
damages or deficiency may accrue before or after termination of
this Lease. Following any such application of the Security
Deposit, Lessee shall pay to Lessor on demand the amount so
applied in order to restore the Security Deposit to its original
amount. If Lessee is not then in default hereunder, any remaining
balance of Security Deposit shall be returned by Lessor to Lessee
upon termination of this Lease and after delivery of possession of
the premises to Lessor in accordance with the Lease. If Lessor
assigns its interest in the premises during the Lease Term, Lessor
shall have no further liability for the return of such Security
Deposit and Lessee agrees to look solely to the new Lessor for the
return of the Security Deposit. This provision shall apply to
every transfer or assignment made of the Security Deposit to a
new Lessor. Lessee agrees that it will not assign or encumber or
attempt to assign or encumber the monies deposited as security and
that Lessor and its successors and assigns shall not be bound by
any such actual or attempted assignment or encumbrance. Lessee
has also paid the first month's rent at the time of the signing of
this Lease.
ARTICLE XII
LESSOR'S LIEN
12.1 Liens for Lessor.
The statutory lien for rent is not waived.
EXHIBIT A
DRAWING OF BUILDING AT 220 BEAR HILL ROAD.
EXHIBIT B
Additional Terms Between Lessor and Lessee
Lease Between 220 Bear Hill Road Realty Trust, Lessor, and CTC
Communications Corp., Lessee.
Lessee has agreed to lease the building in an "as is" condition.
Lessor has informed Lessee that the HVAC units in the lobby and grand
ballroom areas need to be replaced. Also, that there are a total of
nine (9) roof top units, two space heaters and one roof top space
heater.
Lessor has also informed Lessee that the hot water system has been
disconnected and that Lessee will need to install new hot water
tanks.
Lessor also pointed out to Lessee that when pictures, etc., are removed
from walls, there will be holes in those walls and that some
electrical and plumbing connections are exposed.
The Lessee has inspected the building several times with contractors and
architects and is aware of the "as is" condition.
Lessee has indicated to Lessor that Lessee plans on demolishing most of
the existing walls and plans on building out new office space.
Lessee and Lessor have agreed that a back-flow regulator will need to be
installed on the sprinkler system.
Lessee has informed Lessor that it intends to install a number of
windows in the space and has requested Lessor to help in this capital
expenditure. Lessee agrees to install at least 15 windows in the
space.
Lessor has already reduced the base rent since Lessee is leasing the
space in the "as is" condition; however, as additional consideration
to the Lessee, Lessor has agreed to give Lessee a total of Fifty
Thousand Dollars ($50,000) to be deducted at a rate of Eight Thousand
Three Hundred Thirty Three Dollars and Thirty Three Cents ($8,333.33)
per year over the six years of the original lease for all of the
above items since Lessee will pay for all of the above work as part
of Lessees buildout. The final net annual base rent after deductions
is $304,166.67 payable monthly at the rate of $25,347.23.
Lessor will leave ceiling tiles as is throughout the building.
EXHIBIT C
OPTION TO EXTEND LEASE
THIS EXHIBIT, to be made part of a lease between 220 Bear Hill Road
Realty Trust, Vincent A. Messina, Trustee, hereinafter called Lessor
and CTC Communication Corporation, hereinafter called Lessee.
WHEREAS, the Lessor and Lessee have entered into a certain lease for the
rental of square feet of office space at the Premises constructed on
220 Bear Hill Road, Waltham, Massachusetts; and
WHEREAS, the said parties have mutually agreed upon the inclusion of the
following additional provisions and covenants in said Lease;
NOW, THEREFORE, for mutual valuable consideration, receipt and benefit
of which is acknowledged by both parties, it is agreed that the
following shall be included and added to said Lease, which in all
other particulars remains unchanged, and that said following language
is hereby incorporated by reference and made a part of said Lease:
If Lessee shall have fully and promptly complied with all the terms and
provisions of this Lease, and shall not be in default in the
performance or observance of any of the terms and conditions of this
Lease to be performed and observed by Lessee, the Lessee shall have
the right, at its election to extend the term of this Lease for two
(2) additional periods of six (6) years commencing upon the
expiration of the term on the same terms and conditions by notice in
writing to Lessor 365 days prior to the end of the term, except that
for the extended term the rent for the demised premises shall be at
ninety-five (95%) of the then fair market rental rate for comparable
space in similar quality buildings in the surrounding area. Fair
market rental rate should take into account rental rates, tenant
improvement allowances, commissions, and concessions prevalent in the
market for comparable space for tenants of similar size and credit
worthiness.
The Lessee and Lessor will have a period of sixty days to negotiate the
new market rent. If no agreement can be reached between parties
then, the Lessor will be free to lease the space to another party;
therefore, if the parties reach an agreement; the new agreement must
be signed prior to Three hundred (300) days to the end of the term of
this lease.
The Lessee during the extended term of this Lease shall pay the
operating and tax expenses in the same manner as set forth in the
original term of this Lease in addition to the foregoing provision.
The Lessor will not continue the base rent allowance during the
option period.
EXHIBIT 10.23
WARRANT
GOLDMAN SACHS & CO
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES
WERE ISSUED DIRECTLY OR INDIRECTLY."
CTC COMMUNICATIONS CORP.
WARRANT TO PURCHASE 662,600 SHARES
OF COMMON STOCK
CTC COMMUNICATIONS CORP., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Goldman Sachs & Co., a New York limited
partnership, or its registered transferees, successors or assigns (each, a
"holder"), is the registered holder of warrants (the "Warrants") to subscribe
for and purchase Six Hundred Sixty Two Thousand and Six Hundred (662,600)
shares of the fully paid and nonassessable Common Stock (as adjusted pursuant
to Section 4 hereof, the "Warrant Shares") of the Company, at a purchase price
per share equal to Six Dollars and Seventy-Five Cents ($6.75) (such price, as
adjusted pursuant to Section 4 hereof, the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, (a) the term "Common Stock" shall mean the Company's presently
authorized Common Stock, par value $0.01 per share, and any stock into or for
which such Common Stock may hereafter be converted or exchanged, (b) the term
"Date of Grant" shall mean September 1, 1998, and (c) the term "Other
Warrants" shall mean any warrant issued upon transfer or partial exercise of
this Warrant. The term "Warrant" as used herein shall be deemed to include
Other Warrants unless the context hereof or thereof clearly requires
otherwise.
This Warrant and the warrant of even date herewith, issued to Fleet National
Bank ("Fleet") for 311,812 shares of Common Stock (the "Fleet Warrant"), are
being issued pursuant to that certain Loan and Security Agreement (the "Loan
Agreement") of even date herewith by and among the Company, Goldman Sachs
Credit Partners L.P., and Fleet. As used herein, (a) the term "Series
Warrants" shall mean this Warrant and the Fleet Warrant collectively, and (b)
the term "Series Warrant Shares" shall mean the aggregate of the shares of
Common Stock issuable upon the exercise of this Warrant and the Fleet Warrant
(which amount initially totals 974,412 shares).
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through and including the close of business on September 1, 2003 (the
"Expiration Date"); provided, however, that in the event that any portion of
this Warrant is unexercised as of the Expiration Date, the terms of Section
2(b) below shall apply.
2. Exercise
a. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this Warrant
may be exercised by the holder hereof, in whole or in part and from time to
time, by the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A duly executed) at the principal office of the
Company, except as otherwise provided for herein, and by the payment to the
Company of an amount equal to the then applicable Warrant Price multiplied by
the number of Warrant Shares then being purchased. The person or persons in
whose name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised if exercised prior to the close of
business on such date; otherwise, the date of record shall be the next
business day. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise and, unless this Warrant has been fully
exercised (including without limitation, exercise pursuant to Section 2(b)
below), a new Warrant representing the portion of the Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event
within such thirty (30)-day period.
(b) Automatic Exercise. In the event that any portion of this Warrant
remains unexercised as of the Expiration Date and the fair market value
(determined in accordance with Section 4(h) below) of one share of Common
Stock as of the Expiration Date is greater than the applicable Warrant Price
as of the Expiration Date, then this Warrant shall be deemed to have been
exercised automatically immediately prior to the close of business on the
Expiration Date (or, in the event that the Expiration Date is not a business
day, the immediately preceding business day) (the "Automatic Exercise Date"),
and the person entitled to receive the shares of Common Stock issuable upon
such exercise shall be treated for all purposes as the holder of record of
such Warrant Shares as of the close of business on such Automatic Exercise
Date. This Warrant shall be deemed to be surrendered to the Company on the
Automatic Exercise Date by virtue of this Section 2(b) and without any action
by the holder of this Warrant or any other person, and payment to the Company
of the then applicable Warrant Price multiplied by the number of Warrant
Shares then being purchased shall be deemed to be made pursuant to the terms
of Section 2(c) below (without payment by the holder of any exercise price or
any cash or other consideration). As promptly as practicable on or after the
Automatic Exercise Date and in any event within thirty (30) days thereafter,
the Company at its expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
Warrant Shares issuable upon such exercise.
c. Right to Convert Warrant into Common Stock; Net Issuance.
(1) Right to Convert.
In addition to and without limiting the rights of the holder hereof under the
terms of this Warrant, the holder shall have the right to convert this Warrant
or any portion thereof (the "Conversion Right") into shares of Common Stock as
provided in this Section 2(c) at any time or from time to time during the term
of this Warrant. Upon exercise of the Conversion Right with respect to all or
a specified portion of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the holder (without payment by the
holder of any exercise price or any cash or other consideration) that number
of shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (i) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which
value shall be equal to (A) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified
portion hereof) on the Conversion Date less (B) the aggregate Warrant Price of
the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the fair market value of one (1) share of Common
Stock on the Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = A - B/Y
Where: X = the number of shares of Common Stock that
may be issued to the holder
Y = the fair market value (FMV) of one (1)
share of Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e.,
Converted Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of Section 9 of this
Warrant, shares issued pursuant to the Conversion Right shall be treated as if
they were issued upon the exercise of this Warrant.
(2) Method of Exercise.
The Conversion Right may be exercised by the holder by the surrender of this
Warrant at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 2(c)(1) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new
warrant evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder within thirty (30) days following the Conversion Date.
(3) Determination of Fair Market Value.
For purposes of this Section 2(c), "fair market value" of a share of Common
Stock shall have the meaning set forth in Section 4(h) below.
3. Stock Fully Paid; Reservation of Shares.
All Warrant Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance pursuant to the terms and
conditions herein, be fully paid and nonassessable, and free from all taxes,
liens, charges, and pre-emptive rights with respect to the issue thereof. The
Company shall pay all transfer taxes, if any, attributable to the issuance of
the Warrant Shares upon the exercise of this Warrant. During the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
a. Adjustment for Initial Errors.
The Company hereby acknowledges that the number of Warrant Shares constituting
the initial number of securities purchasable upon the exercise of this Warrant
(the "Exercise Quantity") was calculated based upon the Company's
representation that the number of outstanding shares of Common Stock of the
Company, calculated on a fully diluted basis using the treasury stock method
as contemplated by the Accounting Principles Board Opinion No. 15 (as referred
to in Statement of Financial Accounting Standards No. 128) (such shares as
calculated on any date, the "Fully Diluted Shares"), as of the Date of Grant
using an ending market price of $6.75 per share of Common Stock and before
giving effect to the issuance of any of the Series Warrants or Series Warrant
Shares, totaled 12,017,745 shares. The calculation used by the Company in
determining such amount is set forth in Exhibit B hereto. If for any reason
it shall hereafter be determined that the actual number of Fully Diluted
Shares as of the Date of Grant differed from such amount, then the Company or
the holder (whichever shall discover such error) shall notify the other of
such determination and the Company shall forthwith reissue all of the
outstanding Warrants with an appropriate proportional adjustment in said
number to be effective from the Date of Grant, provided that such adjustment
shall be made only if it results in an increase in the number of Warrant
Shares hereunder.
b. Merger, Sale, Reclassification.
In case of any (i) consolidation or merger (including a merger in which the
Company is the surviving entity), (ii) sale or other disposition of all or
substantially all of the Company's assets or distribution of property to
stockholders (other than distributions payable out of earnings or retained
earnings), or (iii) reclassification, change or conversion of securities of
the class issuable upon exercise of this Warrant (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), then the Company shall take
all necessary actions to ensure that thereafter the holder of this Warrant
shall have the right to receive, at a total purchase price not to exceed that
payable upon the exercise of the unexercised portion of this Warrant, and in
lieu of the shares of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such consolidation, merger, sale or other
disposition, reclassification, change or conversion by a holder of the number
of shares of Common Stock then purchasable under this Warrant. Such new
Warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4. The
provisions of this Section 4(b) shall similarly apply to successive
reclassifications, changes and conversions.
c. Subdivision or Combination of Shares.
If the Company at any time while this Warrant remains outstanding and
unexpired shall subdivide or combine its outstanding shares of Common Stock,
the Warrant Price shall be proportionately decreased in the case of a
subdivision or increased in the case of a combination, effective at the close
of business on the date the subdivision or combination becomes effective.
d. Stock Dividends and Other Distributions.
If the Company at any time while this Warrant is outstanding and unexpired
shall (i) pay a dividend with respect to Common Stock payable in Common Stock,
or (ii) make any other distribution with respect to Common Stock (except any
distribution specifically provided for in Section 4(b), Section 4(c), or
Section 4(e) hereof) of Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of Fully
Diluted Shares outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of Fully Diluted
Shares outstanding immediately after such dividend or distribution.
e. Special Distributions.
In case the Company shall make any distribution (other than dividends and
distributions referred to in Section 4(c) or Section 4(d) above and other than
cash dividends) to all holders of shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of evidences of indebtedness, assets or
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any
class of equity securities of the Company, the Warrant Price to be in effect
on and after the date of such distribution shall be adjusted by multiplying
the Warrant Price in effect immediately prior to such record date by a
fraction (i) the numerator of which shall be the fair market value per share
of Common Stock on such record date (determined in accordance with Section
4(h) below), less the fair market value (as determined by the Board of
Directors of the Company in good faith as set forth in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary) of the
portion of the assets or evidences of indebtedness so to be distributed or of
such subscription rights, options, warrants, or exchangeable or convertible
securities applicable to one (1) share of the Common Stock outstanding as of
such record date, provided, that in the event the Board of Directors is unable
to make such a determination or holders of at least fifty-one percent (51%) of
the Series Warrant Shares issuable under outstanding Series Warrants disagree
in writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below, and (ii) the
denominator of which shall be such fair market value per share of Common Stock
as determined in the manner set forth under Section 4(h) below. Such
adjustment shall be made successively whenever a distribution is made. If the
holder hereof has exercised all or any portion of this Warrant after the
record date for a distribution covered by this paragraph, but prior to the
date such distribution is made by the Company, then the Company shall make a
distribution to the holder, concurrent with the distribution to stockholders,
of such consideration that the holder would have been entitled to receive in
connection with such distribution with respect to the shares issued on such
exercise, had the holder exercised all or such portion of this Warrant
immediately prior to such record date.
f. Other Issuances of Securities.
(1) In case the Company or any subsidiary thereof shall, at any
time after the Date of Grant, issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock (excluding (i)
shares, rights, options, warrants, or convertible or exchangeable securities
outstanding on the Date of Grant, or issued in any of the transactions
described in Sections 4(c), 4(d), and 4(e) above, (ii) shares issued upon the
exercise of such rights, options or warrants or upon conversion or exchange of
such convertible or exchangeable securities, (iii) the Series Warrants and any
shares issued upon exercise thereof, (iv) up to Three Million Fifty-Eight
Thousand Five Hundred Twenty-Six (3,058,526) shares of Common Stock issued or
issuable to directors, officers, employees or consultants of the Company or
any subsidiary in connection with their service as directors, officers,
employees or consultants pursuant to any stock grant, stock option, warrant or
other right (the "Employee Shares")), at a price per share of Common Stock
(determined in the case of such rights, options, warrants, or convertible or
exchangeable securities by dividing (x) the total amount received and/or
receivable by the Company in consideration of the sale and issuance of such
rights, options, warrants, or convertible or exchangeable securities, plus the
total minimum consideration payable to the Company upon exercise, conversion,
or exchange thereof by (y) the total maximum number of shares of Common Stock
covered by such rights, options, warrants, or convertible or exchangeable
securities) less than the fair market value per share of Common Stock
(determined in accordance with Section 4(h) below) on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be
adjusted so that it shall equal the price determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction (i) the
numerator of which shall be the sum of (A) the number of Fully Diluted Shares
outstanding immediately prior to such sale and issuance plus (B) the number of
shares of Common Stock which the aggregate consideration received (determined
as provided above and below) for such sale or issuance would purchase at such
fair market value per share, and (ii) the denominator of which shall be the
total number of Fully Diluted Shares outstanding immediately after such sale
and issuance. Such adjustment shall be made successively whenever such an
issuance is made.
(2) For the purposes of an adjustment under Section 4(f)(1), the
maximum number of shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled
to subscribe for or purchase shall be deemed to be issued and outstanding as
of the date of such sale and issuance; furthermore, the consideration received
by the Company therefor shall be deemed to be equal to the price per share of
Common Stock (determined in the case of such rights, options, warrants, or
convertible or exchangeable securities by dividing (x) the total amount
received and/or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the total minimum consideration payable to the Company upon
exercise, conversion, or exchange thereof by (y) the total maximum number of
shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) multiplied by the number of shares
deemed issued and outstanding in the previous sentence. In case the Company
shall issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, for a consideration consisting, in whole
or in part, of consideration other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of Section 4(f)(1), the
Board of Directors of the Company shall determine, in good faith, the fair
market value of said property, and such determination shall be described in a
duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary, provided, that in the event the Board of Directors is
unable to make such a determination or, in the case of, and solely to the
extent that, any issuance constitutes an Affiliated Transaction as defined in
Section 4(f)(3) below, holders of at least fifty-one percent (51%) of the
Series Warrant Shares issuable under outstanding Series Warrants disagree in
writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below. In case the
Company shall issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, together with one (1) or more other
securities as a part of a unit at a price per unit, then in determining the
price per share of Common Stock and the consideration received by the Company
for purposes of the first sentence of Section 4(f)(1), the Board of Directors
of the Company shall determine, in good faith, which determination shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, the fair market value of the rights,
options, warrants, or convertible or exchangeable securities then being sold
as part of such unit, provided, that in the event the Board of Directors is
unable to make such a determination or, in the case of, and solely to the
extent that, any issuance constitutes an Affiliated Transaction as defined in
Section 4(f)(3) below, holders of at least fifty-one percent (51%) of the
Series Warrant Shares issuable under outstanding Series Warrants disagree in
writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below.
(3) For purposes of this Section 4(f), an "Affiliated
Transaction" shall mean any issuance of shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock, to (i) any officer
or director of the Company or any member of the immediate family of such a
person or (ii) any 10% or greater beneficial stockholder of the Company or any
person who, to the Company's knowledge, is a member of the immediate family of
such a stockholder (if such stockholder is a natural person), or to any
partnership, corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association or joint venture which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, (i) any officer or director of the Company or any member of the
immediate family of such a person or (ii) any 10% or greater beneficial
stockholder of the Company or any person who, to the Company's knowledge, is a
member of the immediate family of such a stockholder (if such stockholder is a
natural person). For purposes of the preceding sentence, the term "control"
shall mean the power, directly or indirectly, to (i) vote 51% or more of the
voting securities of an entity, or (ii) direct or cause the direction of the
management or policies of an entity as the trustee, general partner or
managing member of such entity. Notwithstanding the foregoing, no transaction
or part thereof shall be considered an "Affiliated Transaction" if the
securities or rights issued to any person described in the first sentence of
this Section 4(f)(3) constitutes less than three percent (3%) of the aggregate
securities and rights issued in such transaction.
g. Adjustment of Number of Shares.
Upon each adjustment in the Warrant Price, the number of Warrant Shares
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Warrant Shares purchasable
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
thereafter.
h. Determination of Fair Market Value.
For purposes of those provisions of this Warrant requiring a determination in
accordance with this Section 4(h), "fair market value" as of a particular date
(the "Determination Date") shall mean (i) for any security if such security is
traded on a national securities exchange (an "Exchange"), the weighted average
(based on daily trading volume) of the mid-point between the daily high and
low trading prices of the security on each of the last five (5) trading days
prior to the Determination Date reported on such Exchange, (ii) for any
security that is not traded on an Exchange but trades in the over-the-counter
market and such security is quoted on the Nasdaq Stock Market ("NASDAQ"), (A)
the weighted average (based on daily trading volume) of the mid-point between
the daily high and low trading prices reported on NASDAQ on each of the last
five (5) trading days (or if the relevant price or quotation did not exist on
any of such days, the relevant price or quotation on the next preceding
business day on which there was such a price or quotation) prior to the
Determination Date, or (iii) for any security or any other asset, if no price
can be determined on the basis of the above methods of valuation, then the
judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. If the Board of Directors of the Company is unable to determine
any Valuation (as defined below), or if (except in the case of a fair market
value determination to the extent in connection with a non-Affiliated
Transaction under Section 4(f)(2) above), the holders of at least fifty-one
percent (51%) of all of the Series Warrant Shares issuable under outstanding
Series Warrants (collectively, the "Requesting Holders") disagree with the
Board's determination of any Valuation by written notice delivered to the
Company within five (5) business days after the determination thereof by the
Board of Directors of the Company is communicated to holders of the Warrants
affected thereby, which notice specifies a majority-in-interest of the
Requesting Holders' determination of such Valuation, then, unless the Company
accepts the Valuation so proposed and the Company and a majority-in-interest
of the Requesting Holders agree upon a valuation within five (5) business days
thereafter, the Company and (in the event of a disagreement by the Requesting
Holders) a majority-in-interest of the Requesting Holders shall select a
mutually acceptable investment banking firm of national reputation which has
not had a material relationship with the Company or any officer of the Company
within the preceding two (2) years, which shall determine such Valuation.
Such investment banking firm's determination of such Valuation shall be final,
binding and conclusive on the Company and the holders of all of the Warrants
issued hereunder and then outstanding, to the extent of the issuance or
distribution to which such Valuation applies. If the Board of Directors of
the Company was unable to determine such Valuation, all costs and fees of such
investment banking firm shall be borne by the Company. If the Requesting
Holders disagreed with the Board's determination of such Valuation, the party
whose determination of such Valuation differed from the Valuation determined
by such investment banking firm by the greatest amount shall bear all costs
and fees of such investment banking firm. For purposes of this Section 4(h),
the term "Valuation" shall mean the determination, to be made initially by the
Board of Directors of the Company, of the fair market value of any asset
pursuant to clause (iii) above.
5. Notice of Adjustments.
Whenever the Warrant Price or the number of Warrant Shares purchasable
hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Warrant Shares purchasable hereunder after
giving effect to such adjustment, which shall be mailed (without regard to
Section 13 hereof, by first class mail, postage prepaid) to the holder of this
Warrant.
6. Fractional Shares.
No fractional shares of Common Stock will be issued in connection with any
exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor based on the fair market value (as determined in
accordance with Section 4(h) above) of a share of Common Stock on the date of
exercise.
7. Compliance with Securities Act; Disposition of Warrant or Warrant Shares.
a. Compliance with Securities Act.
The holder of this Warrant, by acceptance hereof, agrees that this Warrant and
the shares of Common Stock to be issued upon exercise hereof, are being
acquired for investment and that such holder will not offer, sell or otherwise
dispose of this Warrant, or any shares of Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon
exercise of this Warrant, the holder hereof shall confirm in writing, by
executing the form attached as Schedule 1 to Exhibit A hereto, that the shares
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all shares of Common
Stock issued upon exercise of this Warrant (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the holder
specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for resale in connection with any
"distribution" thereof for purposes of the Act.
(2) The holder understands that this Warrant and the Warrant
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of the holder's investment intent as expressed herein. In
this connection, the holder understands that, in the view of the Securities
and Exchange Commission (the "SEC"), the statutory basis for such exemption
may be unavailable if the holder's representation was predicated solely upon a
present intention to hold the Warrant and the Warrant Shares for the minimum
capital gains period specified under applicable tax laws, for a deferred sale,
for or until an increase or decrease in the market price of the Warrant and
the Warrant Shares, or for a period of one (1) year or any other fixed period
in the future.
(3) The holder further understands that this Warrant and the
Warrant Shares must be held indefinitely unless subsequently registered under
the Act and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale
of "restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934, as amended) and the amount of securities being sold during any three-
month period not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to
sell this Warrant and the Warrant Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements
of Rule 144 and 144A, and that, in such event, the holder may be precluded
from selling this Warrant and the Warrant Shares under Rule 144 and 144A even
if the one (1)-year minimum holding period had been satisfied.
(6) The holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will
be required; and that, notwithstanding the fact that Rule 144 and 144A is not
exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 and 144A will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
b. Disposition of Warrant or Warrant Shares. This Warrant and the
Warrant Shares may be detached and transferred, in whole or in part,
separately from the Loan Agreement. With respect to any offer, sale or other
disposition of this Warrant, or any Warrant Shares acquired pursuant to the
exercise of this Warrant prior to the sale or disposition of such Warrant or
Warrant Shares, the holder hereof and each subsequent holder of this Warrant
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder's counsel,
if reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. Promptly
upon receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Warrant
Shares, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this Section 7(b) that
the opinion of counsel for the holder is not reasonably satisfactory to the
Company, the Company shall so notify the holder promptly after such
determination has been made. The foregoing notwithstanding, this Warrant or
such Warrant Shares may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 and 144A under the Act,
provided that the Company shall have been furnished with such information as
the Company may reasonably request to provide a reasonable assurance,
including, where reasonably required, an opinion of counsel, that the
provisions of Rule 144 and 144A have been satisfied. Each certificate
representing this Warrant or the Warrant Shares thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent or, if acting as its own
transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. Rights as Stockholders; Information.
Except as provided in Section 10.2 below, no holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of the directors or upon any matter submitted to stockholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company
will transmit to the holder of this Warrant such information, documents and
reports as are generally distributed to the holders of any class or series of
the securities of the Company concurrently with the distribution thereof to
the stockholders.
9. Registration Rights.
9.1 Demand Registration Rights.
a. Shelf Registration.
The Company covenants and agrees that at any time after receipt of a
written request (a "Shelf Registration Request") from the holder(s) of the
Series Warrants and/or the Series Warrant Shares (collectively, the
"Securityholders") constituting at least thirty percent (30%) of the Series
Warrant Shares (determined on an as-exercised basis) not already sold pursuant
to Section 9 of any Series Warrant or Rule 144 under the Act, to have the
Company register the Series Warrant Shares for sale on a continuous basis
pursuant to Rule 415 under the Act, then the Company shall: (i) promptly
deliver written notice (the "Shelf Registration Notice") to all other
Securityholders of the Company's receipt of the Shelf Registration Request;
(ii) file with the SEC a registration statement on Form S-3 or any successor
form or registration to such form, or, if the Company is ineligible for Form
S-3, Form S-1 or any successor form of registration to such form, for an
offering to be made on a continuous basis pursuant to Rule 415 (the "Shelf
Registration Statement"), covering all of the outstanding Series Warrant
Shares (determined on an as-exercised basis) (the "Registrable Securities"),
within forty-five (45) days of delivery of the Shelf Registration Request,
(iii) shall use its best efforts to cause such registration statement to be
declared effective within one hundred and twenty (120) days of delivery of the
Shelf Registration Notice and (iv) shall use its best efforts, including but
not limited to the filing of any and all supplements and amendments to the
Shelf Registration Statement required under applicable rules, regulations or
instructions or reasonably requested by the holders of a majority of the
shares then registered under the Shelf Registration Statement, to keep the
Shelf Registration Statement continuously effective under the Act for 12
months or such shorter period as may be requested by Securityholders
representing a majority of the shares included in such registration. The
Company shall be obligated to effect only one registration under Section
9.1(a) of the Series Warrants. Notwithstanding the foregoing, the Company
shall not be obligated to effect any registration pursuant to Section 9.1(a)
of any Series Warrant if it has already effected two registrations under
Section 9.1(b) of the Series Warrants.
b. Other Demand Registrations.
The Company covenants and agrees that at any time after receipt of a written
request (a "Demand Registration Request") from Securityholders holding at
least thirty percent (30%) of the Registrable Securities not already sold
pursuant to Section 9 of any Series Warrant or Rule 144 under the Act, stating
that such Securityholders desire and intend to have the Company register all
or a portion of the Registrable Securities held by them on Form S-3, or any
successor form of registration to such form, or, if the Company is ineligible
therefore, Form S-1, or any successor form of registration to such form, the
Company shall give notice (the "Registration Notice") to all of the
Securityholders within thirty (30) days of the Company's receipt of such
registration request, the Company shall cause to be included in such
registration all Registrable Securities requested to be included therein by
any such Securityholder within fifteen (15) days after such Registration
Notice is effective (subject to the provisions of the final sentence of this
Section 9.1(b)). After such fifteen (15)-day period, the Company shall file
as promptly as practicable a registration statement and use its reasonable
best efforts to cause such registration statement to become effective under
the Act and remain effective for six (6) months or such shorter period as may
be required if all such Registrable Securities covered by such registration
statement are sold prior to the expiration of such six (6)-month period;
provided, however, that the Company shall not be obligated to effect any such
registration pursuant to this Section 9.1(b) after the Company has effected
(i) two (2) registrations pursuant to Section 9.1(b) of the Series Warrants or
(ii) one (1) registration pursuant to Section 9.1(a) of any Series Warrant and
one (1) registration pursuant to Section 9.1(b) of any Series Warrant. For
purposes of this Section 9, a registration shall not be deemed to have been
effected unless a requested registration statement has been declared effective
and, subject to Section 9.3(b) hereof, remained effective for a period of six
(6) months (or such shorter period as is permitted in the second sentence of
this Section 9.1(b)). The foregoing notwithstanding, in the event of an
underwritten offering pursuant to this Section 9.1(b), if the managing
underwriter of such offering shall advise the Securityholders in writing that,
in its opinion, the distribution of a specified portion of the securities
requested to be included in the registration would materially adversely affect
the distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in the registration shall be reduced in the
following order: (i) first, securities proposed to be included by the Company
and securities that are not Registrable Securities shall be excluded as
determined by the Company and (ii) second, Registrable Securities will be
excluded pro rata among all of the Registrable Securities requested to be
included therein. For purposes of this Section 9.1(b), the Securityholders
who have requested registration of Common Stock to be acquired upon the
exercise of Warrants not theretofore exercised shall furnish the Company with
an undertaking that they or the underwriters or other persons to whom such
Warrants will be transferred have undertaken to exercise such Warrants and to
sell, transfer or otherwise dispose of the Shares received upon exercise of
such Warrants in such registration.
9.2 Incidental Registration
a. Subject to Section 9.2(b) below, the Company covenants and agrees
that in the event the Company proposes after the Date of Grant to file a
registration statement under the Act with respect to any of its equity
securities (other than pursuant to registration statements on Form S-4 or
Form S-8 or any successor or similar forms and other than registrations
pursuant to Section 9.1), whether or not for its own account, then the Company
shall give written notice of such proposed filing to all Securityholders
promptly (and in any event at least twenty (20) days before the anticipated
filing date). Such notice shall offer to such Securityholders, together with
others who have similar rights, the opportunity to include in such
registration statement such number of Registrable Securities as they may
request (other than Registrable Securities already registered pursuant to a
Shelf Registration Statement). The Company shall direct and use its
reasonable best efforts to cause the managing underwriter of a proposed
underwritten offering (unless the offering is an underwritten offering of a
class of the Company's equity securities other than Common Stock and the
managing underwriter has advised the Company in writing that, in its opinion,
the inclusion in such offering of Common Stock would materially adversely
affect the distribution of such offering) to permit the holders of Registrable
Securities requested to be included in the registration to include such
Registrable Securities in the proposed offering and the Company shall use its
reasonable best efforts to include such Registrable Securities in such
proposed offering on the same terms and conditions as any similar securities
of the Company included therein. If the offering of which the Company gives
notice is a public offering involving an underwriter, the right of a
Securityholder to registration pursuant to this Section 9.2 shall be
conditioned upon (i) such Securityholder's participation in such underwriting
and the inclusion of the Registrable Securities to be sold by such
Securityholder in the underwriting and (ii) such Securityholder executing the
underwriting agreement entered into by the Company which includes customary
terms and conditions relating to sales by shareholders. The foregoing
notwithstanding, in the case of an underwritten offering, if the managing
underwriter of such offering shall advise the Company in writing that, in its
opinion, the distribution of all or a specified portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect
the distribution of such securities, then the securities to be included in a
registration which is a primary underwritten offering on behalf of the Company
shall be reduced in the following order: (i) first, Registrable Securities
and such other securities requested to be included by holders of such other
securities shall be excluded pro rata and (ii) second the securities the
Company proposes to include therein shall be excluded.
b. In the event that a holder or holders of the Company's securities
(other than a Securityholder or Securityholders) requests, pursuant to rights
granted to such holder or holders, that the Company file a registration
statement for the public offering of securities and the Company and the other
holders of the Company's securities (including the Securityholders) who have
rights to be included in such registration, request to be included in such
registration and the managing underwriter of such offering shall advise the
Company and the holders requesting inclusion in the offering that, in its
opinion, the distribution of a specified portion of the securities requested
to be included in the registration would materially adversely affect the
distribution of such securities then, the securities to be included in the
registration shall be reduced in the following order: (i) first, any
securities requested to be included therein by the holders of such other
securities in such a manner as determined by the Company, (ii) second
Registrable Securities shall be excluded pro rata, (iii) securities proposed
to be included by the Company shall be excluded and, (iv) fourth, securities
requested to be included therein by the holder or holders making the initial
request for the registration.
9.3 Company's Obligations
a. In connection with the registration of Registrable Securities on
behalf of the holders thereof (such Securityholders being referred to herein
as "Sellers") in accordance with Section 9.1 or Section 9.2 above, and in
addition to its other obligations under this Section 9, the Company agrees to:
(i) with respect to any registration pursuant to
Section 9.1(a) or Section 9.1(b), prepare and file with the SEC a registration
statement on the form specified in such section, with respect to the
Registrable Securities to be registered pursuant to such section, and to use
its best efforts to cause such registration statement to become and remain
effective as provided in such section;
(ii) enter into a cross-indemnity agreement, in
customary form, with each underwriter, if any, and each Seller;
(iii) subject to the provisions of Section 9.1
and Section 9.2 regarding reductions in Registrable Securities to be included
in a registration, include in the registration statement filed with the SEC,
the Registrable Securities for which requests for registration have been made
(or, in the case of a registration under Section 9.1(a), all such Registrable
Securities), promptly after filing of such a registration statement or
prospectus or any amendments or supplements thereto, furnish to each Seller
copies of all such documents filed including, if requested, documents
incorporated by reference in the registration statement, and notify each
Seller of any stop order issued or threatened by the SEC and use its best
efforts to prevent the entry of such stop order or to remove it if entered;
(iv) subject to Section 9.3(b), prepare and file
with the SEC such amendments of and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective (A) with respect to a registration
statement under Section 9.1(b) or Section 9.2, for a period of six (6) months
or such shorter period as may be required if all such Registrable Securities
covered by such registration statement are sold prior to the expiration of
such period or (B) with respect to a Shelf Registration Statement, until all
the Registrable Securities covered by such registration statement are sold,
and to otherwise comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Sellers set forth in such registration statement;
(v) furnish to each Seller and each underwriter,
if any, without charge, such number of copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities proposed to be sold by such Seller;
(vi) use its reasonable best efforts to register
or qualify such Registrable Securities under such other securities or Blue Sky
laws of such jurisdictions as any Seller or any such underwriter reasonably
requests in writing and keep such registrations or qualifications in effect
for so long as such registration statement remains in effect and do any and
all acts and things which may be reasonably necessary or advisable to enable
such Seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Seller; provided, however, that the
Company shall not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Subsection 9.3(a)(vi), or (B) consent to general service of process in any
such jurisdiction;
(vii) notify each Seller, at any time when the
Company becomes aware that a prospectus relating to such Seller's Registrable
Securities is required to be delivered under the Act, of the occurrence of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein not misleading, and
as soon as practicable prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;
(viii) cause all such Registrable Securities to
be listed on any Exchange or NASDAQ on which similar securities issued by the
Company are then listed;
(ix) provide a transfer agent, registrar and
CUSIP number for all such Registrable Securities not later than the effective
date of such registration statement;
(x) enter into such customary agreements
(including an underwriting agreement in customary form) and take all such
other customary actions that a majority in interest of the Sellers or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(xi) with respect to any underwritten offering,
use its reasonable best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as a
majority in interest of the Sellers or any underwriter may reasonably request;
(xii) with respect to an underwritten offering,
use its reasonable best efforts to obtain an opinion of counsel to the
Company, addressed to the Sellers and any underwriter, in customary form and
including such matters as are customarily covered by such opinions in
underwritten registered offerings of equity securities as a majority in
interest of the Sellers or any underwriter may reasonably request, such
opinion to be in form and substance reasonably satisfactory to a majority in
interest of the Sellers; and
(xiii) otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC, and make available to
its securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months subsequent to the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
b. Any other provisions of this Section 9 notwithstanding, upon receipt
by the Securityholders of a written notice signed by the chief executive
officer or chief financial officer of the Company to the effect set forth
below, the Company shall not be obligated during a reasonable period of time
(not to exceed ninety (90) days) thereafter (i) to effect any registrations
pursuant to this Section 9 or (ii) with respect to an effective Shelf
Registration Statement, may suspend the effectiveness of such registration
statement, at any time at which, in the Company's reasonable judgment,
(i) there is a development involving the Company or any of its affiliates
which is material but which has not yet been publicly disclosed or (ii) sales
pursuant to the registration statement would materially and adversely affect
an underwritten public offering for the account of the Company or any other
financing project or a proposed or pending merger or other acquisition or
business combination or disposition of the Company's assets, to which the
Company or any of its affiliates is, or is expected to be, a party. In the
event a registration is postponed in accordance with this Section 9.3(b), (x)
the Company must (unless otherwise instructed by those holders who requested
such registration) file the requested registration within nine (9) months from
the date the Company first received the request of the holders, (y) the
Company may not suspend the effectiveness of a Shelf Registration Statement
pursuant to this Section 9.3(b) more than ninety days in the aggregate during
in any eighteen (18)-month period, and (z) there shall be added to any period
during which the Company is obligated to keep a registration effective the
number of days for which the effectiveness thereof was suspended pursuant to
this Section 9.3(b).
c. The holder agrees, if so reasonably required by the managing
underwriter in a registration pursuant to this Section 9, not to effect any
public sale or distribution of Registrable Securities or sales of such
Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities
Act, during the seven (7) days prior to and 180 days after any firm commitment
underwritten registration pursuant to Section 9 has become effective (except
as part of such underwritten registration) or, if the managing underwriter
advises the Company that, in its opinion, no such public sale or distribution
should be effected for a period of not more than 180 days after such
underwritten registration in order to complete the sale and distribution of
securities included in such registration and the Company gives notice to such
effect to the Holders of such advice, the holder shall not effect any public
sale or distribution of Registrable Securities or sales of such Registrable
Securities pursuant to Rule 144 or Rule 144A under the Securities Act during
such period after such underwritten registration, except as part of such
underwritten registration, whether or not such holder participates in such
registration.
d. The Company may require that each Seller, as a condition to
registering his, her or its Registrable Securities pursuant hereto, furnish
the Company with such information regarding such Seller and the distribution
of the Registrable Securities proposed to be sold by such Seller as the
Company may from time to time reasonably request in writing.
e. Each Seller agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 9.3(a)(vii)
above, such Seller shall forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Seller's receipt of copies of the supplemented or
amended prospectus contemplated by Section 9.3(a)(vii) above and, if so
directed by the Company, such Seller will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies in such
Seller's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 9.3(a)(iv) above shall
be extended by the number of days during the period from and including the
date of giving of such notice to and including the date when each Seller shall
have received the copies of the supplemented or amended prospectus
contemplated by Section 9.3(a)(vii) above.
f. The Company shall not file or permit the filing of any registration
or comparable statement which refers to any Seller by name or otherwise as the
Seller of any securities of the Company unless such reference to such Seller
is agreed to by the Seller or is specifically required by the Act or any
similar federal statute then in force.
9.4 All expenses incident to the Company's performance of or compliance with
this Warrant, including without limitation all registration and filing fees,
fees and expenses relating to filings with any Exchange, fees and expenses of
compliance with securities or Blue Sky laws in jurisdictions reasonably
requested by any Seller or underwriter pursuant to Section 9.3(a)(vi)
(including reasonable fees and disbursements of counsel in connection with
Blue Sky qualifications of the Registrable Securities), all word processing,
duplicating and printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and one (1) counsel for the Sellers
(selected by those Sellers owning a majority of the Registrable Securities),
independent public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance), all the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the expense of any liability insurance (if
the Company determines to obtain such insurance) and the fees and expenses
incurred in connection with the listing of the securities to be registered on
any Exchange and/or NASDAQ on which such securities issued by the Company are
then listed, the reasonable fees and expenses of any special experts
(including attorneys) retained by the Company (if it so desires) in connection
with such registration and fees and expenses of other persons retained by the
Company (all such expenses being herein called "Registration Expenses"), shall
be borne by the Company. In no event shall the Company be obligated for any
discounts, commissions or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals attributable to the
securities being registered (which discounts, commissions or fees with respect
to any Seller's respective shares shall be paid by such Seller) and legal
expenses of any person other than the Company and the Sellers.
9.5 Participation
a. In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9 in connection with an
underwritten offering, the Company shall give the underwriters under such
registration statement and such underwriters' counsel and their respective
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such underwriters' counsel, to conduct a reasonable
investigation within the meaning of the Act.
b. In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9 not involving an
underwritten offering, the Company shall give the Sellers under such
registration statement and such Sellers' counsel and their respective
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Sellers' counsel, to conduct a reasonable investigation
within the meaning of the Act. Each Seller agrees to keep confidential and
not use, and to ensure that its representatives keep confidential and not use,
any non-public information of the Company made available in such
investigation.
9.6 Indemnification
a. In the event of any registration of any securities of the Company
under the Act, the Company shall, and hereby does, indemnify and hold harmless
in the case of any registration statement filed pursuant to Section 9.1 or
Section 9.2 above, the Seller of any Registrable Securities covered by such
registration statement, its directors, officers, employees and agents, each
other person who participates as an underwriter in the offering or sale of
such Registrable Securities and each other person, if any, who controls such
Seller or any such underwriter within the meaning of the Act against any
losses, claims, damages, or liabilities (or actions or proceedings whether
commenced or threatened in respect thereof), joint or several, to which such
Seller or any such director or officer or employee or agent or underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or 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, and the Company shall reimburse such Seller
and each such director, officer, employee, agent, underwriter and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action, or proceeding; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding, whether commenced or threatened in respect thereof),
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment, or supplement in reliance upon and in conformity with
written information furnished to the Company by such Seller for the express
purpose of use in the preparation thereof and, provided, further, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding, whether commenced or
threatened, in respect thereof), or expense arises out of such person's
failure to send or give a copy of the final prospectus, as the same may be
then supplemented or amended, within the time required by the Act to the
person asserting an untrue statement or alleged untrue statement or omission
or alleged omission if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Seller or any such director,
officer, employee, agent, underwriter or controlling person and shall survive
the transfer of such Registrable Securities by such Seller.
b. In the event that the Company includes any Registrable Securities of
a prospective Seller in any registration statement filed pursuant to Section
9.1 or Section 9.2 above, such prospective Seller shall, and hereby does,
indemnify and hold harmless the Company, its directors, officers, employees
and agents, each other person who participates as an underwriter in the
offering or sale of such Registrable Securities and each other person, if any,
who controls the Company or any such underwriter within the meaning of the Act
against any losses, claims, damages, or liabilities (or actions or proceedings
whether commenced or threatened in respect thereof), joint or several, to
which the Company or any such director or officer or employee or underwriter
or controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or 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, and such prospective Seller shall reimburse
the Company and any such director, officer, employee, agent, underwriter or
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action, or proceeding if, and only if, such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment, or supplement. In no event
shall the liability of any Seller hereunder be greater in amount than the
dollar amount of the proceeds received by such Seller upon the sale of the
Registrable Securities giving rise to such indemnification obligation. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer, employee, agent, underwriter or controlling person and shall survive
the transfer of such Registrable Securities by such Seller.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in the distribution to the same extent as
provided above with respect to information so furnished in writing by such
persons specifically for inclusion in any prospectus or registration
statement.
d. Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in this
Section 9.6, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 9.6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. If, in the indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnified party may assume the defense
of such claim, jointly with any other indemnified party that reasonably
determines such conflict of interest to exist, and the indemnifying party
shall be liable to such indemnified parties for the reasonable legal fees and
expenses of one counsel for all such indemnified parties and for other
expenses reasonably incurred in connection with the defense thereof incurred
by the indemnified party. No indemnifying party shall, without the consent of
the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action 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, or a covenant not to sue, in respect of such claim
or litigation. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying
party.
e. Indemnification and contribution similar to that specified in this
Section 9.6 (with appropriate modifications) shall be given by the Company and
each Seller with respect to any required registration or other qualification
of Registrable Securities under any Federal or state law or regulation of any
governmental authority, other than the Act.
f. The indemnification required by this Section 9.6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or
liability is incurred.
g. If the indemnification provided for in this Section 9.6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities, or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of losses, claims, damages, liabilities, or expenses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in such
losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding. In no event shall
the liability of any Seller hereunder be greater in amount than the dollar
amount of the proceeds received by such Seller upon the sale of the
Registrable Securities giving rise to such contribution obligation. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 9.6(g) were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to in this Section 9.6(g). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
9.7 Assignment of Rights; Termination.
The rights granted under this Section 9 may be assigned to any transferee of
at least 50,000 Series Warrants, Series Warrant Shares or any combination
thereof, and upon (a) prior written notice to the Company of the assignment,
and (b) the transferee's agreement to be bound by the relevant terms and
conditions of this Section 9 and the Warrant. The rights of the holder and
any transferee under this Section 9 will terminate on the five (5) year
anniversary of the Expiration Date.
10. Additional Rights.
10.1 Notice of Sale.
In the event that the Company undertakes to effect a Sale, the Company will
use its best efforts to provide to the holder at least thirty (30) days notice
of the terms and conditions of the proposed transaction. The Company will
cooperate with the holder in consummating the sale of this Warrant in
connection with any such transaction.
10.2 Board Representation.
a. Election of Initial Holder Designee. Promptly
following Goldman Sachs & Co.'s ("Goldman") designation of a Holder Designee
under Section 10.2(e)(i) below, the Board of Directors of the Company (the
"Board") shall increase the number of directors constituting the Board by one
(1) and shall elect the Holder Designee (as defined below) to the Board to
fill the vacancy created by such increase.
b. Future Elections of Holder Designee. Provided that
Goldman has designated an initial Holder Designee under Section 10.2(e)(i)
below and continuously designates Holder Designees as required under Section
10.2(e)(ii) and Section 10.2(e)(iii) below, in connection with any annual
meeting or other meeting of stockholders of the Company at which directors are
to be elected (an "Annual Meeting"), the Company, its management or the Board
nominates, recommends, or solicits proxies to be voted for the election to the
Board of a particular group of individuals ("Management Nominees"), the
Management Nominees shall include the Holder Designee. The Company, its
management and the Board shall each use all reasonable efforts to cause the
Holder Designee to be elected to the Board at each Annual Meeting, whether or
not there are Management Nominees for such Annual Meeting, and to maintain the
Holder Designee in such position.
c. Vacancy. If a vacancy on the Board shall occur as a
result of the death, resignation or removal of a director elected to the Board
by reason of having been a Holder Designee and such vacancy is to be filled by
the vote of the remaining members of the Board, such remaining members of the
Board shall vote for the election of the Holder Designee to fill such vacancy
to the extent permitted under the Company's Charter, by-laws and applicable
law.
d. Observer Rights. During any time that a Holder
Designee is not a member of the Board, whether during the time before Goldman
has initially nominated a director under Section 10.2(e), or due to the
failure of a Holder Designee to be elected by the stockholders of the Company,
the failure of Goldman to timely nominate a Holder Designee under Section
10.2(e) or otherwise, the Company shall invite a representative of Goldman to
attend, in a non-voting observer capacity, all meetings of the Board and all
meetings of the Committees of the Board. The Company shall provide to such
representative copies of all notices, minutes, consents, and other materials
that it provides to its directors at the same time as such materials are
provided to the directors; provided, however, that such representative shall
agree to hold in confidence and trust and to act in a fiduciary manner with
respect to all information so provided; and, provided further, that the
Company may withhold any information and exclude such representative from any
meeting or portion thereof if the Company reasonably believes, based upon the
advice of its counsel, that such exclusion is reasonably necessary to preserve
an attorney-client privilege of the Company that is material to the Company.
e. Holder Designee. For the purposes of this Section
10.2, "Holder Designee" shall mean an individual so designated by Goldman (and
no other party or transferee of Goldman), which designation shall be made as
follows: (i) Goldman, within sixty (60) days following the execution and
delivery of this Warrant, shall, at Goldman's election, notify the Company in
writing of the name of the Holder Designee to be elected to the Board, (ii)
sixty (60) days prior to each Annual Meeting (unless the Holder Designee then
a Director is otherwise serving a term not expiring at such meeting), Goldman
shall notify the Company in writing of the name of the Holder Designee to be
elected to the Board at such meeting, and (iii) if a vacancy on the Board
shall occur as a result of the death, resignation or removal of a director
elected to the Board by reason of having been a Holder Designee, Goldman
shall, within thirty (30) days after receiving written notice from the Company
of such vacancy (twenty (20) days in the case of the resignation or removal of
a Holder Designee who continues on as an employee of Goldman), notify the
Company in writing of the name of the Holder Designee to be elected to the
Board to fill such vacancy.
f. Termination of Rights. The rights of Goldman under
this Section 10.2 shall terminate upon the earlier of (i) September 1, 2001 or
(ii) the date that Goldman or its affiliates no longer beneficially own, in
the aggregate, at least 50% of the Warrant, the Warrant Shares or any
combination thereof. For the purpose of this Section 10.2(f), the term
"affiliates" shall include any individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association or joint venture which directly or indirectly, is in control of,
is controlled by, or is under common control with, Goldman. for purposes of
the preceding sentence, the term "control" shall mean the power, directly or
indirectly, to (i) vote 51% or more of the voting securities of an entity, or
(ii) direct or cause the direction of the management or policies of an entity
as the trustee, general partner or managing member of such entity.
11. Representations and Warranties.
The Company represents and warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
b. The Warrant Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the holders thereof are as set forth in the
Articles of Organization of the Company, as amended to the Date of Grant (as
so amended, the "Charter"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the issuance
of the Warrant Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or
filing with or the taking of any action in respect of or by, any Federal,
state or local government authority or agency or other person, except for the
filing of notices pursuant to federal and state securities laws, which filings
will be effected by the time required thereby;
e. There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Company to perform its obligations under this Warrant;
f. The authorized capital stock of the Company and the capital stock
issued and outstanding, or reserved for issuance, are as set forth on Schedule
5.8 to the Loan Agreement. All of the outstanding shares of the Company have
been validly issued and are fully paid, nonassessable shares and have not been
issued in violation of any applicable preemptive rights;
g. Except as set forth on Schedule 5.8 to the Loan Agreement, there are
no subscriptions, rights, options, warrants, or calls relating to any shares
of the Company's capital stock, including any right of conversion or exchange
under any outstanding security or other instrument; and
12. Modification and Waiver.
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
13. Notices.
Unless otherwise specifically provided herein, all communications under this
Warrant shall be in writing and shall be deemed to have been duly given (i) on
the date of service if served personally on the party to whom notice is to be
given, (ii) on the day of transmission if sent by facsimile transmission to a
telephone number provided by a party for such purposes, and telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(iii) on the day after delivery to Federal Express or similar overnight
courier, or (iv) on the fifth day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and properly addressed, return receipt requested, to each
such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this
Warrant. Any party hereto may change its address for purposes of this Section
13 by giving the other party written notice of the new address in the manner
set forth herein.
14 Binding Effect on Successors.
This Warrant shall be binding upon any corporation succeeding the Company by
merger, consolidation or acquisition of all or substantially all of the
Company's assets, and all of the obligations of the Company relating to the
Common Stock issuable upon the exercise or conversion of this Warrant shall
survive the exercise, conversion and termination of this Warrant and all of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof. The Company will, at the time of
the exercise or conversion of this Warrant, in whole or in part, upon request
of the holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holder hereof in respect of any rights to which
the holder hereof shall continue to be entitled after such exercise or
conversion in accordance with this Warrant; provided, that the failure of the
holder hereof to make any such request shall not affect the continuing
obligation of the Company to the holder hereof in respect of such rights.
15. Lost Warrants or Stock Certificates.
The Company covenants to the holder hereof that, upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any
loss, theft or destruction, upon receipt of an executed lost securities bond
or indemnity reasonably satisfactory to the Company, or in the case of any
such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
16. Descriptive Headings.
The descriptive headings of the several paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.
17. Governing Law.
This Warrant shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of New York.
18. Survival of Representations, Warranties and Agreements. Each
of the respective representations and warranties of the Company and the holder
hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) and the termination or
expiration of any rights hereunder. Each of the respective agreements of each
of the Company and the holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
Without limiting the generality of the foregoing sentence, the registration
rights contained in Section 9 above and the board representation rights
contained in Section 10.2 above shall survive the exercise or conversion of
this Warrant (or any part hereof) and the termination or expiration of any
other rights hereunder.
19. Remedies.
In case any one (1) or more of the covenants and agreements contained in this
Warrant shall have been breached, the holders hereof (in the case of a breach
by the Company), or the Company (in the case of a breach by a holder), may
proceed to protect and enforce their or its rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages
as a result of any such breach and/or an action for specific performance of
any such covenant or agreement contained in this Warrant.
20. Acceptance.
Receipt of this Warrant by the holder hereof shall constitute acceptance of
and agreement to the foregoing terms and conditions.
21. No Impairment of Rights.
The Company will not, by amendment of its Charter or through any other means,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against material impairment.
22. Amendment. This Warrant may be amended by written agreement of the
Company and holders of 65% of the Series Warrant Shares, collectively on an
as-exercised basis, and such amendment shall be binding on all holders of this
Warrant or Warrant Shares.
[Signature page follows.]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its
behalf by one of its officers thereunto duly authorized.
CTC COMMUNICATIONS CORP.
By:
Name:
Title:
Address: 360 Second Avenue
Waltham, Massachusetts 02154
Dated: as of September 1, 1998
EXHIBIT A
NOTICE OF EXERCISE
To: CTC COMMUNICATIONS CORP.
1. The undersigned hereby elects to purchase _____ shares of
Common Stock of CTC COMMUNICATIONS CORP. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified below:
(Name)
(Address)
The undersigned represents that the aforesaid shares are being acquired for
the account of the undersigned for investment and not with a view to, or for
resale in connection with, the distribution thereof and that the undersigned
has no present intention of distributing or reselling such shares. In support
thereof, the undersigned has executed an Investment Representation Statement
attached hereto as Schedule 1.
(Signature)
(Date)
Schedule 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: CTC COMMUNICATIONS CORP.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Registrable Securities"), the undersigned (the "Purchaser") represents to the
Company as follows:
(a) The Purchaser is aware of the Company's business affairs and
financial condition, and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the Registrable
Securities. The Purchaser is purchasing the Registrable Securities for its
own account for investment purposes only and not with a view to, or for the
resale in connection with, any "distribution" thereof for purposes of the
Registrable Securities Act of 1933, as amended (the "Act").
(b) The Purchaser understands that the Registrable Securities
have not been registered under the Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of the Purchaser's investment intent as expressed herein. In this
connection, the Purchaser understands that, in the view of the Registrable
Securities and Exchange Commission ("SEC"), the statutory basis for such
exemption may be unavailable if the Purchaser's representation was predicated
solely upon a present intention to hold these Registrable Securities for the
minimum capital gains period specified under applicable tax laws, for a
deferred sale, for or until an increase or decrease in the market price of the
Registrable Securities, or for a period of one year or any other fixed period
in the future.
(c) The Purchaser further understands that the Registrable
Securities must be held indefinitely unless subsequently registered under the
Act or unless an exemption from registration is otherwise available. In
addition, the Purchaser understands that the certificate evidencing the
Registrable Securities will be imprinted with the legend referred to in the
Warrant under which the Registrable Securities are being purchased.
(d) The Purchaser is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: The availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Registrable Securities
Exchange Act of 1934, as amended) and the amount of securities being sold
during any three-month period not exceeding the specified limitations stated
therein.
(e) The Purchaser further understands that at the time it wishes
to sell the Registrable Securities there may be no public market upon which to
make such a sale, and that, even if such a public market then exists, the
Company may not be satisfying the current public information requirements of
Rule 144 and 144A, and that, in such event, the Purchaser may be precluded
from selling the Registrable Securities under Rule 144 and 144A even if the
one-year minimum holding period had been satisfied.
(f) The Purchaser further understands that in the event all of
the requirements of Rule 144 and 144A are not satisfied, registration under
the Act, compliance with Regulation A, or some other registration exemption
will be required; and that, notwithstanding the fact that Rule 144 is not
exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 will have a substantial
burden or proof in establishing that an exemption from registration is
available for such offers or sales, and that such persons and their respective
brokers who participate in such transactions do so at their own risk.
Purchaser:___________________
EXHIBIT B
Analysis Based on Closing Stock Price on 8/4/98 of: $6.75
Shares Outstanding - public 6,175,798
Shares Outstanding - Bob Fabricatore 2,715,974
Shares Outstanding - all other officers 1,096,725
Total Primary Shares Outstanding 9,988,497
Outstanding Options:
Options in the Money 1,462,507
Proceeds from Options $5,494,058
Average exercise price $3.76
Shares to be purchased 813,935
Incremental Shares 648,572
Total Shares outstanding pre Spectrum 10,637,070
Spectrum Convertible Preferred Stock 1,333,333
Spectrum warrants in the money 0
Spectrum shares from 9% dividend accreted to 8/31/98 47,342
Total shares due to Spectrum 1,380,675
Total Shares outstanding Pre Series Warrants (on a Fully Diluted Basis)
12,017,745
Series Warrants % of Fully Diluted Shares 7.50%
New Fully Diluted Shares Outstanding 12,992,157
Incremental Series Warrant Shares 974,412
Goldman's participation (68%) 662,600
Fleet's participation (32%) 311,812
EXHIBIT 10.24
WARRANT
FLEET NATIONAL BANK
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO, (ii) AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE SECURITIES
WERE ISSUED DIRECTLY OR INDIRECTLY."
CTC COMMUNICATIONS CORP.
WARRANT TO PURCHASE 311,812 SHARES
OF COMMON STOCK
CTC COMMUNICATIONS CORP., a Massachusetts corporation (the "Company"), hereby
certifies that, for value received, Fleet National Bank, a national banking
association, with a place of business located at One Federal Street, Boston,
Massachusetts 02110, or its registered transferees, successors or assigns
(each, a "holder"), is the registered holder of warrants (the "Warrants") to
subscribe for and purchase Three Hundred Eleven Thousand and Eight Hundred
Twelve (311,812) shares of the fully paid and nonassessable Common Stock (as
adjusted pursuant to Section 4 hereof, the "Warrant Shares") of the Company,
at a purchase price per share equal to Six Dollars and Seventy-Five Cents
($6.75) (such price, as adjusted pursuant to Section 4 hereof, the "Warrant
Price"), subject to the provisions and upon the terms and conditions
hereinafter set forth. As used herein, (a) the term "Common Stock" shall mean
the Company's presently authorized Common Stock, par value $0.01 per share,
and any stock into or for which such Common Stock may hereafter be converted
or exchanged, (b) the term "Date of Grant" shall mean September 1, 1998, and
(c) the term "Other Warrants" shall mean any warrant issued upon transfer or
partial exercise of this Warrant. The term "Warrant" as used herein shall be
deemed to include Other Warrants unless the context hereof or thereof clearly
requires otherwise.
This Warrant and the warrant of even date herewith, issued to Goldman Sachs &
Co. ("Goldman") for 662,600 shares of Common Stock (the "Goldman Warrant"),
are being issued pursuant to that certain Loan and Security Agreement (the
"Loan Agreement") of even date herewith by and among the Company, Goldman
Sachs Credit Partners L.P., and holder. As used herein, (a) the term "Series
Warrants" shall mean this Warrant and the Goldman Warrant collectively, and
(b) the term "Series Warrant Shares" shall mean the aggregate of the shares of
Common Stock issuable upon the exercise of this Warrant and the Goldman
Warrant (which amount initially totals 974,412 shares).
1. Term. The purchase right represented by this Warrant is exercisable, in
whole or in part, at any time and from time to time from the Date of Grant
through and including the close of business on September 1, 2003 (the
"Expiration Date"); provided, however, that in the event that any portion of
this Warrant is unexercised as of the Expiration Date, the terms of Section
2(b) below shall apply.
2. Exercise
a. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 1 hereof, the purchase right represented by this Warrant
may be exercised by the holder hereof, in whole or in part and from time to
time, by the surrender of this Warrant (with the notice of exercise form
attached hereto as Exhibit A duly executed) at the principal office of the
Company, except as otherwise provided for herein, and by the payment to the
Company of an amount equal to the then applicable Warrant Price multiplied by
the number of Warrant Shares then being purchased. The person or persons in
whose name(s) any certificate(s) representing shares of Common Stock shall be
issuable upon exercise of this Warrant shall be deemed to have become the
holder(s) of record of, and shall be treated for all purposes as the record
holder(s) of, the shares represented thereby (and such shares shall be deemed
to have been issued) immediately prior to the close of business on the date or
dates upon which this Warrant is exercised if exercised prior to the close of
business on such date; otherwise, the date of record shall be the next
business day. In the event of any exercise of the rights represented by this
Warrant, certificates for the shares of Common Stock so purchased shall be
delivered to the holder hereof as soon as possible and in any event within
thirty (30) days after such exercise and, unless this Warrant has been fully
exercised (including without limitation, exercise pursuant to Section 2(b)
below), a new Warrant representing the portion of the Warrant Shares, if any,
with respect to which this Warrant shall not then have been exercised shall
also be issued to the holder hereof as soon as possible and in any event
within such thirty (30)-day period.
(b) Automatic Exercise. In the event that any portion of this Warrant
remains unexercised as of the Expiration Date and the fair market value
(determined in accordance with Section 4(h) below) of one share of Common
Stock as of the Expiration Date is greater than the applicable Warrant Price
as of the Expiration Date, then this Warrant shall be deemed to have been
exercised automatically immediately prior to the close of business on the
Expiration Date (or, in the event that the Expiration Date is not a business
day, the immediately preceding business day) (the "Automatic Exercise Date"),
and the person entitled to receive the shares of Common Stock issuable upon
such exercise shall be treated for all purposes as the holder of record of
such Warrant Shares as of the close of business on such Automatic Exercise
Date. This Warrant shall be deemed to be surrendered to the Company on the
Automatic Exercise Date by virtue of this Section 2(b) and without any action
by the holder of this Warrant or any other person, and payment to the Company
of the then applicable Warrant Price multiplied by the number of Warrant
Shares then being purchased shall be deemed to be made pursuant to the terms
of Section 2(c) below (without payment by the holder of any exercise price or
any cash or other consideration). As promptly as practicable on or after the
Automatic Exercise Date and in any event within thirty (30) days thereafter,
the Company at its expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
Warrant Shares issuable upon such exercise.
c. Right to Convert Warrant into Common Stock; Net Issuance.
(1) Right to Convert.
In addition to and without limiting the rights of the holder hereof under the
terms of this Warrant, the holder shall have the right to convert this Warrant
or any portion thereof (the "Conversion Right") into shares of Common Stock as
provided in this Section 2(c) at any time or from time to time during the term
of this Warrant. Upon exercise of the Conversion Right with respect to all or
a specified portion of shares subject to this Warrant (the "Converted Warrant
Shares"), the Company shall deliver to the holder (without payment by the
holder of any exercise price or any cash or other consideration) that number
of shares of fully paid and nonassessable Common Stock equal to the quotient
obtained by dividing (i) the value of this Warrant (or the specified portion
hereof) on the Conversion Date (as defined in Section 2(c)(2) hereof), which
value shall be equal to (A) the aggregate fair market value of the Converted
Warrant Shares issuable upon exercise of this Warrant (or the specified
portion hereof) on the Conversion Date less (B) the aggregate Warrant Price of
the Converted Warrant Shares immediately prior to the exercise of the
Conversion Right by (ii) the fair market value of one (1) share of Common
Stock on the Conversion Date.
Expressed as a formula, such conversion shall be computed as follows:
X = A - B/Y
Where: X = the number of shares of Common Stock that
may be issued to the holder
Y = the fair market value (FMV) of one (1)
share of Common Stock
A = the aggregate FMV (i.e., FMV x Converted
Warrant Shares)
B = the aggregate Warrant Price (i.e.,
Converted Warrant Shares x Warrant Price)
No fractional shares shall be issuable upon exercise of the Conversion Right,
and, if the number of shares to be issued determined in accordance with the
foregoing formula is other than a whole number, the Company shall pay to the
holder an amount in cash equal to the fair market value of the resulting
fractional share on the Conversion Date. For purposes of Section 9 of this
Warrant, shares issued pursuant to the Conversion Right shall be treated as if
they were issued upon the exercise of this Warrant.
(2) Method of Exercise.
The Conversion Right may be exercised by the holder by the surrender of this
Warrant at the principal office of the Company together with a written
statement specifying that the holder thereby intends to exercise the
Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in Section 2(c)(1) hereof as the
Converted Warrant Shares) in exercise of the Conversion Right. Such
conversion shall be effective upon receipt by the Company of this Warrant
together with the aforesaid written statement, or on such later date as is
specified therein (the "Conversion Date"). Certificates for the shares
issuable upon exercise of the Conversion Right and, if applicable, a new
warrant evidencing the balance of the shares remaining subject to this
Warrant, shall be issued as of the Conversion Date and shall be delivered to
the holder within thirty (30) days following the Conversion Date.
(3) Determination of Fair Market Value.
For purposes of this Section 2(c), "fair market value" of a share of Common
Stock shall have the meaning set forth in Section 4(h) below.
3. Stock Fully Paid; Reservation of Shares.
All Warrant Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance pursuant to the terms and
conditions herein, be fully paid and nonassessable, and free from all taxes,
liens, charges, and pre-emptive rights with respect to the issue thereof. The
Company shall pay all transfer taxes, if any, attributable to the issuance of
the Warrant Shares upon the exercise of this Warrant. During the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of the
issue upon exercise of the purchase rights evidenced by this Warrant, a
sufficient number of shares of its Common Stock to provide for the exercise of
the rights represented by this Warrant.
4. Adjustment of Warrant Price and Number of Shares.
The number and kind of securities purchasable upon the exercise of this
Warrant and the Warrant Price shall be subject to adjustment from time to time
upon the occurrence of certain events, as follows:
a. Adjustment for Initial Errors.
The Company hereby acknowledges that the number of Warrant Shares constituting
the initial number of securities purchasable upon the exercise of this Warrant
(the "Exercise Quantity") was calculated based upon the Company's
representation that the number of outstanding shares of Common Stock of the
Company, calculated on a fully diluted basis using the treasury stock method
as contemplated by the Accounting Principles Board Opinion No. 15 (as referred
to in Statement of Financial Accounting Standards No. 128) (such shares as
calculated on any date, the "Fully Diluted Shares"), as of the Date of Grant
using an ending market price of $6.75 per share of Common Stock and before
giving effect to the issuance of any of the Series Warrants or Series Warrant
Shares, totaled 12,017,745 shares. The calculation used by the Company in
determining such amount is set forth in Exhibit B hereto. If for any reason
it shall hereafter be determined that the actual number of Fully Diluted
Shares as of the Date of Grant differed from such amount, then the Company or
the holder (whichever shall discover such error) shall notify the other of
such determination and the Company shall forthwith reissue all of the
outstanding Warrants with an appropriate proportional adjustment in said
number to be effective from the Date of Grant, provided that such adjustment
shall be made only if it results in an increase in the number of Warrant
Shares hereunder.
b. Merger, Sale, Reclassification.
In case of any (i) consolidation or merger (including a merger in which the
Company is the surviving entity), (ii) sale or other disposition of all or
substantially all of the Company's assets or distribution of property to
stockholders (other than distributions payable out of earnings or retained
earnings), or (iii) reclassification, change or conversion of securities of
the class issuable upon exercise of this Warrant (other than a change in par
value, or from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), then the Company shall take
all necessary actions to ensure that thereafter the holder of this Warrant
shall have the right to receive, at a total purchase price not to exceed that
payable upon the exercise of the unexercised portion of this Warrant, and in
lieu of the shares of Common Stock theretofore issuable upon exercise of this
Warrant, the kind and amount of shares of stock, other securities, money and
property receivable upon such consolidation, merger, sale or other
disposition, reclassification, change or conversion by a holder of the number
of shares of Common Stock then purchasable under this Warrant. Such new
Warrant shall provide for adjustments that shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 4. The
provisions of this Section 4(b) shall similarly apply to successive
reclassifications, changes and conversions.
c. Subdivision or Combination of Shares.
If the Company at any time while this Warrant remains outstanding and
unexpired shall subdivide or combine its outstanding shares of Common Stock,
the Warrant Price shall be proportionately decreased in the case of a
subdivision or increased in the case of a combination, effective at the close
of business on the date the subdivision or combination becomes effective.
d. Stock Dividends and Other Distributions.
If the Company at any time while this Warrant is outstanding and unexpired
shall (i) pay a dividend with respect to Common Stock payable in Common Stock,
or (ii) make any other distribution with respect to Common Stock (except any
distribution specifically provided for in Section 4(b), Section 4(c), or
Section 4(e) hereof) of Common Stock, then the Warrant Price shall be
adjusted, from and after the date of determination of stockholders entitled to
receive such dividend or distribution, to that price determined by multiplying
the Warrant Price in effect immediately prior to such date of determination by
a fraction (i) the numerator of which shall be the total number of Fully
Diluted Shares outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of Fully Diluted
Shares outstanding immediately after such dividend or distribution.
e. Special Distributions.
In case the Company shall make any distribution (other than dividends and
distributions referred to in Section 4(c) or Section 4(d) above and other than
cash dividends) to all holders of shares of Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the surviving corporation) of evidences of indebtedness, assets or
subscription rights, options, warrants, or exchangeable or convertible
securities containing the right to subscribe for or purchase shares of any
class of equity securities of the Company, the Warrant Price to be in effect
on and after the date of such distribution shall be adjusted by multiplying
the Warrant Price in effect immediately prior to such record date by a
fraction (i) the numerator of which shall be the fair market value per share
of Common Stock on such record date (determined in accordance with Section
4(h) below), less the fair market value (as determined by the Board of
Directors of the Company in good faith as set forth in a duly adopted board
resolution certified by the Company's Secretary or Assistant Secretary) of the
portion of the assets or evidences of indebtedness so to be distributed or of
such subscription rights, options, warrants, or exchangeable or convertible
securities applicable to one (1) share of the Common Stock outstanding as of
such record date, provided, that in the event the Board of Directors is unable
to make such a determination or holders of at least fifty-one percent (51%) of
the Series Warrant Shares issuable under outstanding Series Warrants disagree
in writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below, and (ii) the
denominator of which shall be such fair market value per share of Common Stock
as determined in the manner set forth under Section 4(h) below. Such
adjustment shall be made successively whenever a distribution is made. If the
holder hereof has exercised all or any portion of this Warrant after the
record date for a distribution covered by this paragraph, but prior to the
date such distribution is made by the Company, then the Company shall make a
distribution to the holder, concurrent with the distribution to stockholders,
of such consideration that the holder would have been entitled to receive in
connection with such distribution with respect to the shares issued on such
exercise, had the holder exercised all or such portion of this Warrant
immediately prior to such record date.
f. Other Issuances of Securities.
(1) In case the Company or any subsidiary thereof shall, at any
time after the Date of Grant, issue shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock (excluding (i)
shares, rights, options, warrants, or convertible or exchangeable securities
outstanding on the Date of Grant, or issued in any of the transactions
described in Sections 4(c), 4(d), and 4(e) above, (ii) shares issued upon the
exercise of such rights, options or warrants or upon conversion or exchange of
such convertible or exchangeable securities, (iii) the Series Warrants and any
shares issued upon exercise thereof, (iv) up to Three Million Fifty-Eight
Thousand Five Hundred Twenty-Six (3,058,526) shares of Common Stock issued or
issuable to directors, officers, employees or consultants of the Company or
any subsidiary in connection with their service as directors, officers,
employees or consultants pursuant to any stock grant, stock option, warrant or
other right (the "Employee Shares")), at a price per share of Common Stock
(determined in the case of such rights, options, warrants, or convertible or
exchangeable securities by dividing (x) the total amount received and/or
receivable by the Company in consideration of the sale and issuance of such
rights, options, warrants, or convertible or exchangeable securities, plus the
total minimum consideration payable to the Company upon exercise, conversion,
or exchange thereof by (y) the total maximum number of shares of Common Stock
covered by such rights, options, warrants, or convertible or exchangeable
securities) less than the fair market value per share of Common Stock
(determined in accordance with Section 4(h) below) on the date the Company
fixes the offering price of such shares, rights, options, warrants, or
convertible or exchangeable securities, then the Warrant Price shall be
adjusted so that it shall equal the price determined by multiplying the
Warrant Price in effect immediately prior thereto by a fraction (i) the
numerator of which shall be the sum of (A) the number of Fully Diluted Shares
outstanding immediately prior to such sale and issuance plus (B) the number of
shares of Common Stock which the aggregate consideration received (determined
as provided above and below) for such sale or issuance would purchase at such
fair market value per share, and (ii) the denominator of which shall be the
total number of Fully Diluted Shares outstanding immediately after such sale
and issuance. Such adjustment shall be made successively whenever such an
issuance is made.
(2) For the purposes of an adjustment under Section 4(f)(1), the
maximum number of shares of Common Stock which the holder of any such rights,
options, warrants or convertible or exchangeable securities shall be entitled
to subscribe for or purchase shall be deemed to be issued and outstanding as
of the date of such sale and issuance; furthermore, the consideration received
by the Company therefor shall be deemed to be equal to the price per share of
Common Stock (determined in the case of such rights, options, warrants, or
convertible or exchangeable securities by dividing (x) the total amount
received and/or receivable by the Company in consideration of the sale and
issuance of such rights, options, warrants, or convertible or exchangeable
securities, plus the total minimum consideration payable to the Company upon
exercise, conversion, or exchange thereof by (y) the total maximum number of
shares of Common Stock covered by such rights, options, warrants, or
convertible or exchangeable securities) multiplied by the number of shares
deemed issued and outstanding in the previous sentence. In case the Company
shall issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, for a consideration consisting, in whole
or in part, of consideration other than cash or its equivalent, then in
determining the price per share of Common Stock and the consideration received
by the Company for purposes of the first sentence of Section 4(f)(1), the
Board of Directors of the Company shall determine, in good faith, the fair
market value of said property, and such determination shall be described in a
duly adopted board resolution certified by the Company's Secretary or
Assistant Secretary, provided, that in the event the Board of Directors is
unable to make such a determination or, in the case of, and solely to the
extent that, any issuance constitutes an Affiliated Transaction as defined in
Section 4(f)(3) below, holders of at least fifty-one percent (51%) of the
Series Warrant Shares issuable under outstanding Series Warrants disagree in
writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below. In case the
Company shall issue shares of Common Stock, or rights, options, warrants, or
convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, together with one (1) or more other
securities as a part of a unit at a price per unit, then in determining the
price per share of Common Stock and the consideration received by the Company
for purposes of the first sentence of Section 4(f)(1), the Board of Directors
of the Company shall determine, in good faith, which determination shall be
described in a duly adopted board resolution certified by the Company's
Secretary or Assistant Secretary, the fair market value of the rights,
options, warrants, or convertible or exchangeable securities then being sold
as part of such unit, provided, that in the event the Board of Directors is
unable to make such a determination or, in the case of, and solely to the
extent that, any issuance constitutes an Affiliated Transaction as defined in
Section 4(f)(3) below, holders of at least fifty-one percent (51%) of the
Series Warrant Shares issuable under outstanding Series Warrants disagree in
writing with such determination (in the manner provided in Section 4(h)
below), then the fair market value of such consideration shall be determined
in the same manner as a Valuation under Section 4(h) below.
(3) For purposes of this Section 4(f), an "Affiliated
Transaction" shall mean any issuance of shares of Common Stock, or rights,
options, warrants or convertible or exchangeable securities containing the
right to subscribe for or purchase shares of Common Stock, to (i) any officer
or director of the Company or any member of the immediate family of such a
person or (ii) any 10% or greater beneficial stockholder of the Company or any
person who, to the Company's knowledge, is a member of the immediate family of
such a stockholder (if such stockholder is a natural person), or to any
partnership, corporation, limited liability company, business trust, joint
stock company, trust, unincorporated association or joint venture which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, (i) any officer or director of the Company or any member of the
immediate family of such a person or (ii) any 10% or greater beneficial
stockholder of the Company or any person who, to the Company's knowledge, is a
member of the immediate family of such a stockholder (if such stockholder is a
natural person). For purposes of the preceding sentence, the term "control"
shall mean the power, directly or indirectly, to (i) vote 51% or more of the
voting securities of an entity, or (ii) direct or cause the direction of the
management or policies of an entity as the trustee, general partner or
managing member of such entity. Notwithstanding the foregoing, no transaction
or part thereof shall be considered an "Affiliated Transaction" if the
securities or rights issued to any person described in the first sentence of
this Section 4(f)(3) constitutes less than three percent (3%) of the aggregate
securities and rights issued in such transaction.
g. Adjustment of Number of Shares.
Upon each adjustment in the Warrant Price, the number of Warrant Shares
purchasable hereunder shall be adjusted, to the nearest whole share, to the
product obtained by multiplying the number of Warrant Shares purchasable
immediately prior to such adjustment in the Warrant Price by a fraction, the
numerator of which shall be the Warrant Price immediately prior to such
adjustment and the denominator of which shall be the Warrant Price immediately
thereafter.
h. Determination of Fair Market Value.
For purposes of those provisions of this Warrant requiring a determination in
accordance with this Section 4(h), "fair market value" as of a particular date
(the "Determination Date") shall mean (i) for any security if such security is
traded on a national securities exchange (an "Exchange"), the weighted average
(based on daily trading volume) of the mid-point between the daily high and
low trading prices of the security on each of the last five (5) trading days
prior to the Determination Date reported on such Exchange, (ii) for any
security that is not traded on an Exchange but trades in the over-the-counter
market and such security is quoted on the Nasdaq Stock Market ("NASDAQ"), (A)
the weighted average (based on daily trading volume) of the mid-point between
the daily high and low trading prices reported on NASDAQ on each of the last
five (5) trading days (or if the relevant price or quotation did not exist on
any of such days, the relevant price or quotation on the next preceding
business day on which there was such a price or quotation) prior to the
Determination Date, or (iii) for any security or any other asset, if no price
can be determined on the basis of the above methods of valuation, then the
judgment of valuation shall be determined in good faith by the Board of
Directors of the Company, which determination shall be described in a duly
adopted board resolution certified by the Company's Secretary or Assistant
Secretary. If the Board of Directors of the Company is unable to determine
any Valuation (as defined below), or if (except in the case of a fair market
value determination to the extent in connection with a non-Affiliated
Transaction under Section 4(f)(2) above), the holders of at least fifty-one
percent (51%) of all of the Series Warrant Shares issuable under outstanding
Series Warrants (collectively, the "Requesting Holders") disagree with the
Board's determination of any Valuation by written notice delivered to the
Company within five (5) business days after the determination thereof by the
Board of Directors of the Company is communicated to holders of the Warrants
affected thereby, which notice specifies a majority-in-interest of the
Requesting Holders' determination of such Valuation, then, unless the Company
accepts the Valuation so proposed and the Company and a majority-in-interest
of the Requesting Holders agree upon a valuation within five (5) business days
thereafter, the Company and (in the event of a disagreement by the Requesting
Holders) a majority-in-interest of the Requesting Holders shall select a
mutually acceptable investment banking firm of national reputation which has
not had a material relationship with the Company or any officer of the Company
within the preceding two (2) years, which shall determine such Valuation.
Such investment banking firm's determination of such Valuation shall be final,
binding and conclusive on the Company and the holders of all of the Warrants
issued hereunder and then outstanding, to the extent of the issuance or
distribution to which such Valuation applies. If the Board of Directors of
the Company was unable to determine such Valuation, all costs and fees of such
investment banking firm shall be borne by the Company. If the Requesting
Holders disagreed with the Board's determination of such Valuation, the party
whose determination of such Valuation differed from the Valuation determined
by such investment banking firm by the greatest amount shall bear all costs
and fees of such investment banking firm. For purposes of this Section 4(h),
the term "Valuation" shall mean the determination, to be made initially by the
Board of Directors of the Company, of the fair market value of any asset
pursuant to clause (iii) above.
5. Notice of Adjustments.
Whenever the Warrant Price or the number of Warrant Shares purchasable
hereunder shall be adjusted pursuant to Section 4 hereof, the Company shall
make a certificate signed by its chief financial officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated, and the
Warrant Price and the number of Warrant Shares purchasable hereunder after
giving effect to such adjustment, which shall be mailed (without regard to
Section 13 hereof, by first class mail, postage prepaid) to the holder of this
Warrant.
6. Fractional Shares.
No fractional shares of Common Stock will be issued in connection with any
exercise hereunder, but in lieu of such fractional shares the Company shall
make a cash payment therefor based on the fair market value (as determined in
accordance with Section 4(h) above) of a share of Common Stock on the date of
exercise.
7. Compliance with Securities Act; Disposition of Warrant or Warrant Shares.
a. Compliance with Securities Act.
The holder of this Warrant, by acceptance hereof, agrees that this Warrant and
the shares of Common Stock to be issued upon exercise hereof, are being
acquired for investment and that such holder will not offer, sell or otherwise
dispose of this Warrant, or any shares of Common Stock to be issued upon
exercise hereof except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon
exercise of this Warrant, the holder hereof shall confirm in writing, by
executing the form attached as Schedule 1 to Exhibit A hereto, that the shares
of Common Stock so purchased are being acquired for investment and not with a
view toward distribution or resale. This Warrant and all shares of Common
Stock issued upon exercise of this Warrant (unless registered under the Act)
shall be stamped or imprinted with a legend in substantially the following
form:
"THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT (i) AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO, (ii) AN OPINION
OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE COMPANY,
THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) OTHERWISE COMPLYING
WITH THE PROVISIONS OF SECTION 7 OF THE WARRANT UNDER WHICH THESE
SECURITIES WERE ISSUED DIRECTLY OR INDIRECTLY."
In addition, in connection with the issuance of this Warrant, the holder
specifically represents to the Company by acceptance of this Warrant as
follows:
(1) The holder is aware of the Company's business affairs and
financial condition, and has acquired information about the Company sufficient
to reach an informed and knowledgeable decision to acquire this Warrant. The
holder is acquiring this Warrant for its own account for investment purposes
only and not with a view to, or for resale in connection with any
"distribution" thereof for purposes of the Act.
(2) The holder understands that this Warrant and the Warrant
Shares have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of the holder's investment intent as expressed herein. In
this connection, the holder understands that, in the view of the Securities
and Exchange Commission (the "SEC"), the statutory basis for such exemption
may be unavailable if the holder's representation was predicated solely upon a
present intention to hold the Warrant and the Warrant Shares for the minimum
capital gains period specified under applicable tax laws, for a deferred sale,
for or until an increase or decrease in the market price of the Warrant and
the Warrant Shares, or for a period of one (1) year or any other fixed period
in the future.
(3) The holder further understands that this Warrant and the
Warrant Shares must be held indefinitely unless subsequently registered under
the Act and any applicable state securities laws, or unless exemptions from
registration are otherwise available.
(4) The holder is aware of the provisions of Rule 144 and 144A,
promulgated under the Act, which, in substance, permit limited public resale
of "restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering
subject to the satisfaction of certain conditions, if applicable, including,
among other things: the availability of certain public information about the
Company, the resale occurring not less than one (1) year after the party has
purchased and paid for the securities to be sold; the sale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934, as amended) and the amount of securities being sold during any three-
month period not exceeding the specified limitations stated therein.
(5) The holder further understands that at the time it wishes to
sell this Warrant and the Warrant Shares there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
the Company may not be satisfying the current public information requirements
of Rule 144 and 144A, and that, in such event, the holder may be precluded
from selling this Warrant and the Warrant Shares under Rule 144 and 144A even
if the one (1)-year minimum holding period had been satisfied.
(6) The holder further understands that in the event all of the
requirements of Rule 144 and 144A are not satisfied, registration under the
Act, compliance with Regulation A, or some other registration exemption will
be required; and that, notwithstanding the fact that Rule 144 and 144A is not
exclusive, the Staff of the SEC has expressed its opinion that persons
proposing to sell private placement securities other than in a registered
offering and otherwise than pursuant to Rule 144 and 144A will have a
substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
b. Disposition of Warrant or Warrant Shares. This Warrant and the
Warrant Shares may be detached and transferred, in whole or in part,
separately from the Loan Agreement. With respect to any offer, sale or other
disposition of this Warrant, or any Warrant Shares acquired pursuant to the
exercise of this Warrant prior to the sale or disposition of such Warrant or
Warrant Shares, the holder hereof and each subsequent holder of this Warrant
agrees to give written notice to the Company prior thereto, describing briefly
the manner thereof, together with a written opinion of such holder's counsel,
if reasonably requested by the Company, to the effect that such offer, sale or
other disposition may be effected without registration or qualification (under
the Act as then in effect or any federal or state law then in effect) of this
Warrant or such Warrant Shares and indicating whether or not under the Act
certificates for this Warrant or such Warrant Shares to be sold or otherwise
disposed of require any restrictive legend as to applicable restrictions on
transferability in order to ensure compliance with applicable law. Promptly
upon receiving such written notice and reasonably satisfactory opinion, if so
requested, the Company, as promptly as practicable, shall notify such holder
that such holder may sell or otherwise dispose of this Warrant or such Warrant
Shares, all in accordance with the terms of the notice delivered to the
Company. If a determination has been made pursuant to this Section 7(b) that
the opinion of counsel for the holder is not reasonably satisfactory to the
Company, the Company shall so notify the holder promptly after such
determination has been made. The foregoing notwithstanding, this Warrant or
such Warrant Shares may, as to such federal laws, be offered, sold or
otherwise disposed of in accordance with Rule 144 and 144A under the Act,
provided that the Company shall have been furnished with such information as
the Company may reasonably request to provide a reasonable assurance,
including, where reasonably required, an opinion of counsel, that the
provisions of Rule 144 and 144A have been satisfied. Each certificate
representing this Warrant or the Warrant Shares thus transferred (except a
transfer pursuant to Rule 144) shall bear a legend as to the applicable
restrictions on transferability in order to ensure compliance with such laws,
unless in the aforesaid opinion of counsel for the holder, such legend is not
required in order to ensure compliance with such laws. The Company may issue
stop transfer instructions to its transfer agent or, if acting as its own
transfer agent, the Company may stop transfer on its corporate books, in
connection with such restrictions.
8. Rights as Stockholders; Information.
Except as provided in Section 10.2 below, no holder of this Warrant, as such,
shall be entitled to vote or receive dividends or be deemed the holder of
Common Stock or any other securities of the Company which may at any time be
issuable on the exercise hereof for any purpose, nor shall anything contained
herein be construed to confer upon the holder of this Warrant, as such, any of
the rights of a stockholder of the Company or any right to vote for the
election of the directors or upon any matter submitted to stockholders at any
meeting thereof, or to receive notice of meetings, or to receive dividends or
subscription rights or otherwise, until this Warrant shall have been exercised
and the Warrant Shares purchasable upon the exercise hereof shall have become
deliverable, as provided herein. The foregoing notwithstanding, the Company
will transmit to the holder of this Warrant such information, documents and
reports as are generally distributed to the holders of any class or series of
the securities of the Company concurrently with the distribution thereof to
the stockholders.
9. Registration Rights.
9.1 Demand Registration Rights.
a. Shelf Registration.
The Company covenants and agrees that at any time after receipt of a
written request (a "Shelf Registration Request") from the holder(s) of the
Series Warrants and/or the Series Warrant Shares (collectively, the
"Securityholders") constituting at least thirty percent (30%) of the Series
Warrant Shares (determined on an as-exercised basis) not already sold pursuant
to Section 9 of any Series Warrant or Rule 144 under the Act, to have the
Company register the Series Warrant Shares for sale on a continuous basis
pursuant to Rule 415 under the Act, then the Company shall: (i) promptly
deliver written notice (the "Shelf Registration Notice") to all other
Securityholders of the Company's receipt of the Shelf Registration Request;
(ii) file with the SEC a registration statement on Form S-3 or any successor
form or registration to such form, or, if the Company is ineligible for Form
S-3, Form S-1 or any successor form of registration to such form, for an
offering to be made on a continuous basis pursuant to Rule 415 (the "Shelf
Registration Statement"), covering all of the outstanding Series Warrant
Shares (determined on an as-exercised basis) (the "Registrable Securities"),
within forty-five (45) days of delivery of the Shelf Registration Request,
(iii) shall use its best efforts to cause such registration statement to be
declared effective within one hundred and twenty (120) days of delivery of the
Shelf Registration Notice and (iv) shall use its best efforts, including but
not limited to the filing of any and all supplements and amendments to the
Shelf Registration Statement required under applicable rules, regulations or
instructions or reasonably requested by the holders of a majority of the
shares then registered under the Shelf Registration Statement, to keep the
Shelf Registration Statement continuously effective under the Act for 12
months or such shorter period as may be requested by Securityholders
representing a majority of the shares included in such registration. The
Company shall be obligated to effect only one registration under Section
9.1(a) of the Series Warrants. Notwithstanding the foregoing, the Company
shall not be obligated to effect any registration pursuant to Section 9.1(a)
of any Series Warrant if it has already effected two registrations under
Section 9.1(b) of the Series Warrants.
b. Other Demand Registrations.
The Company covenants and agrees that at any time after receipt of a written
request (a "Demand Registration Request") from Securityholders holding at
least thirty percent (30%) of the Registrable Securities not already sold
pursuant to Section 9 of any Series Warrant or Rule 144 under the Act, stating
that such Securityholders desire and intend to have the Company register all
or a portion of the Registrable Securities held by them on Form S-3, or any
successor form of registration to such form, or, if the Company is ineligible
therefore, Form S-1, or any successor form of registration to such form, the
Company shall give notice (the "Registration Notice") to all of the
Securityholders within thirty (30) days of the Company's receipt of such
registration request, the Company shall cause to be included in such
registration all Registrable Securities requested to be included therein by
any such Securityholder within fifteen (15) days after such Registration
Notice is effective (subject to the provisions of the final sentence of this
Section 9.1(b)). After such fifteen (15)-day period, the Company shall file
as promptly as practicable a registration statement and use its reasonable
best efforts to cause such registration statement to become effective under
the Act and remain effective for six (6) months or such shorter period as may
be required if all such Registrable Securities covered by such registration
statement are sold prior to the expiration of such six (6)-month period;
provided, however, that the Company shall not be obligated to effect any such
registration pursuant to this Section 9.1(b) after the Company has effected
(i) two (2) registrations pursuant to Section 9.1(b) of the Series Warrants or
(ii) one (1) registration pursuant to Section 9.1(a) of any Series Warrant and
one (1) registration pursuant to Section 9.1(b) of any Series Warrant. For
purposes of this Section 9, a registration shall not be deemed to have been
effected unless a requested registration statement has been declared effective
and, subject to Section 9.3(b) hereof, remained effective for a period of six
(6) months (or such shorter period as is permitted in the second sentence of
this Section 9.1(b)). The foregoing notwithstanding, in the event of an
underwritten offering pursuant to this Section 9.1(b), if the managing
underwriter of such offering shall advise the Securityholders in writing that,
in its opinion, the distribution of a specified portion of the securities
requested to be included in the registration would materially adversely affect
the distribution of such securities by increasing the aggregate amount of the
offering in excess of the maximum amount of securities which such managing
underwriter believes can reasonably be sold in the contemplated distribution,
then the securities to be included in the registration shall be reduced in the
following order: (i) first, securities proposed to be included by the Company
and securities that are not Registrable Securities shall be excluded as
determined by the Company and (ii) second, Registrable Securities will be
excluded pro rata among all of the Registrable Securities requested to be
included therein. For purposes of this Section 9.1(b), the Securityholders
who have requested registration of Common Stock to be acquired upon the
exercise of Warrants not theretofore exercised shall furnish the Company with
an undertaking that they or the underwriters or other persons to whom such
Warrants will be transferred have undertaken to exercise such Warrants and to
sell, transfer or otherwise dispose of the Shares received upon exercise of
such Warrants in such registration.
9.2 Incidental Registration
a. Subject to Section 9.2(b) below, the Company covenants and agrees
that in the event the Company proposes after the Date of Grant to file a
registration statement under the Act with respect to any of its equity
securities (other than pursuant to registration statements on Form S-4 or
Form S-8 or any successor or similar forms and other than registrations
pursuant to Section 9.1), whether or not for its own account, then the Company
shall give written notice of such proposed filing to all Securityholders
promptly (and in any event at least twenty (20) days before the anticipated
filing date). Such notice shall offer to such Securityholders, together with
others who have similar rights, the opportunity to include in such
registration statement such number of Registrable Securities as they may
request (other than Registrable Securities already registered pursuant to a
Shelf Registration Statement). The Company shall direct and use its
reasonable best efforts to cause the managing underwriter of a proposed
underwritten offering (unless the offering is an underwritten offering of a
class of the Company's equity securities other than Common Stock and the
managing underwriter has advised the Company in writing that, in its opinion,
the inclusion in such offering of Common Stock would materially adversely
affect the distribution of such offering) to permit the holders of Registrable
Securities requested to be included in the registration to include such
Registrable Securities in the proposed offering and the Company shall use its
reasonable best efforts to include such Registrable Securities in such
proposed offering on the same terms and conditions as any similar securities
of the Company included therein. If the offering of which the Company gives
notice is a public offering involving an underwriter, the right of a
Securityholder to registration pursuant to this Section 9.2 shall be
conditioned upon (i) such Securityholder's participation in such underwriting
and the inclusion of the Registrable Securities to be sold by such
Securityholder in the underwriting and (ii) such Securityholder executing the
underwriting agreement entered into by the Company which includes customary
terms and conditions relating to sales by shareholders. The foregoing
notwithstanding, in the case of an underwritten offering, if the managing
underwriter of such offering shall advise the Company in writing that, in its
opinion, the distribution of all or a specified portion of the Registrable
Securities requested to be included in the registration concurrently with the
securities being registered by the Company would materially adversely affect
the distribution of such securities, then the securities to be included in a
registration which is a primary underwritten offering on behalf of the Company
shall be reduced in the following order: (i) first, Registrable Securities
and such other securities requested to be included by holders of such other
securities shall be excluded pro rata and (ii) second the securities the
Company proposes to include therein shall be excluded.
b. In the event that a holder or holders of the Company's securities
(other than a Securityholder or Securityholders) requests, pursuant to rights
granted to such holder or holders, that the Company file a registration
statement for the public offering of securities and the Company and the other
holders of the Company's securities (including the Securityholders) who have
rights to be included in such registration, request to be included in such
registration and the managing underwriter of such offering shall advise the
Company and the holders requesting inclusion in the offering that, in its
opinion, the distribution of a specified portion of the securities requested
to be included in the registration would materially adversely affect the
distribution of such securities then, the securities to be included in the
registration shall be reduced in the following order: (i) first, any
securities requested to be included therein by the holders of such other
securities in such a manner as determined by the Company, (ii) second
Registrable Securities shall be excluded pro rata, (iii) securities proposed
to be included by the Company shall be excluded and, (iv) fourth, securities
requested to be included therein by the holder or holders making the initial
request for the registration.
9.3 Company's Obligations
a. In connection with the registration of Registrable Securities on
behalf of the holders thereof (such Securityholders being referred to herein
as "Sellers") in accordance with Section 9.1 or Section 9.2 above, and in
addition to its other obligations under this Section 9, the Company agrees to:
(i) with respect to any registration pursuant to
Section 9.1(a) or Section 9.1(b), prepare and file with the SEC a registration
statement on the form specified in such section, with respect to the
Registrable Securities to be registered pursuant to such section, and to use
its best efforts to cause such registration statement to become and remain
effective as provided in such section;
(ii) enter into a cross-indemnity agreement, in
customary form, with each underwriter, if any, and each Seller;
(iii) subject to the provisions of Section 9.1
and Section 9.2 regarding reductions in Registrable Securities to be included
in a registration, include in the registration statement filed with the SEC,
the Registrable Securities for which requests for registration have been made
(or, in the case of a registration under Section 9.1(a), all such Registrable
Securities), promptly after filing of such a registration statement or
prospectus or any amendments or supplements thereto, furnish to each Seller
copies of all such documents filed including, if requested, documents
incorporated by reference in the registration statement, and notify each
Seller of any stop order issued or threatened by the SEC and use its best
efforts to prevent the entry of such stop order or to remove it if entered;
(iv) subject to Section 9.3(b), prepare and file
with the SEC such amendments of and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective (A) with respect to a registration
statement under Section 9.1(b) or Section 9.2, for a period of six (6) months
or such shorter period as may be required if all such Registrable Securities
covered by such registration statement are sold prior to the expiration of
such period or (B) with respect to a Shelf Registration Statement, until all
the Registrable Securities covered by such registration statement are sold,
and to otherwise comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Sellers set forth in such registration statement;
(v) furnish to each Seller and each underwriter,
if any, without charge, such number of copies of the registration statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such Seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities proposed to be sold by such Seller;
(vi) use its reasonable best efforts to register
or qualify such Registrable Securities under such other securities or Blue Sky
laws of such jurisdictions as any Seller or any such underwriter reasonably
requests in writing and keep such registrations or qualifications in effect
for so long as such registration statement remains in effect and do any and
all acts and things which may be reasonably necessary or advisable to enable
such Seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such Seller; provided, however, that the
Company shall not be required to (A) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Subsection 9.3(a)(vi), or (B) consent to general service of process in any
such jurisdiction;
(vii) notify each Seller, at any time when the
Company becomes aware that a prospectus relating to such Seller's Registrable
Securities is required to be delivered under the Act, of the occurrence of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits to state
any material fact necessary to make the statements therein not misleading, and
as soon as practicable prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus will not contain an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein not misleading;
(viii) cause all such Registrable Securities to
be listed on any Exchange or NASDAQ on which similar securities issued by the
Company are then listed;
(ix) provide a transfer agent, registrar and
CUSIP number for all such Registrable Securities not later than the effective
date of such registration statement;
(x) enter into such customary agreements
(including an underwriting agreement in customary form) and take all such
other customary actions that a majority in interest of the Sellers or the
underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of such Registrable Securities;
(xi) with respect to any underwritten offering,
use its reasonable best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "cold comfort" letters as a
majority in interest of the Sellers or any underwriter may reasonably request;
(xii) with respect to an underwritten offering,
use its reasonable best efforts to obtain an opinion of counsel to the
Company, addressed to the Sellers and any underwriter, in customary form and
including such matters as are customarily covered by such opinions in
underwritten registered offerings of equity securities as a majority in
interest of the Sellers or any underwriter may reasonably request, such
opinion to be in form and substance reasonably satisfactory to a majority in
interest of the Sellers; and
(xiii) otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC, and make available to
its securityholders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve (12) months subsequent to the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Act and Rule 158 thereunder.
b. Any other provisions of this Section 9 notwithstanding, upon receipt
by the Securityholders of a written notice signed by the chief executive
officer or chief financial officer of the Company to the effect set forth
below, the Company shall not be obligated during a reasonable period of time
(not to exceed ninety (90) days) thereafter (i) to effect any registrations
pursuant to this Section 9 or (ii) with respect to an effective Shelf
Registration Statement, may suspend the effectiveness of such registration
statement, at any time at which, in the Company's reasonable judgment,
(i) there is a development involving the Company or any of its affiliates
which is material but which has not yet been publicly disclosed or (ii) sales
pursuant to the registration statement would materially and adversely affect
an underwritten public offering for the account of the Company or any other
financing project or a proposed or pending merger or other acquisition or
business combination or disposition of the Company's assets, to which the
Company or any of its affiliates is, or is expected to be, a party. In the
event a registration is postponed in accordance with this Section 9.3(b), (x)
the Company must (unless otherwise instructed by those holders who requested
such registration) file the requested registration within nine (9) months from
the date the Company first received the request of the holders, (y) the
Company may not suspend the effectiveness of a Shelf Registration Statement
pursuant to this Section 9.3(b) more than ninety days in the aggregate during
in any eighteen (18)-month period, and (z) there shall be added to any period
during which the Company is obligated to keep a registration effective the
number of days for which the effectiveness thereof was suspended pursuant to
this Section 9.3(b).
c. The holder agrees, if so reasonably required by the managing
underwriter in a registration pursuant to this Section 9, not to effect any
public sale or distribution of Registrable Securities or sales of such
Registrable Securities pursuant to Rule 144 or Rule 144A under the Securities
Act, during the seven (7) days prior to and 180 days after any firm commitment
underwritten registration pursuant to Section 9 has become effective (except
as part of such underwritten registration) or, if the managing underwriter
advises the Company that, in its opinion, no such public sale or distribution
should be effected for a period of not more than 180 days after such
underwritten registration in order to complete the sale and distribution of
securities included in such registration and the Company gives notice to such
effect to the Holders of such advice, the holder shall not effect any public
sale or distribution of Registrable Securities or sales of such Registrable
Securities pursuant to Rule 144 or Rule 144A under the Securities Act during
such period after such underwritten registration, except as part of such
underwritten registration, whether or not such holder participates in such
registration.
d. The Company may require that each Seller, as a condition to
registering his, her or its Registrable Securities pursuant hereto, furnish
the Company with such information regarding such Seller and the distribution
of the Registrable Securities proposed to be sold by such Seller as the
Company may from time to time reasonably request in writing.
e. Each Seller agrees that, upon receipt of any notice from the Company
of the occurrence of any event of the kind described in Section 9.3(a)(vii)
above, such Seller shall forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Seller's receipt of copies of the supplemented or
amended prospectus contemplated by Section 9.3(a)(vii) above and, if so
directed by the Company, such Seller will deliver to the Company (at the
Company's expense) all copies, other than permanent file copies in such
Seller's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Section 9.3(a)(iv) above shall
be extended by the number of days during the period from and including the
date of giving of such notice to and including the date when each Seller shall
have received the copies of the supplemented or amended prospectus
contemplated by Section 9.3(a)(vii) above.
f. The Company shall not file or permit the filing of any registration
or comparable statement which refers to any Seller by name or otherwise as the
Seller of any securities of the Company unless such reference to such Seller
is agreed to by the Seller or is specifically required by the Act or any
similar federal statute then in force.
9.4 All expenses incident to the Company's performance of or compliance with
this Warrant, including without limitation all registration and filing fees,
fees and expenses relating to filings with any Exchange, fees and expenses of
compliance with securities or Blue Sky laws in jurisdictions reasonably
requested by any Seller or underwriter pursuant to Section 9.3(a)(vi)
(including reasonable fees and disbursements of counsel in connection with
Blue Sky qualifications of the Registrable Securities), all word processing,
duplicating and printing expenses, messenger and delivery expenses, fees and
disbursements of counsel for the Company and one (1) counsel for the Sellers
(selected by those Sellers owning a majority of the Registrable Securities),
independent public accountants (including the expenses of any special audit or
"cold comfort" letters required by or incident to such performance), all the
Company's internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit, the expense of any liability insurance (if
the Company determines to obtain such insurance) and the fees and expenses
incurred in connection with the listing of the securities to be registered on
any Exchange and/or NASDAQ on which such securities issued by the Company are
then listed, the reasonable fees and expenses of any special experts
(including attorneys) retained by the Company (if it so desires) in connection
with such registration and fees and expenses of other persons retained by the
Company (all such expenses being herein called "Registration Expenses"), shall
be borne by the Company. In no event shall the Company be obligated for any
discounts, commissions or fees of underwriters, selling brokers, dealer
managers or similar securities industry professionals attributable to the
securities being registered (which discounts, commissions or fees with respect
to any Seller's respective shares shall be paid by such Seller) and legal
expenses of any person other than the Company and the Sellers.
9.5 Participation
a. In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9 in connection with an
underwritten offering, the Company shall give the underwriters under such
registration statement and such underwriters' counsel and their respective
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such underwriters' counsel, to conduct a reasonable
investigation within the meaning of the Act.
b. In connection with the preparation and filing of each registration
statement under the Act pursuant to this Section 9 not involving an
underwritten offering, the Company shall give the Sellers under such
registration statement and such Sellers' counsel and their respective
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
SEC, and each amendment thereof or supplement thereto, and will give each of
them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of such Sellers' counsel, to conduct a reasonable investigation
within the meaning of the Act. Each Seller agrees to keep confidential and
not use, and to ensure that its representatives keep confidential and not use,
any non-public information of the Company made available in such
investigation.
9.6 Indemnification
a. In the event of any registration of any securities of the Company
under the Act, the Company shall, and hereby does, indemnify and hold harmless
in the case of any registration statement filed pursuant to Section 9.1 or
Section 9.2 above, the Seller of any Registrable Securities covered by such
registration statement, its directors, officers, employees and agents, each
other person who participates as an underwriter in the offering or sale of
such Registrable Securities and each other person, if any, who controls such
Seller or any such underwriter within the meaning of the Act against any
losses, claims, damages, or liabilities (or actions or proceedings whether
commenced or threatened in respect thereof), joint or several, to which such
Seller or any such director or officer or employee or agent or underwriter or
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages, or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or 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, and the Company shall reimburse such Seller
and each such director, officer, employee, agent, underwriter and controlling
person for any legal or any other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action, or proceeding; provided, however, that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability
(or action or proceeding, whether commenced or threatened in respect thereof),
or expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment, or supplement in reliance upon and in conformity with
written information furnished to the Company by such Seller for the express
purpose of use in the preparation thereof and, provided, further, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding, whether commenced or
threatened, in respect thereof), or expense arises out of such person's
failure to send or give a copy of the final prospectus, as the same may be
then supplemented or amended, within the time required by the Act to the
person asserting an untrue statement or alleged untrue statement or omission
or alleged omission if such statement or omission was corrected in such final
prospectus. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of such Seller or any such director,
officer, employee, agent, underwriter or controlling person and shall survive
the transfer of such Registrable Securities by such Seller.
b. In the event that the Company includes any Registrable Securities of
a prospective Seller in any registration statement filed pursuant to Section
9.1 or Section 9.2 above, such prospective Seller shall, and hereby does,
indemnify and hold harmless the Company, its directors, officers, employees
and agents, each other person who participates as an underwriter in the
offering or sale of such Registrable Securities and each other person, if any,
who controls the Company or any such underwriter within the meaning of the Act
against any losses, claims, damages, or liabilities (or actions or proceedings
whether commenced or threatened in respect thereof), joint or several, to
which the Company or any such director or officer or employee or underwriter
or controlling person may become subject under the Act or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable
Securities were registered under the Act, any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto, or 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, and such prospective Seller shall reimburse
the Company and any such director, officer, employee, agent, underwriter or
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action, or proceeding if, and only if, such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Seller specifically stating that it is for
use in the preparation of such registration statement, preliminary prospectus,
final prospectus, summary prospectus, amendment, or supplement. In no event
shall the liability of any Seller hereunder be greater in amount than the
dollar amount of the proceeds received by such Seller upon the sale of the
Registrable Securities giving rise to such indemnification obligation. Such
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director,
officer, employee, agent, underwriter or controlling person and shall survive
the transfer of such Registrable Securities by such Seller.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities
industry professionals participating in the distribution to the same extent as
provided above with respect to information so furnished in writing by such
persons specifically for inclusion in any prospectus or registration
statement.
d. Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding involving a claim referred to in this
Section 9.6, such indemnified party shall, if a claim in respect thereof is to
be made against an indemnifying party, give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding subdivisions of this
Section 9.6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the
indemnifying party may wish, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by the latter in connection with the
defense thereof. If, in the indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnified party may assume the defense
of such claim, jointly with any other indemnified party that reasonably
determines such conflict of interest to exist, and the indemnifying party
shall be liable to such indemnified parties for the reasonable legal fees and
expenses of one counsel for all such indemnified parties and for other
expenses reasonably incurred in connection with the defense thereof incurred
by the indemnified party. No indemnifying party shall, without the consent of
the indemnified party, consent to entry of any judgment or enter into any
settlement of any such action 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, or a covenant not to sue, in respect of such claim
or litigation. No indemnified party shall consent to entry of any judgment or
enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying
party.
e. Indemnification and contribution similar to that specified in this
Section 9.6 (with appropriate modifications) shall be given by the Company and
each Seller with respect to any required registration or other qualification
of Registrable Securities under any Federal or state law or regulation of any
governmental authority, other than the Act.
f. The indemnification required by this Section 9.6 shall be made by
periodic payments of the amount thereof during the course of the investigation
or defense, as and when bills are received or expense, loss, damage or
liability is incurred.
g. If the indemnification provided for in this Section 9.6 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities, or expenses referred to herein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of losses, claims, damages, liabilities, or expenses in such proportion
as is appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions which resulted in such
losses, claims, damages, liabilities, or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying
party and indemnified party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by, such
indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities, and expenses referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding. In no event shall
the liability of any Seller hereunder be greater in amount than the dollar
amount of the proceeds received by such Seller upon the sale of the
Registrable Securities giving rise to such contribution obligation. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 9.6(g) were determined by pro rata allocation or by
any other method of allocation which does not take into account the equitable
considerations referred to in this Section 9.6(g). No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
9.7 Assignment of Rights; Termination.
The rights granted under this Section 9 may be assigned to any transferee of
at least 50,000 Series Warrants, Series Warrant Shares or any combination
thereof, and upon (a) prior written notice to the Company of the assignment,
and (b) the transferee's agreement to be bound by the relevant terms and
conditions of this Section 9 and the Warrant. The rights of the holder and
any transferee under this Section 9 will terminate on the five (5) year
anniversary of the Expiration Date.
10. Additional Rights.
10.1 Notice of Sale.
In the event that the Company undertakes to effect a Sale, the Company will
use its best efforts to provide to the holder at least thirty (30) days notice
of the terms and conditions of the proposed transaction. The Company will
cooperate with the holder in consummating the sale of this Warrant in
connection with any such transaction.
11. Representations and Warranties.
The Company represents and warrants to the holder of this Warrant as follows:
a. This Warrant has been duly authorized and executed by the Company
and is a valid and binding obligation of the Company enforceable in accordance
with its terms, subject to laws of general application relating to bankruptcy,
insolvency and the relief of debtors and the rules of law or principles at
equity governing specific performance, injunctive relief and other equitable
remedies;
b. The Warrant Shares have been duly authorized and reserved for
issuance by the Company and, when issued in accordance with the terms hereof,
will be validly issued, fully paid and nonassessable;
c. The rights, preferences, privileges and restrictions granted to or
imposed upon the Common Stock and the holders thereof are as set forth in the
Articles of Organization of the Company, as amended to the Date of Grant (as
so amended, the "Charter"), a true and complete copy of which has been
delivered to the original holder of this Warrant;
d. The execution and delivery of this Warrant are not, and the issuance
of the Warrant Shares upon exercise of this Warrant in accordance with the
terms hereof will not be, inconsistent with the Charter or by-laws of the
Company, do not and will not contravene, in any material respect, any
governmental rule or regulation, judgment or order applicable to the Company,
and do not and will not conflict with or contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument of which the Company is a party or by which it is bound or require
the consent or approval of, the giving of notice to, the registration or
filing with or the taking of any action in respect of or by, any Federal,
state or local government authority or agency or other person, except for the
filing of notices pursuant to federal and state securities laws, which filings
will be effected by the time required thereby;
e. There are no actions, suits, audits, investigations or proceedings
pending or, to the knowledge of the Company, threatened against the Company in
any court or before any governmental commission, board or authority which, if
adversely determined, will have a material adverse effect on the ability of
the Company to perform its obligations under this Warrant;
f. The authorized capital stock of the Company and the capital stock
issued and outstanding, or reserved for issuance, are as set forth on Schedule
5.8 to the Loan Agreement. All of the outstanding shares of the Company have
been validly issued and are fully paid, nonassessable shares and have not been
issued in violation of any applicable preemptive rights;
g. Except as set forth on Schedule 5.8 to the Loan Agreement, there are
no subscriptions, rights, options, warrants, or calls relating to any shares
of the Company's capital stock, including any right of conversion or exchange
under any outstanding security or other instrument; and
12. Modification and Waiver.
This Warrant and any provision hereof may be changed, waived, discharged or
terminated only by an instrument in writing signed by the party against which
enforcement of the same is sought.
13. Notices.
Unless otherwise specifically provided herein, all communications under this
Warrant shall be in writing and shall be deemed to have been duly given (i) on
the date of service if served personally on the party to whom notice is to be
given, (ii) on the day of transmission if sent by facsimile transmission to a
telephone number provided by a party for such purposes, and telephonic
confirmation of receipt is obtained promptly after completion of transmission,
(iii) on the day after delivery to Federal Express or similar overnight
courier, or (iv) on the fifth day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid, and properly addressed, return receipt requested, to each
such holder at its address as shown on the books of the Company or to the
Company at the address indicated therefor on the signature page of this
Warrant. Any party hereto may change its address for purposes of this Section
13 by giving the other party written notice of the new address in the manner
set forth herein.
14 Binding Effect on Successors.
This Warrant shall be binding upon any corporation succeeding the Company by
merger, consolidation or acquisition of all or substantially all of the
Company's assets, and all of the obligations of the Company relating to the
Common Stock issuable upon the exercise or conversion of this Warrant shall
survive the exercise, conversion and termination of this Warrant and all of
the covenants and agreements of the Company shall inure to the benefit of the
successors and assigns of the holder hereof. The Company will, at the time of
the exercise or conversion of this Warrant, in whole or in part, upon request
of the holder hereof but at the Company's expense, acknowledge in writing its
continuing obligation to the holder hereof in respect of any rights to which
the holder hereof shall continue to be entitled after such exercise or
conversion in accordance with this Warrant; provided, that the failure of the
holder hereof to make any such request shall not affect the continuing
obligation of the Company to the holder hereof in respect of such rights.
15. Lost Warrants or Stock Certificates.
The Company covenants to the holder hereof that, upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant or any stock certificate and, in the case of any
loss, theft or destruction, upon receipt of an executed lost securities bond
or indemnity reasonably satisfactory to the Company, or in the case of any
such mutilation upon surrender and cancellation of such Warrant or stock
certificate, the Company will make and deliver a new Warrant or stock
certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant or stock certificate.
16. Descriptive Headings.
The descriptive headings of the several paragraphs of this Warrant are
inserted for convenience only and do not constitute a part of this Warrant.
17. Governing Law.
This Warrant shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the laws of the State of New York.
18. Survival of Representations, Warranties and Agreements. Each
of the respective representations and warranties of the Company and the holder
hereof contained herein shall survive the Date of Grant, the exercise or
conversion of this Warrant (or any part hereof) and the termination or
expiration of any rights hereunder. Each of the respective agreements of each
of the Company and the holder hereof contained herein shall survive
indefinitely until, by their respective terms, they are no longer operative.
Without limiting the generality of the foregoing sentence, the registration
rights contained in Section 9 above and the board representation rights
contained in Section 10.2 above shall survive the exercise or conversion of
this Warrant (or any part hereof) and the termination or expiration of any
other rights hereunder.
19. Remedies.
In case any one (1) or more of the covenants and agreements contained in this
Warrant shall have been breached, the holders hereof (in the case of a breach
by the Company), or the Company (in the case of a breach by a holder), may
proceed to protect and enforce their or its rights either by suit in equity
and/or by action at law, including, but not limited to, an action for damages
as a result of any such breach and/or an action for specific performance of
any such covenant or agreement contained in this Warrant.
20. Acceptance.
Receipt of this Warrant by the holder hereof shall constitute acceptance of
and agreement to the foregoing terms and conditions.
21. No Impairment of Rights.
The Company will not, by amendment of its Charter or through any other means,
avoid or seek to avoid the observance or performance of any of the terms of
this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant
against material impairment.
22. Amendment. This Warrant may be amended by written agreement of the
Company and holders of 65% of the Series Warrant Shares, collectively on an
as-exercised basis, and such amendment shall be binding on all holders of this
Warrant or Warrant Shares.
[Signature page follows.]
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed on its
behalf by one of its officers thereunto duly authorized.
CTC COMMUNICATIONS CORP.
By:
Name:
Title:
Address: 360 Second Avenue
Waltham, Massachusetts 02154
Dated: as of September 1, 1998
EXHIBIT A
NOTICE OF EXERCISE
To: CTC COMMUNICATIONS CORP.
2. The undersigned hereby elects to purchase _____ shares of
Common Stock of CTC COMMUNICATIONS CORP. pursuant to the terms of the
attached Warrant, and tenders herewith payment of the purchase price of
such shares in full.
Please issue a certificate or certificates representing said shares in the
name of the undersigned or in such other name or names as are specified
below:
(Name)
(Address)
The undersigned represents that the aforesaid shares are being acquired for
the account of the undersigned for investment and not with a view to, or
for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such
shares. In support thereof, the undersigned has executed an Investment
Representation Statement attached hereto as Schedule 1.
(Signature)
(Date)
Schedule 1
INVESTMENT REPRESENTATION STATEMENT
Purchaser:
Company: CTC COMMUNICATIONS CORP.
Security: Common Stock
Amount:
Date:
In connection with the purchase of the above-listed securities (the
"Registrable Securities"), the undersigned (the "Purchaser") represents to
the Company as follows:
(g) The Purchaser is aware of the Company's business affairs
and financial condition, and has acquired sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the
Registrable Securities. The Purchaser is purchasing the Registrable
Securities for its own account for investment purposes only and not with a
view to, or for the resale in connection with, any "distribution" thereof
for purposes of the Registrable Securities Act of 1933, as amended (the
"Act").
(h) The Purchaser understands that the Registrable Securities
have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the
bona fide nature of the Purchaser's investment intent as expressed herein.
In this connection, the Purchaser understands that, in the view of the
Registrable Securities and Exchange Commission ("SEC"), the statutory basis
for such exemption may be unavailable if the Purchaser's representation was
predicated solely upon a present intention to hold these Registrable
Securities for the minimum capital gains period specified under applicable
tax laws, for a deferred sale, for or until an increase or decrease in the
market price of the Registrable Securities, or for a period of one year or
any other fixed period in the future.
(i) The Purchaser further understands that the Registrable
Securities must be held indefinitely unless subsequently registered under
the Act or unless an exemption from registration is otherwise available.
In addition, the Purchaser understands that the certificate evidencing the
Registrable Securities will be imprinted with the legend referred to in the
Warrant under which the Registrable Securities are being purchased.
(j) The Purchaser is aware of the provisions of Rule 144 and
144A, promulgated under the Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof (or from an affiliate of such issuer), in a non-public
offering subject to the satisfaction of certain conditions, if applicable,
including, among other things: The availability of certain public
information about the Company, the resale occurring not less than one (1)
year after the party has purchased and paid for the securities to be sold;
the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term
is defined under the Registrable Securities Exchange Act of 1934, as
amended) and the amount of securities being sold during any three-month
period not exceeding the specified limitations stated therein.
(k) The Purchaser further understands that at the time it
wishes to sell the Registrable Securities there may be no public market
upon which to make such a sale, and that, even if such a public market then
exists, the Company may not be satisfying the current public information
requirements of Rule 144 and 144A, and that, in such event, the Purchaser
may be precluded from selling the Registrable Securities under Rule 144 and
144A even if the one-year minimum holding period had been satisfied.
(l) The Purchaser further understands that in the event all
of the requirements of Rule 144 and 144A are not satisfied, registration
under the Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule
144 is not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 will have a
substantial burden or proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons
and their respective brokers who participate in such transactions do so at
their own risk.
Purchaser:___________________
EXHIBIT B
Analysis Based on Closing Stock Price on 8/4/98 of: $6.75
Shares Outstanding - public 6,175,798
Shares Outstanding - Bob Fabricatore 2,715,974
Shares Outstanding - all other officers 1,096,725
Total Primary Shares Outstanding 9,988,497
Outstanding Options:
Options in the Money 1,462,507
Proceeds from Options $5,494,058
Average exercise price $3.76
Shares to be purchased 813,935
Incremental Shares 648,572
Total Shares outstanding pre Spectrum 10,637,070
Spectrum Convertible Preferred Stock 1,333,333
Spectrum warrants in the money 0
Spectrum shares from 9% dividend accreted to 8/31/98 47,342
Total shares due to Spectrum 1,380,675
Total Shares outstanding Pre Series Warrants (on a Fully Diluted Basis)
12,017,745
Series Warrants % of Fully Diluted Shares 7.50%
New Fully Diluted Shares Outstanding 12,992,157
Incremental Series Warrant Shares 974,412
Goldman's participation (68%) 662,600
Fleet's participation (32%) 311,812
Exhibit 99.1
Limited History as an ICP; Risks Relating to Implementation of New Strategy
Although the Company has sold integrated telecommunications services for
over 14 years, it sold local telephone services as an agent for Bell
Atlantic Corp. ("Bell Atlantic") until December 1997 and only began
offering such services as an integrated communications provider ("ICP")
under its own brand name after that time. As a result of the Company
terminating its agency relationship with Bell Atlantic, agency revenues,
which accounted for approximately 73% of the Company's revenues for the six
month period ended September 30, 1998 are no longer material. For the six
month period ended September 30, 1998, total revenues increased from
approximately $23,500,000 to approximately $27,351,000. There can be no
assurance that the Company's prior experience in the sale of
telecommunications services as a sales agent will result in the Company
generating sufficient cash flow to service its debt obligations or to
compete successfully under its new strategy.
The Company plans to deploy its own Integrated Communications Network
(''ICN''). The Company has no experience in deploying, operating and
maintaining a telecommunications network. The Company's ability to
successfully deploy its ICN will require the negotiation of interconnection
agreements with incumbent local exchange carriers (''ILECs''), which can
take considerable time, effort and expense and which are subject to
federal, state and local regulation. There can be no assurance that the
Company will be able to successfully negotiate such agreements or to
effectively deploy, operate or maintain its facilities or increase or
maintain its cash flow from operations by deploying a network. Further,
there can be no assurance that the packet-switched design of the network
will provide the expected functionality in serving its target market or
that customers will be willing to migrate the provision of their services
onto the Company's network. The Company has engaged a network services
integrator to design, engineer and manage the buildout of the ICN in the
Company's existing markets. Any failure or inability by the network
integrator to perform these functions could cause delays or additional
costs in providing services to customers and building out the Company's ICN
in specific markets. Any such failure could materially and adversely affect
the Company's business and results of operations.
If the Company fails to effectively transition to an ICP platform, fails
to obtain or retain a significant number of customers or is unable to
effectively deploy, operate or maintain its network, such failure could
have an adverse effect on the Company's business, results of operations and
financial condition. In addition, the implementation of its new strategy
and the deployment of its network has increased and will continue to
increase the Company's expenses significantly. Accordingly, the Company
expects to incur significant negative cash flow during the next several
years as it implements its business strategy, penetrates its existing
markets as an ICP, enters new markets, deploys its ICN and expands its
service offerings. There can be no assurance that the Company will achieve
and sustain profitability or positive net cash flow.
Capital Requirements
The timing and amount of the Company's actual capital requirements may be
materially affected by many factors, including the timing and actual cost
of expansion into new markets and deployment of the ICN, the extent of
competition and pricing of telecommunications services in its markets,
acceptance of the Company's services, technological change and potential
acquisitions. Additional sources of funding the Company's capital
requirements may include public offerings or private placements of equity
or debt securities, vendor financing and bank loans. There can be no
assurance that future financing will be available to the Company or, if
available, that it can be obtained on a timely basis and on terms
acceptable to the Company. Failure to obtain financing when required could
result in the delay or abandonment of the Company's business plans which
could have a material adverse effect on the Company.
High Leverage; Possible Inability to Service Indebtedness
As a result of obtaining both the Fleet/Goldman Sachs credit facility and
the Cisco vendor financing facility, the Company is highly leveraged. The
degree to which the Company is leveraged could have important consequences
to the Company's future prospects, including the following: (i) limiting
the ability of the Company to obtain any necessary financing in the future
for working capital, capital expenditures, debt service requirements or
other purposes; (ii) limiting the flexibility of the Company in planning
for, or reacting to, changes in its business; (iii) leveraging the Company
more highly than some of its competitors, which may place it at a
competitive disadvantage; (iv) increasing its vulnerability in the event of
a downturn in its business or the economy generally; and (v) requiring that
a substantial portion of the Company's cash flow from operations be
dedicated to the payment of principal and interest on its debt and not be
available for other purposes.
The Company's ability to make scheduled payments of principal of, or to
pay the interest on, or to refinance, its indebtedness, or to fund planned
capital expenditures will depend on its future performance, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond its control.
There can be no assurance that the Company's business will generate
sufficient cash flow from operations or that anticipated revenue growth and
operating improvements will be realized or will be sufficient to enable the
Company to service its indebtedness, or to fund its other liquidity needs.
There can be no assurance that the Company will be able to refinance all or
a portion of its indebtedness on commercially reasonable terms or at all.
If the Company does not generate sufficient cash flow to meet its debt
service and working capital requirements, the Company may need to examine
alternative strategies that may include actions such as reducing or
delaying capital expenditures, restructuring or refinancing its
indebtedness, the sale of assets or seeking additional equity and/or debt
financing. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all.
Dependence on In-House Billing and Information System
The accurate and prompt billing of the Company's customers is essential
to the Company's operations and future profitability. The Company's
expected growth and deployment of its ICN could give rise to additional
demands on the CTC Information System, and there can be no assurance that
it will perform as expected. The failure of the Company to adequately
identify all of its information and processing needs (including Year 2000
compliance), the failure of the CTC Information System or the failure of
the Company to upgrade the CTC Information System as necessary could have a
material adverse effect on the Company and its results of operations.
Dependence on Supplier Provided Timely and Accurate Call Data Records;
Billing and Invoice Disputes
In its reseller business, the Company is dependent upon the timely
receipt and accuracy of call data records provided to it by its suppliers.
There can be no assurance that accurate information will consistently be
provided by suppliers or that such information will be provided on a timely
basis. Failure by suppliers to provide timely and accurate detail would
increase the length of the Company's billing and collection cycles and
adversely effect its operating results. The Company pays its suppliers
according to the Company's calculation of the charges applicable to the
Company based on supplier invoices and computer tape records of all such
calls provided by suppliers which may not always reflect current rates and
volumes. Accordingly, a supplier may consider the Company to be in arrears
in its payments until the amount in dispute is resolved. There can be no
assurance that disputes with suppliers will not arise or that such disputes
will be resolved in a manner favorable to the Company. In addition, the
Company is required to maintain sophisticated billing and reporting systems
to service the large volume of services placed over its networks. As resale
volumes increase, there can be no assurance that the Company's billing and
management systems will be sufficient to provide the Company with accurate
and efficient billing and order processing capabilities.
Dependence on Network Infrastructure and Products and Services of Others
The Company does not currently own any part of a local exchange or long
distance network and depends entirely on facilities-based carriers for the
transmission of customer traffic. After the deployment of the ICN, it will
still rely, at least initially, on others for circuit switching of local
voice calls and on fiber optic backbone transmission facilities. There can
be no assurance that such switching or transmission facilities will be
available to the Company on a timely basis or on terms acceptable to the
Company. The Company's success in marketing its services requires that the
Company provide superior reliability, capacity and service. Although the
Company can exercise direct control of the customer care and support it
provides, most of the services that it currently offers are provided by
others. Such services are subject to physical damage, power loss, capacity
limitations, software defects, breaches of security (by computer virus,
break-ins or otherwise) and other factors, certain of which have caused,
and will continue to cause, interruptions in service or reduced capacity
for the Company's customers. Such problems, although not the result of
failures by the Company, can result in dissatisfaction among its customers.
In addition, the Company's ability to provide complete
telecommunications services to its customers will be dependent to a large
extent upon the availability of telecommunications services from others on
terms and conditions that are acceptable to the Company and its customers.
There can be no assurance that government regulations will continue to
mandate the availability of some or all of such services or that the
quality or terms on which such services are available will be acceptable to
the Company or its customers.
Customer Attrition
The Company's operating results may be significantly affected by its
customer attrition rates. There can be no assurance that customers will
continue to purchase long distance or other services through the Company in
the future or that the Company will not be subject to increased customer
attrition rates. The Company believes that the high level of customer
attrition in the industry is primarily a result of national advertising
campaigns, telemarketing programs and customer incentives provided by major
competitors. There can be no assurance that customer attrition rates will
not increase in the future, which could have a material adverse effect on
the Company's operating results.
Ability to Manage Growth; Rapid Expansion of Operations
The Company is pursuing a new business plan that, if successfully
implemented, will result in rapid growth and expansion of its operations,
which will place significant additional demands upon the Company's current
management. If this growth is achieved, the Company's success will depend,
in part, on its ability to manage this growth and enhance its information,
management, operational and financial systems. There can be no assurance
that the Company will be able to manage expanding its operations. The
Company's failure to manage growth effectively could have a material
adverse effect on the Company's business, operating results and financial
condition.
Potential Impact of the Bell Atlantic Litigation
In December 1997, the Company filed suit against Bell Atlantic for breaches
of its agency contract, including the failure of Bell Atlantic's retail
division to pay $14 million in agency commissions (approximately $11.5
million as of November 10, 1998) owed to the Company. The Company is
vigorously pursuing this suit. Although the Company believes the
collection of the agency commissions sought in the suit is probable, there
can be no assurance that the Company will be successful in collecting these
commissions. If the Company fails to collect any of the amounts sought or
if their collection becomes less than probable, the Company would be
required to write off the amounts reflected in its financial statements
that it is unable to collect or for which collection becomes less than
probable. Delay in the collection or write-off of the agency commissions
sought may also adversely affect the Company.
In addition, the Company must use Bell Atlantic infrastructure for nearly
all of the local telephony services that it currently provides and,
although Bell Atlantic is prohibited by federal law from discriminating
against the Company, there can be no assurance that the litigation with
Bell Atlantic will not negatively affect the Company's relationships with
Bell Atlantic's wholesale division.
Dependence on Key Personnel
The Company believes that its continued success will depend to a
significant extent upon the abilities and continued efforts of its
management, particularly members of its senior management team. The loss of
the services of any of such individuals could have a material adverse
effect on the Company's results of operations. The success of the Company
will also depend, in part, upon the Company's ability to identify, hire and
retain additional key management as well as highly skilled and qualified
sales, service and technical personnel. Competition for qualified personnel
in the telecommunications industry is intense, and there can be no
assurance that the Company will be able to attract and retain additional
employees and retain its current key employees. The inability to hire and
retain such personnel could have a material adverse effect on the Company's
business.
Competition
The Company operates in a highly competitive environment and has no
significant market share in any market in which it operates. The Company
expects that it will face substantial and growing competition from a
variety of data transport, data networking and telephony service providers
due to regulatory changes, including the continued implementation of the
Telecommunications Act of 1996 (the ''Telecommunications Act''), and the
increase in the size, resources and number of such participants as well as
a continuing trend toward business combinations and alliances in the
industry. The Company faces competition for the provision of integrated
telecommunications services as well as competition in each of the
individual market segments that comprise the Company's integrated approach.
In each of these market segments, the Company faces competition from
larger, better capitalized incumbent providers, which have long standing
relationships with their customers and greater name recognition than the
Company.
Regulation
The Company's local and long distance telephony service, and to a lesser
extent its data services, are subject to federal, state, and, to some
extent, local regulation.
The Federal Communications Commission (the ''FCC'') exercises
jurisdiction over all telecommunications common carriers, including the
Company, to the extent that they provide interstate or international
communications. Each state regulatory commission retains jurisdiction over
the same carriers with respect to the provision of intrastate
communications. Local governments sometimes impose franchise or licensing
requirements on telecommunications carriers and regulate construction
activities involving public right-of-way. Changes to the regulations
imposed by any of these regulators could affect the Company.
While the Company believes that the current trend toward relaxed
regulatory oversight and competition will benefit the Company, the Company
cannot predict the manner in which all aspects of the Telecommunications
Act will be implemented by the FCC and by state regulators or the impact
that such regulation will have on its business. The Company is subject to
FCC and state proceedings, rulemakings, and regulations, and judicial
appeal of such proceedings, rulemaking and regulations, which address,
among other things, access charges, fees for universal service
contributions, ILEC resale obligations, wholesale rates, and prices and
terms of interconnection and unbundling. The outcome of these rulemakings,
judicial appeals, and subsequent FCC or state actions may make it more
difficult or expensive for the Company or its competitors to do business.
Such developments could have a material effect on the Company. The Company
also cannot predict whether other regulatory decisions and changes will
enhance or lessen the competitiveness of the Company relative to other
providers of the products and services offered by the Company. In addition,
the Company cannot predict what other costs or requirements might be
imposed on the Company by state or local governmental authorities and
whether or not any additional costs or requirements will have a material
adverse effect on the Company.
Risks Associated With Possible Acquisitions
As it expands, the Company may pursue strategic acquisitions.
Acquisitions commonly involve certain risks, including, among others:
difficulties in assimilating the acquired operations and personnel;
potential disruption of the Company's ongoing business and diversion of
resources and management time; possible inability of management to maintain
uniform standards, controls, procedures and policies; entering markets or
businesses in which the Company has little or no direct prior experience;
and potential impairment of relationships with employees or customers as a
result of changes in management. There can be no assurance that any
acquisition will be made, that the Company will be able to obtain any
additional financing needed to finance such acquisitions and, if any
acquisitions are so made, that the acquired business will be successfully
integrated into the Company's operations or that the acquired business will
perform as expected. The Company has no definitive agreement with respect
to any acquisition, although from time to time it has discussions with
other companies and assesses opportunities on an ongoing basis.
Year 2000 Compliance
The Company has assessed its systems and expects all of them to be year
2000 compliant by the end of 1998. However, there can be no assurance that
all systems will function adequately until the occurrence of year 2000. In
addition, if the systems of other companies on whose services the Company
depends or with whom the Company's systems interface are not year 2000
compliant, there could be a material adverse effect on the Company.
Control By Principal Shareholders; Voting Agreement
As of November 9, 1998, the officers and directors and parties
affiliated with or related to such officers and directors controlled
approximately 48.5% of the outstanding voting power of the Common Stock.
Robert J. Fabbricatore, the Chairman and Chief Executive Officer of the
Company, beneficially owns approximately 27.5% of the outstanding shares of
Common Stock. Consequently, the officers and directors will have the
ability to exert significant influence over the election of all the members
of the Company's Board, and the outcome of all corporate actions requiring
stockholder approval. In addition, Mr. Fabbricatore has agreed to vote the
shares beneficially owned by him in favor of the election to the Company's
Board of Directors of up to two persons designated by the holders of a
majority of the Series A Convertible Preferred Stock.
Impact Of Technological Change
The telecommunications industry has been characterized by rapid
technological change, frequent new service introductions and evolving
industry standards. The Company believes that its long-term success will
increasingly depend on its ability to offer integrated telecommunications
services that exploit advanced technologies and anticipate or adapt to
evolving industry standards. There can be no assurance that (i) the Company
will be able to offer new services required by its customers, (ii) the
Company's services will not be economically or technically outmoded by
current or future competitive technologies, (iii) the Company will have
sufficient resources to develop or acquire new technologies or introduce
new services capable of competing with future technologies or service
offerings (iv) all or part of the ICN or the CTC Information System will
not be rendered obsolete, (v) the cost of the ICN will decline as rapidly
as that of competitive alternatives, or (vi) lower retail rates for
telecommunications services will not result from technological change. In
addition, increases in technological capabilities or efficiencies could
create an incentive for more entities to become facilities-based ICPs.
Although the effect of technological change on the future business of the
Company cannot be predicted, it could have a material adverse effect on the
Company's business, results of operations and financial condition.
Possible Volatility Of Stock Price
The stock market historically has experienced volatility which has
affected the market price of securities of many companies and which has
sometimes been unrelated to the operating performance of such companies. In
addition, factors such as announcements of developments related to the
Company's business, or that of its competitors, its industry group or its
customers, fluctuations in the Company's results of operations, a shortfall
in results of operations compared to analysts' expectations and changes in
analysts' recommendations or projections, sales of substantial amounts of
securities of the Company into the marketplace, regulatory developments
affecting the telecommunications industry or data services or general
conditions in the telecommunications industry or the worldwide economy,
could cause the market price of the Common Stock to fluctuate
substantially.
Absence Of Dividends
The Company has not paid and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future. The Company
intends to retain its earnings, if any, for use in the Company's growth and
ongoing operations. In addition, the Goldman Sachs/Fleet Loan and Security
Agreement provides that without the Lenders' prior written consent, the
Company may not make any distribution or declare any dividends in cash or
property other than stock during the three-year term of the Loan and
Security Agreement. In addition, the terms of the Series A Convertible
Preferred Stock restrict, and the terms of future debt financings are
expected to restrict, the ability of the Company to pay dividends on the
Common Stock.
Potential Effect Of Anti-takeover Provisions And Issuances Of Preferred
Stock
Certain provisions of the Company's Articles of Organization and Bylaws
and the Massachusetts Business Corporation Law may have the effect of
delaying, deterring or preventing a change in control of the Company or
preventing the removal of incumbent directors. The existence of these
provisions may have a negative impact on the price of the Common Stock and
may discourage third party bidders from making a bid for the Company or may
reduce any premiums paid to stockholders for their Common Stock. In
addition, the Company's Board of Directors has the authority without action
by the Company's stockholders to issue shares of the Company's Preferred
Stock and to fix the rights, privileges and preferences of such stock,
which may have the effect of delaying, deterring or preventing a change in
control. Certain provisions of the Company's outstanding Series A
Convertible Preferred Stock which provide for payment of the liquidation
preference in cash upon the consummation of certain transactions may have
the effect of discouraging third parties from entering into such
transactions.
